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2023 (6) TMI 1272 - AT - Income TaxEstimation of income - Bogus purchases - commission expenditure u/s 69C of the Act @ 3% - HELD THAT - As it is not in dispute that the assessee had made bogus purchases from Giriraj Global Limited and bogus sales to Barsana Fabtex Pvt. Ltd. Hence, to that extent two accommodation entries had indeed been obtained by the assessee, i.e., one for purchase and one for sales. It is not in dispute before us that the average rate of commission for obtaining accommodation entry is 1.5% per transaction. Hence, we hold that the ld.CIT(A) was justified in upholding the addition made on account of commission expenditure u/s 69C of the Act @ 3% - We do not deem it fit to interfere in the said order of the ld.CIT(A) in this regard. We are in agreement with the observation of the ld.CIT(A) that out of bogus purchase made from Giriraj Global Limited, the assessee had made bogus sales to Barsana Fabtex Pvt. Ltd., i.e., bogus sales has been made out of bogus purchases. When both the transactions are bogus, only the profit element embedded thereon could be brought to tax. This has been rightly done by the ld.CIT(A). Determination of gross profit @ 11.69% on the corresponding purchases of Rs. 27,22,028/- attributable to genuine sales made to Anirudh Raj Builders Pvt. Ltd. - We find that though the purchases made from Giriraj Global Limited is bogus, the sale made to Anirudh Raj Builders Pvt. Ltd. is genuine and this fact is not doubted by the Revenue. Hence, it would be just and fair to bring to tax only the profit embedded in the value of such disputed purchases. This profit has been consistently estimated by this Tribunal @ 12.5% on the value of disputed purchases which has been approved by the Hon ble Bombay High Court and the Hon ble Gujarat High Court. Hence, we deem it fit and appropriate, in the facts and circumstances of the instant case, to estimate the profit element embedded in the value of disputed purchases at 12.5% instead of 11.69% made by the ld.CIT(A). Accordingly, the grounds raised by the assessee as well as the Revenue on merits are disposed of in the aforesaid manner.
Issues involved:
The judgment pertains to cross appeals in ITAs No. 2501 & 2662/Del/2022 for AY 2014-15, arising from the order of the Commissioner of Income Tax (Appeals) against the order of assessment passed u/s 147 of the Income-tax Act, 1961. Issue 1 - Disallowance of Bogus Purchases: The primary issue to be decided is whether the Commissioner of Income Tax (Appeals) was justified in giving partial relief in respect of disallowance made on account of bogus purchases by the Assessing Officer. The related issue is whether the adhoc addition made in respect of commission payment on estimation basis as unexplained expenditure u/s 69C of the Act was justified. The return of income for the assessment year 2014-15 was filed by the assessee company declaring total income of Rs. 35,84,80,808/-. The assessment was reopened based on information regarding accommodation entries provided by a partnership firm. The Assessing Officer disallowed purchases made from the firm as unverifiable and bogus, leading to an addition of Rs. 3,26,18,066/- under section 37(1) of the Act. The Commissioner of Income Tax (Appeals) concluded that both the supplier and buyer of the goods were entities engaged in providing accommodation entries. He determined that the assessee had made bogus purchases and sales, and directed the Assessing Officer to tax only the profit element embedded in these transactions. The Commissioner also upheld the addition of commission expenditure estimated at 3% of the disputed purchases as unexplained expenditure under section 69C of the Act. Issue 2 - Commission Expenditure and Profit Element: The second issue concerns the justification of estimating commission expenditure at 3% and determining the profit element embedded in the value of disputed purchases. The Commissioner of Income Tax (Appeals) held that the commission expenditure estimation was justified based on the market rate and the nature of the transactions. He also determined the profit element to be taxed at 11.69% for one transaction and 12.5% for another, considering the genuine sales made by the assessee. The Tribunal found that the Commissioner's decisions regarding the commission expenditure and profit element were appropriate given the circumstances of the case. The Tribunal agreed with the determination of the profit element and upheld the decisions made by the Commissioner of Income Tax (Appeals) on these matters. Separate Judgment: No separate judgment was delivered by the Judges in this case.
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