ASSISTANT COMMISSIONER OF INCOME TAX 12(2)(2), MUMBAI vs. HIGHLAND INDUSTRIES LTD., MUMBAI

This is an appeal filed by the Revenue against the order of CIT(A)- 20, Mumbai dated 13/05/2016 for A.Y.2009-10 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.

In this appeal, Revenue is aggrieved for deleting disallowance of Rs.4,19,03,940/-. The grounds raised by Revenue reads as under:- 1. "Whether on the facts of the case and in law, the Ld. CIT(A) is correct in deleting the disallowance of artificial loss of Rs. 4,19,03,940/- made on account of fictitious transactions with M/s. Temptation Food Ltd., ignoring the fact that the director of assessee company had admitted in statement on oath that this was a fictitious loss.

In this case, appeal was fixed for hearing on 21/02/2018, but nobody appeared on behalf of the assessee. The case was adjourned to 24/04/2018. Even on 24/04/2018, nobody appeared on behalf of the assessee. The case was heard after hearing the argument of learned DR. On 26/05/2018, the case was again put for clarification, so as to give one more opportunity to the assessee and notice was served by RPAD for appearing on 28/05/2018. On 28/05/2018 nobody appeared for the assessee. Bench also directed learned DR to serve the notice. The department also served notice to the assessee and acknowledgment for service of notice was also placed before the Bench vide letter dated 14/06/2018. On 18th June 2018 case was again posted for hearing, however, assessee asked for adjournment and same was granted and case was adjourned to 27/07/2018.

It is clear from the above that assessee does not want to plead its case, nor any adjournment petition was filed. Under these facts and circumstances, Bench decided to dispose the appeal after hearing learned DR and considering the material placed on record. Accordingly it was finally heard on 07/09/2018.

On the basis of such information and after due application of mind by the Assessing Officer, it was found that income earned form commission had escaped assessment. Hence, it was required to reassess the total income of the assessee. As such, notice u/s 148 of the Act was issued on 30.03.2014 and served on the assessee. After reopening the assessment, AO computed income earned by assessee by observing that assessee-company has made purchases of Rs.31.95 Crores from Temptation Foods, the goods purchased from Temptation Foods were sold to Dabu Brothers, Jai Mata Di, Kundan Foods and Toral Fruits amounting to Rs.27.76 Crores. After setting off against fictitious loss created out of transactions between the assessee and Temptation Foods M/s. Highland Industries Ltd., Ltd., accordingly, the addition of Rs.4,19,73,225/- was made by AO by disallowing the artificial loss.

By the impugned order, CIT(A) deleted the addition after observing as under:- “7.5 I have perused the assessment order and submissions made in this regard. It is noted that the A.O. had disallowed the losses amounting to Rs. 4,19,03,940/- after identifying the loss making transactions of the assessee with M/s. Temptation foods. On the other hand the transactions on which profit is earned and shown in books have been accepted by the A.O. It is noted that books of accounts of the assessee were audited and have not been rejected for any fault by the A.O. during assessment proceedings. There is no inquiry done which could establish that the activity on which losses were shown by assessee were bogus. There is merit in the submission of the A/R that only one portion of trading results which led to loss cannot be rejected by the A.O. whereas the profit of accounts of the assessee has been accepted to be correct. The books of accounts were required to be seen in totality and not in piecemeal manner as contemplated by the A.O. It is also noted that on similar facts no addition has been made in the assessee's own case for preceding A.Y.2008-09 and succeeding A.Y. 2012-13. In view of this discussion the addition made by the A.O. of Rs. 4,19,73,225/- is found to be without much basis which cannot be sustained in appeal and is directed to be deleted. Further the A.O. has made addition of Rs.69,825/- commission on sales turnover with Saraf Chemicals Ltd. In this regard the AR has submitted that this profit is already declared in the return and forms part of Rs.36,83,989/- income declared in return of income. It is seen that there is merit in the submission of AR that once the income is already part of P & L account further addition is not called for of the same amount. In view of this discussion the addition of Rs. 69,825/- made by the A.O. cannot be sustained in appeal and is directed to be deleted. Accordingly these grounds of appeal are allowed.”

We have heard the learned DR and gone through the orders of the authorities below. From the record we found that there was a survey at the assessee’s business premises on 26/08/2013. During the course of M/s. Highland Industries Ltd., Survey, the statement of Shri Nimish Thakore, Director of assessee M/s. Highland Industries Ltd., was recorded, wherein the relevant part of his statement in case of Saraf group of companies is as under:-

Thus, in his statement u/s 131 of the Act, the director of the assessee company has unequivocally admitted that he has been providing accommodation entries to Saraf Chemicals and earning a commission on the same. Further, during the course of assessment proceeding it is seen from the ledger account that the assessee company had made purchases of Rs.31,95,60,130/- from Temptation Foods. The goods purchased from Temptation Foods were sold to Dabur brothers, Jai Mata Di, Kumdan Foods and Toral Fruits amounting to Rs. 27,76,56,1907- and the loss claimed on these transactions stands at Rs.4,19,03,940/- (Rs.31,95,60,130-Rs.27,76,56,190/-).