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Facts
The Assessing Officer added an amount as commission on alleged non-genuine sales and purchases, treating them as accommodation entries. The assessee claimed that the profit earned was only 0.05% and that no commission expenditure was actually incurred.
Held
The Tribunal, considering previous year's assessment and various judicial precedents, found that the addition made by the Assessing Officer was justifiable in principle but the rate of commission was excessive. Therefore, the addition was restricted to 1% of the total sales.
Key Issues
Whether the addition on account of commission for non-genuine transactions is justifiable, and if so, what is the appropriate rate of commission to be applied.
Sections Cited
147, 69C, 115BBE, 250, 271AAC(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Revenue Department against the order dated 09.12.2024, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2017-18.
Despite of sending notice for the date of hearing on 24.07.2025, the Assessee neither appeared nor filed any adjournment application and therefore, we are constrained to decide this appeal as ex-parte.
In the instant case, the Assessing Officer (AO) vide assessment order dated 23.03.2023 u/s 147 of the Act, treated the amount of Rs.50,57,84,991/- being sale, as non-genuine and accommodation entry and consequently added the amount of Rs.1,51,81,396/- (3% of Rs.50,60,46,547/-) as commission, on such non-genuine transaction, as unexplained expenditure u/s 69C of the Act, by observing and holding as under:
“13.3 From the Statement on oath of Shri Jubin Thakkar, Chairman and Managing Director of the assessee company, it is very much clear that the purchases shown from M/s Blue Sea Commodities Pvt. Ltd. of Rs.50,57,84,991/- are bogus purchases to set off the non-genuine sales, which was done to continue the use of loans taken from bank Accordingly, the entire transactions of purchases aggregating to Rs.50,57,84,991/- are hereby treated as non-genuine and accommodation entries. Since all the purchases by the assessee company are non-genuine and merely in the nature of accommodation entries, consequently all the sales booked by the assessee in its books of accounts are non- genuine and in the nature of accommodation entries only. The assessee has submitted party-wise details of total sales and amount of GST, however, the assessee has failed to furnish the details like address, PAN, copies of bills / invoices, delivery challans and the bank statements highlighting the relevant transactions to prove the genuineness of sales transactions. In absence of these details, the sales booked by the assessee are not verifiable. Further, Shri Jubin Thakkar, Director of the assessee company in his Statement on oath, has agreed that sales made by the assessee company are non-genuine in character. He has further stated that the assessee company had bank loan limits and to continue to use them, he had to inflate the assessee company’s top line or total sales. He also stated that in order to inflate the sales, the assessee had shown non-genuine purchases to set-off the non-genuine sales. All these facts prove that the purchases from the above said part and consequential sales are non-genuine and these transactions do not constitute business transactions and are merely circular in nature. Therefore, the entire sales of Rs.50,60,46,547/- are hereby treated as non-genuine and in the nature of accommodation entries only.
13.4 In this kind of non-genuine / accommodation entries, the commission of approximately 3% is generally charged, which is invariably paid in cash and not accounted for by the assessee. Considering these facts, it is deemed fit to add the commission @
3% of the amount of non-genuine transactions of Rs.50,60,46,547/-. Accordingly, the amount of commission on non-genuine transactions is worked out to Rs.1,51,81,396/- (3% of Rs.50,60,46,547/-) and the same is hereby treated as unexplained expenditure within the meaning of Section 69C of the Act and the same is deemed to be income of the assessee for the year. Further, as per the provisions of Section 115BBE(1) of the Act, tax is to be calculated @ 60% on income referred to in Sections 68, 69, 69A, 69B, 69C and 69D without allowing any deduction in respect of any expenditure or allowance or set off of any loss to the assessee under any provision of this Act. Therefore, the applicable rate of tax is @60% on the above addition of Rs. 1,51,81,396/- u/s.69C of the Act and no deduction or allowance or set off of loss is allowed against such income in view of the provisions of Section 115BBE of the Act. Penalty proceedings u/s.271AAC(1) of the Act are being initiated separately in addition to tax payable u/s.115BBE as the income determined includes income referred to in Section 69C of the Act.
[Addition : 1,51,81,396/-]
The Assessee, being aggrieved, challenged the said addition by filing first appeal before the Ld. Commissioner and in support of its claim contended that the Hon’ble Tribunal in the case of DCIT (10)(2)(2), Mumbai vs. Minex Metallurgical Co. Ltd [ITA No. 7345/Mum/2016] also restricted the addition and reduced the percentage of the commission on alleged bogus purchases from 1% and restricted the addition @ 0.5%. The Assessee further claimed that in the Assessee’s own case also, the then CIT(A) while dealing with the identical issue has granted the part relief and restricted the addition to 1% of the sales.
We observe that the Ld. Commissioner by considering the peculiar facts and circumstances and the submission of the Assessee and various judgments placed on record including in the Assessee’s own case for the A.Y. 2016-17, ultimately restricted the addition on account of commission expenses to 1% of the total sales, by observing and holding as under:
“6.3.1 The facts of the case of the appellant are that during the year the appellant had made purchases of Rs.50,57,84,991/- and sales of Rs.50,60,46,547/- with M/s. Blue Sea Commodities Pvt. Ltd. The investigation carried out by the DGCI and CGST had revealed that M/s. Blue Sea Commodities Pvt. Ltd was involved in fraudulent credit of input tax. The DDIT (Inv.) also carried out investigation and concluded that M/s. Blue Sea Commodities Pvt. Ltd provided accommodation entries without actual delivery of the goods. Subsequently, a survey u/s.133A was carried out in the case of the appellant on 27.01.2021. During the survey proceedings, Shri Jubin Thakkar Chairman & MD of the assessee company had accepted that the purchases made from M/s. Blue Sea Commodities Pvt. Ltd was bogus accommodation entries without any physical delivery of actual goods. During the assessment proceedings, the AO provided opportunity to the appellant to prove the genuineness of the transaction of purchase and sales from various parties. However, the appellant failed to justify the purchase and sales from those parties as genuine. The appellant had availed accommodation entries of purchase and sale, therefore, the AO considering the normal rate of commission for getting such accommodation entries took rate of commission at 3% on sales and made addition of Rs.1,51,81,396/- u/s.69C of the Act.
6.3.2 During the appellate proceedings the appellant submitted that on purchases from and sales to Blue Sea Commodities Pvt. Ltd. profit of Rs.2,61,556/- was earned, which was 0.05%. The appellant referred to provisions of section 69C of the Act and submitted that the company had not incurred any expenditure during the year on account of commission payment, therefore provisions of section 69C of the Act are not applicable. Further no evidence regarding payment of commission was found during the survey proceedings. The appellant also submitted that rate of commission of 3% adopted by the AO is too high. The appellant further submitted that no addition could be made on the basis on surmises and conjecture. For this the appellant relied upon the decision in the case of Omar Salav Mohamed Sait (1959) 37 ITR 151 (SC), ITO V/s Surana Trading 92 ITD 212 (Mum)(para 98)(ITA No. 2826/Mum/2013) , Commissioner of Income Tax vs Sent. Sita Devi Juneja (2010) 325 ITR 593 (P&H), The Jaipur ITAT in the case of Vivek Agarwal [ITA No. 292/JP/2017], The Hon'ble Madras High Court in the case of CIT v Sriram Investments [2017} 77 taxmann.com 113 (Mad).
The appellant also submitted that commission to the extent of 0.05% to 0.15% was reasonable, as held by various judicial authorities. For this the appellant relied upon the decision in the case of ITO 10(2)(4), Mumbai vs Moonlight Electrical [ITA No. 7344/Mum/2016], Spanco Ltd Vs Department Of Income Tax [ITA
No.1128/Mum/2012], Goldstar Finvest P.ltd, Mumbai vs Dcit [ITA NO.74/Mum/2015], DCIT 10(2)(2), Mumbai vs Minex Metallurgical Co. Ltd [ITA No. 7345/Mum/2016]. The appellant also submitted that on identical facts in the case of appellant itself for A.Y. 2016-17 the CIT(A) has restricted the addition to 1% of sales. Thus, the appellant submitted that either the addition should be deleted or it should be restricted.
6.3.3 Identical facts were involved in the case of appellant for A.Y. 2016-17. The AO made addition u/s. 69C of the Act in respect of commission payment on availing accommodation entries of purchase and sales. The CIT(A)-54 Mumbai vide order dated 10.01.2024 in appeal no. CIT (A)-54, Mumbai/10746/2015-16/ in the case of appellant has decided the mater and restricted the addition to the extent of 1% of the sales. During the A.Y. 2017-18 the AO made addition u/s. 69C in respect of purchase and sales from Blue Sea Pvt. Ltd. taking the rate of commission on 3% on total sales. Identical addition was made by the AO in respect of the accommodation entries of purchase and sale taken from Blue Sea Commodities Pvt. Ltd. in A.Y. 2016-17.
For ready reference the relevant part of the decision of the CIT(A) in appellate order for A.Y. 2016-17 are reproduced as under :
8.5 In this regard it is seen that the jurisdictional Hon’ble Mumbai ITAT has adopted a rate ranging from 0.15% of sales to 2% of the sales for estimating the expenses incurred in respect of such accommodation entries. In the case of Goldstar Finvest Pvt. 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 Spanco Ltd. Vs Department of Income Tax [ITA No. 1128/Mum/2012], the Hon’ble Mumbai ITAT has adopted the 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 accommodation entries.
8.6 Respectfully following the Hon’ble Mumbai 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 for such accommodation entries. Accordingly, the addition made by the AO is restricted to 1% of the sales of Rs.6,33,64,813/- in respect of the transactions relating to Blue Sea Commodities Pvt. Ltd. Similarly, in respect of the transactions relating to the Pankaj Metal Centre Pvt. Ltd the addition made by the AO is restricted to 1% of the sales of Rs.37,91,66,766/-. These grounds of appeal are accordingly partly allowed.
There is no change in material facts for A.Y. 2017-18 and A.Y. 2016-17 with respect to addition made by the AO u/s. 69C of the Act for payment of commission @ 3% with respect to purchase and sale made from M/s. Blue Sea Commodities Pvt. ltd. Therefore, following order of the CIT(A) for A.Y. 2016-17 in the case of the appellant, the addition made by the AO u/s. 69C is upheld in principal. However the rate of commission is restricted to 1% of the total sales.
Accordingly, ground no. 2 and 3 of the appeal are Partly Allowed.”
The Ld. Commissioner in effect partly allowed the appeal of the Assessee by restricting the addition from 3% to 1%. The Revenue Department therefore, being aggrieved, has preferred instant appeal mainly on the ground that the Ld. Commissioner though in principle upheld the accommodation entries and the addition u/s 69C of the Act, however, still restricted the addition @ 1%, which is unjustifiable.
We have given thoughtful considerations to the peculiar facts and circumstances of the case and the determination made by the authorities below and observe that the Ld. Commissioner not only considered the peculiar facts and circumstances in totality but also respectively followed the judgment of his predecessor in the Assessee’s own case for the A.Y. 2016-17 as well as other judgments of various courts and ultimately restricted the addition from 3% to 1%. The decision of the Ld. Commissioner in restricting the addition is well reasoned and based on the facts and circumstances and the judgments referred to above and therefore there is no infirmity, impropriety and/or illegality in the order passed by the Ld. Commissioner, thus we are inclined not to interfere in the same. The Appeal under consideration, therefore is liable to be dismissed.
In the result, the appeal filed by the Revenue Department stands dismissed.
Order pronounced in the open court on 29.08.2025.