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2016 (11) TMI 740 - AT - Income TaxBogus expenditure and bogus sales quantification - ad-hoc disallowance by invoking provisions of section 40(a)(ia) Held that:- From the reading of the AO’s order and CIT(A) it is not clear as to whether the bogus expenditure and bogus sales had in fact been carried out by the actual inflow and out flow of money. The conclusion that there was bogus expenditure as well as bogus sales is based on material found in the course of search, statement recorded at the time of search and material and statement recorded in the subsequent Survey u/s.133A of the Act. Therefore it cannot be said that there was no basis for the AO or the Assessee to have quantified the bogus expenditure and bogus sales. In our opinion if there had been an actual inflow of a sum of ₹ 114,10,16,936/- if such bogus income is recorded by the assessee in the books of accounts and if the corresponding bogus expenditure of ₹ 85,10,68,095/- is also evidenced by out flow of funds then the action of AO would be justified. If, on the other hand, the aforesaid transactions are only book entries without there being actual flow of funds then the action of CIT(A) would be proper and justified calling for no interference. We, therefore, set aside the order of CIT(A) and remand the issue to the AO for fresh consideration on the lines indicated above. Estimation of 0.40% rate of commission on bogus sales recorded by the assessee - Held that:- addition was rightly upheld by CIT(A) because the assessee failed to substantiate its claim that the rate of commission received was only @ 0.25%. As far as the commission paid on bogus booking of expenses is concerned, the CIT(A) has rightly held that the AO had not disputed that the assessee indulged in bogus booking of expenses and was paying commission for creating entries for such bogus expenses. As rightly held by CIT(A) one this fact is admitted, then the AO cannot deny deduction on account of payment of commission and conclusion of CIT(A) that only net commission income had to be taxed in the hands of the assesseee, in our opinion, is just and proper. The quantum of commission of expenditure on booking of bogus expenses adopted, in our view, is also justified. To this extent we confirm the order of CIT(A).
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