SHRI MUKESH YADAV,JAIPUR vs. INCOME TAX OFFICER, JAIPUR

Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has sustained the additions so made by the Assessing Officer and now the assessee is in appeal before us.

During the course of hearing, the ld. AR drawn our attention to the findings of the ld. CIT(A) where at para 3.1.1.(iv), the ld. CIT(A) has held that one of the proprietorship concerns of the assessee i.e. M/s OM Sales Corporation is a paper concern and further, at para (v), where the ld CIT(A) has upheld the GP rate of 0.15% applied by the Assessing Officer who has in turned placed reliance on a decision relied upon by the assessee during the assessment proceedings. It was submitted by the ld. AR that when the assessee concern has been held to be a paper concern/entry provider, in that case, GP rate as applicable to a person who is actually involved in a bullion business cannot be applied. It was submitted that the AO has applied GP rate of 0.15% by comparing the assessee’s case with that of M/s Mohan Lal Mahendra Kumar Jeweller who is the bullion trader. As against that, as per the finding of the ld. CIT(A) wherein he has held that one of the concerns of the assessee is a paper concern/entry provider, in such a scenario, profit rate as applicable to an entry provider for bullion business should be considered. In this regard, the ld. AR has submitted that in case of Mahesh Khandelwal who was an entry provider for gemstones business, the Coordinate Bench (in to 299/JP/2007 dated 24.10.2008) has applied the NP rate of 0.10%. It was submitted that the gemstones business is a high margin business as compared to bullion business and therefore, entry provider in bullion business is accordingly rewarded very less in comparison to gemstones business. It was accordingly submitted that the NP rate of 0.10% applied by the Coordinate Bench in case of Mahesh Khandelwal may be appropriately scaled down and applied in the case of the assessee who has been held by the ld CIT(A) as an entry provider for bullion business. It was further submitted that the lower authorities have applied NP rate of 18 paise per hundred if the real business yields NP of 18 paise per hundred, definitely an entry provider cannot earn 10 paise per hundred just for providing accommodation entries. It was further submitted that the gains of doing real trading cannot just be incremental 8 paise per hundred as compared to an entry provider who assumes no risk nor invests any capital. It was accordingly submitted that NP 0.01% as declared by the assessee may be upheld when the business has held to be only accommodation entry provider.

Per contra, the ld. DR took up through the finding of the Assessing Officer as well as that ld. CIT(A). It was submitted that the majority of the sales made by the assessee were in cash and in the absence of proper verification, the books of accounts were rejected. Regarding the estimation of GP rate, it was submitted by the ld DR that the AO has applied the comparable case of M/s Mohan Lal Mahendra Kumar Jeweller which were brought to the notice of the Assessing Officer by the assessee himself and therefore, in the present proceedings, the assessee cannot be allowed to plead that the gross profit rate has been wrongly applied by the AO. It was further submitted that the ld CIT(A) while upholding the findings of the AO has also noticed that one of the concerns of the assessee is a paper concern which further substantiate the reasoning of the AO in rejecting the books of accounts and estimating the gross profit rate. It was further submitted that besides the trading addition, the AO has made specific disallowance of the salary expenses amounting to Rs. 36,83,887/- in respect of which the ld. AR has not any specific submission.

We have heard the rival contentions and perused the material available on record. The assessee is a proprietor of two concerns namely M/s OM Sales Corporation and M/s SS Enterprises. Both these concerns are stated to be involved in bullion business by the assessee and the same has been accepted by the Assessing officer, however, the book results so declared have been rejected and profit has been estimated. During the appellate proceedings, the ld CIT(A), referring to another case of Guru Kripa Trade Mart Pvt ltd, has held that in that case, matter relating to M/s OM Sales Corporation had come up for consideration and therein he has held that the said concern is a paper concern and accordingly, following the same, he has held that one of the concerns of the assessee is a paper concern and has thus upheld the findings of the Assessing officer.

The contention of the ld AR is that where one of its concerns has been held to be a paper concern, how the profit can be estimated relying on a case of a person who is actually involved in bullion business as has been done by the AO and which has been affirmed by the ld CIT(A) as against that, the comparison should be made with another paper concern/entry provider. We agree with the said contention as commission income of an entry provider cannot be equated with the trading results of businessman who is actually carrying out bullion business and the right comparison would have been of another entry provider involved in bullion business.

For the purposes, the ld. AR has submitted that in case of Mahesh Khandelwal who was an entry provider for gemstones business, the Coordinate Bench (supra) has upheld the NP rate of 0.10% i.e, the estimate of net income @ 10 paisa per hundred. It was submitted that the gemstones business is a high margin business as compared to bullion business and therefore, entry provider in bullion business is accordingly rewarded very less in comparison to gemstones business. It was accordingly submitted that the NP rate of 0.10% applied by the Coordinate Bench in case of Mahesh Khandelwal may be appropriately scaled down and applied in the case of the assessee who has been held by the ld CIT(A) as an entry provider for bullion business. Firstly, we note that the ld CIT(A) has held one of the assessee’s concern to be a paper concern, however, going by the submission of the ld AR on behalf of the assessee, we find that he has no objection where even the second concern is held to be a paper concern. Therefore, in absence of any objection by the ld AR on behalf of the assessee, we proceed with the fact that the findings of the ld CIT(A) are equally applicable to both of the assessee’s concerns which are held to be paper concerns which are involved in providing the accommodation entries and are not involved in actual bullion business.

Now coming to the commission income which can be brought to tax in hands of the assessee in relation to its two paper concerns which are involved in providing the accommodation entries, it may be true that the margins in gemstones business may vary with that of the bullion business but the same cannot be a basis to hold that an entry provider in gemstones and an entry provider in bullion business is to be treated differently so far as determination of their commission income is concerned. No empirical data has been submitted to support the aforesaid contention and in absence thereof and given the fact that in both businesses, the role of the entry provider is largely similar in terms of providing accommodation entries in lieu of commission, we are unable to accept the aforesaid contention of the ld AR regarding scaling down or determining the commission income differently.

In the instant case, if we look at the net income so determined by the AO after making trading addition and disallowance of salary expense, it comes to Rs 66,31,966 which gives a net profit rate of 0.12% which is comparable to another case of the entry provider, Mahesh Khandelwal wherein the Co-ordinate Bench has upheld estimate of net profit @ 0.10%. Besides, there is other income of Rs 127,776 which has to be brought to tax separately.

In light of the same, we donot see any infirmity in the order of the lower authorities and the same are hereby confirmed and the grounds of appeal are accordingly dismissed.