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TMI Blog2016 (11) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are only book entries without there being actual flow of funds then the action of CIT(A) would be proper and justified calling for no interference. We, therefore, set aside the order of CIT(A) and remand the issue to the AO for fresh consideration on the lines indicated above. Estimation of 0.40% rate of commission on bogus sales recorded by the assessee - Held that:- addition was rightly upheld by CIT(A) because the assessee failed to substantiate its claim that the rate of commission received was only @ 0.25%. As far as the commission paid on bogus booking of expenses is concerned, the CIT(A) has rightly held that the AO had not disputed that the assessee indulged in bogus booking of expenses and was paying commission for creating entries for such bogus expenses. As rightly held by CIT(A) one this fact is admitted, then the AO cannot deny deduction on account of payment of commission and conclusion of CIT(A) that only net commission income had to be taxed in the hands of the assesseee, in our opinion, is just and proper. The quantum of commission of expenditure on booking of bogus expenses adopted, in our view, is also justified. To this extent we confirm the order of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consequent to search action, the AO issued notices u/s 153A of the Act dated 25.04.2011 for A.Y. 2004-05 to A.Y. 2009-10. The Assessee filed a petition dated 25.09.2011 seeking extension for filing of return for the reason that all the records and documents of the Assessee were destroyed in fire on 20.02.2010. On the request of the Assessee, the AO provided copies of all the seized documents to the Assessee. However, thereafter also, the assessee did not file the return u/s 153A of the Act. Therefore, the AO issued notice u/s 142(1) along with a show cause letter for each assessment year having head-wise contemplated quantification of income. On examination of accounts and the investigations carried out during and subsequent to the search operation, it was observed by the AO that there was complexity involved in the accounts to determine the correct assessable income for the reason that the block of capital assets disclosed in the accounts were not proper, having consequential impact on the amount of depreciation and the expenditure and income on account of equipment/vehicle hire charges were also found to be inflated and incorrect. That, the financial results shown in the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of some of the expenses being below the threshold limit of TDS cannot be ruled out. But, entire expenses of ₹ 75,57,662/- on which TDS was not deducted within the threshold limit of non-deduction is not acceptable. Therefore, on ad- hoc basis 5 % of such expenses i.e. ₹ 37,78,831/- is being disallowed u/s 40(a)(ia) of the Act. 7. The AO accordingly made ad-hoc disallowance of ₹ 37,78,831/- by invoking provisions of section 40(a)(ia) of the Act and added the said sum to the total income of the Assessee. 8. Before CIT(A), the Assessee submitted that the principal business of the Assessee during the relevant previous year was hiring of earth moving and earth cutting equipments which were deployed in remote areas by the civil contractors. The machineries given on hire needed to be transported from place to place at frequent intervals. For this purpose the assessee had to incur transportation charges. The transport was however arranged locally by the workers at various sites where the machines were stationed. Ordinarily the site supervisors/ or site in-charge used to hire the transport available locally. The transportation charges used to be incurred an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Sec.40(a)(ia) of the Act was deleted by the Tribunal by observing that in their considered view the disallowance u/s 40(a)(ia) could not be made merely because there was an apprehension/suspicion that application of Sec 194C of the Act could not be ruled out. The Tribunal noted that before making the disallowance the AO did not bring a single instance on record which proved that in any specific case payment exceeded ₹ 20,000/- at anyone time and the total payments made to an individual; in the relevant year exceeded ₹ 50,000/-. The Tribunal therefore held that no disallowance was permissible u/s 40(a)(ia) merely on the presumption that application of Sec 194C of the Act could not be ruled out because the payments were supported by self-made vouchers. The Assessee also relied on the Special Bench of ITAT at Vizag in the case of Merilyn Shipping Transporters Vs. ACIT wherein it was held that provisions of Sec 40(a)(ia) of the Act are applicable only in relation to expenses which remain unpaid on the last day of the previous year and do not apply to expenses which have been actually paid during the relevant previous year. 10. The CIT(A) agreed with the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is observed that that it had incurred expenditure of ₹ 77,25,966/- on account of transportation charges. In the course of assessment proceedings it was explained before the AO that out of total expenditure of ₹ 77,25,966/ -, the TDS on the payment of ₹ 75,57,662/- was not made because the payments were made to various parties and the same were below the threshold limit prescribed in the relevant provisions of the Act. However, the AO did not accept the contention of the appellant in its totality and on ad-hoc basis 50% of ₹ 75,57,662/- was disallowed by invoking provisions of section 40(a)(ia) of the Act. However, as discussed above, this action of the AO is not in accordance with law and, therefore, cannot be approved. 5.1 In the case of M/5 Matrix Glass Structures Pvt. Ltd. vs. ITO, Ward- 6(2), Kolkata, ITA No. 658 (Kol) of 2010 dated 28.01.2011, the AO had made disallowance of ₹ 11,58,302/- on account of transportation charges by invoking the provisions of section 40(a)(ia) of the Act. The aforesaid disallowance was made by the AO for the reason that the assessee company did not furnish details and evidences to verify whether provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. 11. Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal. 12. Despite service of notice through DR none appeared on behalf of the assessee. Copy of the acknowledgment evidencing service of notice on the assessee together with the letter dated 16.05.2016 of DCIT, Circle-5(1), Kolkata is placed on record. We have heard the submissions of the ld. DR, who submitted that the provision of section 40(a)(ia) of the Act are mandatory. It was the submission that it is no doubt true that no adhoc disallowance u/s 40(a)(ia) of the Act could be made by the AO. Nevertheless since the quantum of expenditure on transport charges on which TDS was not made was quantified at ₹ 75,57,662/- and since the assessee only made submissions that payments were always made for invoice values which used to be below ₹ 20,000/- in single instance and that the aggregate payments of any individual transporter did not exceed ₹ 50,000/- in a given year, without any proof or evidence to substantiate its claim, the CIT(A) ought not to have deleted the disallowance made by the AO just by relying on the submissions of the Assessee. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 153A of the Act. As far as the A.Y.2008-09 is concerned in the assessment proceedings u/s 153A of the Act, the books of accounts were not available as it was destroyed in fire and the special audit was carried out u/s 142(2A) of the Act. Based on the Special audit report and other documents available the assessment for A.Y.2008-09 u/s 153A of the Act was carried out by the AO. 18. The main business activity of the Assessee was to provide construction/earthmoving equipments and heavy vehicles on hire and trading of hard coke. According to the revenue, during the course of search, documents were found and seized which revealed that the Assessee was indulging in bogus transactions of i.e., hire charges, excavation and other contractual work were shown to have been received when no such transactions actually took place. In the course of assessment proceedings, the Assessee failed to produce books of account, bills, vouchers and other relevant documents and claimed that the same had been destroyed in fire. The auditor also could not examine the books of account for the same reason and the evidence that the books of account and other documents were destroyed in fire was obtained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bert Commercial Pvt. Ltd. at 19,British Indian Street, Kolkata-69, which revealed that the Assessee booked income/receipt from machinery hire charges in the name of said two concerns amounting to ₹ 38,30,47,366/- and ₹ 13,70,78,412/-, respectively aggregating to ₹ 52,01,25,778/- during F.Y. 2007-08 relevant to A.Y. 2008-09. The statement of Shri Nikhil Jalan, proprietor of Nikhil Impex and director of Gilbert Commercial Pvt. Ltd. was recorded on oath wherein he stated that the transactions of hiring charges were on paper only and no actual hiring of machineries had taken place. On being questioned to the Assessee about this fact, the assessee submitted that the Special Auditor, M/S Swapan Associate, has disallowed the hiring charges expenses incurred related to Rehiring Sub-Contract of civil, Site Clearance and Excavation expenses amounting to ₹ 85,26,19,991/- and Hiring Charges income earned related to hiring charges and civil, site clearance, and excavation contract amounting to ₹ 52,01,25,778/- during the financial year 2007-08 as bogus transactions as per Appraisal Report and draft assessment order. However, in the absence of entire records, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The AO held that it was undisputable fact that the Assessee had indulged in bogus transactions of hiring and contractual work. The documents seized during the course of search and also statements recorded during the course of survey operation in the business premises of Shri Nikhil Jalan, proprietor of Nikhil Impex and Director of GDJ Construction and Gilbert Commercial; that the Assessee had entered into bogus transactions. But, on being asked to explain why the Assessee shall get into the bogus transactions for increasing the income, the Assessee vide its submission dated 31.07.2012 stated the following: During the F.Y.2007-08 we have provided the entry of sales amounted to ₹ 114,10,16,936/- in lieu of commission of 0.25% and taken the entry of purchases of ₹ 85,10,68,095/- on commission of 0.15% which is amounted to ₹ 15,75,940/- i.e. (114,10,16,936*0.25% - 85,10,68,095*0.15%) and the same we are disclosing for the A.Y. 2008- 09 22. In the concluding paragraph of the assessment order, the AO held as under: In view of the facts brought on record it is clearly evident that the assessee company has indulged in bogus transactions of expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48,841/- was considered to be real income. Such conclusion will be self- contradictory. 24. On the question of estimation of commission income from bogus providing accommodation entries, it was submitted by the Assessee that the Assessee accounted bogus income of ₹ 1,14,10,16,936/- and in this respect thereof earned charges @ 0.25% of the invoiced values. The Assessee's gross receipt by way of commission therefore amounted to ₹ 28,52,542/-. To offset the bogus income represented by the accommodation entries/ invoices; the Assessee in turn took accommodation entries for corresponding expenses. The aggregate invoiced value of such expenses amounted to ₹ 85,10,68,095/-. For availing such accommodation the appellant in turn paid charges @ 0.150/0; amounting to ₹ 12,76,602/- The differential between the charges received and paid amounted to ₹ 15,75,940/- was offered as Assessee's income in the return filed u/s 153A of the Act. It was argued that the AO in the order of assessment computed such income at average rate of 0.4% on the total bogus income and the same was assessed at ₹ 45,64,067/-. The AO did not assign any basis or reason for ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In paragraph 11.4 of the assessment order, he himself has mentioned that in view of the facts brought on record it is clearly evident that the assessee company has indulged in bogus expenses to the extent of ₹ 85,10,68,095/- and also recorded bogus transactions of income of ₹ 114,10,16,936/- corresponding to the said bogus expenses, for earning commission. I am of the considered opinion that once the AO has accepted the correctness of the figures of bogus transactions, there should not be any reason for not eliminating the claimed and accepted amount of bogus sales from the sales credited to the profit and loss account. In fact, it is observed that in the same paragraph of the assessment order, the AO has taken contradictory stand because he has calculated the receipt of commission income on account of providing entries of bogus sales of ₹ 114,10,16,936/-. When, he has computed the commission income on the bogus sales of ₹ 114,l0 ,15,936/ -, there is no reason for not eliminating the said amount from the gross sales/receipts credited to the profit and loss account. Further, in the assessment order the AO has not stated as to why he was allowing deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special auditor was not verified by the AO or CIT(A) by calling upon the parties to the transactions to confirm the claim of the assessee. According to him the issue should be set aside to the AO for carrying out a fresh exercise in this regard. 27. We have considered his submissions. From the reading of the AO s order and CIT(A) it is not clear as to whether the bogus expenditure and bogus sales had in fact been carried out by the actual inflow and out flow of money. The conclusion that there was bogus expenditure as well as bogus sales is based on material found in the course of search, statement recorded at the time of search and material and statement recorded in the subsequent Survey u/s.133A of the Act. Therefore it cannot be said that there was no basis for the AO or the Assessee to have quantified the bogus expenditure and bogus sales. In our opinion if there had been an actual inflow of a sum of ₹ 114,10,16,936/- if such bogus income is recorded by the assessee in the books of accounts and if the corresponding bogus expenditure of ₹ 85,10,68,095/- is also evidenced by out flow of funds then the action of AO would be justified. If, on the other hand, the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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