Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (11) TMI 740 - ITAT KOLKATA

2016 (11) TMI 740 - ITAT KOLKATA - TMI - Bogus expenditure and bogus sales quantification - ad-hoc disallowance by invoking provisions of section 40(a)(ia) Held that:- From the reading of the AOs 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 uphe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on 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). - ITA (SS) Nos. 15-17/Kol/2013 - Dated:- 8-7-2016 - Shri N.V.Vasudevan, JM And Shri M.Balaganesh, AM For the Appellant : Shri G.Mallikarjuna, CIT(DR) For the Respondent : None ORDER Per N. V. Vasudev .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

₹ 37,78,831/- u/s 40(a)(ia) without considering the fact that the assessee has failed to prove that TDS is not applicable on the payment. The assessee even failed to prove that the entire expense claimed was genuine. 3. That on the facts and circumstances of the case and in law the Ld ClT (A) was not justified in deleting the disallowance u/s 40(a)(ia) on the basis of ITAT, Kolkata's order in the case of M/s Matrix Glass & Structures Pvt. Ltd. -vs- ITO, Ward-6(2), Kolkata in ITA N .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the Income Tax Act, 1961 (Act) in the case of Austral Group on 23.06.2009. The main companies of this group are M/.s Green earth Resources and Projects Ltd. (formerly known as Austral Coke and Project Ltd.) and M/S Sancia Global Infra Projects Ltd. (formerly known as Gremach Infrastructure Equipments and Projects Ltd.). The Assessee was also part of the Austral Group and was also subjected to a search u/s.132 of the Act. 4. During the course of search, several incriminating documents were foun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of all the seized documents to the Assessee. However, thereafter also, the assessee did not file the return u/s 153A of the Act. Therefore, the AO issued notice u/s 142(1) along with a show cause letter for each assessment year having head-wise contemplated quantification of income. On examination of accounts and the investigations carried out during and subsequent to the search operation, it was observed by the AO that there was complexity involved in the accounts to determine the correct asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

claim of depreciation, bogus machinery/vehicle hire charges etc. The exercise of recasting of accounts being a complex accounting process and keeping in view the complexities in accounts, the case was considered for Special Audit u/s 142(2A) of the Act. Ultimately, the Assessee was asked to get its accounts audited from the nominated chartered accountant, Shri Swapan Kumar Saha, FCA. The Auditor submitted the Special Audit Report dated 09.06.2012 on 11.06.2012. The copy of the said special audit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nal audited accounts, was furnished by the auditor. Based on the supplementary report, the AO called upon the Assessee to furnish the details of TDS on the heads of expenditure as per the auditor's list. In response, the Assessee submitted head-wise details of the expenditures and TDS. On perusal of details AO was of the view that the assessee has made expenditure of ₹ 77,25,966/- under the head 'Transport Charges' in which TDS on expenditure to the tune of ₹ 75,87,662/- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ansportation expenses to the tune of ₹ 75,57,662 cannot be allowed as deduction while computing income in view of the provisions of sec.40(a)(ia) of the Act. The following were the relevant observations of the AO: "Possibility of some of the expenses being below the threshold limit of TDS cannot be ruled out. But, entire expenses of ₹ 75,57,662/- on which TDS was not deducted within the threshold limit of non-deduction is not acceptable. Therefore, on ad- hoc basis 5 % of such e .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ctors. The machineries given on hire needed to be transported from place to place at frequent intervals. For this purpose the assessee had to incur transportation charges. The transport was however arranged locally by the workers at various sites where the machines were stationed. Ordinarily the site supervisors/ or site in-charge used to hire the transport available locally. The transportation charges used to be incurred and paid at sites situated in remote areas which were later reimbursed. Ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

regard to the fact that machineries were hired at remote locations, assessee never engaged any regular established transport operators. The Assessee thus submitted that the payments to transporters did not attract provisions of Sec 194C of the Act because the payments to any individual transporter; against any individual transport assignment never exceeded ₹ 20,000/- and aggregate payments to any individual transporter did not exceed ₹ 50,000/- in a given year. It was therefore submi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the Act was not applicable. 9. It was further contended that the AO did not point out any infirmity in the explanation furnished. It was pointed out that the books of accounts and supporting papers were not available for production since these were destroyed in fire. It was submitted that in the given circumstances the conclusion of the AO that there was a possibility of some expenses being in excess of threshold limit of TDS is purely based on conjectures and surmises. It was argued that u/s. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

there was an apprehension/suspicion that application of Sec 194C of the Act could not be ruled out. The Tribunal noted that before making the disallowance the AO did not bring a single instance on record which proved that in any specific case payment exceeded ₹ 20,000/- at anyone time and the total payments made to an individual; in the relevant year exceeded ₹ 50,000/-. The Tribunal therefore held that no disallowance was permissible u/s 40(a)(ia) merely on the presumption that appl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he CIT(A) agreed with the submissions made on behalf of the Assessee and held that disallowance u/s.40(a)(ia) of the Act cannot be made on the basis of estimates. The following were the relevant observations of the CIT(A): 5. I have considered the submission of the appellant and perused the assessment order. On going through the assessment order, it is apparent that the AO has made ad-hoc disallowance of ₹ 37,78,831/- by invoking provisions of section 40(a)(ia) of the Act on account of tra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

................. (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contactor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid " Thus, on plane reading of the above provisions, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

provisions of section 40(a)(ia) have to be invoked in absolute terms and not on presumption. If, there is an expenditure on which tax was deductible under Chapter XVII - B, and the tax has not been deducted or, after deduction, not paid within the time', only then the provisions of section 40(a)(ia) can come into play to make the disallowance of such an expenditure. In the case of appellant company, it is observed that that it had incurred expenditure of ₹ 77,25,966/- on account of tra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng provisions of section 40(a)(ia) of the Act. However, as discussed above, this action of the AO is not in accordance with law and, therefore, cannot be approved. 5.1 In the case of M/5 Matrix Glass & Structures Pvt. Ltd. vs. ITO, Ward- 6(2), Kolkata, ITA No. 658 (Kol) of 2010 dated 28.01.2011, the AO had made disallowance of ₹ 11,58,302/- on account of transportation charges by invoking the provisions of section 40(a)(ia) of the Act. The aforesaid disallowance was made by the AO for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/suspicion that application of section 194C could not be ruled out. The Department has not brought even a single instance on record that out of the above amount aggregating to ₹ 11,58,302/ -, there was any case where payment exceeding ₹ 20,000/- was made at a time and/or the total payments made to an individual truck owner in the financial year was exceeding ₹ 50,000/- by the assessee. If the assessee has not maintained proper evidences, the disallowance could be made under oth .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

deduct TDS on the payments made as per provisions of the Act which assessee failed to do so. In view of the above, we are of the considered view that in the facts and circumstances of the case, the disallowance of ₹ 11,58,302/- claimed by the assessee under the head transportation charges is not justified. Hence, we delete the same." The facts in the case of appellant company are same as in the case of M/s. Matrix Glass & Structures Pvt. Ltd. (supra). In the case of appellant comp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

os. 1 to 3 are allowed. 11. Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal. 12. Despite service of notice through DR none appeared on behalf of the assessee. Copy of the acknowledgment evidencing service of notice on the assessee together with the letter dated 16.05.2016 of DCIT, Circle-5(1), Kolkata is placed on record. We have heard the submissions of the ld. DR, who submitted that the provision of section 40(a)(ia) of the Act are mandatory. I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

- in a given year, without any proof or evidence to substantiate its claim, the CIT(A) ought not to have deleted the disallowance made by the AO just by relying on the submissions of the Assessee. It was further submitted by him that the assessee should be directed to substantiate its case by furnishing the required details and evidence in support of its claim. It was prayed by him that order of CIT(A) should be set aside and the issue remanded to the AO with the direction to the assessee to fur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lowance u/s.40(a)(ia) of the Act cannot be made on ad-hoc basis but the Assessee should substantiate its claim payments made to individual transporters against the individual transport assignment never exceeded ₹ 20,000/- and the aggregate payment to any individual transporter did not exceed ₹ 50,000/- in a given year. The proof to be let by the Assessee in this regard can either be direct proof or circumstantial evidence, keeping in mind the fact that the books of accounts of the As .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

114,10,16,936/- instead of ₹ 85,10,68,095/-. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in directing to eliminate income from bogus sales of ₹ 114,10,16,936/- against expenditure of ₹ 85,10,68,095/- on bogus purchase. 17. As we have already seen while deciding the appeal of the revenue for A.Y.2007- 08, there was a search and seizure operation carried out u/s 132 of the Act in the case of Austral group on 23.06.2009. Pursuan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

see was to provide construction/earthmoving equipments and heavy vehicles on hire and trading of hard coke. According to the revenue, during the course of search, documents were found and seized which revealed that the Assessee was indulging in bogus transactions of i.e., hire charges, excavation and other contractual work were shown to have been received when no such transactions actually took place. In the course of assessment proceedings, the Assessee failed to produce books of account, bills .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s well as the appraisal report prepared by the investigation wing. 19. During the course of proceedings u/s 153A of the Act, it was observed by the AO that the documents with identification mark NKJ-2, NKJ-3, NKJ-4, NKJ-5, NKJ-8 and NKJ-9 impounded from the office of GDJ Constructions Pvt. Ltd. and GDJ Exports Pvt. Ltd., in the course of survey action u/s 133A of the Act on 27.08.2009 revealed that assessee company booked machinery hire charges in the name of GDJ Constructions Pvt. Ltd., GDJ Exp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hil Jalan were bogus. None of these companies had the necessary infrastructure or technical expertise to carry out the hiring of the machineries and there were no concrete evidences to prove the genuineness of the transactions. Therefore, the AO asked the Assessee to explain as to why the hiring charges shown as paid to the above named parties should not be treated as bogus expenditure and disallowed. In response, it was submitted by the Assessee that against the disallowance of bogus hiring cha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g the course of assessment proceedings, it was further observed by the AO that the survey action u/s 133A of the Act was conducted in the case of Nikhil Impex and Gilbert Commercial Pvt. Ltd. at 19,British Indian Street, Kolkata-69, which revealed that the Assessee booked income/receipt from machinery hire charges in the name of said two concerns amounting to ₹ 38,30,47,366/- and ₹ 13,70,78,412/-, respectively aggregating to ₹ 52,01,25,778/- during F.Y. 2007-08 relevant to A.Y. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Site Clearance and Excavation expenses amounting to ₹ 85,26,19,991/- and Hiring Charges income earned related to hiring charges and civil, site clearance, and excavation contract amounting to ₹ 52,01,25,778/- during the financial year 2007-08 as bogus transactions as per Appraisal Report and draft assessment order. However, in the absence of entire records, if corresponding receipt, on expenses of ₹ 85,26,19,991/ - was computed by applying gross profit ratio worked out on the b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rchase are enclosed for F.Y. 2007-08 relevant to A.Y 2008-09. It was submitted by the assessee that as per the originally audited accounts the sales on account of hiring/rehiring was ₹ 235,62,02,246/-. Out of this sales of ₹ 114,10,16,936/- was bogus in the cases of (i) Arshhiya Technologies International Ltd. (Rs.15,00,04,050/-), (ii) Gilbert Commercial Pvt. Ltd. (Rs.13,70,78,412/-), (iii) Jindal Power Ltd. (Rs.4,44,50,000/-), (iv) JSW Energy Ratnagiri Ltd. (Rs.35,54,88,534/-), (v) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

td. (Rs.30,63,61,742/-) and GDJ Export Pvt. Ltd. (Rs.l0,80,83,418/-). It was submitted by the Assessee that though in the course of search bogus sale entries amounting to ₹ 82.01 crores were found in the case of Gilbert Commercial Private Ltd. and Nikhil Impex, but, in actual the bogus sales were ₹ 114.10 crores as detailed above. The relevant documentary evidences was also enclosed. In view of above, it was contended before the AO that the bogus sales of ₹ 114.10 crores should .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

course of survey operation in the business premises of Shri Nikhil Jalan, proprietor of Nikhil Impex and Director of GDJ Construction and Gilbert Commercial; that the Assessee had entered into bogus transactions. But, on being asked to explain why the Assessee shall get into the bogus transactions for increasing the income, the Assessee vide its submission dated 31.07.2012 stated the following: "During the F.Y.2007-08 we have provided the entry of sales amounted to ₹ 114,10,16,936/- i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

77; 85,10,68,095/- and also recorded bogus transaction of income of ₹ 114,10,16,936/- corresponding to the said bogus expenses, for earning commission. The bogus expenses of ₹ 85,10,68,095/- is therefore eliminated from the operating expenses and bogus income to the extent of ₹ 85,10,65,095/- only is also eliminated from the income from operation. Further, commission income from providing entries is computed at an estimated average rate of 0.40% on total bogus income is added b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

5% as submitted by the assessee company. Again, the AO did not allow deduction on account of commission paid by the company @ 0.15% for taking entries of bogus purchases of ₹ 85,10,68,095/-. 23. Aggrieved by the aforesaid action of the AO, the Assessee preferred appeal before CIT(A). Before CIT(A), the Assessee besides reiterating submissions as were made before AO, further submitted that the AO has agreed in principle that in arriving at true taxable income, it was necessary to eliminate .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of ₹ 1,14,10,16,936/- represented bogus income then the AO could not turn around and eliminate only few of the invoices totalling to ₹ 85,26,19,991/-. If the AO's hypothesis is accepted then it will amount to the fact that the AO having held the entire gross of sum of Rs.l,14,lo,16,936/- to be bogus yet for tax purpose a differential sum of ₹ 28,99,48,841/- was considered to be real income. Such conclusion will be self- contradictory. 24. On the question of estimation of c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ate invoiced value of such expenses amounted to ₹ 85,10,68,095/-. For availing such accommodation the appellant in turn paid charges @ 0.150/0; amounting to ₹ 12,76,602/- The differential between the charges received and paid amounted to ₹ 15,75,940/- was offered as Assessee's income in the return filed u/s 153A of the Act. It was argued that the AO in the order of assessment computed such income at average rate of 0.4% on the total bogus income and the same was assessed at .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nilaterally resort to estimation of income; particularly when save and expect the admission of the assessee the AO did not have any material evidence in his possession which in any manner indicated that the assessee was charging commission @ 0.4% . In absence of any material or information with the AO he was not justified in assessing commission income of ₹ 45,64,067 /-; adopting the rate of 0.4%. It was further submitted that the AO has admitted that accounting of bogus income and expendi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he AO should have allowed the set off for commission paid on the expense entries as well. In the circumstances the AO could not unilaterally assess the income byway of commission for providing accommodation entries without allowing deduction for the corresponding expenses paid for availing accommodation entries. 25. The CIT(A) agreed with the submissions of the Assessee and he concluded on the above issues as follows: 5.2 On careful consideration of facts of the case and in law, I am of the opin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

order, he himself has mentioned that in view of the facts brought on record it is clearly evident that the assessee company has indulged in bogus expenses to the extent of ₹ 85,10,68,095/- and also recorded bogus transactions of income of ₹ 114,10,16,936/- corresponding to the said bogus expenses, for earning commission. I am of the considered opinion that once the AO has accepted the correctness of the figures of bogus transactions, there should not be any reason for not eliminating .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rom the gross sales/receipts credited to the profit and loss account. Further, in the assessment order the AO has not stated as to why he was allowing deduction of bogus sales to the extent of bogus expenses only. I am of the opinion that the action of the AO is not in accordance to law and, therefore, he is directed to eliminate the bogus sales at ₹ 114,l0,16,936/- in place of ₹ 85,10;68,095/- allowed by him. 5.3 With regard to commission income earned by the appellant company, it i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot allow the deduction on account of commission payment. In the course of appellate proceedings the Ld.A.R., of the appellant company, was asked to furnish the evidence that the rate of commission received was @ 0.25%. But, no such evidence was furnished by the appellant. Therefore, the rate of commission receipt adopted by the AO @ 0.40% is upheld. However, on careful consideration of the facts, I am of the opinion that the AO has not disputed that the appellant company was indulged in booking .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

commission income taxable in the hands of appellant company is ₹ 32,87,465/- i.e. (Rs.45,64,067 - ₹ 12,76,602). In view of above, the ground no.1 is allowed and the ground nos.2, 3 and 4 are partly allowed. 26. Aggrieved by the order of CIT(A) the revenue has raised ground Nos. 1 and 2 before the Tribunal. As we have already seen despite service of notice, the assessee did not choose to appear in the present proceedings. We have heard the submissions of the ld. DR. The ld. DR submit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ow 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 su .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sh consideration on the lines indicated above. 28. As far as the estimation of income as done by CIT(A) is concerned we find that the estimation of 0.40% rate of commission on bogus sales recorded by the assessee. This 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

this extent we confirm the order of CIT(A). 29. In the result ground No.1 raised by the revenue is partly allowed for statistical purposes and ground no.2 raised by the revenue is dismissed. 30. Ground Nos. 3 to 5 raised by the revenue are identical to ground nos. 1 to 3 by the revenue in ITA No.15/Kol/2013 for A.Y.2007-08. For the reasons stated therein these grounds are treated as allowed for statistical purposes. 31. In the result the appeal of the revenue is partly allowed for statistical p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version