AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 1545
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.... 2. On the facts and in the circumstance of the case, the learned CIT(A) has grossly erred in upholding loss of Rs. 59,28,35,703/- and thereafter disallowing the same when the same has already been unclaimed by the Assessee. 3. On the facts and in the circumstance of the case, the learned CIT(A) has erred in making addition of Rs. 32,14,49,000/- by estimating unaccounted income at the rate 1 per cent of turnover recorded in books of accounts. The learned CIT(A) has erred in making addition on presumption basis without bringing any concreate evidence on records applicable to the Assessee. Learned CIT(A) has failed to appreciate the relation of such huge turnover against the paltry or so to say NIL capital employed for such turnover. 4. On the facts and in the circumstance of the case, the learned CIT(A) has grossly erred in arriving at a percentage of profit at the rate 1 per cent by referring inappropriate comparables." 3. The Revenue has raised following grounds of appeal:- "1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 6,08,343/- made by the AO on account of unaccounted profit (being 25% of closing stock of Rs. ....
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....ds. During survey proceedings u/s 133A in NK Group, it was admitted that such transactions were paper transactions. The assessee also contended that the loss represented finance cost, but no banking trail or TDS under section 194A was shown. A revised computation withdrawing the claim was filed, though the original return was under section 139(4). The Assessing Officer disallowed the loss, which was confirmed by the Ld. CIT(A). 7.1 Before us, the Ld. AR on this issue submitted that since the assessee has withdrawn the claim during assessment proceedings, no further disallowance was warranted. The Revenue shall accept the same. The returns for the subsequent years can be examined if the losses carried forward and set off against any profits. If claimed any set off, such set off shall not be allowed. Ld. CIT-DR appearing for the Revenue could not dispute the above submission of the assessee counsel. Therefore, we hereby direct the Jurisdictional Assessing Officer to verify the Returns of Income filed by the assessee for subsequent years whether the losses carried forward and set off against any profits and allow the same in accordance with the provisions of law. 7.2. In the res....
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....sonable profit is estimated. The appellant has claimed losses from trading of unbranded oil and as per data available on public domain, following companies have shown net profit on sale of branded oil as under: It can be seen from above referred data that various companies have shown net profit in the range of 0.05% to 1.04% over a period of three years. Since the profit from unaccounted transactions are always higher than the profit shown in the regular books of account, it is reasonable to estimate such higher income on such type of transactions. Thus, unaccounted profit for the year under consideration is estimated at Rs. 32,14,49,000/- being @ 1% on turnover of Rs. 3214.49 crores as reflected in Profit & loss account as against loss shown in return of income. The AO is directed to compute taxable income in case of appellant considering net profit at Rs. 32,14,49,000/- as stated supra." 8.1 The Ld. AR submitted that the CIT(A)'s estimation at 1% was excessive and he contended that the assessee-company is not a branded retail oil company like Adani Wilmar or Patanjali Foods, so profit margins are inherently lower. The Ld. AR submitted that the bulk of assessee's busin....
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....way of VAT, income tax and other levies. The AO estimated unaccounted profit @ 25% of cost and made addition of Rs. 6,08,343/- 8.3 During the course of appellate proceedings the appellant has contended that castor seed purchases are higher than corresponding sales hence difference in quantity is shown as closing stock which is also mentioned in special audit report. Though purchase and sales through NSEL are without delivery of goods, net quantity of purchase and sales being 67,500 Kgs., of castor seed are shown as closing stock. It was also contended by appellant that there is no evidence that such stock is sold in market in cash and appellant has earned profit thereon hence addition made on estimate deserves to be deleted. 8.4 During the course of Appellate Proceedings, my predecessor ld. CIT (Appeals) vide his letter dated 26.10.2018 had called for Remand Report and AO in his Remand dated 11.07.2019 had stated that special auditor has not made any comments on the value of stock in actual possession of appellant hence addition need to be upheld. The appellant in his rejoinder dated 30.09.2019 filed on 22.10.2019 and 09.11.2019 has reiterated its earlier stand an....
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.... herein above. Once entire transactions have been held to be paper transactions, there is no scope for sale of such goods in cash as concluded by the AO. Once purchase and sale are held to be bogus, closing stock is arising out of such bogus purchase and net result of such paper transactions has already been disallowed while passing the assessment order, AO was not correct in holding that appellant has sold such stock in cash outside the market and therefore, estimation of profit on such non existing closing stock is not justified. Therefore, addition made by AO for Rs. 6,08,543/- is deleted." 9.2 We have heard the rival contentions and perused the material available on record. In view of the decision at ground no.2 of the assessee's appeal, the appeal of the Revenue on this ground stands intrapolated. Ground No. 2 - Addition of Rs. 81,86,05,409/- (Difference in NSEL Records) 10. The Assessing Officer made addition on account of differences between NSEL data and books of account. The CIT(A), after detailed reconciliation, deleted the addition, by observing as under:- "9.17 On perusal of above referred reconciliation statement, it is found that though purchase tran....
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....crore which is arrived at after reducing purchase value from sales value and closing stock and part of net loss of Rs 59.92 crore and such purchases as well as sales includes higher amount of purchase and sales as worked out herein above. It is found that such loss of Rs 59.92 crore was separately disallowed by AO in assessment order and same is upheld in preceding paras, hence there is no reason for making separate addition of Rs. 2,91,39,509/- by comparing purchase/sale value as per NSEL and data recorded in books of account. On entire gamut of transactions carried out by appellant is that it has incurred net non -genuine loss of Rs. 59,51,97,263 and same is already disallowed by AO hence there is no reasons for making artificial disallowance by making comparison with purchase/sale transactions recorded in books of account and transactions as reflected on NSEL. 9.19 Considering these facts, addition made by AO for Rs 81,86,05,409/- is deleted." 10.1 We have heard the rival contentions and perused the material available on record. In view of the decision at ground no.2 of the assessee's appeal, the appeal of the Revenue on this ground stands intrapolated. Ground No.....
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....The closing balance of trade payable for 1621.26 crores is inclusive of above referred amount of Rs. 7.97 crores. In the case of Devashish Commodities Limited (refer Sr. No. 13), the sale value is Rs. 12.89 crores whereas purchase value is Rs. 9.87 lacs hence difference of purchase and sale is reflected as receivable of Rs. 12.79 crores and such amount is part of net receivable reflected in Audited Annual Accounts at Rs. 1558.76 crores. 10.13 On perusal of relevant facts on record, it is observed that appellant has made purchase and sale transactions in commodities on NSEL platform. During the course of assessment proceedings, AO found that appellant has shown balance of trade payable in Audited Annual Accounts at Rs. 1621.25 crores, but has failed to submit third party confirmation. When AO has issued notice under Section 133(6) to few parties in assessment proceedings as well as in remand proceedings, he found that amount payable shown in the account of respective party by appellant is not matching with amount shown as receivable by such third party. Thus, AO found that balance of trade payable as reflected in Audited Annual Accounts are not genuine. AO contende....
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....sh T + 3 contract is executed by with NSEL 2 to 3 days prior to the due date of making payment as per T + 36 contract. The funds receivable from such T + 3 contract neutralized the fund outflow needed to settle the initial T + 36 contract. In this way, the T + 36 contracts are rolled over from one settlement cycle to the next cycle. As mentioned above, it is clear that entire gamut of transactions shown as purchase & sales were not real transactions and institutionalized shape of the entire transactions was given to obtain funds from the investors on short term basis which was also transformed in form of long term funds by making rollover of contracts." It is apparent from special audit report that transactions of purchase and sales as shown by Appellant are not real transactions. This modus operandi is also discussed by AO at page No. 5 to 7 of Assessment Order. During the course of survey proceedings, in NK Group, statement of Mr. Nilesh Patel was recorded wherein he has stated that physical delivery with respect to purchase and sale of commodities as shown in Books of Account of Assessee Company group have never taken place. In the light of above observation made by spe....
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....e and trade receivable are emanating from bogus purchase and sale transactions hence AO cannot hold aggregate balance appearing in trade payable account as non-genuine without giving set off of non-genuine balance of trade receivable as they are part and parcel of aggregate paper transactions carried out by appellant. 10.16 On perusal of tabular chart (containing party-wise aggregate purchase, aggregate sale, closing balance of such party) as reproduced in preceding paras, it is observed that during the year under consideration appellant has made aggregate purchase of Rs. 3274.01 crores and aggregate sale of Rs. 3214.49 crores. The difference between purchase and sale is Rs. 59.52 crores (3274.01-3214.49) and such loss is reflected as speculative loss in Audited Annual Accounts. Once appellant is purchasing the goods on NSEL, aggregate purchase value inclusive of VAT is credited to party account whereas in the case of sale aggregate sale value is debited in party account. Thus, ledger account of any party reflects net balance of aggregate purchase and sales made by appellant with them. When appellant has made purchase only or when aggregate purchase made with particular pa....
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....arty's account from similar transactions are also non-genuine. On holistic consideration of entire Audited Annual Accounts, it is apparent that appellant has entered into non-genuine transactions and one cannot tax only credit side appearing in Balance Sheet by treating it as non-genuine when debit side of Audited Annual Accounts also contain non-genuine balance. On overall basis by adopting this modus operandi, appellant has incurred net loss and as per real income theory only such loss can be held to be non-genuine which is already held so in preceding para. The AO cannot tax part of this transaction as non-genuine without giving set off of other side of transactions which are also of similar nature. 10.17 On perusal of assessment order along with statement of Mr. Nilesh Patel recorded during the course of survey, it is apparent that appellant has carried out fictitious/paper transactions in commodities which are settled without delivery. The net loss of Rs. 59.52 crores arising from such transactions are already held to be bogus/fictitious loss by AO. Once AO is of the view that entire transactions of purchase and sale of commodities are bogus, corresponding amount ....
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....ntire credit balance arising out of such transactions without considering debit balance arising from such transactions which is reflected as trade receivable in Audited Annual Accounts. This is not the case where appellant has entered into genuine purchase transaction but failed to provide confirmation of creditors or transactions of purchase are non-genuine but transactions of sale are genuine or this is not the case of substituted purchases but present is the case of carrying out paper transactions on NSEL and from these transactions ultimate result is incurring of paper loss of Rs. 59.52 crores which is disallowed by AO in assessment order hence AO was not justified in holding that entire trade payable appearing in Audited Annual Accounts are non-genuine. Once the transactions itself are non-genuine, the resultant figures will also be non-genuine. Considering these facts, entire addition of Rs. 1620,76,44,093/- made by AO (subject to observation made herein above) without appreciating the correct nature of the transactions is directed to be deleted." 11.2 We have heard the rival contentions and perused the material available on record. The Assessing Officer disallowed the Tra....