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Facts
The appeals concerned allegations of circular trading and bogus donations. The assessing officer (AO) made additions based on survey findings suggesting circular trading to inflate turnover for bank credit. For donations, the AO made protective additions alleging cash was received back after commission was retained by trusts.
Held
The Tribunal held that no addition could be sustained on the basis of alleged circular trading without evidence of income generation or commission payment. Regarding donations, the Tribunal found the source explained and deleted the protective additions, as well as the commission payment addition, upholding the CIT(A)'s order.
Key Issues
Whether additions on account of circular trading and bogus donations are sustainable without establishing income generation or evidence of commission payments.
Sections Cited
250, 69C, 143(3), 115BBE, 69A, 2(22)(e), 133A, 80G, 35AC
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Before: SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL & SMT. RENU JAUHRI
आदेश / O R D E R PER RENU JAUHRI [A.M.] :-
These appeals are filed by the assessee against the order of the ITBA/APL/S/250/2024-25/1072127739(1) CIT(A), 54, Mumbai [CIT(A)] dated 13.01.2025, passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2016-17, 2018-19 & 2019-20.
The assessee has raised the following grounds of appeal:
A.Y. 2016-17 1. Because in the facts and circumstances of the case, material available on record and on due consideration of the submissions made, learned ‘CIT (Appeals)’ has erred in confirming addition of Rs. 24,06,817 towards alleged commission payments.
2. Because, while affirming the addition of Rs. 24,06,817 as aforesaid, learned ‘CIT (Appeals)’ has erred and failed to appreciate that: - a. Learned ‘CIT (Appeals)’ himself had found that there was no evidence of payment of alleged commission. b. All sales and purchases made by the ‘appellant’ were against supply and receipt of goods and the papers and documents impounded during the course of the survey proceedings in the case of ‘appellant’ itself showed that goods were actually received and supplied against purchase and sale transactions c. The ‘AO’ had accepted books of accounts and no defects were found therein and the method of accounting employed.
A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. d. The ‘AO’ herself had recorded finding that the alleged sale and purchase transactions made by the ‘appellant’ treated as ‘circular trading’ were duly recorded in the books of accounts and profit had also been declared on such transactions. e. Even the statements of various persons as were relied upon by the ‘AO’ were not supplied to the ‘appellant’ and no such person was allowed to be cross examined by the ‘appellant’. Further, there was no statement of any person brought on record to suggest that goods were not supplied or received against the sales and purchase transactions.
3. Because learned ‘CIT (Appeals)’ failed to appreciate that no addition could be made and sustained even on the basis of alleged circular trading and inflated turnover, unless it is established that any income was generated to the ‘appellant’.
4. Because additions sustained by learned ‘CIT (Appeals)’ @ 0.3% is arbitrary and without any basis and deserves to be deleted.
5. Because learned ‘CIT (Appeals)’ failed to appreciate that assumption of the ‘AO’ that alleged circular trading were made to secure higher bank credits and even if so, there was no evidence that same created any ‘income’ or ‘deemed income’ chargeable to tax.
6. Because the order appealed against is illegal, contrary to the facts, material on record, law and principles of natural justice.” A.Y. 2018-19 1. Because in the facts and circumstances of the case, material available on record and on due consideration of the submissions made, learned ‘CIT (Appeals)’ has erred in confirming addition of Rs. 3,16,93,544 under section 69C towards alleged commission payments.
2. Because, while affirming the addition of Rs. 3,16,93,544 as aforesaid, learned ‘CIT (Appeals)’ has erred and failed to appreciate that: - a. Learned ‘CIT (Appeals)’ himself had found that there was no evidence of payment of alleged commission. b. All sales and purchases made by the ‘appellant’ were against supply and receipt of goods and the papers and documents impounded during the course of the survey proceedings in the case of ‘appellant’ itself showed that goods were actually received and supplied against purchase and sale transactions A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. c. The ‘AO’ had accepted books of accounts and no defects were found therein and the method of accounting employed. d. The ‘AO’ herself had recorded finding that the alleged sale and purchase transactions made by the ‘appellant’ treated as ‘circular trading’ were duly recorded in the books of accounts and profit had also been declared on such transactions. e. Even the statements of various persons as were relied upon by the ‘AO’ were not supplied to the ‘appellant’ and no such person was allowed to be cross examined by the ‘appellant’. Further, there was no statement of any person brought on record to suggest that goods were not supplied or received against the sales and purchase transactions.
3. Because, while affirming the addition of Rs. 3,16,93,544, as aforesaid, learned ‘CIT (Appeals)’ has erred and failed to appreciate that the ‘AO’ herself in the subsequent assessments made by her for assessment year 2016-17, 2017-18 and 2019-20, under almost same set of facts and circumstances had not: - a. made any addition under section 69C of the ‘Act’ but only as income. b. treated the sum of alleged circular sales and purchases as base for making addition and therefore, there was no reason for him to sustain the part of addition made by the ‘AO’ under section 69C and that too on sum total of alleged circular sales and purchases. The order passed by learned ‘CIT (Appeals)’ is contrary to findings recorded by him in this regard to assessment year 2016 -17 and 2019 - 20.
4. Because learned ‘CIT (Appeals)’ failed to appreciate that no addition could be made and sustained even on the basis of alleged circular trading and inflated turnover, unless it is established that any income was generated to the ‘appellant’.
5. Because learned ‘CIT (Appeals)’ failed to appreciate that any addition under section 69C could not be sustained unless there was any evidence of unaccounted outflow of funds.
6. Because additions sustained by learned ‘CIT (Appeals)’ @ 0.3% is arbitrary and without any basis and deserves to be deleted.
Because learned ‘CIT (Appeals)’ failed to appreciate that assumption of the ‘AO’ that alleged circular trading were made to secure higher bank credits and even if so, there was no evidence that same created any ‘income’ or ‘deemed income’ chargeable to tax.
Because the order appealed against is illegal, contrary to the facts, material on record, law and principles of natural justice.” ; A.Y. 2019-20 A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd.
1. Because in the facts and circumstances of the case, material available on record and on due consideration of the submissions made, learned ‘CIT (Appeals)’ has erred in confirming addition of Rs. 55,70,876 towards alleged commission payments.
2. Because, while affirming the addition of Rs. 55,70,876 as aforesaid, learned ‘CIT (Appeals)’ has erred and failed to appreciate that: - a. Learned ‘CIT (Appeals)’ himself had found that there was no evidence of payment of alleged commission. b. All sales and purchases made by the ‘appellant’ were against supply and receipt of goods and the papers and documents impounded during the course of the survey proceedings in the case of ‘appellant’ itself showed that goods were actually received and supplied against purchase and sale transactions c. The ‘AO’ had accepted books of accounts and no defects were found therein and the method of accounting employed. d. The ‘AO’ herself had recorded finding that the alleged sale and purchase transactions made by the ‘appellant’ treated as ‘circular trading’ were duly recorded in the books of accounts and profit had also been declared on such transactions. e. Even the statements of various persons as were relied upon by the ‘AO’ were not supplied to the ‘appellant’ and no such person was allowed to be cross examined by the ‘appellant’. Further, there was no statement of any person brought on record to suggest that goods were not supplied or received against the sales and purchase transactions.
3. Because learned ‘CIT (Appeals)’ failed to appreciate that no addition could be made and sustained even on the basis of alleged circular trading and inflated turnover, unless it is established that any income was generated to the ‘appellant’.
4. Because additions sustained by learned ‘CIT (Appeals)’ @ 0.3% is arbitrary and without any basis and deserves to be deleted.
5. Because learned ‘CIT (Appeals)’ failed to appreciate that assumption of the ‘AO’ that alleged circular trading were made to secure higher bank credits and even if so, there was no evidence that same created any ‘income’ or ‘deemed income’ chargeable to tax.
Because the order appealed against is illegal, contrary to the facts, material on record, law and principles of natural justice.”
The revenue has raised the following grounds of appeal:
A.Y. 2016-17 i. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the estimated expenses @ 0.3% as against A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. disallowance made by the assessing officer @ 3% of the circular trading on account of replacement for a bank guarantee payment after considering the incriminating material available on record even when the assessee and other concerned entities which are indulged in the circular trading has admitted to have carried out circular trading and no plausible reasons were given for carrying out circular trading." A.Y. 2018-19 i. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the estimated expenses @ 0.3% as against disallowance made by the assessing officer @ 3% of the circular trading on account of replacement for a bank guarantee payment after considering the incriminating material available on record even when the assessee and other concerned entities which are indulged in the circular trading has admitted to have carried out circular trading and no plausible reasons were given for carrying out circular trading." ITA No. 1495/Mum/2025; A.Y. 2019-20 i. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the commission payment @0.3% as against disallowance made by the assessing officer @ 3% of the circular trading on account of replacement for a bank guarantee payment after considering the incriminating material available on record even when the assessee and other concerned entities which are indulged in the circular trading has admitted to have carried out circular trading and no plausible reasons were given for carrying out circular trading?" ii. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.92,25,000/- made by the AO u/s. 69A of the Act without appreciating that the director of the assessee company admitted in his statement on oath about modes operandi regarding receiving cash back (after deduction commission of the trust) from various trust after donation payment made through RTGS?" iii. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.7,75,000/- made by the AO u/s. 69C of the Act without appreciating that the director of the assessee company admitted in his statement on oath about modes operandi regarding receiving cash back (after deduction commission of the trust) from various trust after donation payment made through RTGS?"
Sole issue involved in these appeals relates to the allegation that the assessee was engaged in circular trading along with two other entities viz. M/s.
A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. KGR Enterprises Pvt. Ltd. and M/s. Krishna Enterprises as found during the course of survey proceedings carried out in the case of assessee on 18.05.2019 as a part of the searches conducted in the cases of M/s. Perfect Mobiles & Communications (India) Pvt. Ltd., M/s. KGR Enterprises Pvt. Ltd. and other associated entities.
Since common facts and issues are involved, A.Y. 2018-19 is taken as lead case. and ITA No. 1494/Mum/2025; A.Y. 2018-19 6. Brief facts of the case are that the assessee is engaged in the business of distribution of mobile phones, sim cards and laptops, etc. The assessee had filed return for A.Y. 2018-19 on 05.11.2018 declaring total income of Rs. 30,96,76,210/-. Pursuant to the survey conducted on 18.05.2019, the case was selected for scrutiny. It was observed by the Ld. AO that the assessee had been carrying out circular trading with M/s. KGR Enterprises Pvt. Ltd. and M/s. Krishna Enterprises. During the relevant year, the turnover of circular trading was as under: Sales (Rs.) Purchase (Rs.) M/s. KGR Enterprises 37,60,62,457/- 513,38,07,219/- Pvt. Ltd. M/s. Krishna 493,11,84,313/- Rs.12,34,60,709/- Enterprises Total 530,72,46,770/- 525,72,67,929/- 7. On total of sales and purchases amounting to Rs. 1056,45,14,699/-, the ld. AO applied a rate of 3% as commission earned and added Rs. 31,69,35.440/- A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. under Section 69C of the Act. It was held by the Ld. AO that these entities entered into circular trading transactions to inflate the turnover in the books of accounts. They issued invoices for this purpose without any actual movement of goods. Since the assessee took substantial credit facilities from various banks, the purpose of circular trading was to show inflated turnover to procure higher credit limits of Rs. 46.52 crores. Such circular trading has been in replacement for a guarantee payment to the banks. Ld. AO estimated the commission that must have been charged on inflated purchases and sales @3% of total sales and purchases booked through circular trading. Assessment was accordingly completed u/s. 143(3) at an income of Rs. 62,66,11,650/- after making addition of Rs. 31,69,35,440/- u/s. 69C of the Act on which Section 115BBE has been applied.
8. Aggrieved by the order of Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) while upholding the order of Ld. AO regarding circular trading being the basis of addition, however, reduced the rate applied on total sales and purchases from 3% to 0.3%, thereby allowing relief to the tune of Rs. 28,52,41,896/-. Aggrieved with the order of Ld. CIT(A), both the assessee and the revenue are in appeal before the Tribunal.
We have heard the rival submissions at length. The written submissions filed by the Ld. AR as well as the Ld. DR have been taken on record and carefully A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. perused. During the course of arguments, Ld. AR has pointed out that the issue stands covered in the case of other two entities alleged to be involved in circular trading viz. M/s. Krishna Enterprises and M/s. KGR Enterprises Pvt. Ltd. by the orders of the coordinate Benches. He has further submitted that the same issue in the case of M/s. KGR Enterprises has been decided in assessee’s favour in the order of coordinate Bench dated 26.09.2024 in 1585, 1586, 1587 & 1588/Mum/2024 and also in the case of Mr. Dhiraj Harish Khialani vs. ACIT, ITA Nos. 5485 to 5487/Mum/2024, order dated 30.05.2025 copies of which have been filed during the proceedings. Mr. Dhiraj Harish Khialani is the proprietor of M/s. Krishna Enterprises which is alleged to have entered into the circular trading transactions along with the assessee with M/s. KGR Enterprises Pvt. Ltd. Accordingly, additions have been made in all three cases for different years on the same premise that these entities have indulged in circular trading. The Hon'ble coordinate Bench while deciding the issue in the case of M/s. Krishna Enterprises, the proprietary concern of Mr. Dhiraj Harish Khialani have held as under: "14. The brief facts are that the Id. AO based on the information the basis of survey conducted by DDIT (Investigation)-Unit-5 on M/s. Priyanka Communications (India) Pvt Ltd, found that three entities M/s. KGR Enterprises Pvt. Ltd., M/s..Krishna Enterprises (assessee) and M/s. Priyanka Communications (India) Pvt. Ltd, were doing circular trading. From the information it was found that item sold to M/s. Priyanka Communications (India) Pvt Ltd, have reached to final place of M/s.KGR Enterprises Pvt. Ltd., through M/s. Krishna Enterprises. The same quantity of stock was sold by M/s. KGR Enterprises to M/s. Priyanka Communications (India) Pvt. Ltd, and on the same date, KGR Enterprises has purchased the same amount of stock from M/s. Krishna Enterprises for the same amount. In the statement of A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. Kailash Karamchandani recorded u/s/131, had explained the transaction and the relevant questions and answers have been reproduced in the assessment order. Thus, Id. AO has concluded that there was circular trading amongst these three entities and thereafter, he has estimated 3% of commission both on sales and purchases and worked out commission income of Rs. 1,51,63,935/- on total sale and purchase of Rs.505,46,45,064/-. Thereafter, Id. AO has also disallowed salary and wages and commission debited to the profit and loss account of Rs.24,02,441/- and Rs. 19,33,333/-respectively. The ld. AO in his rectification order had enhanced addition of Rs.28,89,80,016/- by taking quantum of sales and purchase aggregating to Rs.963,26,67,223/-.
The Id. CIT (A) held that there cannot be any doubt that the Circular trading has been entered by these three entities and only dispute is with regard to estimate of such expenses. The ld. CIT (A) has reduced the commission @1% after observing and holding as under:- "In this regard it is seen that the jurisdictional Hon'ble Mumbai ITAT has adopted a rate ranging from 0.15% of sales and purchases to 2% of the sales and purchases for estimating the expenses incurred in respect of such kind of bogus trading. In the case of Goldstar Finvest P. Ltd. Mumbai vs DCIT (ITA NO.74/Mum/2015], the Hon'ble Mumbai ITAT has adopted a rate of 0.15% for estimating the unexplained expenses in the case of Income [ITA Department of No.1128/Mum/2012), the Hon'ble Mumbai ITAT has adopted the Spanco Ltd Vs Tax rate of 0.25%. However, in the case of ITO 10(2)(4), Mumbai vs Moonlight Electrical [ITA No. 7344/Mum/2016), the Hon'ble Mumbai ITAT has adopted the rate of 2% for estimating the unexplained expenditure for such kind of bogus trading. It is also seen that the Hon'ble Ahemdabad ITAT in the case of Arman Fashion Pvt Ltd v ITO [ITA no. 2400 and 2407/Ahd/2012] in similar case of bogus circular trading for fulfilling the "turnover" criteria of banks for getting finance, had restricted the addition made by the AO by adopting the rate of 0.05% of the total turnover It is of JCIT (OSD) v Pradip Overseas Ltd [ITA No. 790/Ahd/2018) in a yet again similar case of circular trading had estimated the expenses by adopting the rate of 0.3% of the circular trading purchases. As already mentioned above, on similar grounds, in the case of the other trading partner ie KGR Enterprises Pvt Ltd, the rate of 1% had been adopted at the end of the appellate proceedings before CIT(A) vide appellate order dated 02.02 2024. 8.3.4 Thus one thing which clearly emerges is that the rate adopted by the AO for estimating the expenses is indeed on a higher side. Also it is also seen that the appellant has not denied the fact that there was circular trading Once it is established that circular trading had been entered into, it is but obvious that expenses would also have been incurred for this purpose. It is also clear that the appellant has not been able to demonstrate as to how such expenses in respect of such circular trading have been incurred and recorded in the books A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. of accounts. Accordingly, respectfully following the Hon'ble Mumbai ITAT and the Ahmedabad ITAT and after considering the facts and circumstances of the case, it would be fair and reasonable if the rate of 1% is adopted for estimating the unexplained expenditure u/s 69C of the Act in respect of such circular trading As already mentioned above, on similar grounds, in the case of the other trading partner ie KGR Enterprises Pvt Ltd, the rate of 1% had been adopted at the end of the appellate proceedings before CIT(A) vide order dated 02.02.2024. Accordingly, the addition made by the AO is restricted to 1% of the sales and purchases in respect of such circular trading. As already mentioned the addition is, however, to be made u/s 69C of the Act.
With regard to disallowance of salary and wages and disallowance of commission Ld. CIT (A) has sustained the addition by reducing the disallowance restricted to 50%. Thus addition has been sustained on adhoc basis.
We have heard both the parties and also perused the relevant finding given by Ld. AO and Ld. CIT(A). As noted in the earlier appeals, the entire premise of the ld. AO to impute 3% commission on entire sales and purchase is based on the fact that during the survey it was found that three entities namely KGR Enterprises Put. Ltd.; Priyanka Communications (India) Pvt. Ltd., and M/s. Krishna Enterprises(assessee) were indulged in circular trading and same quantity and value of goods were purchased and sold amongst each other. According to the Ld. AO, M/s KGR Enterprises might have paid commission @3% and therefore, he has estimated 3% commission, both on purchase as well as on sales. The Id. CIT (A) has reduced the estimate of commission from 3% to 1% following certain decisions of the Tribunal.
18. Now, whether at all there could be any estimated commission on such circular trading or not, then there has to be some finding or information in the case of KGR Enterprises that it has paid certain commission or there is any material or evidence found in the course of search/survey in the case of KGR Enterprises that some unaccounted commission has been paid. As noted earlier, in the various statements including of Kailash Karamchandani, director of M/s. KGR Enterprises Pvt. Ltd., nowhere he has stated that any kind of commission was paid to the assessee, in fact he has stated that there is no benefit being passed on to any of the parties nor there is any profit element. This entire exercise of circular trading was done by KGR for the purpose of saving on by replacement of bank guarantee payment. It has been brought on record that same Assessing Officer while making the assessment in the case of KGR Enterprises Put. Ltd. in the assessment order u/s 153A has neither held nor observed that any kind of commission was paid to Krishna Enterprises by KGR Enterprises. From the perusal of the assessment order of KGR Enterprises Pvt. Ltd., (the copy of which has been placed from paper book from pages 20-41 wherein the order u/s.153A has been passed), there is a A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. detailed discussion about this circular trading, and ld. AO has referred to various statements and inquiries conducted. In that case, nowhere ld. AO has made any allegation or addition has been made for payment of any such commission to the assessee. In that case ld. AO has estimated expenses @3% of total sale and purchase booked through circular trading. If in the case of KGR, it has been found that KGR itself was the beneficiary of circular trading and expenses has been estimated in the case of KGR and there is no finding that KGR has paid any kind of commission to the assessee nor there is any addition made there, then in the case of the assessee no commission/income can be presumed or estimated on sales and purchases. In such a situation and circumstances no addition can be made in the hands of the assessee. Accordingly, addition made by the ld. AO and partly sustained by the ld. CIT (A) on adhoc basis is deleted.”
We note that the common transactions and identical issues are involved in the present appeal also as the entire issue of circular trading had come to light during the course of search and survey conducted in the case of M/s. KGR Enterprises and the assessee due to which in the cases of the assessee as well as M/s. Krishna Enterprises, additions have been made on the ground that they have indulged in circular trading along with M/s. KGR Enterprises Pvt. Ltd. We further note that Ld. AO has not rejected the books of accounts of the assessee nor incriminating material found during the search/survey proceeding indicating any out of books transactions, payment or receipt of any commission etc. Under these circumstance no addition u/s. 69C could have been made. Moreover, the show cause notice was issued for the reason that the commission must have been charged on the circular trading transactions which was estimated @3% by the AO. However, in the remand report dated 30.10.2023 submitted to Ld. CIT(A), the Ld. AO has stated that addition has been made by A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. way of disallowance of expenses. Thus, the assertion in the remand report is at variance with the reasons mentioned in the assessment order.
In view of above stated facts and circumstances and respectfully following the decision of the coordinate Bench in the case of M/s. Krishna Enterprises (supra), we delete entire addition made by the Ld. AO on account of commission which has been partly confirmed by Ld. CIT(A) by reducing the rate from 3% to 0.3% of the sales and purchases turnover.
Accordingly, the appeal of the assessee is allowed and appeal of the revenue is dismissed. A.Y. 2016-17 & A.Y. 2016-17 13. As the same issue is involved in this year also with the sole difference being that addition @ 3% of total sales and purchases has been made as business income and not u/s. 69C as in A.Y. 2018-19. Further, the circular trading quantum has been taken on the basis of transactions made between M/s. KGR Enterprises and M/s. Krishna Enterprises. As the facts and circumstances remains the same, and the reassessment proceedings have been initiated on the basis of the same survey action, the decision for A.Y. 2018-19 will apply mutatis mutandis to this year also.
Accordingly, revenue’s appeal against Ld. CIT(A)’s order granting relief of Rs. 2,16,61,358/- (by restricting the addition to 0.3% against 3% made by Ld. A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. AO) is dismissed and assessee’s appeal against addition of Rs. 24,06,817/- sustained by Ld. CIT(A) is allowed. A.Y. 2019-20 & ITA No. 1495/Mum/2025; A.Y. 2019-20 15. In this year, besides the addition on account of circular trading, another issue pertains to donations added u/s. 69A on protective basis. Ground No. 1 : Circular trading 16. Ld. CIT(A) has reduced the addition on account of circular trading computed by Ld. AO @3%, as business income to 0.3%, thus, giving relief of Rs. 5,01,37,87/- and sustained Rs. 55,70,876/-. As the facts and circumstances relating to the addition made on account of circular trading are identical to A.Y. 2018-19, the decision of that year will apply mutatis mutandis to A.Y. 2019-20 also. Accordingly, assessee’s appeal on this ground is allowed and revenue’s appeal is dismissed. Ground no. 2 Bogus donation 17. On the issue of bogus donation made by the assessee which have been added by the Ld. AO on protective basis, Ld. CIT(A) has allowed the assessee’s appeal.
The Revenue is in appeal before the Tribunal against the deletion of addition on account of donation made by the assessee to three different entities. Brief facts in this regard are that the Ld. AO held that the donation amounting A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. to Rs. 92,25,000/- made by the assessee to the following trusts were bogus and cash was received back by the assessee: - i. Shrimad Rajchandra Aatma Tatva Research Centre ii. Asiatic Charitable Trust iii. Shramik Naari Sangh These additions were made on protective basis in the hands of the assessee for the reason that substantive addition were made in the case of Shri Manish Agarwal, Director of the assessee company. Further, an addition of Rs. 7,75,000/- was also made u/s. 69C towards commission payment on these bogus donations. Ld. CIT(A) has deleted the protective addition and also the addition on account of commission.
We have heard the rival submissions. During the course of proceedings, Ld. DR was directed to furnish status report with regard to these donations treated as bogus in the hands of the trusts, which has been placed on record. With regard to the substantive addition in the hands of the Shri Manish Agarwal, Director of the assessee company, Ld. DR has not made any submission to counter the claim of the assessee that no substantive assessment order has been passed till date in the case of Shri Manish Agarwal.
We note that Ld. CIT(A) has deleted the protective addition in the hands of the assessee with the following observations.
A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. “24.3.1 The facts of the case of the appellant are that during the A.Y.2019-20 the appellant made donation of Rs.1,00,00,000/- to Shrimad Rajchandra Aatma Tatva Research Centre, Shramik Naari Sangh and Asiatic Charitable Trust. A survey was conducted in the case of the appellant company u/s.133A of the Act. During the survey proceedings, Shri Deepak Mulik, an employee of the assessee company had stated that donation given to the trust was received back in cash after retaining commission by the trust. For verification of the genuineness of the donation, a survey u/s.133A was carried out in the case of Shrimad Rajchandra Aatma Tatva Research Centre, Shramik Naari Sangh and Asiatic Charitable Trust. During the course of survey proceedings in the case of trusts, statements of Shri Naresh Chheda and Shri Sanjay Gala were recorded. In their statements, they had stated about the modus operandi of giving the donation back to various assesses after retaining commission @7% and 8.5%. The AO stated that the appellant had submitted that no cash was received back and also the amount of Rs.1,00,00,000/- debited as donation in the profit and loss account was added back in the computation of total income. Therefore, no addition should be made. However, the AO was of the view that during the survey proceedings, it was revealed that cash was received back in lieu of donation after retaining commission by the trusts. As the cash received back was not deposited in the bank account and also was not reflected in the cash on hand in the books of the appellant company, therefore, the AO presumed that the cash was taken away by Shri Manish Agarwal, Director of the appellant company. Therefore, the AO proposed substantive addition of Rs. 92,25,000/- being cash received back as deemed dividend u/s.2(22)(e) of the Act in the hands of Shri Manish Agarwal. The AO made protective addition of Rs.92,25,000/- u/s.69A in the hands of the appellant company and also made addition of Rs.7,75,000/- as commission payment u/s.69C of the Act. 24.3.2 During the appellate proceedings, the appellant has reiterated that the donation of Rs.1,00,00,000/- was made by RTGS and thus the source was explained. Further, the donation of Rs.1,00,00,00/- debited in the profit and loss account was added back in the computation of total income. Further, no deduction has been claimed u/s.80G or u/s.35AC of the Act. 24.3.3 On perusal of the return of income, it is seen that the appellant company had added back Rs.1,00,00,000/- in respect of donation in the computation of total income. Further, no claim has been made u/s.80G or u/s.35AC in respect of such donation payment. Thus, the source of Rs.1,00,00,000/- has been explained by the appellant and no claim of deduction either in the profit and loss account or u/s.35AC or u/s.80G has been made by the appellant. Therefore, neither the expenditure can be disallowed nor any deduction u/s.35AC or u/s.80G can be disallowed. Even if it is presumed that commission was paid for cash received back , the source of such commission is part of the amount of Rs.1,00,00,000/-. Such expenditure has been incurred from the books of account and it has been explained. Therefore, no addition A.Ys. 2016-17, 2018-19 & 2019-20 Priyanka Communications India Pvt. Ltd. u/s.69C is sustainable in respect of addition of Rs.7,75,00/- u/s.69C of the Act. As far as addition of Rs.92,25,000 is concerned, the AO has made protective addition in the hands of the appellant company and substantive addition in the hands of Shri Manish Agarwal. As the AO has made protective addition, protective addition cannot be sustained in the appellate proceedings. Therefore, the addition of Rs.92,25,000/- made u/s.69A is also deleted.”
Under these facts and circumstances, we find no reason to interfere with the order of Ld. CIT(A) which is therefore upheld on this issue.
Revenue’s appeal on this ground is accordingly dismissed. In the result, all the three appeals filed by the assessee are allowed and appeals filed by the revenue are dismissed.
Order pronounced in the open court on 29.08.2025.