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2016 (7) TMI 1223 - ITAT MUMBAI

2016 (7) TMI 1223 - ITAT MUMBAI - TMI - Bogus transaction - commission computation - Held that:- As in the case of assessee company’s sister 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 .....

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), for the assessment year 2007-08, the appellate proceedings before the learned 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 corrig .....

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bunal ) 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 ought to have held that the appellant was seeking adjournment for valid reasons beyond their control, particularly the facts that in respect of the similar issue, the for the sister concern, the matter was being heard by the other .....

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1) The learned CIT (A) erred in Confirming the disallowance of ₹ 13,22,526/- U/ s 40A (3) of the Act. 2. He further erred in confirming the disallowance merely by saying that the addition made by the AO has been made after taking into all the facts and circumstances of the case, without appreciating the legal position mentioned by the appellant in the grounds of appeal. 3. He failed to appreciate and ought to have held that: a) The appellant had purchased goods from the said party and the .....

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ant was not given adequate opportunity of cross examination of the said Mr. Pravin T. Agarwal and without doing that his statement was used against the appellant treating the entire purchases as cash purchases. d. The appellant had submitted copies of account for the year under assessment as well as of the subsequent year showing the payments made to the concerned party by Account payee crossed cheques for which necessary bank statements are also submitted. e) Addition/ disallowance cannot be ma .....

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lowance 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 Jayant .....

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pa Metalic Tradecom. Ltd. We are mainly acting as an indenting agents, where the material is directly dispatched from the parties from whom the material is purchased to the customer. Q.7. I am. showing you the self declared statement dated 02-112007 of Shri Pravin T. Agarwal Proprietor/partner of Sai Kripa Metalic Tradecom Ltd. and Shradha Saburi Merchants Limited, the extract of which is as under: I withdraw the money from the A/c. M/s Chirag Construction & Perk Impex However, I issue bill .....

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bsequently, the said goods were sold to other parties, for which the payments were also received by account payee cheques. M/s Prakash Metals and M/s Reliance Cable and Conductors Pvt. Ltd. acted as an indenting agent in these transactions. The assessee company submitted that during the course of scrutiny assessment proceedings, summary of trading sales and purchase for the year 2006-07 were submitted. As per the summary, the alleged goods purchased of ₹ 66,12,630/- from M/s Shradha Saburi .....

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dha Saburi Merchants Limited and confirmed that the goods received were through M/s Reliance Cable and Conductors Pvt. Ltd. and not through M/s Shradha Saburi Merchants Limited . Thus, it was observed 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 S .....

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s 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 providing vouchers for the purchase bills and sale bills , against which query raised by the AO no comp .....

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. It was also observed that the assessee company has not made single payment to M/s Shradha Saburi Merchants Ltd. but only at the end of the year the liability is reduced by an amount of ₹ 60 lacs by crediting M/s D.C. Metals. Thus, it was concluded by the A.O. that the assessee company has not purchased any goods from M/s Shradha Saburi Merchants Ltd. but only collected bills/vouchers for the alleged purchase of ₹ 66,12,630/- which may be goods purchased from other parties on paymen .....

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0% of the said purchases of ₹ 66,12,630/- i.e. ₹ 13,22,526/- was made and added to the income of the assessee company by the AO vide assessment orders date 30-12-2009 passed u/s 143(3) of the Act. 4. Aggrieved by the assessment orders dated 30-12-2009 passed by the A.O. u/s 143(3) of the Act, the assessee company filed first appeal before the ld. CIT(A). 5. Before the ld. CIT(A) no submission was made by the assessee company on the ground that the Chartered Accountant of the assessee .....

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so 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/201 .....

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Ltd. and the said material was sold to the same D.C. Metals and to one other concern M/s. Rajasthan Aluminium and prayed that similar direction may be given in this case also which is conceded by the learned counsel for the assessee company to be acceptable and will also meet the end of the justice and shall be consistent with the stand of the Tribunal in its afore-stated orders in the case of sister concern of the assessee company namely Prakash Metals which is concededly accepted by the said p .....

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ITA 6611/Mum/2012 dated 17th February, 2016 in assessee company s sister concern namely Prakash Metals decided the case whereby the findings are as under:- These are cross appeals by the assessee and Revenue directed against the order of the CIT(Appeals)-31, Mumbai dated 17/08/2012 for assessment year 2007-08. 2. The facts of the case, briefly, are as under:- 2.1 The assessee firm, engaged in the business as manufactures, traders of conductors and ferrous and non-ferrous metals, filed its retur .....

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ansaction Act that M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd.and other concern promoted by Shri Pravin Agarwal had indulged in suspicious transactions but admitted that no actual business of sale and purchase was carried out by them and that these transactions were all accommodation entries in respect of which the assessee and others were beneficiaries. In this survey it was found that in the period relevant to assessment year 2007-08, the assessee had purchase .....

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od 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-e .....

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rials purchased by it is directly dispatched through the parties from whom the material was purchased to the customers to whom it is sold i.e. M/s. Rajasthan Aluminium & M/s. D.C.Metals, payments/receipts in this regard being both by way of account payee cheque. Alternatively, it was submitted by the assessee that in case the said purchases from the aforesaid two parties are treated as bogus, then the corresponding sales shown by the assessee should also be considered bogus and the differenc .....

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ered into for purchase from the aforesaid two parties. 2.4 The aforesaid submissions of the assessee did not find favour with the Assessing Officer who observed that these averments of the assessee were already dealt with in the course of survey, post survey investigations. The Assessing Officer was of the view that as per the facts on record the transactions entered into by the assesee with M/s. Shraddha Saburi Merchants Ltd., M/s. Sai Kripa Metallic Tradecom Ltd. (purchase parties), M/s. Rajas .....

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,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(Appe .....

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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 copies of statements of Shri Pravin T. Agarwal dated 12/12/2007, primarily relied on by the Assessing Officer to make the addition of undisclosed income of ₹ 3,82,69,759/- and to afford the assessee opportunity of cross examination of Shri Pravin T. Agarwal. The matter was remanded to the Assessing Officer on more than one occasion to addre .....

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ee purchased the goods from third parties in cash, as all the transactions of the assessee with both the concerned sale and purchase parties was admittedly through banking channels. In this view of the matter, the CIT(Appeals) held that the Assessing Officer was not justified in holding that the entire purchases by the assessee are its undisclosed income and that the corresponding sales only are genuine; particularly when the quantity purchased and sold are identical. The CIT(Appeals) was of the .....

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he case of Vijay Proteins Ltd. (15 ITD 428), the CIT(Appeals) estimated the commission earned by the assessee at 5% of the said purchase of ₹ 3,82,69,759/- in the peculiar facts and circumstances of the case on hand. 4. Aggrieved by the order of the CIT(Appeals) -31, Mumbai dated 17/8/2012 for assessment year 2007-08, both Revenue and the assessee have preferred appeals before the Tribunal in respect of the issues held against them. 4.1.1 The grounds raised in the assessee s appeal are as .....

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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 act .....

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. The appellant craves leave to add to , amend and/or alter the above grounds of appeal. 4.1.2 At the outset, the Ld. Representative for the assessee for the assessee submitted that in its appeal, the assessee will be pressing only Ground No.I (supra) and that all other grounds I (2 to 4) and (2 to 4) as well as II(1) are not being pressed. Since the grounds at S.Nos.I (2 to 4) and (2 to4) and II(1) are not pressed in this appeal, the same are rendered infructuous and accordingly dismissed. 4.2 .....

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(Appeals) on the above grounds be set aside and that of the AO be restored. 4. 4. The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary. 5.1 In Ground No.1 of Assessee s appeal, it is contended that the CIT(Appeals) erred in estimating the commission income earned by the assessee on accommodation bills of bogus purchases made from M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. @5% of the total purchases o .....

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supra) being both in respect of the contrary findings of the Assessing 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 transacti .....

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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 material on record, found that the assessee had only facilitated the concerned purchase and sale parties as an indenting agent for remuneration in commission in their transaction of bogus sales and purchases. 5.4.2 In respect of Ground No.I(1) i .....

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acilitator @5% thereon was too high and the same could not be more than 1 to 2% thereof in such business. 5.5.1 In respect of the grounds raised at S.No. 1 to 4 of Revenue s appeal, the Ld. Departmental Representative placing strong reliance on the findings of the Assessing Officer in the order of assessment, contended that the CIT(Appeals) had erred in holding that the assessee was merely an indenting agent receiving commission in respect of transactions of bogus purchases and in consequently d .....

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d by the CIT(Appeals), the Ld. Departmental Representative submitted that, without prejudice to Revenue s stand that the entire bogus purchases amounting to ₹ 3,82,69,759/- made by the assessee from the aforesaid two parties ought to be brought to tax in the assessee s hands as held by the Assessing Officer, the claim of the Ld. Representative for the assessee is contradictory as before the CIT(Appeals) the claim was that commission in such type of business would be 1 to 2% thereof. In the .....

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a). 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 .....

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s) held that the Assessing Officer was not justified in holding that the entire purchases by the assessee from M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. are the assessee s undisclosed income and that only the corresponding sales to M/s. Rajasthan Aluminium and M/s. D.C Metals are genuine, particularly when the items/quantity purchased and sold are identical. 5.6.2 It is seen that the CIT(Appeals) from the material on record, was of the view that the assessee f .....

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) following the ratio of the decision of the ITAT Ahmedabad Bench in Vijay Protein Ltd. (supra) proceeded to estimate the commission earned by the assessee @5% on the said purchase transactions amounting to ₹ 3,82,69,759/- in the peculiar facts and circumstances of the case. 5.6.3 The findings of the ld. CIT(A) at paras 2.4 to 2.4.3 of the impugned order, in respect of the issues before us is extracted hereunder :- 2.4 I have carefully considered :he assessment order and the submissions of .....

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he affidavits of Shri Raju Bhansali & Shri Chanduprakash Bhansali dated 14.05.2010 and the affidavit of Shri Pravin T. Agarwal dated 19.05.2010 as discussed above. Besides, I have also gone through the statement of Shri 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 .....

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chased 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 Metallic Tradecom Ltd. and therefore, the entire purchases shown was considere .....

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es was duly compensated by way of commission which is the difference between the sale price and the purchase price as shown in its books of account. At the same time the AR has vehemently argued that neither a copy of the statement recorded of Shri Pravin T. Agarwal as discussed in the assessment order was provided nor the appellant was allowed to cross examine Shri Pravin T. Agarwal either by the AO or by the ADIT. It was vehemently argued that the denial of the cross examination by the appella .....

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appellant, as discussed above. Therefore, on account of these facts placed on record the matter was remanded to the AO on various occasions as discussed above. The matter was also referred to the concerned DDIT(Inv) for making further enquiries and investigations as discussed above. However, in spite thereof no fruitful or logical details and evidences are brought on record so as to hold that the entire purchases shown by the appellant from M/s Shraddha Saburi Merchants Ltd and M/s Sai Kripa Me .....

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ght 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 fav .....

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r corroborative evidences to establish the actual purchase and sale of goods mentioned in these sale /purchase bills are produced neither by M/s Shraddha Saburi Merchants and M/s Sai Kripa Metallic Tradecom Ltd, nor by the appellant or by M/s D.C. Metal and M/s. Rajasthan Aluminium. Nothing is brought on record to prove the movement, transportation as well as the names and particulars of the parties from whom these goods were either purchased M/s Shraddha Saburi Merchants Ltd and M/s Sai Kripa M .....

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Shri Prakash J. Shah dated 06.01.2012). No other evidences are brought on record by the AO or by the DDIT so as to prove that the appellant has purchased these goods from third parties in cash. Nothing is produced to prove that such material purchased is sold to M/s. D.C. Metal and M/s Rajasthan Aluminum by the appellant as no such evidences to prove the movement of goods is either produced by the AO or by the DDIT or by the concerned purchase parties. The AO has not brought any such details and .....

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ce with the movement of funds as discussed above. No material or evidence is produced by the AO or by the DDIT that these goods were procured by the appellant from grey market in cash and thereafter sold to M/s D.C. Metals and M/s Rajasthan Aluminum. On the other hand from the affidavits of the Shri Chandra Prakash Bhansali and Raju Bhansali dated 14.05.2010, the material purchased is directly delivered by the concerned manufacturers or suppliers to their godowns without any involvement of the a .....

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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 ba .....

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have failed to examine Shri Pravin T. Agarwal on this issue nor they could succeed in recording the statement of Shri Pravin #T. Agarwal and further to be cross examined by the appellant as discussed above. The AO as well as the DDIT have expressed their in this regard. Similarly, no cross examination of Shri Chandra Prakash Bhansali and Shri Raju Bhansali is granted to the appellant in spite of the contents of their affidavits dated 14.05.2010 as discussed above vis-a-vis their independent sta .....

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iled to substantiate or corroborate the findings of the AO as discussed in the assessment order by bringing any cogent material so as to establish that the entire purchases shown by the appellant are its unexplained income. Both the AO and the DDIT(Inv) have failed to record the statement of Shri Pravin T Agarwal and allowing him to be cross-examined by the appellant, so as to ascertain the correct facts of the case in hand. In the absence of such a statement and further corroborative documentar .....

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t the corresponding sales 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 i .....

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d 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 appellant out of its unaccounted income. On the other hand, as discussed above, the AO herself has admitted on verification of the relevant bank accounts that the source of the entire payments made to M/s Shraddha Saburi Merchants Ltd and M/s. Sai Kripa Metallic Tradecom Ltd .....

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M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd.(purcahse parties) and M/s. D C Metals and M/s. Rajasthan Aluminium (sales Parties) by way of issue of bogus sales bills against pre-fixed commission received. The contents of the affidavit filed are further corroborated by way of the evidences furnished i.e. from the copies of bank account opening forms filed, it is seen that the appellant has opened a new account particularly for this purpose in the same bank and bran .....

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ased, which is admitted by the partners of M/s.Rajasthan Alluminium and M/s. D.C. Metals in their affidavits dated 1405-2012, contending that the material purchased was directly delivered by manufacturers / suppliers in their own delivery vans / handcarts from their godowns situated outside Mumbai Check Naka, where M/s. D.C. Metals/ M/s. Rajasthan Alluminium were also having their godowns /warehousing facilities. Further, it is also noticed that the entire amount of Maharashtra-VAT on these tran .....

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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 accommodati .....

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mstances, where the AO disallowed the entire expenditure on account of purchases made from certain parties trating the same as bogus, has held that "it is an elementary rule of accountancy as well as of taxation laws that profit from business cannot ascertained without deducting cost of purchase from sales/ otherwise It could amount to levy of income tax on gross receipts or on sales. Such recourse is not permissible unless it is specifically authorized to do so under any particular provisi .....

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le and supply of goods. There may be various factors due to which there is bound to be a substantial difference between the party purchase price of unaccounted material and rate of purchase of unaccounted for goods. There may be a saving on account of sales-tax and other taxes and duties which may be leviable in respect of manufacture of sale of goods in question. The suppliers or manufacturers make a substantial saving in the income tax in respect of income from sale of unaccounted goods produc .....

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etals. The same works out to 0.17% of the total purchases. The bogus purchases made from M/s. Shraddha Saburi Merchants Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd is of ₹ 3,82,69,759/- for the relevant accounting year. The AR 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 evi .....

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ng 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 transaction is worked out at ₹ 65,059/-(i.e. 0.17% of ₹ 3,82,69,7 .....

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nts Ltd. and M/s. Sai Kripa Metallic Tradecom Ltd. amounting to ₹ 3,82,69,759/- be brought to tax as the assessee s income and; (ii) of the assessee that the commission income be assessed at 0.17% as purchases as declared by it. We find that apart from putting forth these averments, both parties have failed to bring on record any material evidence to controvert the findings rendered by the ld. CIT(A) in the impugned order on these two issues in cross appeals. In this view of the matter, an .....

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