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2023 (5) TMI 61 - AT - Income TaxDisallowance u/s 40A(3) - income is estimated as a percentage of turnover - income of the assessee has been determined on the percentage of turnover by the CIT(A) and the books of accounts have been rejected u/s 145 - HELD THAT - As when the income is determined through percentage of the turnover rejecting the books of accounts, the A.O becomes powerless to again go through the books of accounts and make separate addition u/s 40A(3) of the Act. Hon ble Madhya Pradesh High Court 2003 (3) TMI 10 - MADHYA PRADESH HIGH COURT has held that when the income is determined by the A.O applying the net profit rate no further disallowance u/s 40A(3) of the Act is applicable. Reverting to the facts of the present case, ld. CIT(A) had arrived at percentage of income @ 5% of the genuine turnover and rejected the books of accounts of the assessee u/s 145 of the Act. This determination of income is not contested by the assessee and is accepted. Hence when the percentage of income is determined for the assessee while rejecting the books of accounts then that itself covers all other expenses disallowances and no further disallowance in such a case is called for u/s 40A(3) of the Act again separately as has already been held in several judicial aforestated pronouncements. In view thereof, we set aside the findings of the ld. CIT(A) on this issue and direct the A.O to delete the addition u/s 40A(3) of the Act from the hands of the assessee. CIT(A) considering the commission received @ 1% of the sales to BBIL - HELD THAT - When the Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee, it was held that this finding is plausible one and it cannot be said that rate of commission was arrived at in an arbitrary manner. We observe that the facts are absolutely identical and it is the case of providing accommodation entries to entry seekers . In such circumstances, the Hon ble High Court in Alag Securities Pvt. Ltd 2020 (6) TMI 304 - BOMBAY HIGH COURT has upheld the view taken by the Tribunal in that case upholding the receipt of commission at 0.15%. Thus we set aside the findings of the ld. CIT(A) on this issue and direct the A.O to reduce the rate of commission received on bogus sales turnover from 1% to 0.15%. Ground No. 3 of assessee s appeal is partly allowed.
Issues Involved:
1. Disallowance under Section 40A(3) of the Income-tax Act. 2. Commission on bogus sales turnover. Summary: Issue 1: Disallowance under Section 40A(3) of the Income-tax Act The assessee was aggrieved by the CIT(A)'s decision to sustain a disallowance under Section 40A(3) for Rs. 1,31,297/- even though the income was estimated as a percentage of turnover. The CIT(A) had rejected the books of accounts under Section 145 and estimated the net income at 5% of the estimated genuine turnover. The Tribunal noted that once the books of accounts are rejected and income is determined as a percentage of turnover, no further disallowance under Section 40A(3) is permissible. This view was supported by decisions from the Hon'ble Allahabad High Court in CIT Vs. Banwarilal Banshidhar and the Hon'ble Madhya Pradesh High Court in CIT Vs. Purshottamlal Tamrakar Uchehra. The Tribunal directed the AO to delete the addition under Section 40A(3). Issue 2: Commission on bogus sales turnoverThe CIT(A) had also estimated that the assessee received a commission at 1% on the bogus sales turnover to BBIL. The Tribunal referred to the Hon'ble Bombay High Court's decision in Pr. CIT Vs. Alag Securities Pvt. Ltd., which indicated that a reasonable commission rate in such cases is between 0.15% to 0.25%. The Tribunal directed the AO to reduce the commission rate from 1% to 0.15% on the bogus sales turnover. Appeals by the RevenueThe Revenue's cross appeals were dismissed as they were time-barred and lacked legal sustainability. The Tribunal reiterated that no further disallowance under Section 40A(3) is permissible when the income is determined as a percentage of turnover and the books of accounts are rejected under Section 145. ConclusionAll the appeals of the assessee were partly allowed, and all the cross appeals of the revenue were dismissed. Order pronounced in the open Court on this 24th day of April 2023.
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