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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 3,73,23,412/- made on account of commission charged @ 2% on bogus sales. The assessee claimed to be an accommodation entry provider in the wholesale grains business.
Held
The Tribunal held that the assessee failed to prove any actual business activity and that his turnover represented accommodation entries. However, the addition made by the AO at 2% was deleted as the assessee admitted to earning commission on quantity from Rs. 1 to Rs. 1.5 per quintal.
Key Issues
Whether the addition made by the AO @ 2% on bogus sales is justified, or if the commission should be assessed as per the assessee's claim or as determined by the tribunal.
Sections Cited
143(3), 131(1A), 145(3)
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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SMT. ANNAPURNA GUPTA
ORDER
PER SATBEER SINGH GODARA, JM
This Revenue’s appeal for assessment year 2019-20, arises against the Commissioner of Income Tax (Appeals)-27 [in short, the “CIT(A)”], New Delhi’s order dated 05.07.2023 passed in case no. CIT(A), Delhi-27/10789/2018-19, involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties at length. Case file perused.
The Revenue raises the following substantive grounds in the instant appeal:
1. 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is right in deleting the addition of Rs. 3,73,23,412/- on account of commission charged @ 2% on bogus sales, even when the assessee himself admitted in his statement recorded during the survey that he used to charge commission for providing accommodation entries for bogus purchases and expenditure.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in allowing the appeal of the assessee by applying the rate of commission at Rs. 1.5/quintal on the total quantity of food grains, ignoring the fact that the role of an entry operator is to provide entries on percentage or commission basis on total quantum as no actual physical movement of goods is involved.
3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in calculating the commission at Rs. 1.5 per quintal ignoring the fact that accommodation entries are provided on the amount of transaction rather than the quantity of goods for which bogus billing is done.
4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in allowing the appeal of the assessee by applying the rate of commission at Rs. 1.5/quintal on the total quantity of food grains, ignoring the fact that the assessee himself claimed to have engaged in variety of grains such as wheat, pulses, rice etc. and it is incomprehensible that how can a single rate of commission can be charged on quantities of all grains, whereas in reality, commission is always charged on the total amount of entries provided by the entry provider.
5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in allowing the appeal of the assessee ignoring the fact that appellant in his statement recorded himself accepted that no stock details are maintained by him as no physical stock was kept in godown thereby establishing that assessee was earning commission income on quantum of fake bills provided.
6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)is correct in allowing the returned income of the assessee as his commission income and not enhancing the income of the assesese due to unaccounted commission income which the assessee has admitted to have earned during the course of survey proceedings in his statement recorded. 7 (a) Whether on law and facts of the case the order of the Ld. CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant 2 | P a g e craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.
2. Both the learned representatives next invited our attention to the CIT(A)’s lower appellate discussion assessing only the commission income in the assessee’s case as under: “6.4 The appellant is proprietor of M/s Shri Balaji Associates and claimed to be engaged in the business of trading of food grain such as wheat, rice, pulses etc. on commission basis. The AO in assessment order has mentioned that during assessment proceedings, the appellant only produced purchase ledgers and cash ledgers but any documentary evidence such as bills/vouchers, proof of transportation, address of godowns etc. were not provided. Thereafter, the AO in assessment order made observation that the appellant was not engaged in any trading business of grains as claimed by the him. 6.4.1 The appellant in his statement dated 22.09.2018 recorded on oath u/s 131(1A) of the Act: ➤ In response to Q. 9 stated as under: "Q.9 Please state where the books of accounts of the firm maintained and in what form? Ans: All the books of accounts are maintained in this shop only. The books are maintained by accountant Govind Sharma. The books of account are maintained in soft form in tally on the laptop since 2012- 13. My books of accounts and laptop containing books of accounts has been stolen from my car last week. I am providing copy of FIR dated 17-9-2018 filed with Mukharjee Nagar Police Station. Hence, I do not have the same right now. I have some data backup with my accountant and he is out of station. Hence, I will provide the same by Wednesday in your office." ➤ In response to Q. 11 stated as under: "Q. 11 Please state whether any supporting documents for sale transactions maintained? Ans: No Sir, as I explained above, I provide bills only, hence, no other documents except bill is available." 3 | P a g e Page 15 of 20 ➤In response to Q. 16 stated as under: "Q. 16 Please produce the stock register for the period 1-4-2018 to till date and state the position of stock as on date. Also state where the stock is kept? Ans: No stock register is maintained in our office as there is no stock." 6.4.2 From the assessment order of the Id. AO and above extracts of the statement dated 22.09.2018 recorded on oath u/s 131(1A) of the Act of the appellant, the following are observed: During survey proceedings, the appellant could not produce books of accounts. The laptop containing books of account was already stolen. The appellant in his statement admitted that he provides bills only. The appellant in his statement admitted that no stock register is maintained. The appellant in his statement admitted that no physical stock was kept in any godown as there was actually no physical stock. The Id. AO in assessment order has clearly noted that the appellant during assessment proceedings failed to discharge his onus to establish that expenses towards purchases were actually made. Also, the appellant failed to produce any documentary evidence in support of his claim of purchases. 6.4.3 Now, at appellate stage also, the appellant has not furnished any such documentary evidence to rebut the view taken by the Id. AO in assessment order, therefore, there is no reason to interfere the conclusion of the Id. AO that appellant was not engaged in any trading business of grains during the year under consideration. 6.5 However, it is also observed that during the assessment stage the Id. AO has neither doubted nor rejected books of accounts u/s 145(3) of the Act. 6.6 Issue of fake bills: 6.6.1 From the assessment order, it is clear that during the survey operation no such incriminating material was found. The Id. AO has only relied upon statement of the appellant dated 22.09.2018 recorded on oath u/s 131(1A) of the Act to conclude that the appellant was providing accommodation entries on commission basis in the 4 | P a g e garb of food grain business and made addition of Rs. 3,73,23,412/- by charging commission @ 2% on total sales of Rs. 190,18,50,149/-. However, it is observed that: No inquiry was made at post survey proceedings by Investigation Wing that how much commission was charged by the appellant to provide sales bills. During the assessment stage also, no specific inquiry was made by the AO to ascertain the actual rate of commission charged from the farmers/mill owners. The AO has not made any effort to differentiate that to which parties sales were genuine and to whom sales were fake. The AO on the basis of the statement of the appellant has considered total sales made by the appellant as bogus and fake. The AO has totally relied upon part of the statement of the appellant for completing the assessment. The AO in assessment order has not mentioned any basis or working to conclude that the appellant had charged commission @ 2% as in the statement dated 22.09.2018, it was no where admitted by the appellant. 6.6.2 The fact of the case is that the appellant is actually an Ahartiya. The working of Ahratiyas is as under: i. Ahartiyas procure agricultural produce from Agriculturists generally on short term credit. ii. After procurement, Ahartiya shows sample of the agricultural products to the prospective buyers/millers. iii. Once sample is approved by the buyer, rate and quantity is settled. iv. On getting green signal from Ahartiya, the agriculturist offloads the products in the premises of the buyer. v. "Ahartiya" submits bills to the buyer as per the recorded weight of the goods as per the rates already settled between Ahartiya and the buyer/miller. vi. On receipt of the payment from buyer, Ahartiya further makes the payment to agriculturist generally in cash after withdrawing the amount from his bank account. vii. In this process, Ahritya earns some commission from buyer and also sometimes from agriculturists. Thus, Ahratiyas has to put into a lot of efforts to earn Ahrat or commission in this working system. 6.6.3 Now the efforts involved in issuing the fake bills are as under:
5 | P a g e i. Invoice is raised to the mill owner. ii. On receipt of money in the bank account, make the withdrawal, deduct the commission part and return the balance cash to the mill owner. iii. The statutory compliances required like maintaining relevant ledgers, books of accounts, filing Income Tax Return/GST Returns, etc. are same as in the case of issuing the genuine bills iv. However, efforts like going to farmers for collecting samples, going to parties to get the samples approved, negotiation of rates, etc. are saved. 6.6.4 Therefore, there is no justification behind the assumption made by the ld. AO that the appellant would have earned commission @ 2% on bogus sales of Rs. 190,18,50,149/-. 6.7 It is further observed that while the addition has been made by the Id. AO on the basis of statement only, the complete statement should have been taken into consideration. It is no appropriate on the part of the Id. AO to pick and choose only that part of the statement which suits him and ignore other facts of the statement. In his statement, the appellant has nowhere admitted that he earns commission on percentage basis of total amount of bill. The appellant admitted that he earns commission on quantity of grains that too from Rs. 1 to Rs. 1.5 per quintal. However, this fact of the case was not considered by the Id. AO while making the addition on account of commission income. 6.7.1 The appellant in his statement dated 22.09.2018 recorded on oath u/s 131(1A) of the Act, in response to Q. 17 stated as under: "Q. 17 Please state how the commission income is calculated? Ans: Commission is not fixed. It varies from Rs. 1 to Rs. 1.5 per quintal. The same has been shown in my ITR. No calculation is available with respect to commission income." 6.7.2 On perusal of stock summary details from 01.04.2018 to 31.03.2019 furnished by the appellant it is observed that total quantity of foods grains for which bills have been issued is 4,49,758.3 quintal. By applying rate of commission at Rs. 1.5/quintal, the commission income earned by the appellant comes to Rs. 6,74,637.45/- (1.5 x 449758.3). The appellant in his ITR has shown business income at Rs. 7,13,591.26/-, which is more than the commission income on bogus sales of Rs. 190,18,50,149/- made by the appellant. Therefore, there remains no basis of addition of Rs. 3,73,23,412/ on account of commission income made by the AO. 6 | P a g e 6.7.3 In view of above discussion, addition of Rs. 3,73,23,412/ on account of commission charged @ 2% on bogus sales made by the Id. AO is deleted and these grounds of appeal are hereby allowed.”
3. Now comes the issue between the parties. There is hardly any dispute that the Revenue’s case places a strong reliance on the assessment findings treating the assessee’s entire sales as bogus whilst adding a sum of Rs.19,39,60,866/- thereby disallowing the assessee’s corresponding purchases. The assessee’s very fair contention before us is that he is in fact an accommodation entry provider in whole sale grains business and deserves to be assessed @ Rs.1.5 per quintal i.e. quantity-wise, in various commodities.
4. We have given our thoughtful consideration to the assessee’s and Revenues’ foregoing vehement rival stands. We do not see any reason to express our concurrence with either party’s arguments in entirety. This is for the precise reason that be it purchases or sales, the assessee has all along failed to prove his actual business activity, which could be held to be deserving assessment as a genuine business income. The necessary inference which would arise therefore is that all his turnover is nothing but represents accommodation entries only.
5. The Revenue at this stage seeks to buttress the point once again that the assessee neither has filed his books of account nor the corresponding bills and vouchers as noted in the assessment discussion dated 30th September, 2021. Mr. Jain’s case, on the other hand, is that going by the assessee’s statement itself, the CIT(A) has assessed him for the impugned commission component @ Rs. 1.5/- only.
We are of the considered view that although the assessee could not be held to be carried out any genuine business activity other than raising false sale/purchase invoices, his endeavor to be assessed only @ Rs.1.5 per quintal at a uniform rate, seems too meagre since involving a detailed exercise and expertise along with all necessary establishment expenses. He has further not even filed the corresponding market comparables in support of the above entry commission rates. Be that as it may, we deem it appropriate in these peculiar facts that a lump sum commission amount of Rs.10 per quintal would be just and proper with a rider that the same shall not treated as a precedent. Learned Assessing Officer is directed to frame his consequential computation, as per law, in very terms.