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Income Tax Appellate Tribunal, “D”, BENCH
Before: SHRI RAM LAL NEGI, JM & SHRI M.BALAGANESH, AM
आदेश / O R D E R PER BENCH: These appeals in & 3056/Mum/2016 for A.Y.2006-07, 2007-08 & 2010-11 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-48, Mumbai in appeal No.CIT(A)-48/IT-239/ACCC-45/2014-15 dated 22/02/2016 (ld.
M/s. Mahendra Brothers CIT(A) in short) against the order of assessment passed u/s.153A r.w.s. 143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 26/03/2014 by the ld. Asst. Commissioner of Income Tax, Central Circle- 45, Mumbai (hereinafter referred to as ld. AO). Since identical issues are involved in these appeals, they were heard together and are being disposed off by this consolidate order, for the sake of convenience.
At the outset, the ld. AR stated that Ground No.1 raised by the assessee in all these three years is not pressed by him for which necessary instructions have already been obtained by him from the assessee. He also stated that the ld. CIT(A) had passed a detailed speaking order on this technical aspect of the ground raised by the assessee. The said statement made by the ld. AR is reckoned as the statement made from the Bar and accordingly, the Ground No.1 raised by the assessee for all the three years is dismissed as not pressed.
2.1. The appeal in A.Y.2016-17 is taken as a lead case and the decision rendered thereon would apply with equal force for A.Y.2007-08 and 2010-11 also except with variance in figures.
2.2. The issue to be decided is as to whether the ld. CIT(A) was justified in upholding the estimation of commission income at 2% of sales in the facts and circumstances of the case. The interconnected issue involved herein is as to whether the ld. CIT(A) was justified in confirming the addition of Rs.5,34,446/- made by the ld. AO by disallowing administrative expenses proportionate to alleged bogus sales as unexplained expenditure in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a partnership firm carrying on business of supply of Iron and Steel items in the name of M/s. Mahendra Brothers Mahendra Borthers. The ld. AO observed that assessee had made certain purchases from Param Commercial Company to the tune of Rs.28,26,204/- and had made sales to Unity Infra Projects Ltd., The ld. AO observed that Param Commercial Company had also confirmed that there was no physical delivery of goods made to the assessee and they were engaged in the business of merely providing accommodation bills. The ld. AO also observed that Unity Infra Projects Pvt. Ltd., also had accepted the fact that the bill issued by the assessee to them was bogus in nature and that no physical delivery of goods had been made by the assessee to Unity Infra Projects Ltd., 3.1. The ld. AO further observed that similar sale of transactions were carried out by the assessee by making purchases from M/s. Dev Steel and sales made to Unity Infra Projects Ltd., to the tune of Rs.53,37,843/-.
3.2. The ld. AO further observed that assessee has shown sales amounting to Rs.5,10,000/- to M/s. Dev Steels against which it claimed to have made purchases from M/s. Akhil Steels to Rs.4,93,200/-. Since the entire business activities carried out by M/s. Dev Steels were already held to be bogus by the ld. AO, this same transaction made by assessee to M/s. Dev Steel also was considered to be bogus.
3.3. With all these discrepancies to record, the ld. AO proceeded to reject the books of accounts and the book results of the assessee u/s.145(3) of the Act and proceeded to treat the assessee as an accommodation bill provider and determined income only in respect of commission thereon at 2% of total sale value of transactions. Accordingly, the ld. AO applied 2% commission of total sale transactions of Rs.86,74,047/- in respect of aforesaid three parties and determined commission income at Rs.1,73,481/- and added the same in the M/s. Mahendra Brothers assessment. The ld. AO further observed that on a total turnover shown by the assessee to the extent of Rs.27,82,16,064/-, the assessee had claimed indirect expenses of Rs.1,71,42,121/-. Since the turnover of the assessee to the extent of Rs.86,74,047/- as detailed above in respect of aforesaid three parties have been identified as bogus sales, the ld. AO observed that indirect expenses attributable to such bogus sales are also would become subject matter of disallowance. Accordingly, he adopted the following formula for allowability of indirect expenses:-
Indirect expenses allowable = Indirect expenses claimed x Turn over as discussed ÷ Total Turnover =17142121 x 269542017 ÷ 278216064 = 16607675 3.4. Accordingly, the ld. AO concluded that the allowability of indirect expenditure would be Rs.16607675/- only and hence, the difference of Rs.534446/- was sought to be disallowed in the assessment. The ld. CIT(A) upheld the action of the ld. AO.
Aggrieved, the assessee is in appeal before us.
We have heard rival submissions. We find that there is no dispute that assessee has been treated as an accommodation bill provider and correspondingly the books of accounts and book results of the assessee has been rejected u/s.145(3) of the Act. Accordingly, the commission income needs to be determined in the hands of the assessee. The moot point is what could be the reasonable rate of commission that could be charged in the hands of accommodation bill provider such as assessee. The ld. DR vehemently relied on the orders of the lower authorities and argued that 2% commission determined by the ld. AO and upheld by the ld. CIT(A) was very reasonable. We find that this percentage seems to be M/s. Mahendra Brothers on a much higher side as the commission income in respect of accommodation bills normally ranges from .10% to .5% and since the ld. AR before us agreed for the adoption of 0.5%, we are inclined to accept the same. Accordingly, we direct the ld. AO to add commission income at 0.5% on alleged bogus sales of Rs.86,74,047/- and determine the commission income accordingly. Accordingly, the Ground No.2 raised by the assessee is partly allowed.
5.1. With regard to disallowance of indirect expenses on the premise that certain indirect expenses could have definitely been incurred by the assessee for exercising the bogus sales, we are inclined to accept the contentions of the lower authorities in this regard, in as much as there is no need to disallow any administrative expenses / indirect expenses such as rent, electricity, office maintenance, telephone etc., as they do not have any barring towards alleged bogus sales made by the assessee.
5.2. Admittedly, the element of indirect expenses becomes an item of debit in the profit and loss account of the assessee and is relevant only for the limited purpose of determination of net profit which is computed after the trading results of the assessee are computed. Pursuant to the computation of trading results, gross profit of the assessee will be computed. Hence, the indirect expenses will not be an item of debit for computation of gross profit and would be relevant only for determining net profit. While this is so, disallowance on part of indirect expenses is attributable to alleged bogus sales would be totally unfair and unwarranted. Hence, we direct the ld. AO to delete the disallowance of indirect expenses made thereon. Accordingly the Ground No.3 raised by the assessee is allowed.
M/s. Mahendra Brothers 5.3. Ground No.4 raised by the assessee is general in nature and does not require any specific adjudication.
In the result, appeal of the assessee for A.Y.2006-07 is partly allowed.
In the result, all the three appeals of the assessee are partly allowed.
Order pronounced in the open court on this 04/09/2019