TMI Blog2017 (11) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ctitious purchase and sales. In the absence of any response from the assessee’s so called purchasers and sellers and in the absence of any quantitative details, we are of the considered opinion that there is no infirmity in the rejection of books. - ITA No.3444/Mum/2014 - - - Dated:- 3-10-2017 - Shri Shamim Yahya, AM And Shri Shaktijit Dey, JM For The Appellant : None For The Respondent : Shri V.Vidhyadhar ORDER Per Shamim Yahya, AM This appeal by the assessee is directed against order of learned CIT(A) dated 06.03.2014 and pertains to assessment year 2010-2011. 2. The grounds of appeal read as under:- 1) The learned Commissioner of Income- tax ( Appeals) - 18. Mumbai failed to appreciate that the assessing officer erred in determining the total income of your appellant amounts lo ₹ 3,21,38,490/- instead of ₹ 13,35,940/- 2) The learned Commissioner of Income- tax ( Appeals) - 18, Mumbai failed to appreciate that the assessing officer has completed the assessment after due inquiry and passed the assessment order u/s 144 of I T Act, 1961 3) The Commissioner of Income- tax ( Appeals) - 18, Mumbai failed to appreciate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, the A.O. has provided a copy of this statement to the assessee and asked to explain as to why these transactions shown in the books of account should not be treated as sham/non-genuine transactions. In view of these facts, the A.O. has also issued a questionnaire along with notice u/s 142(1) which is reproduced at page 2 - 3 of the assessment order. In response to the show-cause notice, the AR of the appellant has submitted its written reply which is reproduced at page 3 - 4 of the assessment order. The A.O, has considered the submissions of the appellant, but, not accepted because of the following reasons:- ( i) The assessee company has been stated to be engaged in trading in merchandise from the financial year 2005-06. For the sake of clarity, the transactions shown, expenses claimed and incomes offered by the assessee over the various years are tabulated as under- In crores A. Y. 2008-09 A.Y. 2009- 10 A.Y. 2010- 11 A.Y. 2011- 12 Sales 123.73 216.55 273. 22 59.85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Authorities. ( ix) In reply to the question No. 17, Shri Morarka had again accepted that he had issued only tax invoices of these companies without doing actual purchase and sale of goods. ( x) Vide question No. 19, he was asked to explain the procedure of purchase and sale of different commodities from the starting point to the end point. In response to this question, Shri Morarka replied as under The same transaction is routed within group of companies i.e. the purchase is done from the company outside my group of companies and then it is routed through my two to three companies and thereafter it is either routed to the same company from which purchases effected or any of the company of the suppliers group. ( xi) In this case, the assessee company had shown to have sold goods directly to the clients without actually taking their delivery from the suppliers. In this regard, vide submission filed on 06.03.2013, the representative of the assessee contended as under In the markets existing in Mumbai and probably elsewhere in the country as well, it is common practice of the goods being sold from one person to another and then a third a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT Vs. Durga Prasad More 82 ITR 540, Sumati Dayal Vs. CIT 214 ITR 804, decision of hon'ble Delhi High Court in case of Bhagat Construction Co. (P) Ltd. Vs. CIT 165 CTR 181, decision of hon'ble Calcutta High Court in case of CIT Vs. L.N. Dalmia 207 ITR 89, in case of V.Pinto Co. Vs. DCIT 3 SOT 634 and the decision in case of Ratanlal Omprakash Vs. CIT 132 ITR 640, In view of these facts circumstances, the A.O. has rejected the books of account of the appellant u/s 145(3) of the IT. Act and estimated the net commission @ 1% of the purchase/sale transactions shown by the assessee with the outside parties which were also taken care of the expenses incurred by the appellant to earn commission, therefore, an aggregate amount of bogus/accommodation entries amounting to ₹ 2,79,76,16,626/- that commission income of the assessee @ 1% of these transactions was computed at ₹ 2,79,76,166/- which was added back to the taxable income of the assessee. 5. Upon assessee s appeal, learned CIT(A) elaborately considered the issue and confirmed the action of the Assessing Officer dismissing all the grounds raised by the assessee as under:- I have considered the submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account after relying on various decisions of hon'ble courts cited above. The A.O. has held that the sales/purchases are only the book entries because the assessee has failed to submit any conclusive evidence to prove the same and also neither of the party has confirmed that any sale/purchase has been carried out with this company in response to the notices u/s 133(6). Thus, the A.O. has treated the sale/purchases as bogus and estimated the commission on ₹ 2,79,76,16,626/- @ 1% of these transactions was computed at ₹ 2,79,76,166/-. On the other hand, the AR of the appellant has submitted that the A.O. has not justified by considering the 1% commission on purchase/sales made with outside parties. The A.O. has called for information u/s 133(6) from the suppliers and customers before passing order u/s 144 by invoking sec. 145(3) of the IT. Act. It was also argued that the A.O. has received information from all the parties and no error was pointed out. The AR has also argued that most of the purchases were made from registered dealers who are filing VAT returns. All transactions were routed through banking channels and no cash element was involved. All bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the books of account of the assessee is upheld. To strengthen the view of the A.O. reliance is placed on the decision of hon'ble Supreme Court in case of S.N.Namassivayam Chettiar Vs. CIT 38 ITR 579, Dhandiram Dhalichand Vs. CIT 81 ITR 609, Punjab Trading Company Vs. CIT 53 ITR 335, Raja Textiles Ltd. Vs. CIT 86 ITR 673 and in case of Royal Medical Hall Vs. DCIT 46 ITR 748 where it is held that in absence of vouchers and quantitative tally of stock, profit can be estimated by the I.T.O. Regarding the merits of the case, it is established by the A.O. that neither the assessee nor any other party has submitted any documentary evidence in the nature of transport receipt, warehouse receipts and delivery challans to prove the transportation of goods sold and purchased, therefore, the A.O. has no other alternate except to estimate the income because the books of account has been rejected in absence of quantitative details u/s 145(3) of the IT. Act. The argument of the AR of the appellant that it has stated in the statement recorded that only 0,01% profit has been earned on book entries of sales/purchases, but, no documentary evidence has been filed to substantiate its claim al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om A. Y. 2004-05 and onwards and regularly employed a method of accounting since then, ( ii) The assessee is regularly employed a method of accounting and the annual profit is properly drawn from the method regularly employed. ( iii) The assessee maintained proper books of account and produced before the A.O. during the assessment proceedings, ( iv) The A.O. has verified the books of account, gathered information from various parties tallied with the books of the assessee and no omission was detected. With the above, the A.O. is not correct to reject the books of your appellant when all the above conditions are satisfied, therefore, the appellant pray you that assessment made on basis of 1% adhoc on sales and purchases to the outside parties is not tenable at all whereas the gross profit of your appellant is 0.05% drawn from the books of account regularly employed by them, hence commission income should be 0.05% after meeting all business expenses instead of 1% determined by the A.O. 3.2. I have considered the submissions of the appellant, order of the A.O. and facts of the case carefully, it is noticed that the A.O. has given reasonable opportunity to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with other factors like absence of vouchers in support of the expenses and purchases and existence of low profit may give rise to legitimate interference that all is not well with the books of account and same cannot be relied on, the authorities in rejecting the books of account u/s 145(e) is justified. The hon'ble Supreme Court in case of S.N.Namassivayam Chettiar 38 ITR 579 is also held that keeping of stock register is of a great importance because that is a means of verifying the assessee's accounts by having a quantitative tally if after taking into account of the material including the want of stock register it is found that from the method of accounting the aggregate profit of the business are not deductible, the provisions u/s 145(3) would be attracted. In view of these facts circumstances and the decisions of hon'ble courts, it is held that the assessee has not maintained any stock register properly and also not maintained the bills/vouchers relating to transportation of goods, warehouse receipts and delivery challans, therefore, the action of the A.O. in rejecting the books of account is upheld. In totality of facts circumstances, the decision of the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has failed to prove the genuineness of purchase/sales and has taken only book entries, therefore, the expenses debited to the profit loss account is also a bogus expenditure which cannot be held as incurred for business purposes. In view of these facts circumstances, the decision of the A.O. in disallowing the amount of expenses of ₹ 46,96,195/- is upheld and ground of appeal is dismissed. 6. Against the above order, the assessee is in appeal before the ITAT. 7. We have heard the learned Departmental Representative. None appeared on behalf of the assessee despite notice. It is noted that this case has been fixed on several occasion earlier also, but was adjourned due to non-appearance on behalf of the assessee, hence we proceed to adjudicate the issue by perusing the records and hearing the learned Departmental Representative. 8. We find that this case relates to bogus entry operator. Assessee has been found to be indulging in bogus purchase and sales. Assessing Officer has received information to this effect from Investigation Wing of the Income Tax Department, which were supplied by the Sales Tax Authorities. One of the Directors of the assessee group comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observation may be gainfully referred It is noted that basically, what an accommodation entry provider does is to accept cash from an Assessee and arranges to have a cheque issued from his own account or some other account, usually of 'paper' or fake entities, to make it appear to be a loan or an investment in share capital. The accommodation entry provider usually charges a commission which is deducted upfront. Where the Assessee is unable to explain the source of such credit in his account - i.e. by demonstrating the identity of the provider of the credit, the creditworthiness of such entity, and the genuineness of the transaction - the credit entry is treated as unexplained and the income is treated under Section 68 of the Act as the income of the Assessee. In the instant case, we are dealing with an Assessee who does not deny that he is an accommodation entry provider. He, in fact, makes no bones of the fact that he either owned or floated 'paper companies' only for that purpose. He also does not dispute the fact that he has not been able to explain the source of all the deposits in his accounts or the ultimate destination of all the outgo from his acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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