2023 (4) TMI 272 - AT - Income Tax

Bogus purchases - bogus or contrived transaction - addition of net result of purchase and sale and not the entire sales as per CIT - HELD THAT - CIT(A) has come to a conclusion to sustain the addition of the net result of purchase and sale and not the entire sale and thus, deleted the addition made by the Ld. AO. However, while dealing with ground no. 10 in para 5, Ld. CIT(A) has held the commodity profit to be bogus. We note that while holding so, CIT(A) has not given his explanations, reasoning and the basis for arriving at such a conclusion. From these findings given in two paragraphs by the CIT(A) it is not discernible as to how and on what basis, Ld. CIT(A) has arrived at this conclusion. CIT(A) has merely extracted the observations of the Ld. AO and the submission of the assessee without dealing with them objectively and analytically. Accordingly, to meet the ends of justice and fair play, we find it proper to remit the matter back to the file of Ld. CIT(A) with a direction to pass a speaking order by considering the material placed on record and available through the enquiries made by the Ld. AO, by affording reasonable opportunity of hearing to the assessee. Both the appeal of the revenue and the Cross objection of the assessee are allowed for statistical purposes.

Issues:
1. Addition of income under section 68 of the Income-tax Act.
2. Deletion of addition under section 37(1) of the Act.
3. Classification of commodity transactions as bogus.
4. Disallowance of commission on commodity transactions.
5. Set off of brought forward losses and depreciation.

1. Addition of Income under Section 68:
The appeal by the revenue and cross objection by the assessee were against the order of the Ld. CIT(A)-4, Kolkata, regarding the addition of income under section 68 of the Income-tax Act. The revenue contended that the CIT(A) erred in deleting the addition of Rs. 2,99,85,863, arguing that the entire sales should be considered, not just the net result of purchase and sale. The assessee, on the other hand, argued that the transactions were backed by proper documentary evidence and conducted through banking channels.

2. Deletion of Addition under Section 37(1):
The revenue raised a second issue regarding the deletion of an addition under section 37(1) of the Act. The revenue objected to the deletion of Rs. 5,76,752, arguing that commission should be paid on the entire turnover, not just the profit or loss generated from commodity trading. The assessee disagreed, stating that the commission was paid on profit or loss, not the entire turnover.

3. Classification of Commodity Transactions as Bogus:
The facts revealed that the assessee reported speculative income from commodity trading, which was challenged by the assessing officer as being contrived to evade taxes. The AO observed discrepancies in speculative profits reported by the assessee and the details provided by NMCE, leading to the conclusion that contrived profits were used to set off losses. The CIT(A) held that the net result of purchase and sale should be considered in such cases, not the entire sales amount.

4. Disallowance of Commission on Commodity Transactions:
The CIT(A) directed the AO to compute commission on commodity transactions based on the net speculative income reported by the assessee, rather than the total sales value. The CIT(A) emphasized that commission should be paid on the profit or loss generated from commodity trading, not on the entire turnover.

5. Set off of Brought Forward Losses and Depreciation:
The issue of allowing set off of brought forward losses and depreciation arose in the context of the CIT(A) holding the commodity profit as bogus. The CIT(A) directed the AO to either disallow the profit or allow the set off of past losses, not both. However, the Tribunal found the CIT(A) did not provide sufficient reasoning for holding the commodity profit as bogus and remitted the matter back for a detailed explanation.

In conclusion, the Tribunal allowed both the appeal of the revenue and the cross objection of the assessee for statistical purposes, emphasizing the need for a more detailed explanation regarding the classification of commodity transactions as bogus.

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