TMI Blog2016 (7) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... ned CIT(A) arising from the assessment order dated 30th December, 2009 passed by the Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ).On being asked by the Bench on earlier occasions, the ld DR during the course of hearing on 17-06-2015 had stated that there is no original order passed by the learned CIT(A) for the impugned assessment year and this corrigendum order dated 29-03-2012 is the only appellate order passed by learned CIT(A) , which was confirmed by ld DR vide letter of the ITO 4(3)(2), Mumbai dated 15.06.2015 filed with the Bench during the course of hearing on 17-06-2015 which is placed in the file and also recording to that effect is made in order sheet entry dated 17-06-2015. 2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- I. 1) The learned Commissioner of Income Tax ( the CIT (A) ) erred in making order dismissing the appellant's appeal without hearing the appellant and not giving adequate opportunity of being heard. 2. He failed to appreciate and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subsequent letter confirming and retracting the original evidences of entering into transaction, in our case that goods were sold material was delivered by them directly and the VAT collected by them is also paid. 4. The appellant prays that the disallowance of ₹ 13,22,526/- u/s 40A (3) be deleted. 5. Without Prejudice, the appellant prays that the disallowance be appropriately reduced. 3. The brief facts of the case are that assessee company is engaged in the business of manufacturing of cable and conductors of ferrous and nonferrous metals trading of ferrous and non-ferrous metals cables conductors. There was a survey action conducted by the investigation Wing of the Revenue u/s 133A of the Act on 12th December, 2007 at the premises of the assessee company. During the course of survey, statement of the Director Shri Prakash Jayantilal Shah was recorded. As per answer to Q. No. 5, it was stated that the assessee company had purchased aluminium items from M/s Shradha Saburi Merchants Ltd. of ₹ 66,12,630/-. The question and answer to question No. 6 7 are reproduced hereunder:- Q.6 Please produce the documentary evidence of delivery of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the A.O. that the goods purchased by them are received by these parties to whom goods were sold i.e. M/s D C Metals and M/s Rajasthan Metal House only from M/s Reliance Cable and Conductors Pvt. Ltd. and not through M/s Shradha Saburi Merchants Limited, hence, it was concluded that M/s Shradha Saburi Merchants Ltd. is a bogus outfit and not having any existence nor having any legitimate business activities. Notice u/s 133(6) of the Act was issued to M/s Shradha Saburi Merchants Ltd. calling for the information/documents regarding the said transaction but the party was not available on the address and hence notice was served through affixture. Thereafter, summons u/s 131 of the Act were issued to Shri Pravin T. Agarwal, the proprietor/partner of the said firm M/s Shradha Saburi Merchants Ltd. which was again served through affixture, but neither information was received nor Shri Pravin T. Agarwal appeared before the Revenue authorities. The C.A. of the assessee company was confronted to give his submissions on the statement of Sh. Pravin T. Agarwal of Shradha Saburi Merchants Limited wherein he has stated that he is not doing any real business from the parties however, he is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. 7. At the very outset, the ld. Counsel for the assessee company submitted he is not pressing ground No. I. (1 to 4), hence, these grounds may be dismissed as not being pressed. The ld. D.R. has also not raised any objection. Accordingly, we dismiss ground No. I (1 to 4) as not being pressed. 8. With respect to the other grounds, the ld. Counsel for the assessee company submitted that on identical facts in the case of sister concern of the assessee company namely M/s Prakash Metals which was also covered by the same survey action u/s 133A of the Act conducted by the Revenue on 12th December, 2007 and the Tribunal on similar facts and circumstances decided the issue in ITA No. 6457/Mum/2012 and ITA No. 6611/Mum/2012 for the assessment year 2007-08 vide order dated 17th February, 2016 had held that end of justice will be met if commission @ 5% for clandestinely facilitating the bogus transaction of the parties to the purchases and sales will be brought to tax as commission income, which the learned counsel submitted is accepted by the said M/s Prakash Metals to end litigation and It was submitted that the said sister concern has also got material from M/s Shradha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others were beneficiaries. In this survey it was found that in the period relevant to assessment year 2007-08, the assessee had purchased materials worth ₹ 2,27,60,254/- from M/s. Shraddha Saburi Merchants Ltd. and ₹ 1,55,09,505/- from M/s. Sai Kripa Metallic Tradecom Ltd., for which payments made by the assessee were credited in the aforesaid two parties bank accounts and the same was withdrawn in cash on the very next dates after its deposits; the assessee being the main beneficiary of these activities. The survey action revealed that the assessee had taken accommodation bills showing bogus purchase during the period relevant to assessment year 2006-07 and 2007-08 from M/s. Shraddha Saburi Merchants Ltd., and M/s. Sai Kripa Metallic Tradecom Ltd. The above modus operandi and the fact that the assessee was a beneficiary of such activities was confirmed by Shri Pravin T. Agarwal in a statement filed before ADIT (Inv), Unit IV(i), Mumbai on 2/11/2007. The ADIT (Inv) also reportedly informed the Assessing Officer that the partner of the assessee firm Shri Prakash J. Shah was afforded an opportunity to cross-examine Shri Pravin T. Agarwal, which he did not avail. 2.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire alleged purchases of ₹ 3,82,69,759/- shown by the assessee from M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. as bogus and brought the entire amount to tax in the assessee s hands. The assessment was accordingly completed under section 143(3) of the Act vide order dated 31/12/2009 wherein, the income of the assessee was determined at ₹ 3,87,89,670/-. 3.1 Aggrieved by the order of assessment for assessment year 2007-08 dated 31/12/2009, the assessee preferred an appeal before the CIT(Appeals)-31, Mumbai. The CIT(Appeals) disposed off the assessee s appeal vide the impugned order dated 17/8/2012 allowing the assessee partial relief. In the course of appellate proceedings, the CIT(Appeals) remanded to the file of the Assessing Officer for enquiries to be made for the purpose of corroborating the Assessing Officer s finding that the entire investment in purchases by the assessee from M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. amounting to ₹ 3,82,69,759/- constituted unaccounted income of the assessee. In this context the Assessing Officer was also required to make available to the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax ( CIT(A) ) erred in making confirming addition of ₹ 18,48,429/-, being estimating the additional commission income on the accommodation bills of bogus purchases made from M/s. Sai Kripa Mettalic Tradecom Pvt. Ltd., and M/s Shardhha Saburi Merchants Ltd @ 5% of the total purchase amount from the above two parties, after deducting the net commission income of ₹ 65,0591- shown in the books of account. 2. The learned CIT(A) was already satisfied and has verified all the purchases and sales bills with the net income out of these transactions which were fully supported by the account payee cheques and was accepted that no cash transactions were involved. 3. The transactions proved the modus operendi of direct purchases and sales by the parties where your appellant was only delcreder agent supported by various documentary confirmations under the circumstances. 4. The learned CIT(A) failed to appreciate that the Appellant had acted as an indenting agent and accordingly, earned the commission income as shown in the form of profit which is in the nature of commission and shown in the Profit Loss Account. Hence no addition is called for. 3. The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer and the CIT(Appeals) on the same issue of determination of the income earned by the assessee from out of the transactions of bogus purchases amounting to ₹ 3,82,69,759/- made by the assessee from the two parties M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd., these issues being inter connected and arising from the grounds raised by both sides in respect of the same set of transactions, they are being considered and disposed off together hereunder. 5.4.1 The Ld. Representative for the assessee , on the issue raised in Revenue s appeal, vehemently supported the impugned order of the CIT(Appeals) in respect of its finding holding that the Assessing Officer was not justified in holding that the entire purchases of ₹ 3,82,69,759/- made by the assessee from the two purchase parties i.e. M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. was the assessee s undisclosed income; particularly when there were immediate and identical quantities sold to M/s.D.C.Metals and M/s. Rajasthan Aluminium through banking channels. It is submitted that the CIT(Appeals) had, after due consideration of the factual mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. 5.6.1 We have heard the rival contentions, in respect of both the assessee s as well as Revenue s cross appeals, and perused and carefully considered the material on record. The facts of the matter, from the assessment to the first appellate proceedings, leading to the present appeal have been briefly narrated at para 2.1 to 3.2 of this order (supra). On a perusal of the impugned order, we find that the CIT(Appeals) has made a detailed consideration of the order of assessment, the averments of the Ld. Representative for the assessee for the assessee, the various remand reports submitted by the Assessing Officer , the assessee s rebuttals, details filed in the report of DDIT(Inv) Unit IV, Mumbai. We also find that, after consideration of all these material on record, the CIT(Appeals) observed that no material evidence was brought on record by the Assessing Officer /DDIT (Inv) to establish that the assessee purchased the goods from third parties in cash, as all the transactions of the assessee with both the sale and purchase parties were through banking channels. The CIT(Appeals) noticed from the material before him, that the assessee had only facilitated the concerned purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Prakash J. Shah partner of the appellant firm recorded during the course of survey u/s 133A of the Act as well as the statement of Shri Pravin T. Agarwal recorded u/s 131 of the Act dated 24.03.2008 and his written confession submitted vide letter dated 02.11.2007 before the ADIT (Inv). On perusal thereof I find the appellant has shown purchases of alluminium and copper rods of ₹ 3,82,69,759/- from M/s Shraddha Saburi Merchants Ltd and M/s Sai Kripa Metallic Tradecom Limited and its corresponding sales to M/s D.C. Metals and M/s Rajasthan Aluminum during the relevant accounting year. However, based on the various enquiries made and evidences gathered in the case of the appellant by the ADIT (Inv.), Unit - IV (1), Mumbai it was found that no such goods were purchased from M/s Shraddha Saburi Merchants Ltd and M/s Sai Kripa Metallic Tradecom Ltd inasmuch as these sales bills issued by M/s Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. were bogus accommodation bills issued without supply of actual material as disclosed therein. Or in other words, the appellant has not made any such purchases from M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hannels are originating out of the payments received from M/s D.C. Metal and M/s Rajasthan Aluminum by the appellant. From the same as well as from the details and evidences brought on record it is seen that the appellant has been acting only as an conduit oran agent to facilitate the bogus transactions of purchases and sale of aluminum sheets and copper wires rods taken place between M/s Shraddha Saburi Merchants Ltd and Mls Sai Kripa Metallic Tradecom Ltd (sale parties) and M/s D.C. Metal and M/s. Rajasthan Aluminum ( purchase parties) merely as an middlemen or an indenting agent; whereby, the appellant has in turn issued bogus or accommodation sale bills in favour of M/s D.C. Metal and M/s. Rajasthan Aluminum against the receipt of similar bogus or accommodation sale bills issued by M/s.Shraddha Saburi Merchants Ltd and M/s.Sai Kripa Metallic Tradecom Ltd. Or in other words, it has acted merely as an indenting agent or as an facilitator to legalise such bogus transactions; whereas, the real beneficiaries of these bogus transactions are M/s. D.C. Metal and M/s Rajasthan Aluminum, as no evidences except for the movement of funds no other corresponding or corroborative evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturers or suppliers to their godowns without any involvement of the appellant. It was also stated that these suppliers I manufacturers are having their godowns situated outside Mumbai, Check Naka, where M/s D C Metals and Rajasthan Alluminium are also having their godowns I warehouses. On account of these facts and evidences placed on record, I find sufficient merits in the submissions of the AR that the appellant has only facilitated the concerned purchase and sale parties, being a conduit in the process of legalization of the transaction of bogus purchases and sales against payment of pre-fixed commission. These submissions of the appellant are duly corroborated by the affidavits of Shri Pravin T Agarwal, promoter of M/s. Shraddha Saburi Merchants Ltd and M/s. Sai Kripa Metallic Tradecom Ltd and Shri Chandra Prakash Bansali and Shri Raju Bhansali, partners of M/s. D C Metals and M/s. Rajasthan Alluminium respectively. The AO has confirmed that the funds originating from M/s. D.e. Metals and M/s. Rajasthan Aluminum are immediately transferred to the bank accounts of M/s Shraddha Saburi Merchants Ltd and M/s. Sai Kripa Metallic Tradecom Ltd through the bank accounts of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are genuine. However, nothing is brought on record either by the AO or by the DDIT even though the matter was specifically remanded for this purpose. Therefore, I find sufficient merits in the submissions of the AR that if the purchases are found bogus, the corresponding sales of the same item as shown by the appellant in its books of accounts cannot be considered as genuine sales. Nevertheless, no details of whatsoever nature about the parties from whom, the material is purchased, its movement or transportation to the godown of M/s. D C Metals and M/s. Rajasthan Alluminium is brought on record by the AO or by the DDIT(Inv), in spite of conducting survey u/s 133A of the Act. Further, there is no evidence to prove that the cash withdrawn by Shri Pravin T Agarwal is returned to the appellant and not to M/s. D C Metals or M/s. Rajasthan Alluminium, particularly considering to the contents of the affidavit of Shri Prakash J Shah, partner of the appellant firm dated 06.01.2012. Therefore, it is seen that in spite of remanding the matter on several occasions, no new facts and evidences are brought on record by the AO or by the DDIT(Inv), so as to justify the bogus purchases made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the case of the appellant, as discussed above and further in the absence of any new facts and evidences brought on record by the AO as well as in the absence of any corroborative evidences placed on record in spite of remanding the matter on various occasions, I find it cannot be held that the entire purchases made by the appellant are out of Its unaccounted sources or the same is to be considered as its unexplained income. Even otherwise, even if the purchases are held as bogus, to my considered opinion, it cannot be held that the corresponding sales are genuine; particularly when the quantity purchased and sold are same. Obviously, in such a circumstance if the purchases are considered the corresponding sales also has to be bogus. Therefore, on account of the same, it is evident that under the given facts and circumstances the appellant has merely issued accommodation sales bills against the payment of pre-fixed commission as discussed above. However, since the entire transaction is carried out in a clandestine manner, it cannot be held that the rate of commission is as per the normal practice followed in this line of business. Naturally, it has to be more than the normal ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R has consistently argued that the rate of commission allowed in this line of business normally does not exceed more than 1% to 2% of the sale value. However, to my considered opinion the same cannot be taken on its face value, particularly in view of the lack of evidences and the clandestine nature of business carried out by the appellant. And also considering to the fact that the appellant itself has shown such commission of 0.17%( as discussed above) which is much lesser than the rate of commission admitted by the AR in the similar line of business or practice. Therefore, on account of the same, I find it would meet the end of justice, in case, the rate of commission charged by the appellant is taken @ 5% of the total purchase value of the appellant during the relevant accounting year. The same on total such purchases of ₹ 3,82,69,759/- works out to ₹ 19,13,488/-for the relevant assessment year. Since, the appellant has shown net difference between the sale and purchase of ₹ 85,948.70 in its trading account pertaining to the bogus purchases as well as genuine . trading carried out, therefore, the proportionate profit or commission pertaining to bogus transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r concern M/s Prakash Metals, we partly allow the appeal filed by the assessee company by holding that the assessee company s income from these transactions be computed as 5% of commission for clandestinely facilitating the bogus transaction of the parties to the purchase and sale as held by the Tribunal in its orders in the case of the sister concern of the assessee company namely M/s Prakash Metals in ITA No.6457/Mum/2012 and ITA no. 6611/Mum/2012 vide orders dated 17-02-2016, which will meet the end of the justice which is also conceded by the assessee company s counsel to be acceptable to the assessee company to end litigation with the Revenue , keeping also in view of the afore-stated decision of the Tribunal in the case of the assessee s sister concern M/s Prakash Metals on similar facts which was stated by the learned counsel for the assessee company was also accepted by the said concern M/s Prakash Metals to end litigation with Revenue. We order accordingly. 11. In the result, the appeal filed by the assessee company in ITA N0. 3311/Mum/2012 for the assessment year 2007-08 is partly allowed. Order pronounced in the open court on 25th July, 2016. - - TaxTMI - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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