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TMI Blog2023 (4) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... iary of the amount received by it on the sales made to the KGN Industries Ltd. As such the amount of sales received by the assessee was utilized against the purchases from M/s Biotor Industries Ltd. There cannot be any addition under section 68 of the Act in the given facts and circumstances for the bogus purchases shown by the assessee. What best can be added in the given facts and circumstances is the real income which has been earned by the assessee. To determine the real income, there is no standard formula prescribed under the provisions of law. We direct the AO to delete the addition made by him. Hence, the ground of appeal of the revenue is hereby dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... to substantiate the sales and purchases shown by it in the financial statements. Thus, the AO proposed to make the amount of sale shown by the assessee to M/s KGN Industries Ltd amounting to Rs. 52,02,48,035/- as unexplained cash credit under section 68 of the Act. 4.2 However, the assessee during the assessment proceedings admitted that it is engaged in providing accommodation entries by carrying out circular transactions. As such the assessee against the sales as discussed above has claimed to have shown purchases from the company namely M/s Biotor Industries Ltd. for an amount of Rs. 51,93,23,847/-. The fact that the assessee is engaged in circular transaction, was admitted by the VAT department in the course of survey conducted in the case of M/s Biotor Industries Ltd. Accordingly, the assessee contended that whatever amount was received by it was transferred to M/s Biotor Industries Ltd. against the purchases. As such the assessee was not the beneficiary of the fund received by it against the sale of goods to KGN Industries Ltd. The assessee in support of its contention has also filed the order of the VAT department wherein it was held that the assessee is engaged in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red an appeal to the learned CIT-A. 7. The assessee before the learned CIT-A, while reiterating the submissions made before the AO further contended that all the ledger accounts, sales register, purchase registers etc. were filed which were not considered by the AO at the time of framing the assessment. As the assessee was engaged in the activity of circular transaction, the amount of bogus purchases of ₹ 51,93,23,847/- cannot be treated as unexplained cash credit under section 68 of the Act. 7.1 The assessee without prejudice to the above further submitted that the assessee has earned an income by engaging in the accommodation entries at the rate of 0.20% of the sales amount recorded in the books of accounts. Therefore, the addition should be restricted to ₹ 10,40,496/- being 0.2% of ₹52,02,48,035/- which can be added after adjusting the income already declared by the assessee being ₹ 1,16,308/- to the total income of the assessee. 8. The learned CIT-A after considering the submission of the assessee and the assessment order allowed the appeal of the assessee in part by observing as under: 3.4. The appellant during the year has shown purchase of Rs.51, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,00,000/- --- 30/07/2009 Biotor Industries Ltd. --- ₹ 4,00,00,050/- 31/07/2009 KGN Industries Ltd. 4,00,00,000/- --- 31/07/2009 Biotar Industries Ltd. -- 4,00,00,050/- 03/08/2009 KGN Industries Ltd. 3,00,00,000/- --- 04/08/2009 Biotor Industries Ltd. --- 3,00,00,050/- 10/08/2009 KGN Industries Ltd. 3,00,00,000/- --- 11/08/2009 Biotar Industries Ltd. --- 3,00,00,050/- Similarly, in the HDFC Bank Account, receipt and payments were as under: Date Party Receipt(Rs.) Payment(Rs.) 22/09/2009 KGN Industries Ltd. 4,20,00,000/- --- 22/09/2009 Biotar Industries Ltd. 4,20,00,000/- 23/09/2009 KGN Industries Ltd. 7,20,00,000/- --- 23/09/2009 Biotar Industries Ltd. 7,20,00,000/- 24/09/2009 KGN Industries Ltd. 7,00,00,000/- --- 24/09/2009 Biotar Industries Ltd. 7,00,00,000/- 29/09/2009 KGN Industries Ltd. 22,07,885/- -- 29/09/2009 Biotar Industries Ltd. --- 12,37,435/- 3.6 Therefore, it is an established fact that appellant company has not carried out any real business but merely has been used as middle man to receive and make the payment. Appellant has been beneficiary of diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year 12.1 Admittedly, in the given case, the explanation offered by the assessee about the sum found credited in the books of accounts i.e. received on account of bogus sale and immediately transferred against the bogus purchases after retaining commission, was not found unsatisfactory by the AO. The only source of the income was the commission from the bogus transactions of sales and purchases. Thus, to our understanding the provisions of section 68 of the Act cannot be attracted. In holding so, we draw support and guidance from the judgment of Hon'ble Bombay High Court in case of PCIT vs. Alag Securities (P.) Ltd reported in 117 taxmann.com 292 where it was held as under: 20. We are in agreement with the view taken by the Tribunal. In a case of this nature Section 68 of the Act would not be attracted. Section 68 would come into play when any sum is found credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, we note that the different Hon'ble Courts in such facts the circumstances have adopted the basis of estimating the income based on some percentage. In holding so we draw support and guidance from the judgment of Hon'ble Bombay High Court in case of PCIT vs. Alag Securities (P.)Ltd reported in 117 taxmann.com 292 where it was held as under: 21. Coming to the percentage of commission, Tribunal had already held 0.1% commission in similar type of transactions to be a reasonable percentage of commission. Therefore Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee itself. This finding is a plausible one and it cannot be said that the rate of commission was arrived at in an arbitrary manner. The same does not suffer from any error or infirmity to warrant interference, that too, under section 260A of the Act. 12.4 In the given facts and circumstances, the principles laid down in the above case directly applies to the case on hand. The assessee is just acting as a middleman and carrying out the circular transactions. Thus, at the most commission income can be brought to tax. 12.5 Before parting, it is important to note that the revenue has made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT-A erred in deleting the addition made by the AO for Rs. 52,21,66,403/- under the provisions of section 68 of the Act and furthermore failed to apply the principles laid down by the Hon'ble jurisdictional High Court in the case of NK Industries for determining the income on estimated basis. 15. At the outset, we note that the issues raised by the Revenue in its grounds of appeal are identical to the issues raised by the Revenue in ITA No. 2463/AHD/2018 in case of KFC Industries Pvt. Ltd. for the assessment year 2010-11. Therefore, the findings given in 2463/AHD/2018 shall also be applicable on the issue raised in case of assessee on hand. The grounds appeal of the Revenue in case of KFC Industries Pvt. Ltd. has been decided by us vide paragraph No.12 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for ITA No. 2463/AHD/2018 shall also be applied for the in case of this appeal i.e. ITA No. 2464/AHD/2018. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 15.1 In the result, the appeal filed by the revenue is dismissed. 16. In the combined result, both the appeals of the revenue are dismissed. Order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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