2021 (1) TMI 727 - AT - Income Tax

Addition for commission earned on the bogus sales - notional 2% addition for commission - HELD THAT - We find that pursuant to search and seizure action, the authorities below upon noting that there were bogus sales entry given by the assesses, have made notional 2% addition for commission earned on the said bogus sales - As noted that the said sales have been included in income and the income so derived has also been taken into account in the assessment. We find that the assessee is correct in this regard that when the sale is taken into income, there cannot be a further addition of 2% notional addition for bogus sales. The same sale cannot be genuine and bogus at the same time. In this view of the matter the notional addition of 2% as bogus sales commission is not a sustainable. When the sales have been accepted and taken into account in determining the income of the assessee there cannot be at the same time a notional 2% disallowance for commission on bogus sales, resulting in a double prejudice unsustainable in law - sales cannot be correct and bogus at the same time. This follows the common law maxim of approbate and reprobate. When the addition has already been deleted by us on merits, in our considered opinion the challenge to addition on other aspects are now only of academic interest. Hence we are not engaging in to the same. In the result we set aside the orders of authorities below and delete the addition. - Decided in favour of assessee.

Summary

Issues:
Appeals against orders of Learned CIT(A) for assessment years 2010-11 and 2011-12.

Analysis:
1. Delay in Filing Appeals: The Tribunal noted a 40-day delay in filing the appeals, which was condoned after perusing the reasonable cause for the delay.

2. Addition of Notional Sales: The Assessing Officer added amounts on a notional basis to the assessee's income for the assessment years 2010-11 and 2011-12, treating genuine sales to M/s. Ecoscapes International Pvt. Ltd. as bogus. The grounds raised by the assessee and the subsequent proceedings were consolidated and disposed of together.

3. Factual Background: A search action under section 132 of the IT Act was conducted in the case of M/s. Luxora Infrastructure Pvt Ltd., leading to observations regarding transactions with M/s. Sarvesh Mercantile Pvt Ltd. and M/s. Ecoscapes International Pvt. Ltd. The Assessing Officer found discrepancies in proving the delivery of goods and octori payments related to the transactions.

4. AO's Conclusion and Addition: The Assessing Officer, based on various facts and case laws, concluded that the assessee engaged in bogus sales to M/s. Ecoscapes International Pvt. Ltd. A 2% addition as commission on the bogus sales amount was made.

5. CIT(A) Order: The CIT(A) upheld the AO's order, noting the inadequacy of the stock register submitted by the assessee to prove the genuineness of sales. The CIT(A) found no anomaly in the AO's order and deemed the 2% commission addition fair.

6. Assessee's Appeal: The assessee challenged the addition, highlighting discrepancies in the AO's findings, lack of evidence for commission payment, and legal grounds related to the search and seizure action under section 153A.

7. Tribunal's Decision: The Tribunal found that when sales were included in income, a further 2% addition for bogus sales commission was not sustainable. The Tribunal also addressed other grounds raised by the assessee's counsel and concluded that the addition was not permissible without incriminating material found during the search.

8. Final Verdict: The Tribunal set aside the orders of the authorities below and deleted the addition, allowing the assessee's appeal for both assessment years.

This comprehensive analysis covers the issues, facts, conclusions, and legal arguments presented in the judgment by the Appellate Tribunal ITAT MUMBAI, providing a detailed overview of the case and its resolution.