2015 (6) TMI 845 - AT - Income Tax

Estimation of income - rejection of books of accounts - income earned by the assessee by indulging in providing accommodation entries of purchase and sale of goods - CIT(A) has confirmed the assessment at 1% of the aggregate of the purchase and sales for the year - Held that - The assessee has, apart from making bald statements, not advanced any material or set up any case to exhibit or show that the estimation at 1% of the aggregate of purchases and sales for the year is not reasonable or is excessive, which, for the foregoing reasons, we find it as not. We are conscious that the assessee has shown to have been allowed quality rebate by its supplier/s, effectively reducing the trading loss claimed by it. That, however, would have no bearing or impact in-as-much as the loss or its quantum is not in issue; the quality rebate being not a factor for VAT credit. Rather, the assessee stands to gain directly, i.e., to the extent of VAT credit, in case of loss in-as-much as its stands to be allowed credit on its purchases, which are therefore higher than the sale value, on which VAT credit would stand to be passed on by it, and which also explains, or perhaps so, the reason for the unsubstantiated and unexplained trading loss being regularly booked by the assessee in its accounts. Finally, as regards the assessee s plea for being allowed expenses some expenses would inevitably be incurred, we consider it proper that the same be allowed; reasonableness being the essence of any assessment, on an ad hoc, estimate basis, at ₹ 1 lac and ₹ 1.20 lacs for A.Y. 2007-08 and 2009-10 respectively, so as to cover all sundry expenses that may be incurred in the activity of raising bills. Before parting, we may also add that the assessee s assessment u/s.23(5) of MVAT, 2002 dated 22.03.2013 for the financial year 2008-09 (copy of the order on record, at PB pgs. 3-7) shows the assessment of tax payable under the said Act at ₹ 15,98,735/-. The same, though allowable, being a tax, its deductibility would be subject to section 43B. - Decided partly in favour of assessee.

Summary

Issues involved:
- Delay in filing appeals
- Disallowance of trading loss
- Estimation of income
- Allowance of expenses

Detailed Analysis:

Delay in filing appeals:
The Appeals were filed late, but the delay was condoned due to genuine reasons explained by the director of the assessee-company. The delay was accepted as caused by bona fide reasons related to personal circumstances, and the hearing proceeded.

Disallowance of trading loss:
The Assessing Officer disallowed a portion of the trading loss claimed by the assessee for not providing explanations regarding abnormal conditions in sales. The first appellate authority observed discrepancies in sales bills and unconfirmed sales, indicating potential accommodation entries. The assessment for the subsequent year also showed unexplained trading loss and discrepancies in expenditure claims. The Tribunal found the assessee engaged in accommodation entries rather than actual trading, leading to the rejection of books of account. The estimation of income was based on VAT benefits derived from the transactions.

Estimation of income:
The Tribunal observed that the purchases and sales were not genuine, and the transactions were aimed at deriving VAT benefits. The estimation of income at 1% of the aggregate of purchases and sales was considered reasonable, taking into account the VAT regime and the sharing of benefits between parties. The Tribunal found the estimation process refined and justified, with no material presented to challenge the assessment.

Allowance of expenses:
Considering the nature of the activity involving fake bills, the Tribunal allowed expenses on an ad hoc basis to cover sundry expenses incurred in raising bills. The Tribunal also addressed the deductibility of tax payable under the MVAT Act, ensuring partial relief to the assessee.

In conclusion, the Tribunal partly allowed the assessee's appeals based on the detailed analysis of the issues related to delay in filing appeals, disallowance of trading loss, estimation of income, and allowance of expenses, providing a comprehensive judgment on each aspect.