2024 (12) TMI 1256 - AT - Income Tax

Addition u/s 68 - unexplained bank deposits - AO has mentioned that the Circular Trading resorted relating to various sales bills which were issued and circulated amongst these fictitious concerns - CIT(A) deleted addition Partly (@0.30%) - HELD THAT - The fact remains that these entities are paper concerns and engaged in providing accommodation to the various unrelated concerns. That was never disputed by the Revenue at any point of time, but in assessee s case, the Revenue s stand/contention that the expenses of circular purchases, being intermediately charges not for the purpose of business, appears to be not tenable as the assessee has clearly given the records showing as to how the Circular Trading has been conducted, and the CIT(A) has rightly made the observation that 0.30% of Circular Trading transactions have to be charged to inter-mediatory not for the purpose of business as mentioned in the case of M/s. Pradip Overseas Ltd and, therefore, deleted the remaining addition and sustained 0.30%. There is no need to interfere with the same. Besides, the Revenue s contention that the Settlement Commission Order is relied upon, but the fact remains that the ld. CIT(A) has given independent finding relating to the assessee s case and, therefore, there is no need to interfere with the findings of the ld. CIT(A). Appeal of the Revenue is dismissed.

Summary

Issues:
Assessment of unexplained bank deposits, circular trading transactions, accommodation entries, disallowance of expenses, reliance on Settlement Commission order.

Analysis:
The appeal was filed by the Revenue against an order passed under s. 143 r.w.s 147 of the Income Tax Act, 1961, for the Assessment Year 2013-14. The primary issue raised by the assessee was the disallowance made on account of unexplained bank deposits and withdrawals under s. 68 of the IT Act. The Assessing Officer found that the assessee had taken accommodation entries totaling Rs. 88,83,16,516, which were deemed non-genuine entries. The Revenue contended that the circular trading transactions were not for the purpose of business and were essentially bogus purchases, sales, and expenditures to accommodate the assessee. The CIT(A) partly allowed the appeal of the assessee, reducing the disallowance amount.

The Tribunal considered the nature of circular trading transactions and the involvement of fictitious concerns in the process. The Tribunal observed that the circular trading involved bills changing hands without physical movement of goods, leading to expenses being incurred for circular purchases. The Tribunal in a related case had estimated disallowance at 0.30% of circular trading purchases. In the present case, the Tribunal noted that the Revenue's contention that circular purchases were not for the purpose of business was not tenable as the assessee provided records showing how the circular trading was conducted. The CIT(A) correctly applied the 0.30% disallowance as done in the related case, resulting in the deletion of the remaining addition and sustaining only 0.30% as allowable.

The Revenue argued that the CIT(A) relied on the Settlement Commission order, but the Tribunal found that the CIT(A) had independently assessed the assessee's case and made findings accordingly. Therefore, the Tribunal upheld the CIT(A)'s decision to dismiss the appeal of the Revenue. The Tribunal concluded that there was no need to interfere with the findings of the CIT(A) and pronounced the order in favor of the assessee on 9th December 2024 at Ahmedabad.