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TMI Blog2021 (9) TMI 976X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) in his findings as supra in this order. CIT(A) has also discussed in his finding that this was not a case of estimation of net profit on circular purchases but this was a case where the assessee had incurred expenses for circular purchases/transaction @ 0.28% and estimated the disallowance @ 0.30% of circular trading purchases - CIT(A) has also explained in his finding regarding analysis of the transaction made by the assessee that these transactions were carried out in order to show better turnover in financial accounts. Revenue could not controvert the facts reported by the ld. CIT(A) with any relevant material. Therefore, no infirmity in the decision of ld. CIT(A) in estimating the disallowance @ 0.30% of circular trading purchases - Appeal of the revenue is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has restricted the disallowance to the extent of ₹ 85,13,363/-. The relevant part of the decision of ld. CIT(A) is reproduced as under:- "DECISION 4.3 I have gone through the facts of the case, findings of Assessing Officer in assessment order and submissions of the appellant. The A.O. alleged that the assessee had admitted that during the year it had resorted to circular trading, wherein the bills/invoices change hands without movement of physical goods and mentioned movement of invoices and funds in para 3.1 of assessment order. The A.O. treated such purchases of ₹ 2,83,77,87,618/- as not reliable and paper purchases. The A.O. concluded that the benefit derived by the assessee from, such bogus circular paper purchase bills can be around 5% and disallowed ₹ 14,18,89,380/- of purchases. 4.3.1 In assessment proceedings and before me in appellate proceedings, the appellant submitted that: (i) In circular trading, there are no bogus/fictitious purchases/sales, but the circular trading is adhered to show better turnover. (ii) The appellant company has furnished circular trading sample bills and chart before Settlement Commission vide submission dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.R. of the appellant argued that the A.O. in para 3 of assessment order has given finding that the assessee is engaged in circular trading activities, wherein the bills/invoices change hands without movement of physical goods, contrary to this in para 4 of assessment order the A.O, concluded that the purchases are not reliable and are paper purchases. The A.O. in para 3.1 of assessment order narrated that the circular trading is resorted where various sale bills issued, which circulated amongst fictitious concerns and finally they ended up in sales to the assessee by the last entity. The A.R. further stated that no benefit is derived through these circular trade transactions, it is only to show better turnover in financial accounts. Sale by POL to 1st Party Sale by 1st Party to 2nd Party Sale by 2nd Party to POL Name Of Purchase Amount Name Of Purchase Amount Name Of Purchase Amount A.M Enterprise 2633882 Balaji Enterprise 2535482 Pradip Overseas Ltd. 2639406 Jays Enterprise 3923219 Shree Balaji Trading Co. 3926259 Pradip Overseas Ltd. 3931961 Nirmal Corporation 3428637 Krishna Enterprise 3432290 Pradip Overseas Ltd. 3439191 i Balaji Impex 3699008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat all purchase parties are assessed to tax and sale appellant has been shown in their trading accounts. Wrong classification of debit balance in their books as loan instead of debtors cannot be a ground for disallowance in the case of appellant. Moreover, if A.O. doubted purchases from two parties, than the entire purchases should have been disallowed. There is no basis for accepting 75% of amount as genuine and treating 25% of the amount as bogus purchases in respect of the same party. Besides doubting the purchases, the A- O. also doubted the sales made by the appellant as mentioned on page -7 (6th line) of the assessment order, reproduced on page 8 of this order. Moreover it is noticed that M/s. Raman Fabrics Pvt. Ltd., a purchase party has similar address as the sale party M/s. Bani Thani Fashions Pvt. Ltd. The only difference is in Shop NO, which is 128E, Sanghvi Tower in the case of purchase party and 128B, Sanghvi Tower in the case of sale party. Another sale party M/s. Nakoda Textile Industries Ltd. has the address 128D, Sanghvi Tower. The appellant's address relate to few parties and almost the entire amount of purchase as well as sales is outstanding nor only on 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the decisions relied upon by appellant, the estimation of income in this case may be between what is shown in the return of income to 1.5% of turnover depending upon whether it is a case of circular transactions, unverifiable purchase or bogus entries. In case of giving accommodation entries the profit estimation in diamond cases referred to supra has been at 1.5% while for textile case the ITAT Ahmedabad has taken a percentage of 0.125%. Since rate of commission for giving entries in textile trade are bound to be lower than the rates for diamond trade, estimate has to be closer to 0.125% and not 1.5%. Alternatively, if it is case of unverifiable purchases in textile business, then the estimate of net profit for a turnover of this size may be between 0.5% to 1%. The present case falls in neither of the categories. It is a case of circular transactions to show a fake healthy balance sheet. However, the appellant cannot escape the provisions of Section 40A(2)a/40A(2)b even in case of circular transactions within group concerns. Therefore a reasonable estimate c* profit is required even in that case in view of Section 40A(2)a/40A(2)b. Considering all these facts a net profit of 0.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, submissions of the appellant and findings in assessment order, I am of considered view that the transactions are in the nature of circular purchases and there is no space to hold that the purchases are not reliable and paper purchases. The appellant rightly said that the profit on sale transactions is offered by appellant company (POL), but during the year the appellant has shown negative gross profit and net loss in return of income. Therefore, this is not a case of estimation of net profit on circular purchases but this is a case, where the appellant has incurred expenses for circular purchases/transactions @ 0.28%. Accordingly, I estimate disallowance @ 0.30'% of circular trading purchases of ₹ 2,83,77,87,618/- being charges to inter-mediatory not for the purpose of business. The addition is sustained to the extent of ₹ 85,13,363/- and the appellant get relief of ₹ 13,33,76,017/-. This ground of appeal is partly allowed." 5. During the course of appellate proceedings before us, the ld. Departmental Representative has supported the order of Assessing Officer and submitted that ld. CIT(A) has incorrectly relied on the facts and issues pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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