2019 (6) TMI 48 - AT - Income Tax

Rejection of books of accounts u/s 145 - Trading addition based on GP estimation - taxability of paper concern involved in bullion business and providing the accommodation entries - disallowance of salary expenses - HELD THAT - CIT(A) has held one of the assessee s concern to be a paper concern, however, going by the submission of the assessee, we find that he has no objection where even the second concern is held to be a paper concern. Therefore, in absence of any objection by the assessee, we proceed with the fact that the findings of th CIT(A) are equally applicable to both of the assessee s concerns which are held to be paper concerns which are involved in providing the accommodation entries and are not involved in actual bullion business. Commission income which can be brought to tax in hands of the assessee in relation to its two paper concerns which are involved in providing the accommodation entries, it may be true that the margins in gemstones business may vary with that of the bullion business but the same cannot be a basis to hold that an entry provider in gemstones and an entry provider in bullion business is to be treated differently so far as determination of their commission income is concerned. No empirical data has been submitted to support the aforesaid contention and in absence thereof and given the fact that in both businesses, the role of the entry provider is largely similar in terms of providing accommodation entries in lieu of commission, we are unable to accept the aforesaid contention of the ld AR regarding scaling down or determining the commission income differently. In the instant case, if we look at the net income so determined by the AO after making trading addition and disallowance of salary expense, it comes to ₹ 66,31,966 which gives a net profit rate of 0.12% which is comparable to another case of the entry provider, Mahesh Khandelwal wherein the Co-ordinate Bench has upheld estimate of net profit @ 0.10%. Besides, there is other income of ₹ 127,776 which has to be brought to tax separately. No infirmity in the order of the lower authorities and the same are hereby confirmed and the grounds of appeal are accordingly dismissed.

Summary

Issues involved:
1. Rejection of trading results and addition based on estimated gross profit under section 145(3) of the Income Tax Act, 1961.
2. Disallowance of salary and wages amount.
3. Determination of profit rate for a business considered as an entry provider for bullion business.

Issue 1: Rejection of trading results and addition based on estimated gross profit under section 145(3) of the Income Tax Act, 1961:

The assessee filed the return of income declaring total income, which was selected for scrutiny. The Assessing Officer rejected the books of accounts under Section 145(3) due to unverifiable sales and applied a higher GP rate, resulting in a trading addition. The CIT(A) upheld the additions, leading to the appeal. The AR argued that the GP rate was wrongly applied, citing the assessee as an entry provider for bullion business. The contention was that the profit rate should align with entry providers, not actual traders. The DR supported the AO's decision based on cash sales and lack of verification. The Tribunal noted the rejection of books, upheld the profit estimation, and dismissed the appeal.

Issue 2: Disallowance of salary and wages amount:

Apart from the trading addition, specific salary expenses were disallowed by the AO, which the AR did not contest specifically. The Tribunal confirmed the disallowance along with the trading addition, leading to the dismissal of the appeal.

Issue 3: Determination of profit rate for a business considered as an entry provider for bullion business:

The AR argued that the profit estimation should align with other entry providers in the bullion business, not actual traders. Comparisons were made with a case involving a gemstones business entry provider. However, the Tribunal found no basis to treat entry providers differently based on the type of business. The Tribunal confirmed the net income determination after the trading addition and disallowance, aligning it with another entry provider case and dismissing the appeal.

In conclusion, the Tribunal confirmed the rejection of trading results, addition based on estimated gross profit, disallowance of salary expenses, and determination of profit rate for the business considered as an entry provider for bullion business. The appeal filed by the assessee was dismissed, and the lower authorities' orders were upheld.