TMI Blog2023 (5) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee while rejecting the books of accounts then that itself covers all other expenses disallowances and no further disallowance in such a case is called for u/s 40A(3) of the Act again separately as has already been held in several judicial aforestated pronouncements. In view thereof, we set aside the findings of the ld. CIT(A) on this issue and direct the A.O to delete the addition u/s 40A(3) of the Act from the hands of the assessee. CIT(A) considering the commission received @ 1% of the sales to BBIL - HELD THAT:- When the Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee, it was held that this finding is plausible one and it cannot be said that rate of commission was arrived at in an arbitrary manner. We observe that the facts are absolutely identical and it is the case of providing accommodation entries to entry seekers . In such circumstances, the Hon ble High Court in Alag Securities Pvt. Ltd [ 2020 (6) TMI 304 - BOMBAY HIGH COURT] has upheld the view taken by the Tribunal in that case upholding the receipt of commission at 0.15%. Thus we set aside the findings of the ld. CIT(A) on this issue and direct the A.O to reduce the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per law, the CIT(A)-1 Pune, has erred in making further disallowance u/s 40A(3) for Rs. 1,31,297/- even when the income is estimated as a percentage of turnover. (3) On the basis of facts and circumstances of the case and as per law, the CIT(A)-1, Pune, has erred in considering the commission of Rs. 19,82,466/- at the rate of 1% of the sales to Blue Bird India Ltd (BBIL) which is very high in the facts and circumstances of the case. Assessee prays to restrict the said commission on turnover to BBIL for alleged accommodation entries at a reasonable amount/per cent. 6. In ground No. 2, the assessee is aggrieved by the decision of ld. CIT(A) in sustaining disallowance u/s 40A(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for Rs. 1,31,297/- even when the income is estimated on a percentage of turnover. The relevant facts on this issue are that in the case of the assessee, the assessment was reopened by issue of notice u/s 148 on 02-02-2010 after recording the reasons for doing so and after taking prior approval from the appropriate authority. Accordingly, notices were issued to the assessee and in response to the queries raised during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions of purchases from parties in Bombay by SDPL and subsequent sales to BBIL were merely on paper and it was sham transaction. Similarly, the assessee being another supplier to BBIL notice was issued by the A.O to file evidences proving the genuinity of purchases, details of purchases made, list of suppliers, etc. Inspite of reminders no reply was filed by the assessee and no details of purchases were submitted. The A.O even examined the suppliers of the assessee from whom alleged purchases were made and it was found by the A.O that they were all false, fabricated and bogus transactions. The assessee could not substantiate the genuinity of transactions by submitting any evidences except the list of suppliers and the amounts. No corroborative evidences have been furnished by the assessee to prove the genuineness of the transactions. The A.O had asked the assessee to furnish vouchers and bills of various suppliers for verification. The assessee has not furnished the vouchers. The assessee has also not furnished details like PAN, TIN-VAT numbers, addresses, names, proprietors, directors etc. of the suppliers when called for. It was even verified by the A.O that majority of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .6% on substantive basis and retained the addition of Rs. 1,31,297/- partly allowing the ground raised by the assessee. The ld. CIT(A) also observed that for providing accommodation entry to BBIL and for showing bogus sales/purchases, the assessee must have received some commission. In this regard, the ld. CIT(A) estimated the commission received by the assessee @ 1% on the bogus sales turnover of Rs. 19,82,46,664/- i.e. Rs. 19,82,466/-. 10. The ld. Counsel for the assessee vehemently contended that when the A.O had made disallowance and added Rs. 44,31,659/- on account of bogus transactions and when it has been admitted that the entire purchases from suppliers and the corresponding sales to BBIL were only on paper and sham, bogus transactions, then in such scenario it was not permissible for the ld. A.O within the scope of Income-tax provisions to again assume the acceptance of sales and purchases by the assessee and examining them by applying section 40A(3) of the Act. The ld. Counsel further submitted that the ld. CIT(A) has rejected the books of accounts and has arrived at net income of the assessee @ 5% of the estimated genuine turnover then in such a situation no further d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made by the A.O on protective basis after he having determined the income of the assessee @ 5% of the genuine turnover while rejecting the books of accounts. 11. Per contra, the ld. D.R supported the orders of the subordinate authorities and more specifically referring to the assessment order submitted that on the bogus part of the transaction, the A.O was right in disallowing and adding to the income of the assessee Rs. 44,31,659/- and further the A.O was also justified in making the addition on protective basis u/s 40A(3) of the Act of Rs. 17,27,593/- in respect of portion of genuine transaction. While supporting the findings of the A.O., the ld. .D.R contended that it is to safe-guard the interest of revenue. However, no evidences were placed on record to corroborate his arguments. 12. We have heard the rival contentions, analysed the facts and circumstances in this case and also considered the judicial pronouncements placed on record. That on examination of the facts, the action of the A.O comprised of disallowance of administrative expenses and direct expenses totalling to Rs. 44,31,659/- on account of bogus transactions. It has been established from the report of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. On this issue we are guided by the judgment of the Hon ble Allahabad High Court in the case of Banwarilal Banshidhar (supra), wherein it was observed and held as follows: All the three questions, referred to this Court, revolve round the same controversy. The question for consideration is that when no deduction was sought and allowed u/s 40A(3), was there any need to go into sec. 40A(3) and r. 6DD(j). We see force in the view taken by the Tribunal that when income of the assessee was computed applying the gross profit rate and that when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of sec. 4A(3) and r. 6DD(j). No disallowance could have been made in view of the provisions of sec. 40A(3) r.w. rule 6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When gross profit rate is applied, that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee. 13. Following this judgment the Co-ordinate Bench of the Tribunal Jodhpur (supra) has also held that when the income is determined through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finvest Pvt. Ltd. which pertained to assessment year 2003-04, Tribunal noted that the same issue had arisen before it in the assessee's i.e., M/s. Goldstar Finvest Pvt. Ltd., own case for the assessment year 2002-03. In that case, Tribunal had observed that in these type of activities, brokers are only concerned with their commission on the value of transactions. Therefore, Tribunal posed the question to itself as to what would be the reasonable percentage of commission on the total turnover. Tribunal observed that in all similar cases the average percentage of commission was between 0.15% to 0.25%. In the cases of Palresha and Company and Kiran and Company, Tribunal had considered 0.1% as reasonable percentage of commission to be earned on such turnover. Assessee itself had offered the percentage of commission at 0.15% which was more than the percentage of commission considered to be reasonable by the Tribunal in the above two cases having similar type of transactions. Tribunal held that the action of the Assessing Officer in treating the entire deposits as unexplained cash credits could not be accepted in the light of assessment orders in the case of the beneficiaries and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee. The cash amounts deposited by the customers i.e., the beneficiaries had been accounted for in the assessment orders of these beneficiaries. Therefore, question of adding such cash credits to the income of the assessee, more so when the assessee was only concerned with the commission earned on providing accommodation entries does not arise. 21. Coming to the percentage of commission, Tribunal had already held 0.1% commission in similar type of transactions to be a reasonable percentage of commission. Therefore Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee itself. This finding is a plausible one and it cannot be said that the rate of commission was arrived at in an arbitrary manner. The same does not suffer from any error or infirmity to warrant interference, that too, under Section 260-A of the Act. 15. In the aforestated decision, it was observed by the Hon ble Bombay High Court that the average percentage of commission was taken between 0.15% to 0.25% as noted by the Tribunal. Therefore, when the Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee, it was held that this finding is plau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n disallowed and added to the total income of the assessee. We have observed and held in this regard while adjudicating the assessee s appeal, that when the income is determined on the basis of percentage of turnover while rejecting the books of accounts of the assessee in such case no further disallowance u/s 40A(3) of the Act is permissible relying on the decisions of Banwarilal Banshidhar (supra) and other decisions (supra) and accordingly have directed the A.O to delete the addition u/s 40A(3) of the Act from the hands of the assessee. In such a scenario when the revenue is aggrieved with the decision of the ld. CIT(A) for reducing the disallowance u/s 40A(3) of the Act it does not have any further legal sustainability since it had already been held that in the given facts and circumstances no disallowance at all is mandated u/s 40A(3) of the Act nor any other separate disallowance of any expenses is permissible when already the income of the assessee has been determined on the percentage of turnover by the ld. CIT(A) and the books of accounts have been rejected u/s 145 of the Act. Therefore, all the grounds in cross appeals raised by the revenue becomes infructuous and are dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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