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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
ORDER
Per Shri Balaganesh, AM:
This appeal by revenue is arising out of order of CIT(A)-1, Kolkata vide Appeal No. 511/CIT(A)-1/3(2)/09-10 dated 15.12.2010. Assessment was framed by ITO, Wd- 3(2), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2007-08 vide his order dated 31.12.2009.
The revenue has raised following grounds: “
1. On the facts and circumstances of the case Ld. CIT(A) erred in deleting the addition made by the AO on account of estimation of net profit from trading at the rate of 0.60% of the total turnover on protective basis without considering the merit of the case.
2. On the facts and circumstances of the case Ld. CIT(A) erred in rejecting the computation of net commission income @ 0.15% of the T.O. made by the AO and recomputed the income taking @ 0.10% of the T.O.”
3. Brief facts of this appeal are that there was a survey operation conducted in the premises of the assessee on 26.02.2008. During the course of survey proceedings, a statement of examination on oath u/s. 131 of the Act was taken wherein the assessee admitted that it had not carried out any activity in trading of iron and steel and had no factory or godown. The said deposition was given by Shri Vikash Agarwal, the Director of the Company, wherein he stated that assessee gave only accommodation entries to interested parties for which it received certain commission and all purchases and sales bills raised by it were fake. The Director of the company also stated in the statement 2 Vikash Iron & Steel Pvt. Ltd. AY 2007-08 u/s. 131 of the Act that the transactions reflected in the accounts were mostly in the nature of paper transactions without actual movement of goods on consideration received by the assessee in the form of commission income thereon. It was further stated that these transactions were routed through Centurion Bank of Punjab, Kotak Mahindra Bank, IDBI Bank, ING Vysya Bank & UTI Bank. It was further stated that in the Balance Sheet of the company only the bank account of Centurion Bank of Punjab was reflected and accordingly, the details of other bank accounts were produced voluntarily by the said Director during the course of examination. He further proceeded to explain the nature of transactions in those bank accounts by stating that whatever amounts were deposited in the bank accounts were withdrawn within a short span of a day or two. Both the deposit and withdrawal had to be done simultaneously to give back the actual funds to the respective parties. He further stated that the company has been engaged in this kind of accommodation transactions and the details of the same were not properly maintained in the books of account and data were kept only in the computer system. He further stated that there was a computer crash around October and the entire data fed into the computer were lost. The assessee company had not taken the hard copy of the data which are already there in the computer. Accordingly, he explained his inability to produce the books of account. However, in order to prove his bona fide, he produced purchase bills, sale bills, bank statements in support of his contentions. In reply to another question on the quantum of commission income earned, he stated as follows: “I used to get commission on my sale invoice which ranged between 10 paise to 15 paise per Rs.100. On purchase invoice I had to incur expenses on bills, procure from outside sources which ranged between 5 paise to 10 paise per Rs.100.”
4. The assessee stated that it had earned commission income amounting to Rs.27,13,018/- arrived at 0.1% of the total transactions and against this, it had incurred certain expenses on transactions at 0.05% on debit entries (other than cash withdrawals contras) amounting to Rs.13,58,963/-. Accordingly, it offered net profit from commission income at Rs.13,54,055/-. The Ld. AO relied on the statement of the Director Shri Vikash Agarwal in piecemeal that assessee had given accommodation entries only to interested parties and, therefore held that the question of paying any commission or incurring any expenditure thereon does not arise. In addition to this, he 3 Vikash Iron & Steel Pvt. Ltd. AY 2007-08 also increased the commission income to 0.15% of total transactions as against 0.10% offered by the assessee. Accordingly, he made an addition of Rs.40,69,527/- towards commission income in the assessment.
5. Addition of Rs.1,22,08,523/- on protective basis The Ld. AO observed that he had received information from DCIT, CC-XIII, Kolkata that the parties to whom the assessee had allegedly provided accommodation entries had contested the claim and the statement of Shri Vivek Agarwal. Based on this information, he proceeded to treat the assessee to have engaged in the purchase and sale of iron and steel. Accordingly, he made an addition on protective basis @ 0.60% of total turnover reflected in the books amounting to Rs.1,62,78,110/-. From the said net profit alleged to be derived from trading in iron and steel business, the Ld. AO in order to avoid double addition deducted the net commission income already brought to tax in the sum of Rs.40,69,527/- and proceeded to tax the balance sum of Rs.1,22,08,583/- as income from business on protective basis.
6. On first appeal, the assessee argued that Ld. AO had tried to blow hot and cold simultaneously as on one hand he says that assessee was engaged only in providing accommodation entries and had taxed the commission income thereon. On the other hand, he simultaneously observes based on the information received from DCIT, CC- XIII, Kolkata (AO’s of parties with whom assessee had accommodation business transactions) that assessee is also engaged in business of trading in iron and steel. The Ld. CIT(A) appreciated the various contentions of the assessee and deleted the addition made in the sum of Rs.1,22,08,583/- by giving a categorical finding that assessee is not engaged in the business of trading in iron and steel. However, with regard to the addition made in the sum of Rs.40,69,527/- towards commission income, he proceeded to reflect the same at 0.10% of the total transactions and gave relief of Rs.13,56,509/-. Aggrieved, revenue is in appeal before us.
We have heard rival submissions and gone through facts and circumstances of the case. The Ld. AR argued that the AO had recorded reasons for reopening the assessment for AY 2005-06 and 2006-07 on the ground that assessee has not maintained books of account properly and assessee is also engaged in providing accommodation entries. He further argued that these two factors got clearly established in survey 4 Vikash Iron & Steel Pvt. Ltd. AY 2007-08 proceedings which apparently triggered the initiation of re-assessment proceedings for the earlier years wherein the Ld. AO had duly recorded the reasons for the same. The Ld. AO having recorded his satisfaction that assessee is only engaged in the business of providing accommodation entries cannot change its stand in the assessment year under appeal that assessee is also engaged in the business of trading in iron and steel. He further brought to our notice that the parties with whom the assessee had accommodation transactions had only contested the claim of the assessee that the transactions of supplying bills to them were fake. The Ld. AO had not brought any material on record as to whether the assessee had been examined by the AO of those parties while completing the assessment proceedings of those parties. We find similarly the AO had also not examined any of those parties who had contested the claim of the assessee that the transactions were fake during the course of scrutiny assessment proceedings of the assessee in the year under appeal. Hence, we find that the double stand taken by the AO that assessee is engaged in business of trading or iron and steel is merely based on piecemeal information received from DCIT, CC-XIII, Kolkata (AO’s of parties with whom assessee had transactions) and without bringing any material on record. We hold that the Ld. AO cannot resort to any estimation of income at 0.60% on turnover for determining the net profit from business which is contrary to recording of reasons for reopening the assessment in the earlier years. Accordingly, we uphold the order of the CIT(A) in this regard.
Apropos, the addition made towards commission income, we find that the Ld. AO had not found any infirmity in the commission workings provided by the assessee. We also find that the Ld. CIT(A) had observed as follows: “It is to be noted that once a drastic action like survey has taken place on an assessee, there is little scope fur addition in arbitrary manner. The statement recoded during survey has great evidence value unless it is inconsistent with the records. In the facts of the case, I do not agree with the A.O. that there can be two estimations, one if transactions are actual trading transactions and one if the transactions are paper transactions. Be it what it is, the whole objective of the Income Tax Act is to tax the income on transactions. In the background of statement recorded during survey, documents impounded and submission made at the assessment stage and the findings of the A.O., I straightway come to estimate the earnings. In my opinion, the net income is estimated at 10 paisa of the turnover. While estimating net income, I am considering the same to be net of all expenditure. Thus I estimate earnings at Rs.27,13,018/- as against Rs. 40,69,527/- being assessed by the A.O. Thus ground no. 2 & 3 against the additions of Rs 27,15,472/· is partly allowed and the appellant gets a relief of Rs. 13,56,509/-.”
5 Vikash Iron & Steel Pvt. Ltd. AY 2007-08 From the aforesaid observation of the Ld. CIT(A), we find no infirmity in the order of the CIT(A) on this ground and accordingly, uphold the same. 9. In the result, the appeal of revenue is dismissed. 10. Order is pronounced in the open court on 13.05.2016 Sd/- Sd/- (N. V. Vasudevan) (M. Balaganesh) Judicial Member Accountant Member Dated : 13th May, 2016 Jd.(Sr.P.S.) Copy of the order forwarded to: