AVANCE TECHNOLOGIES LIMITED,MUMBAI vs. ACIT, CENTRAL CIRCLE-2(2), MUMBAI

8. That Ld. AO grossly erred in law and in facts of the case in arbitrarily holding the sales made by assessee company to be fictitious and circular transactions and assessing commission of said sales without rejecting books of account of assessee company.

10 That the appellant craves leave to add, alter or delete the above grounds of appeal at the time of hearing.

The case was selected for complete scrutiny. During assessment, the assessing officer noted that assessee-company is a part of Shirish C. Shah group on which a search action under section 132 was carried out in 2013.

This group including Assessee Company was a part of conduit operated and controlled by Shri Shirish C. Shah for providing accommodation entries in the form of bogus turnover, loans and share capital. The assessing officer in para 5 of assessment order has recorded that assessee has shown sale of IT products from three companies namely, IRIS Mediaworks Ltd., Mobile Telecommunication Ltd. and Tejora Telecommunication Ltd aggregating of Rs. 89.91 Crore. The assessee has shown sale to Milap Trading Pvt Ltd and Mobile Telecommunication Ltd aggregating of Rs. 90.80 Crore. Similarly, IRIS Mediaworks Ltd. has also shown certain sale and purchase. Similarly, Empower India Limited also had shown sale and purchase among group companies. The assessing officer accordingly prepared such summary and was of the view that assessee was not engaged in any actual business but providing accommodation entries. The assessing officer also identified sales to non-group entity i.e. Mobile Telecommunication Ltd. aggregating of Rs. 8.30 crore and new investment made during the year of Rs. 20.07 crore. The assessing officer treated investment as well as sales of non-group entity has total turnover of assessee and estimated commission income @ 1.00% thereby added Rs. 28,37,709/- as commission income.

4. Aggrieved by the additions in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed detailed written submission in the form of statement of fact as well as written submission in response to notice under section 250 of the Income Tax Act.

On the addition of commission income, the assessee submitted that pursuant to search action on assessee, group assessment was completed under section 153C for A.Y. 2008-09 to 2014-15. In such assessment orders, the assessee company was treated as conduit operated and maintained by Shri Shirish C. Shah and Devang Master for providing accommodation entries. On the basis of such view, the assessing officer in said assessment proceedings held turnover of assessee as bogus and a window dressing. The investment of assessee was also held to be bogus.

The additions of commission income @ 1.00% of amount of turnover as

per books of account and amount of increase in investment made during the year. However, on further appeal before ld. CIT(A) it was held that no commission should be assessed on intra group transaction. The ld. CIT(A)

treated Empower India Limited, Jump Networks Limited (formerly known as M/s. IRIS Mediaworks Ltd., Tejora Technologies Limited and Mobile Telecommunication Ltd as group company. Copy of such order of ld. CIT(A) was furnished. On the basis of such submission, the assessee submitted that during the year under consideration, the assessing officer also treated the turnover of assessee at Rs. 89.91 crore to be bogus. The ld. AO erroneously treated Mobile Telecommunication Ltd. to be non-group company and added commission income of Rs. 8.30 crore being 1.00% of total turnover. Though, Mobile Telecommunication Ltd. is Group Company.

On the investment of Rs. 20.07 crore, the commission income @ 1.00% that is Rs. 20,07,556/- was also added. Before assessing officer, the assessee furnished various submissions and explained that no such commission income is accessible. Such submission was made vide submission dated 19.12.2019. No cognisance of such submission was taken by assessee.

On the addition of cash deposit, the assessee submitted that their submission dated 19.12.2019 was not considered by assessing officer and treated entire such money as unexplained money. The cash deposit during the demonetization was out of cash withdrawal. The assessee furnished detail of cash withdrawal from IDBI Bank from 13.05.2016 to 08.11.2016 as under:

“13.05.2016 IDBI Bank 6,00,000 17.05.2016 IDBI Bank 4,00,000 20.05.2016 IDBI Bank 7,00,000 27.05.2016 IDBI Bank 5,50,000 30.05.2016 IDBI Bank 5,00,000 27.06.2016 IDBI Bank 7,00,000 22.08.2016 IDBI Bank 5,00,000 08.11.2016 IDBI Bank 9,00,000 Total Rs. 48,50,000/-”

5. The assessee specifically contended that withdrawal of Rs. 9,00,000/- from IDBI Bank on 08.11.2016 itself was not accepted. The assessee has declared profit of more than Rs. 40,00,000/- in its books of account which is in far excess of cash balance deposited during demonetization period.

The assessee further contended that assessee derived commission income for providing accommodation entries and such amount received in cash must have been deposited in the bank account. Thus, the source of cash deposit to that extent is duly explained, which is separately assessed as income of assessee company. There cannot be any reasons for making addition of utilization of said amount as the same will lead to double taxation of same amount. Once as a commission income is added and again added utilization of said commission income. The assessee claimed telescoping of commission income against gross profit and submitted that Tribunal in earlier years in group cases allowed such benefit.

6. The ld. CIT(A) on considering the submission of assessee upheld the addition of commission income on both the counts. The ld. CIT(A) held that during assessment, the assessing officer had brought on record that assessee failed to furnish any evidence to substantiate the genuineness of business such as stock register, delivery challan and movement of goods.

The transactions were found to be circular among closed group of entities.

Where the assessee is found to be Paper Company providing accommodation entries, the method of estimating income by way of commission on quantum of such entry is well accepted and logical course of action to tax the real income. The estimation of 1.00% applied by AO is reasonable, which is not specifically challenged. On a specific objection that Mobile Telecommunication Ltd. is a group company, on which the assessee relied upon finding in A.Y. 2014-15, the ld. CIT(A) held that the onus was on assessee to prove that in current assessment year, the facts of earlier year are squarely applicable, on which the assessee failed to do.

Merely quoting earlier year order is not a sufficient measure. The fact that a different view has been taken in case of other group company is not a binding precedent unless the assessee demonstrate show. On quantum of commission income, the contention of assessee that ld. AO accepted gross profit and could not treat the sale as bogus, was also held to be misplaced.

The ld. CIT(A) held that assessing officer clearly held that entire activities of assessee’s sale being a circular entry and do not reflected any real business activities. Thus, the ld. AO rightly disregarded this entry to tax the real income. The ld. CIT(A) upheld the addition of commission income on investment as well as on sales. On the claim of telescoping that assessee has declared gross profit of Rs. 40,30,158/- in its books relying upon certain decision of bank, the ld. CIT(A) held that for benefit of telescoping the assessee must establish a clear nexus between income declared in the books and the source of addition being made, which the assessee failed.

The gross profit is a figure derived from profit and loss account which is clearly held by ld. AO as sale. Thus, the assessee cannot seek the benefit from figure in the account that is admittedly work of fiction. In absence of any establish link, the claim for telescoping was also rejected.

7. On the addition of cash deposit, the ld. CIT(A) held that assessee has raised two fold submission; firstly, cash was available from earlier withdrawal and secondly it represents the commission income. The ld. CIT(A) held that AO rightly held that cash withdrawal in the past is not sufficient to explain the source direct nexus and co-relation must be established. The assessee has not provided in evidence. The withdrawals were spread over several months and it is not plausible that a large amount of cash was kept idle without any reason, unless it is demonstrated with convincing evidence. On second alternative submission of assessee that cash represent commission income was also held as afterthought and without basis. It was held that if there was a commission income, it should have been offered to tax. The argument of assessee that addition of cash deposit is a double taxation was also rejected by holding that addition of commission income is an estimate on the quantum of bogus transaction provided. The addition under section 69A is for a specific credit entry in the bank account which is not been satisfactory explained. The ld. CIT(A) held that assessee failed to discharge the onus upon it upheld the addition on Rs. 47,51,250/-. The ld. CIT(A) also held that action of assessing officer in taxing the addition at an enhance rate of tax under section 115BBE.

Further, aggrieved the assessee has filed present appeal before Tribunal.

AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue. No submission was made on ground no. 1 & 2 of the appeal, hence, such grounds of appeal are dismissed.

9. Ground No. 2 & 3 relates to the addition of commission income of sale transaction and investment. The ld. AR of the assessee submits that pursuant to the search action, assessment for A.Y. 2009-10 to 2014-15 was completed under section 153C r.w.s. 143(3) by Central Circle. The assessing officer estimated 1.00% commissions on entries provided by assessee. The assessing officer also added 1.00% on new investment.

However, on appeal before ld. CIT(A), it was contended that commission should have been restricted only to the transaction with outside companies and not to the transaction with group companies controlled by Shri Shirish C. Shah, on the logic that no one earn profit from its own. The such contention of assessee was accepted by ld. CIT(A) and held that addition of commission income should be restricted only to investment and sales to outside company. On appeal before Tribunal, the action of ld. CIT(A) was upholding the estimation of commission @ 1.00 % and sales to outside company / parties without disturbing set off of returned income. The ld. AR of the assessee submitted the copy of decision of Tribunal in 3640 to 3645/M/2019 for A.Y. 2009-10 to 2014-15 dated 05.01.2021. The ld. AR of the assessee submits that in fact the ground of appeal raised by assessee is covered to the extent of addition of commission income from intra group entry.

13. On the other hand, the ld Sr DR for the revenue supported the order of ld CIT(A), wherein it is clearly held that benefit of telescoping the assessee must establish a clear nexus between income declared in the books and the source of addition being made, which the assessee failed.

“4.8. Against the said order of the ld. CIT(A), the revenue is not in appeal before us. Since, this Tribunal does not have power of enhancement of income; we are not inclined to disturb the wrong set off of loss as per the return of income (already granted by the ld. AO in the assessment) with the estimated commission income for A.Yrs. 2012-13 and 2013-14. We find with regard to the issue of telescoping of positive income as per the return with the estimated commission income, the issue is already covered in favour of the assessee in the following cases:-

Assessee Date of the order 3646/Mum/2019 2008-09 M/s. Empower India Limited 18/12/2020 3647/Mum/2019 2009-10 M/s. Empower India Limited 18/12/2020

3648/Mum/2019 2010-11 M/s. Empower India Limited 18/12/2020 3649/Mum/2019 2012-13 M/s. Empower India Limited 18/12/2020 3650/Mum/2019 2013-14 M/s. Empower India Limited 18/12/2020 3651/Mum/2019 2014-15 M/s. Empower India Limited 18/12/2020

4.9. In view of the aforesaid observations and respectfully following the aforesaid decision of this Tribunal, we hold that (a) in the A.Y.2008-09 to 2011-12, only estimated commission @1% on investments and sales to outside companies / parties should be considered and the same should be telescoped with the income returned by the assessee for the respective assessment years. (b) in the A.Yrs.2012-13, 2013-14 & 2014-15 only estimated commission @1% and investments and sales to outside companies / parties should be considered without disturbing the set off of returned loss already given by the ld. AO in his assessment order as this Tribunal does not have power of enhancement. The ground Nos. 5 & 6 are disposed of in the above mentioned terms.”

16. Ground no. 5 relates to cash deposit during demonetization period. The ld.

AR of the assessee submits that during assessment as well as ld. CIT(A) stage, the assessee furnished complete source of cash deposit which is from the earlier withdrawals. The assessing officer as well as ld. CIT(A) confirmed the addition on the basis that it is not plausible to kept the large amount as idle. The lower authorities have not allowed the withdrawal of Rs. 9,00,000/- on the day of declaration of demonetization and specified bank notes on 08.11.2016 of Rs. 9,00,000/-

No doubt, there is withdrawal on earlier occasion. However, considering the nature and modus operandi of assessee, it cannot be accepted that entire cash withdrawal was kept idle. Similarly, there is possibility that the same cash amount may have been utilised for providing layered entry transaction, therefore, in order to avoid the possibility of revenue leakage, 10% of Rs. 3,85,125/- is upheld and remaining amount of Rs. 34,66,125/- + Rs. 9,00,000/- are deleted. In the result, ground no. 5 of the appeal is partly allowed.

Order was pronounced in the open Court on 02/01/2026.