ITO 2(1)(4), MUMBAI vs. GAMMA INFOWAY EXALT LTD, MUMBAI

2 ITA.No.531/MUM/2016 (A.Y: 2010-11) Gamma Infoway Exalt Ltd., 2. Briefly stated the facts are that the assessee which is into the business of trading in software filed return on 15.10.2010 declaring loss of ₹.50,000/-. The assessment was completed on 30.03.2013 determining the income of the assessee at ₹.10,21,14,250/- while completing the assessment the Assessing Officer made addition of ₹.10,00,92,534/- as unexplained expenditure u/s 69C of the Act in respect of the purchases made from seven (7) parties referred to in Page No.2 of the Assessment Order. In the course of the Assessment Proceedings the Assessing Officer issued notices u/s 133(6) of the Act calling for information from all these seven parties, notices returned unserved in all the cases except in the case of Samkit Trading Company. This was confronted to the assessee and the assessee furnished new addresses of these dealers. The Assessing Officer again issued notices u/s 133(6) of the Act calling for information and the notices were served on five parties except Samkit Trading Company and Rajul Infotech Pvt Ltd. The dealers provided certain details as called for by the Assessing Officer such as copy of ledger account of assessee in their books, nature of trading activity, copy of accounts and copy of acknowledgement of I.T Return and the details of receipt of payment along with bank account details. The dealers could not provide item wise details of sales made to the assessee in the proforma in which the Assessing Officer required to furnish. Therefore, summons was issued u/s 131 to all these persons by the 3 ITA.No.531/MUM/2016 (A.Y: 2010-11) Gamma Infoway Exalt Ltd., Assessing Officer to appear along with the Books of Accounts. It seems that the dealers have not complied with the summons. The Assessing Officer also noticed that the three dealers out of seven were also listed in the Website of the Sales Tax Department in the list of suspicious dealers who indulged in issuing only accommodation bills without supply of any goods or materials. As the assessee could not furnish proper reply and information, the Assessing Officer treated the purchases made from all the seven parties referred to in Page No.2 of the Assessment Order as unexplained expenditure u/s 69C of the Act.

Further, the Assessing Officer rejected the Books of Accounts stating that the book results do not reflect the true state of affairs in view of unexplained expenditure made in purchases during this Assessment Year for the reasons mentioned in Para 4 of the Assessment Order. Having rejected the Books of Accounts the Assessing Officer estimated the income of the assessee i.e. net profit from trading of goods at 2% of the turnover in addition to the disallowance made u/s. 69C of the Act on account of non-genuine purchases.

On appeal by the assessee the Ld.CIT(A) considering the submissions of the assessee and various case laws into consideration and also the remand report on the additional evidence produced by the assessee, the Ld.CIT(A) concluded that Assessing Officer is justified in 4 ITA.No.531/MUM/2016 (A.Y: 2010-11) Gamma Infoway Exalt Ltd., rejecting the Books of Accounts and the entire purchases and sales made by the assessee is only the accommodation entries as admitted by one of the Directors Shri Vijay Shah in his statement recorded u/s 131 of the Act. The Ld.CIT(A) further held that assessee is providing only accommodation entries, therefore Assessing Officer is justified in estimating net profit at 2% of the turnover, but, directed to delete the addition made u/s 69C of the Act.

The Ld. DR vehemently supported the orders of the Assessing Officer. On the other hand, the Learned Counsel for the assessee vehemently supported the orders of the Ld.CIT(A).

We have heard the rival submissions, perused the orders of the authorities below. As stated earlier Assessing Officer made addition u/s 69C treating the purchases made from seven parties as bogus purchases holding that the assessee could not prove the genuineness of the purchases for the reason that the specific details required were not furnished by the dealers and also since out of seven parties three parties were appearing in the Sales Tax Department website as suspicious dealers who indulge in issuing accommodation bills for commission. The Assessing Officer treated the entire purchases from these seven parties amounting to ₹.10 crores as unexplained expenditure u/s 69C of the Act.

The Ld.CIT(A) based on the admission of the Director Shri Vijay Shah in his statement recorded u/s 131 in the course of Assessment Proceedings wherein it has been admitted that the assessee company entered into only accommodation transactions of bogus purchases and sales transactions, held that assessee is not able to justify with documentary evidences the genuineness of the purchases and sales recorded in the Books of Accounts. Therefore, the Ld.CIT(A) held that entire purchases and sales transactions as per the assessee’s own admission are only accommodation entries. He held that the retraction made by the assessee putting the entire blame on the staff at a later stage is only an afterthought. Therefore, he upholds the action of the Assessing Officer in rejecting the Books of Accounts which in our view is right. The Ld.CIT(A) held that since the assessee himself is engaged in providing accommodation bills transactions of bogus purchases and sales transactions, the entire purchases cannot be treated as unexplained expenditure u/s 69C of the Act. He also held that in view of the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P Sheth [38 Taxmann.com 385], addition cannot be made when payment is made through banking channels, the purchased parties found is bogus would

The Ld.CIT(A) accepted the contention of the assessee that once the Books of Accounts are rejected and income is estimated there should not be any separate addition u/s. 69C of the Act treating purchases as unexplained expenditure. Therefore, he deleted the addition made u/s. 69C of the Act and upheld the action of the Assessing Officer in estimating the net profit of the assessee’s business at 2% of the turnover by rejecting the Books of Accounts. The decision of the Ld.CIT(A) appears to be legally sustainable in view of the various judicial pronouncements wherein it was held that once the Books of Accounts are rejected and income is estimated there should not be a separate addition based on the entries made in such Books of Accounts.

In the case of CIT v. G.K. Contractor [19 DTR 305] the Hon'ble Rajasthan High Court held that when net profit is estimated by the Assessing Officer by rejecting the book results u/s. 145(3) of the Act, no separate addition can be made on account of cash creditor. Similar view has been taken by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Dulla ram in ITA.No.122 of 1999 dated 22.10.2013. The Jaipur Bench of the Tribunal in the case of Brahamanand Agarwal v. DCIT in 7 ITA.No.531/MUM/2016 (A.Y: 2010-11) Gamma Infoway Exalt Ltd., ITA.No.338/JP/2013 dated 11.08.2005 following the decision of the Hon'ble Rajasthan High Court in the case of CIT v. G.K. Contractor (supra) held that addition made towards cash credit u/s. 68 could not be sustained as the Assessing Officer estimated the net profit of the assessee at 9% after rejecting the Books of Accounts.

Therefore, in view of the above discussion and the case laws, the conclusion arrived at by the Ld.CIT(A) that there should not be separate addition u/s. 69C of the Act when the profit is estimate at 2% by rejecting the Books of Accounts of the assessee is upheld.

In the result, appeal of the Revenue is dismissed.