TaxTMI 
TaxTMI 
2025 (8) TMI 1508
X X X X Extracts X X X X
X X X X Extracts X X X X
....and a consolidated order is being passed for the sake of convenience and brevity. We shall take ITA No. 2139/Mum/2023, A.Y 2013-14 as lead case and facts narrated therein. ITA No. 2139/Mum/2025, A.Y 2013-14 2. As per the facts of the present case The assessee is a private limited company engaged in the business of wholesale trading of metals and metal ores. For the year under consideration, the assessee had filed its return of income on 19.09.2013 declaring total income of Rs. 4,64,67,120/-. Thereafter, the case of the assessee was selected for scrutiny and an order was passed u/s. 143(3) of the Act thereby estimating and determining the total income of the assessee at Rs. 4,64,67,120/- by proportionately disallowing other expenditure as well as depreciation claimed and calculated such disallowance at Rs. 5,65,304/- and 1,844/- respectively. 3. Aggrieved by the said order, the assessee filed appeal. After considering the overall facts of the case, the Ld. CIT(A) while partly allowing the appeal, estimated the additional income at 0.5% of the sales. 4. Aggrieved by the order of Ld. CIT(A), both the assessee as well as revenue filed their respective appeals. Since we are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his group companies on 17.04.2018. Consequently, a notice u/s. 153C of the Act was issued to the assessee on 27.01.2022, after recording satisfaction u/s. 153C of the Act by the AO of the searched person and the AO of the assessee. 8. Since the AO has referred to the search action at the premises of Vinod Jatia, findings of the search team, seized material recovered during the search action and the statements of various persons recorded during the course of the search. Therefore based on these evidence, the AO observed that the companies of Vinod Jatia have entered into circular transactions with companies of Uttam Galva, Topworth and the assessee (Lloyds), so that the sales bill raised by these entities upon Vinod Jatia group could be discounted with the bank and thereby money could be obtained from the bank. Accordingly, one of the group entities of said Uttam Galva would raise a paper sales bill in the name of Vinod Jatia group company without any movement of the goods. Such bill would be discounted to avail the funds from the bank. Thus in order to balance the books of account and stock records, Vinod Jatia company would raise the paper sales bill on assessee-company who in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....would have earned additional commission for providing additional facility of LC to various parties. In the case of searched entities, where documents are on record regarding mortgaging properties for LC facility, the income is estimated at rate of 7% of turnover. However, the assessee company was not bearing risks of mortgaging properties, hence income is estimated at lower rate in the case of the assessee company. Considering the market practices, facts in other similar cases and overall facts & circumstances of the case, the income on such turnover is estimated at 5%. This estimated 5% income includes commission on accommodation entries of purchases and sales made/passed on to further the entries obtained from searched entities; and other unaccounted incomes like Bill Discounting income, interest received, Discounts, income on account of suppression of GP etc. Further no adjustment on account of existing gross prof it is being given to the assessee company since the assessee company has suppressed GP to very miniscule and meagre level and no specific GP information as per the books of the assessee on account of transactions in question is available. Therefore, the estima....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any other income earned by the appellant from these back to-back transactions?" 15. After evaluating the records, the Ld. CIT(A) answered the first question by holding that the assessee has entered into circular transaction of bogus purchase and sales. Further, it was observed that the assessee had duly reflected the profits earned in the books of accounts from such circular transactions. The relevant portion is reproduced herein below for: "7.2.11 It is seen that a detailed analysis of the pattern of transaction of sale and purchases has been made in the assessment order before arriving at the conclusion that they are bogus transactions. Absence of supporting documents for transport of goods, marketing, purchase orders inward and outward register etc., further strengthen the findings of the AO. The statements recorded during the search, corroborate the findings of the search. Considering the facts before me, I concur with the findings of the AO that the appellant has shown back-to-back sale and purchase transaction without carrying out actual sale and purchase. On the nature of transactions, in my view, the transactions in question do not appear to be 'Bogus' ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e said purpose. On the issue as to whether the assessee has in fact earned anything outside the books of account, in this regard it was observed that it is unlikely that any assessee would undertake such activity on such massive scale, unless there are some more added benefits. The Ld. CIT(A) has thereafter referred to the comparable cases of genuine traders and observed that considering the overall facts of the case, the additional income is to be estimated at 0.5% of the sales. The relevant portion is reproduced herein below:: "7.2.15. On the second issue of Whether there is any other income earned by the appellant from these back-to-back transactions?, it is seen that the AO has made an addition of Rs 55,21,60,756/- to the income of the appellant. The addition is calculated at the rate of 5% of the alleged bogus sales or purchases, whichever is higher. The 5% estimation is stated to include commission on accommodation entries of purchases and sales made/passed on to further the entries obtained from searched entities and other unaccounted incomes like bill discounting income, interest received, discount income on account of suppression of GP, etc. In the assessment orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also with entities of other groups. There is an element of undisclosed commission income, which the appellant would have received from such other beneficiaries. In my view, the AO has rightly made the addition of such other income earned by the appellant on the circular transactions. However, I do not agree with the rate of 5% adopted by the AO. It is seen that the rate of 5% has been applied in all assessment orders passed from AY 2013-14 to AY 2019-20, resulting in the total addition of Rs 245,51,74,504/-, which in my view is unreasonable and excessive. Appellant has provided data on the Gross prof its disclosed by similarly placed concerns, not belonging to the group. As per industry standards, the gross margin in the business of trading in metal is in the range of 0.17 to 0.63 percent. The rate of 5% adopted by the AO is clearly on the higher side. To meet the ends of justice, such additional income is re-estimated by adopting the average rate of profit as per industry standards. Considering the overall facts of the case, the additional income is estimated at 0.50% of the sales of Rs 1104,32,15,122/, which comes to Rs 5,52,16,076/-. The said addition of Rs 5,52,16,076/-shall co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on structured as profits. Most importantly, there is no mention of any cash consideration or compensation being paid for availing the alleged bogus invoices in any of the search statements including confessional statements. 19. We noticed from the record that not only there are no seized documents supporting the findings of the AO, absolutely there is no deposition made by anybody indicating any cash receipts by the assessee. It is important to mention here that in a case where there would have been such statements during the course of search alleging such cash receipts, the assessee would have an opportunity to cross examine the deponent. However, as per the facts of the present case, the assessee is in a worst situation in as much as the AO and Ld. CIT(A) has merely presumed and inferred cash consideration and thus the assessee had no such opportunity. 20. We further noticed that the additions made by the AO for all the six years is of approximately Rs. 250 crores. However, it is impossible and against the prudence that such substantial amounts have been paid to the assessee without leaving behind any documentary evidence such as notings, diaries or any cash trail. The comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the assessee. Thus in our view, if the assessee had received the cash consideration outside the books of accounts, then in that eventuality, there has to be some entity who has paid such amount and such entity ought to have been identified and taxed by the Income-tax Department. 23. Even otherwise, the additions sustained by the Ld. CIT(A) is excessive. As in this regard, it was submitted that as per prevailing industry practice, the profit margin earned in case of a genuine wholesale trading is between 0.17% and 0.63%. (This fact has been accepted by the Ld. CIT(A) on Pg. 86). Therefore, in our view, even assuming that the transaction entered by the assessee are circular in nature and non-genuine, then in that eventuality the findings of the Ld. CIT(A) that the assessee must have earned 0.5% commission is contrary to commercial logic. No prudent businessman would pay such a high commission to a mere entry provider, especially when the commission exceeds or equals the profit margins earned in legitimate trading activity. Hence, the commission earned by the assessee has to be much lower than the industry's average net profit margin. 24. Even otherwise, the profit margin....