TaxTMI 
TaxTMI 
2022 (6) TMI 1538
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....hat the Ex-Director of the assessee company Shri M.R. Roy in his statement recorded under oath admitted that the transaction of sales and purchases were not done through banking channels and there was no physical movement of goods for purchase or sale as both purchases and sales were bogus 2. Apropos Ground No. 1 and 2 of the Department, brief facts of the case are that the assessee filed its return of income declaring loss of Rs. 2,99,18,940/- on 26-09-2008 which was processed u/s 143(1) of the Act on 27-02-2010. The case of the assessee was selected for scrutiny under CASS and notice u/s 143(2) of the Act was sent on 04-08-2009. The notice u/s 143(2) of the Act was again sent on 22-07-2010 to the assessee along with questionnaire u/s 142(1) of the Act. In response to the notice, the ld. AR of the assessee appeared from time to time and submitted the requisite details for verification by the AO. The AO noted in the assessment order that the assessee is engaged in the business of trading of fabric, renting of property and has earned dividend income. During the course of hearing before the AO, the ld. AR had produced the details called for, which had been test checked b....
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....-2007 to 11-12-2007 In order to show that these transactions are genuine, the assessee has given bill of M/s. M.S. Transport Company for each invoice raised. The AO from the perusal of these bills had noted that:- (i) None of the bilty are signed by the driver (ii) None of the bilty are signed by the customer (iii) There is no driver's name in any of the bilty. (iv) There is no owner's name in any of the bilty (v) There are no stamp of receipt or delivery in any of the transporter's bilty (vi) Place of loading and place of destination of goods is not there in any of the transporter's bility (vii) All the bilty of transporters are in series i.e. from S.No 311 dated 1-12-2007 to S.N. 346 dated 11-12- 2007 (viii) There are no labour charges in any of the transporter's bilty The AO thus noted that since this party deals with steel and has got nothing to do it with the fabric for which he deputed the Inspector to identity the genuineness of the party. The Inspector deputed by the AO to enquire into the genuineness of the party M/s. DSR Textiles, gave report that there is no firm in the name of M/s. DSR T....
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....e of speculation and thus the AO observed that whole of the sale is not genuine sale and it is the receipt / income of the assessee company from the unknown/ undisclosed sources. Finally, the AO treated a sum of Rs. 23,24,50,899/- as income from other sources and made the addition of Rs. 23,24,50,899/- in the hands of the assessee company. 2.1 In first appeal, the ld. CIT (A) has deleted both the additions of Rs. 23,16,68,693/- and Rs. 23,24,50,899/- by observing as under:- 9. I have considered the facts of the case and the submissions of the appellant. I have also perused the report of enquiry conducted by the investigation wing, Delhi and the remand report of the ld. AO as well as the forwarding comments of the it. CIT, Range-7, Nagpur. I have also perused the response of the appellant to the above. I find substantial force in the submissions made by the appellant. 9.1 Firstly, I shall deal with the objection of the ld. AO to the admission of additional evidence as it is the view of the ld. AO that the appellant's case was not covered by provision of Rule 46A of the IT Rules. The said issue has already been elaborated upon in para 4.5 ....
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....d appeared before the department during remand proceedings. The purchases as well as sales are squared off between the said eight parties only. At the end of the year, there is no closing stock or closing balance in respect of any of the parties. All the purchase / sale have been effected in the month of December 2007 only and the appellant has not entered into such transaction in earlier years. All purchases have been squared off by sales and only a small differential balance amount at year-end has been paid off or received through bank. 10.1 During the course of assessment proceedings, the ld. AO had carried out certain enquiries and come to the conclusion that some of the purchase parties are not traceable and after examining some employees and after observing their websites etc. However, during the remand proceedings, the appellant produced ample evidence to conclusively establish the existence of each of the eight parties. In respect of each of the said parties, statement of account, copy of ITR, Acknowledgement of return of Income, Final accounts for the year under consideration, copies of relevant pages of bank statement etc. were furnished. Confirmations from each ....
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....nsactions were entered into. Shri M.R. Roy, working the appellant, in his statement stated on oath that "There is no transportation evidence like bills, receipt of goods since the purchases and sales were bogus". Above set of facts lead to the conclusion that the said transactions are artificially structured transactions with some specific intention and that actual purchase and sale never happened though large amount of paper work has been done to give the appearance of proper purchase and sale. 10.4 The appellant has also sought to explain the specific intention that was the reason behind the structured transactions. On the basis of various facts and figures, it has been explained by the appellant that it is engaged in the business of investment in shares and securities mainly in controlled companies. It is further explained that however, the appellant company had shown in its annual audited accounts the major and primary business as 'trading of Goods' i.e. a non-investment business in order to manage regulatory hardship such as (i) regulation with regard to the acceptance of deposit, (ii) capital adequacy requirement and others. Thus it is evident that the appell....
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.... 10.7 Even otherwise, the ld. AO has not come to the right conclusions by adding both the purchase amount and the sale amount. If all the purchases are taken as bogus purchases then it is beyond comprehension as to how the sales would be effected. It can never be a case where the purchases/sales can be taken as bogus for the reasons that if purchases are bogus then there cannot be any sales and vice versa and in that eventuality there cannot be any profit that can be offered to tax. There cannot be any sales/purchases in absence of the purchases/sales. 10.8 There is merit in the submission of the appellant that it maintains its accounts according to double entry book keeping system and that as per this system, if purchases are debited in the P & L, there should be corresponding credit in the P & L account i.e. sales and that the ld. AO has filed to identify the corresponding credit in the P&L account against bogus purchases as she has treated sales of Rs. 23.24 crore as income from undisclosed source of income and that the AO. has failed to identify the corresponding debit against credit in the audited accounts for income from undisclosed source. Double entry system ....
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....volving purchases to the tune of Rs. 23,16,68,693/ which have a direct nexus to sales of Rs 23,24,50,899/ as appearing in the audited Profit and loss account and the profit earned on the said transaction comes to Rs. 7,82,206/ -. 10.11 It is on the basis of the above facts that ITO Unit-V(3) New Delhi, the ld. AO and the R. CIT Range-7, Nagpur have all come to the conclusion that that the impugned transactions shown by the appellant are in the form of accommodation entries only and no actual trading has taken place and that as such no real business activity was being carried out by the assessee company during the relevant previous year. It is concluded by the ITO Unit-V(3) New Delhi as well as the ld. AO that the transactions under question are paper transactions in the form of accommodation entries and that it is inferred that there was no business activity or even if there was one it was in the nature of speculation. They however do further affirm the correctness of the additions made. 10.12 It would be pertinent to reproduce the comments contained in the covering letter of the it. CIT Range-7, Nagpur wherein it stated as under: The assessing ....
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....ot an actual turnover in common business parlance and hence the question of taxing any hypothetical profit out of such structured turnover does not arise 11. In this back ground when we see facts like a turnover 18.23 crores with gross profit of 0,4% and net profit of 0.02%, no sales in subsequent year i.e. A. Y. 2010- 11, negligible administrative expenses of Rs. 46,187/- and outstanding Debtor/Creditor, it is apparent that both the purchases and sales in this case are bogus and only book entries for purchase/sale have been made. Such transactions may be for the purpose of giving bogus entries to other concerns to help them evade tax or just circular transaction whether the group to generate a fake healthy balance sheet to deceive financial institutions or for some other purpose. 12. Ethical aspects of such an exercise can be debated and there may be adverse consequences under other acts/rules for such conduct. However, as for Income Tax Act is concerned, what is required to be seen is the correct amount of taxable income generated from such transaction. As noticed (supra) the total sales of appellant are on Rs. 18.23 crores. Since GP is only 0.04%, pur....
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....ons of the ITAT Ahmedabad Benches, net profit could be estimated at 0.05% on the total turnover of Rs. 18.23 Crores. 9. The above findings of the learned CIT (A) is quite reasonable. Further, either parties did not produce any materials on record to dislodge the findings of the learned CIT(A). In these circumstances, we do not have any hesitation to confirm the order of the learned CIT(A). Consequently, the appeal of the revenue as well as the cross appeal of the assessee, both are dismissed." [NB: The Hon'ble ITAT, 'A' Bench, Ahmedabad while affirming the order of the CIT (A) seems to have erroneously taken final NP at 0.05% as against 0.5% held by the CIT (A) who has also worked out the exact taxable income from this activity at 9.12 lacs by stating "a net profit of 0.5% is estimated on turnover of Rs. 18.23 crores, Therefore, addition Is sustained to extent of Rs. 9.12 lakhs.'] 11.2 Facts in the case of the appellant are identical. Both are trading in fabrics. The transactions as shown in the books were made-up in both cases for specific reasons. The transactions as shown in the books of accounts of purchases and sales we....
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....ubmitted as under: At the outset, we would submit that M/s. Solaris Holdings Ltd., the appellant company have had the business of "Trading goods" as reported in its Profit & Loss account and as explained earlier. Year wise break up of purchase and sale of "Trading goods" are as under: Asst. Year Purchase Sale Profit / Loss included in P & L account 2008-09 23,16,68,693 23,24,50,899 (+) 7,82,206 2009-10 74,94,78,484 74,59,88,313 (-) 34,90,171 From the above, it is clear that purchase and sale of "Trading goods" were reported in the Profit & Loss account both the years i.e. asst. year 2008-09 and 2009-10 and the resultant profit or loss were factored in the Return of Income in the respective assessment years. Kindly refer the Paper Book containing particulars and information with regard to the purchase and sale of "Trading goods" for the asst. year 2008- 09 and 2009-10. From a look at the details of purchase and sale of "Trading goods" during the financial year relevant to asst. year 2009-10 as available in the Paper Book, you will find that the quantum of the transaction was increased from Rs. 23 cror....
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....ons are directed to be deleted. These grounds are therefore allowed.'' 2.2 During the course of hearing, the ld. DR-CIT has relied on the order of the AO and submitted that the ld. CIT (A) has erred in deleting both the additions of Rs. 23,16,68,693/- and Rs. 23,24,50,899/- respectively as the AO has very explicitly made out the case of bogus purchases and sales by the assessee company. 2.3 On the other hand, the ld. AR of the assessee relied on the order of the ld. CIT (A) and filed the written submission praying therein as under:- (A) Company has entered into circular transaction for purchase and sale of fabrics with eight parties which resulted into net income at Rs. 7,82,206/-. The surplus realized was shown as income and same is assessed to tax at the hands of the assessee as shown. (B) Remand report would substantiate that the assessee company had purchased and sold the goods to same parties and only net amount after squaring up purchases and sales is settled by issue of cheque through proper banking channel. (C) Confirmation of transaction was submitted in assessment proceedings and same is not found to be incorrect or false. A....
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.... (i) Eland International Pvt. Ltd. vs DCIT (2009) 124 TTJ 554 (Del) wherein at para 5.2 it has been mentioned that "...it can never be a case where the purchase/sales can be taken bogus for the reason that if purchases are bogus then there cannot be any sales and vice versa and in that eventuality there cannot be any profit which can be offered to tax. In view of the circumstances, I agree with the ld. AR that the AO has not marshalled the facts in proper perspective and the addition has been made without any basis. (ii) Kashuka Trading & Services (P) Ltd. vs ITO (2008) 26 SOT 388 (Mum). (iii) M/s Arman Fashion Pvt. Ltd vs ITO (ITA No. 2400 &2407/Ahd/2012 dated 10-05-2013 (iv) The Jt. CIT (OSD) vs M/s. Pradip Overseas Ltd. (ITA No. 790/Ahd/2018) dated 16-09-2021 wherein the Hon'ble ITAT held that "6..........Therefore, looking to the above facts and finding, we do not find any infirmity in the decision of ld. CIT (A) in estimating the disallowance @ 0.30% of circular trading purchases of Rs. 2,83,77,87,618-/-. Accordingly, this appeal of the Revenue is dismissed.'' (I) In the case of real income arising on transaction was declared....
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....ared before the Department during remand proceedings. It is noted that all the purchases/ sales had been effected in the month of December 2007 only and the assessee had not entered into such transactions in earlier years. All purchases have been squared off by sales and only a small differential balance amount at year end had been paid off or received through bank. It is also noted that in respect of above mentioned parties, statement of account, copy of ITR, Acknowledgement of return of income, Final accounts for the year under consideration, copies of relevant pages of bank statement etc. were furnished and confirmations from each of the parties concerned were also filed. It is further noted that quantity details were also filed to evidence that the purchase and sales were not bogus and parties were genuine. The AO examined all the parties concerned and recorded their statement on oath in remand proceedings. The assessee submitted complete quantity details but no adverse comments had been made by the AO in respect of the same in remand proceedings. Thus the assessee had given the details in form of purchase bills, copy of accounts, bank statement etc. Audited books of accounts o....
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....sideration. The ld. AO has accepted the said transactions and no additions have been made. M/s. Ask Home Furnishing Pvt, Ltd., M/s. Amartex Industries Ltd. and DSR Group are common in both the asst. years. In the year under consideration, the purchase as well as the sale transactions with these 3 parties has been added to the income of the appellant as bogus purchases/sales. In AY 2009-10, however, the AO in respect of identical transactions in fabrics, has accepted the same and not made any addition. This is in spite of the fact that the appellant has reported a loss of Rs. 34,90,733/- in AY 2009-10 as compare to profit Rs. 7,82,206/- in this year. Thus it is a fact that the issue of "Trading goods" has been examined by the ld. AO and he has accepted the trading results without taking any adverse view. On identical facts, a different view is not possible in the year consideration. 12. Considering the above totality of facts, the action of the ld. AO of adding the purchases and sales amounting to Rs. 231,668,693 and Rs. 232,450,899 is held to be incorrect and the said additions are directed to be deleted. These grounds are therefore allowed.'' We hav....