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Income Tax Appellate Tribunal, KOLKATA BENCH ‘A’, KOLKATA
Before: Shri P. M. Jagtap, A.M. & Shri S.S.Viswanethra Ravi, J.M.)
ORDER Per Shri S.S.Viswanethra Ravi, J.M. This appeal is filed by the assessee against the order dated 31.01.2014 passed by the CIT(Appeals)-VI, Kolkata under section 143(3) of the Act for the assessment year 2009-10.
In this appeal, the assessee raised following grounds:- “
1. For that the Ld. CIT(A) erred in confirming addition to the extent of Rs.2078458 on account of trading sale of MS Wires although the Ld. CIT(A) opined that the trading (MS Wire) transactions were non genuine.
2. For the Ld. CIT(A) erred in confirming the net income earned from non genuine transaction at Rs.2078458 since if purchase and sale of MS Wires are doubted, then the same should have almost been ignored for the trading results.
3. For the Ld. CIT(A) erred in confirming the AO’s action of rejection of books of A/c and estimation of Net Profit of 5% for manufacturing activity of assessee.”
2 Suryodaya Vyapar Pvt. Ltd. Assessment Year: 2009-10 4. That the appellant craves for leave to add, amend or delete the ground of appeal if felt necessary.”
3. At the beginning of hearing, the Ld. A.R. submitted that the assessee is not pressing the ground no.2 and prayed to treat the same as not pressed. Thus, the ground no.3 is dismissed as not pressed.
4. Ground nos. 1 and 2 can be read together where it relates to confirmation of addition of Rs.20,78,458/- and on other hand, whether the CIT(A) justified in confirming the net income earned from non genuine transaction with reference to the purchase and sale of M.S. Wires.
Brief facts of the case are that the assessee is a company and engaged in manufacturing and trading of umbrella parts. The assessee filed its return of income on 30.09.2009 declaring Rs.10,610/- as total income for the assessment year 2009-2010. Under scrutiny, the notices under section 143(2) and 142(1) were served.
During the scrutiny proceedings, the AO found that the purchases and sales were increased with M/s. UIC Udyog Limited and M/s. Alishan Steel Private Ltd. respectively in the fag end of financial year concerning 2008-2009. Further, the AO noticed that the purchase and sales with above concerns from 19.01.2009 and there was as many as 90 entries of purchases from M/s. UIC Udyog Limited on one day itself i.e. on 21.01.2009. The AO observed that in spite of purchases and sales, charges for transport never effected and the assessee did not make any payment to M/s. UIC Udyog Limited but shown the transaction as 3 Suryodaya Vyapar Pvt. Ltd. Assessment Year: 2009-10 sundry creditor and the assessee did not receive any payment from M/s. Alishan Steel Private Limited but shown the same as sundry debtor.
The AO got information from the banks, State Bank of Bikaner & Jaipur, SBI & IDBI in which the assessee, M/s. UIC Udyog Limited and M/s. Alishan Steel Private Limited having accounts respectively, basing on which the AO formed an opinion as under: “From the above statements it was observed that the entire amount of purchase and sales of the assessee, M/s. UIC Udyog Limited and M/s. Alishan Steel Private Limited were routed through the above Bank accounts in the following manner:-
The assessee received money from M/s. Alishan Steel Private Limited and the paid to M/s. UIC Udyog Limited. On receipt of the payment M/s. UIC Udyog Limited returned the money to M/s. Alishan Steel Private Limited which clearly indicates the rotation of money.”
The contention of the assessee's written submission is that all the payments were routed through bank and hence, the business activity should not be doubted. But, the contention is not acceptable on the ground that in a business some physical /material transactions have to be there. The payments made/received through ban is not the only criterion to establish that genuine business transaction was effected. In this case, the details, circumstantial evidences clearly indicate that only transaction was made in papers instead of actual one. Therefore, it is clearly and logically deduced that the entire alleged purchase and sale made were not at all materially happened, but were made on papers i.e. book adjustment were made to benefit all the parties involved therein. Accordingly, the accounts were prepared / maintained in a fabricated manner; hence, the complete set of books of accounts is hereby rejected. The purchase and sales transaction entered between the concerned parties i.e. M/s. UIC Udyog Limited and M/s. Alisan Steel Private Limited are excluded from the turnover and corresponding purchase of the assessee company. The excluded turnovers comes to Rs.4881979 [Rs.199298742 – Rs.194716763] on which the average net profit
4 Suryodaya Vyapar Pvt. Ltd. Assessment Year: 2009-10 of earlier two years are applied to arrive at the profit for the year under consideration. The average net profit percentage of earlier two years comes to 4.69 [1/2 of {5.03 + 4.34}]. The net profit of this year is Rs.228965 [4.69% of 4881979).
5. It is common knowledge and evident that book entries provide @2% of the turnover as the consideration value. In this case, the assessee provided, entries to the tune of Rs.394936430 [Rs.192503889 purchase from M/s. UIC Udyog Limited + Rs.202432541 sold to M/s,. Alishan Steel Private Limited]. Therefore, the assessee earned 2% [being the prevailing market rate] Rs.394936430 which comes to Rs. 7898729 and treated as income of the assessee company during the year, under consideration.
Accordingly, the AO determined the income of the assessee at Rs.80,28,460/-, wherein the AO doubted the business activity between assessee and other two concerns namely, M/s. UIC Udyog Limited and M/s. Alishan and rejected the books of accounts. The AO further excluded the purchase and sales transactions between above said parties from the turnover and corresponding purchase of the assessee. The AO has taken average of net profit declared by the assessee for earlier two years to derive net profit for the year under consideration and fixed at Rs.2,28,965/- as net profit. Regarding the purchase from M/s. UIC Udyog Limited to an extent of Rs.19,25,03,889/- and value of sales to M/s. Alishan Steel Private Limited to an extent of Rs.20,24,32,541/-, the AO computed net income at 2% on above purchase and sales transactions i.e. Rs.78,98,729/-.
Ld. CIT(A) in first appeal, found fault with the AO in applying 2% for sales and purchase transactions, but, however, agreed with the AO that the assessee provided accommodation entries to its customer and that the said transaction were not materially happened. The ld.
5 Suryodaya Vyapar Pvt. Ltd. Assessment Year: 2009-10 CIT(A) treated the net income on non-genuine transactions taking into consideration the difference between the value of purchase and sales, accordingly, ld. CIT(A) derived the net income of the assessee on non- genuine transactions at Rs.20,78,456/-.
Aggrieved by such order, the assessee is before us, by way of this appeal. The ld. AR submitted that the AO doubted transaction for the reasons that the assessee paid amounts in the next financial year and all the transactions were happened in the month January and the assessee received the sales amount in next financial year and thereby he paid the same to his creditors. The ld. AR drew our attention to profit and loss account at page 6 of paper book and page 21 of paper book about break up transactions were shown. Further, he submitted that the assessee purchased from UIC Udyog Ltd sold to M/s. Alishan Steel Pvt. Ltd. and the assessee got gross profit of Rs.10,10,846/-. But, however the AO has applied 2% on the values of purchase and sales approximately Rs.39 crores and computed gross profit. The AR also drawn our attention to the page 38 and 43 of paper book and submitted that the page 38 refers to invoice raised by M/s. UIC Udyog Ltd. and 43 refers to details of payments regarding dispatch of material from 19.01.09 to 30.01.09.
The ld. DR submitted that in page 43 of paper book that all the transport payments were made through cash and they were all below Rs.20,000/-. The payments made through banks were made in the next financial year. The ld. DR relied on the orders of lower authorities.
6 Suryodaya Vyapar Pvt. Ltd. Assessment Year: 2009-10 12. Heard both parties and perused the materials available on record and considered the submissions of both representatives.
The assessing officer found out that the entire trading of M.S wires in the short period of from 19.01.2009 and said entire purchase was from one party i.e UIC Udyog Ltd and the corresponding sales was also to one party i.e M/s Alishan Steel Pvt Ltd till the end of the previous year for the reason that assessee received no payment in respect of such trading. Further doubted that the turnover increased to RS.19.93 crores when compared to previous year turn over and. The assessing officer found from scrutiny of the bank statement payments, that there was rotation of funds i.e., money paid by M/s Alishan Steel Ltd. AO observed the assessee to gave no explanation regarding the purchase and sales caused to same parties, it been made through banking channel.
It is pertinent note that it is true that the assessee has recorded the transaction in its books and has produced various supporting documents such as purchase bill, sale invoices, transporter’s bills etc.. to support the same and UIC Udyog Ltd. and Ms. Alishan Steel Pvt Ltd with whom the assessee caused purchase and sales have confirmed to have made transactions with the assessee. The CIT-A found there was only two parties involved with whom several transactions many a times on one day and as many as ninety transactions on 21.1.2009 itself and there was no payment either for purchase or for sales in the year under consideration. The CIT-A found no such trading activity thereafter and he was of the view that the transactions were not genuine and found further the assessee offered any specific explanation neither at the time
7 Suryodaya Vyapar Pvt. Ltd. Assessment Year: 2009-10 of assessment, nor in the first appellate proceedings. CIT-A confirmed the estimation of net profit on other than genuine transaction at Rs.2,28,965/-. For non- genuine transactions, the CIT-A trading sale of M.S. wires at Rs.19,46,22,506/- and purchase of Rs 19,25.44.048/- and the difference is Rs.20,78.458/- i.e amount received by the assessee from M/s Alishan Steel Pvt. Ltd as per sale and the amount payable to UIC Udyog Ltd as per purchase. Considering the net income of the assessee from non-genuine transactions at Rs.20,78,458/- in addition to the net profit of Rs.2,28,965/- on regular business transactions directed the AO to reduce the addition.
After having gone through all the facts of the case, we find ourselves in agreement with the authorities below that the genuineness of transactions is doubtful and the same are in the nature of accommodation entries the income of which is required to be determined accordingly. Having regard to all the aspects of the matter as well as other relevant facts of case, we are of the view that income estimated by AO in respect of these transactions is on the higher side and the CIT-A has made a very fair and reasonable estimate of the income of the assessee from these transaction. The impugned order of the ld. CIT(A) on this issue is therefore upheld and ground nos. 1 and 2 are dismissed.
In the result, the appeal filed by the Assessee is dismissed Order Pronounced in the Court on 8th April, 2016.