2016 (7) TMI 1223 - AT - Income Tax

Bogus transaction - commission computation - Held that - As in the case of assessee company s sister concern M/s Prakash Metals we partly allow the appeal filed by the assessee company by holding that the assessee company s income from these transactions be computed as 5% of commission for clandestinely facilitating the bogus transaction of the parties to the purchase and sale as held by the Tribunal in its orders in the case of the sister concern of the assessee company namely

Summary

Issues Involved:
1. Dismissal of appeal without hearing the appellant.
2. Disallowance under Section 40A(3) of the Income Tax Act.
3. Confirmation of the disallowance by the CIT(A) without adequate consideration of evidence.

Detailed Analysis:

1. Dismissal of Appeal Without Hearing the Appellant:

The appellant raised issues regarding the CIT(A)'s decision to dismiss the appeal without providing an adequate opportunity for a hearing. The appellant argued that the request for adjournment was for valid reasons, including ongoing proceedings in a similar case involving a sister concern. The appellant also contended that no final notice was issued stating that the order would be made ex parte if not attended.

However, during the tribunal hearing, the appellant's counsel did not press these grounds, leading to their dismissal as not being pressed.

2. Disallowance Under Section 40A(3) of the Income Tax Act:

The primary issue revolved around the disallowance of ?13,22,526/- under Section 40A(3) by the AO, which was confirmed by the CIT(A). The AO's disallowance was based on the assertion that the purchases from M/s Shradha Saburi Merchants Ltd. were bogus, supported by the statement of Mr. Pravin T. Agarwal, who admitted to issuing fabricated bills without actual business transactions.

The appellant argued that the purchases were genuine, supported by account payee cheques and confirmations from customers. The appellant also contended that they were not given an opportunity to cross-examine Mr. Agarwal, whose statement was used against them.

3. Confirmation of the Disallowance by the CIT(A) Without Adequate Consideration of Evidence:

The CIT(A) confirmed the AO's disallowance, stating that the addition was made after considering all facts and circumstances. The appellant argued that the CIT(A) failed to appreciate the evidence, including confirmations from customers and subsequent payments by account payee cheques.

The tribunal noted that a similar issue was decided in favor of the appellant's sister concern, M/s Prakash Metals, where the tribunal held that commission income should be brought to tax instead of disallowing the entire amount. The tribunal followed the same approach, estimating a 5% commission for facilitating bogus transactions, which was acceptable to the appellant to end litigation.

Tribunal's Decision:

The tribunal partly allowed the appeal, holding that the appellant's income from the transactions should be computed as 5% commission for facilitating bogus transactions, consistent with the decision in the sister concern's case. The tribunal dismissed the grounds related to the dismissal of the appeal without hearing as not being pressed and confirmed the approach of estimating commission income instead of disallowing the entire amount under Section 40A(3).

Conclusion:

The appeal was partly allowed, with the tribunal directing that the appellant's income from the transactions be computed as 5% commission, aligning with the decision in the sister concern's case. The tribunal's approach provided a balanced resolution, considering the evidence and ensuring consistency in similar cases.