No Separate Addition Towards Commission Paid on Bogus Purchases if Gross Profit on Sales Was Offered to Tax | ITAT

Case Details: Seo Lehenga House vs. DCIT - [2024] 163 taxmann.com 668 (Chandigarh - Trib.)

Judiciary and Counsel Details

• Aakash Deep Jain, vice president & Vikram Singh Yadav, accountant member
• Sudhir Sehgal, Adv. & Rishabh Marwah, CA for the Appellant.
• Smt. Kusum, CIT, DR for the Respondent.

Facts of the Case

During the survey, it was found that the assessee had made bogus purchases and bogus sales through a broker to whom a cash commission was paid on the total amount of bogus purchases and sales. The Assessing Officer (AO) issued a show cause notice to the assessee contending that the commission at the rate of 1% on the total amount of bogus purchases and sales should be treated as unexplained expenditure under section 69C of the Act.

The assessee submitted that it had itself shown a gross profit on bogus purchases and sales, which it never earned, @ 1.6% on the bogus sales of Knitted Cloth. Accordingly, the total alleged commission payment for declared bogus purchases and sales is duly covered by the gross profit shown in the books of account on bogus sales, which was never earned by them.

AO did not accept the assessee’s contentions and made additions under section 69C.

On appeal, CIT(A) upheld the additions made by the AO. Aggrieved by the order, an appeal was filed to the Chandigarh Tribunal.

ITAT Held

The Tribunal held that the assessee had been contending right from the assessment proceedings that it disclosed and offered to tax gross profit on bogus sales, which was accounted for in its books of accounts. The commission payment to the broker was, therefore, duly covered by the quantum of gross profit already offered to tax.

Upon reviewing the records, it was noted that the assessee reported a gross profit of 1.60% on fictitious sales of knitted cloth, amounting to approximately Rs 14 lakhs. Consequently, the commission for arranging the bogus purchases and sales, which was approximately Rs 5 lakhs as determined by the AO, is included within the reported gross profit of Rs 14 lakhs. Therefore, no separate addition should be made in this regard.

Therefore, the addition relating to the commission sustained by the CIT(A) was directed to be deleted.

List of Cases Referred to

• Anantharam Veerasinghaiah & Co. v. CIT [1980] 16 CTR 189/123 ITR 457 (SC) (para 22).