DEPUTY COMMISSIONER OF INCOME TAX, NEW DELHI V. GLOBAL AGRO CORP, NEW DELHI

ITA 4544/DEL/2024

AI Insights

The case involves an appeal by the Revenue against Global Agro Corp concerning the assessment year 2017-18. The Revenue challenged the deletions made by the CIT(A) regarding additions for unexplained cash credits under section 68, trading additions, and disallowances of commission and court settlement expenses. The Tribunal examined the evidence and arguments presented by both parties, including the nature of the business, the impact of demonetization, and the documentation provided for sales and commissions. The Tribunal upheld the CIT(A)'s decision, finding that the assessee had adequately demonstrated the genuineness of the transactions and the reasonableness of the expenses claimed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 787604 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2017-2018
• Appeal Filed On: 27-09-2024
• Other Referred Cases: CIT v. Kailash Jewellery House, Sumati Dayal vs. CIT, CIT v Durga Prasad More, Kishore Jeram Bhai Khaniya vs. ITO, Ms Surabhi Gold vs. ITO, Minda Acoustic Ltd vs. Addl.CIT, Range-6, New Delhi, Principal CIT Vs. IBLT Technologies Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAISWAL
• Assessee Lawyers: NITIN GULATI
• Keywords: Business income; Revenue expenditure; Reasonable cause; Business expenditure; Question of law; Unexplained cash credit; Unexplained expenditure; Fair market value; Rejection of books of accounts; Capital expenditure; Gross profit estimation; Bogus
• Section: 143(3); 68

Judgement Text

"ITA No.4544/Del/2024 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “G” BENCH: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.4544/Del/2024 [Assessment Year : 2017-18] DCIT Room No.1704, E-2 Block, Civic Centre, New Delhi-110002. vs Global Agro Corp, Plot No.07,1st Floor, Central Market West Avenue Road, West Punjabi Bagh, New Delhi-110026. PAN-AAKFG2650A APPELLANT RESPONDENT Revenue by Shri Dheeraj Kumar Jaiswal, Sr.DR Assessee by Shri Nitin Gulati, CA Date of Hearing 17.09.2025 Date of Pronouncement 21.11.2025 ORDER PER MANISH AGARWAL, AM : The present appeal is filed by the Revenue against the order dated 19.07.2024 passed by Ld. Commissioner of Income Tax (A), [“Ld.CIT(A)”], National Faceless Appeal Centre (“NFAC”), Delhi in Appeal No. CIT(A), Delhi-15/10990/2019-20 u/s 250 of the Income Tax Act,1961 [“the Act”] arising out of the assessment order dated 31.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18. Printed from counselvise.com ITA No.4544/Del/2024 Page | 2 2. Brief facts of the case are that assessee is a partnership firm, engaged in export of rice and e-filed its return of income on 28.09.2017 declaring income at INR 66,28,650/-. The case was selected through CASS and after considering the submissions made by the assessee from time to time, assessment was completed u/s 143(3) vide assessment order dated 31.12.2019 wherein following additions were made: (i) addition of INR 1,57,66,969/- of the cash deposited as bogus sales u/s 68 of the Act; (ii) Trading addition of INR 4,81,20,031/-; (iii) Disallowance of INR 1,94,31,115/- out of commission expenses; and (iv) disallowance of INR 32,30,550/- of court settlement expenses. 3. Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 19.07.2024, allowed the appeal of the assessee. 4. Aggrieved by the order of Ld. CIT(A), Revenue is in appeal before the Tribunal by taking following grounds of appeal:- 1. That on the facts and circumstances of the case and provision of law, the Ld. CIT(A) has erred in deleting the addition made by the Assessing Officer at Rs. 1,57,66,969/- as per provision of section 115BBE of the Act, as Unexplained Cash Credits u/s 68 of the I.T. Act, 1961. 2. That on the facts and circumstances of the case and provision of law, the Ld. CIT(A) has erred in deleting the addition made by the Printed from counselvise.com ITA No.4544/Del/2024 Page | 3 Assessing Officer at Rs. 4,81,20,031/- under the Head Trading Addition as per provision of section 145(3) of the Act. 3. That on the facts and circumstances of the case and provision of law, the Ld. CIT(A) has erred in deleting the addition made by the Assessing Officer at Rs. 1,90,84,935/- under the head commission expenses u/s 40A(2)(b) of the I.T. Act, 1961 as unexplained expenditure. 4. That on the facts and circumstances of the case and provision of law, the Ld. CIT(A) has erred in deleting the addition made by the Assessing Officer at Rs. 32,30,550/- under the head Court Settlement Expenses as Unexplained Expenditure. 5. That on the facts and circumstances of the case and provision of law, the Ld. CIT(A) has erred in not providing an opportunity to the Assessing Officer under Rule 46A to give comments/counter the issues raised. 5. In Ground of appeal No.1, Revenue has challenged the addition of INR 1,57,66,969/- made u/s 68 of the bogus sales. 6. In this regard, Ld. Sr. DR for the Revenue has made a detailed written submission which is reproduced as under:- 1. “On the issue of deletion of addition of Rs. 1,57,66,969/- u/s 68- Alleged Bogus Cash Sales. SUBMISSION ON BEHALF OF THE DEPARTMENT:  The assessee deposited cash of Rs. 1,67,64,500/- during the demonetization period (i.e. 09-11-2016 to 31-12-2016).  Out of this amount cash amount of Rs. 1,57,66,969/- was introduced in the cash book from 11.10.2016 to 07.11.2016, wherein the cash of almost Rs. 3,00,000/- introduced per day by making roughly 20 entries per day being cash entries ranging between Rs. 19,000/- to 20,000/-  Out of cash so accumulated cash of Rs. 1,40,00,000/- was shown transferred to Delhi Head Office. Printed from counselvise.com ITA No.4544/Del/2024 Page | 4  The assessee is a wholesaler and engaged in export there was no apparent reason to make such sales in small amounts. Further, such cash sales were only shown in the months of October and in the month of November 2016 upto 8th November (only before demonetization) and no such cash sales during other months of the year or in preceding year.  The assessee could not provide any documentary evidences regarding the expenses made for all these cash sales which include cleaning the insects from damaged stock, pest control/fumigation, re-packaging and starting a counter to sell in local market of Gandhi Dham.  The entire cash generated from cash sales upto 04.11.2016 was neither deposited into the bank accounts nor transferred to head office at Delhi till 04.11.2016.  The assessee failed to furnish any reasonable cause for transfer of such huge cash to such long distance instead of depositing the same at bank account of firm at Gandhi dham. Further, assessee couldn't produce any bill issued by any taxi owner or car driver for transfer of cash.  Insurance claim in respect of the most of the damaged rice had already been received from insurance company.  The facts of the case Le. CIT v. Kailash Jewellery House (Del HC), quoted by the respondent in its reply dtd. 26.08.2025, are different from the present case. In the present case the respondent is an wholesale exporter whereas the case quoted pertains to the jewellery business wherein cash component is part of the sale and it is allowed within limit whereas in the case of the assessee who is a wholesale exporter cash sales does not correspond with the nature of the business.  Circumstantial Evidence Supports AO's Findings: The Ld. CIT(A) has erred in disregarding circumstantial evidence, which is a crucial factor in taxation matters. The AO's findings were based on:  The modus operandi of the assessee  The pattern of cash movement & deposit The Hon'ble Supreme Court in Sumati Dayal vs. CIT (214 ITR 801) has held that taxation authorities are not bound by direct evidence alone and can rely on circumstantial evidence and preponderance of probabilities. The AO has rightly followed this principle, but the Ld CIT(A) has ignored it while deleting the addition. In the case of CIT v Durga Prasad More(1971) 82 ITR 540, the Hon'ble Supreme Court has made a reference to the test of human probabilities in following situation as under:- Printed from counselvise.com ITA No.4544/Del/2024 Page | 5 \"it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, other wise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.\" 7. Ld. Sr. DR submitted that the AO has rightly treated the sales claimed by the assessee made in cash as bogus and the additions made and requested for the restoration of the additions made by the AO. 8. On the other hand, Ld. AR for the assessee vehemently supported the order of Ld. CIT(A) on this issue and submits that assessee has duly recorded these transactions of cash sales in the books of accounts maintained in the regular course of business and are duly supported by respective sales invoices, sales registers and was duly declared in the GST returns filed from time to time. Ld.AR submits that sales alleged as is only 0.74% of the total turnover of the assessee company. He submits that assessee deals in perishable goods i.e. mainly in Rice and due to moisture, the goods sent to the Port were got damaged and rejected on account of quality issue and therefore, in order to reduce the loss, assessee Printed from counselvise.com ITA No.4544/Del/2024 Page | 6 sorted the damaged goods and had sold it in the local market in cash nearby the Port itself. Ld. AR further submits that though the goods were insured but in order to save the loss, an attempt was made to sale maximum quantity of goods which could be used and with regard to the totally damaged goods, the loss incurred was duly claimed from the Insurance Company. He further submits that insurance company after due verification of the damaged goods and also verifying the facts of sale of sub-standard goods by the assessee has released the claim to the assessee. Ld. AR submits that the entire process of insurance claim clearly suggests that claim of the assessee regarding damage of goods due to moisture was not arbitrary and genuine loss. As per ld. AR, the AO has not pointed out any discrepancy in the books of accounts and therefore, Ld. CIT(A) has rightly deleted the addition which order deserves to be upheld. 9. Heard the contentions of both parties and perused the material available on record. The assessee is an exporter of Rice and goods were sent to the Gandhidham for export out of India. At the time of transportation from Delhi to Gandhidham, certain goods were got damaged due to moisture and thereafter, the effected goods was sorted and sold in the domestic market in cash which was deposited into the bank. The assessee also filed necessary details of insurance claim lodged with respect to the loss incurred dur to moisture which cannot be an after though and it is also a known fact that the insurance company released the claim after Printed from counselvise.com ITA No.4544/Del/2024 Page | 7 thorough verification of the claim of loss by hiring surveyors etc. It is also a matter of fact that the AO has accepted the sales declared by the assessee nor disputed the availability of stock prior to such sales in the hands of the assessee. Ld. CIT(A) after considering these facts, deleted the addition by making following observations:- “I have considered the order and the arguments of the assessee. The issue to be decided is whether the cash balance available with the assessee prior to demonetisation was on account of domestic sale of rice to the customers. 5.3 To begin with, there is no dispute about the fact that the appellant deposited cash of Rs 1,67,64,500 into bank account during demonetization period in specified bank notes on the following dates. Date of deposit Amount(Rs) Bank Location 1. 12.11.2016 20,00,000 Bank of Baroda New Delhi 2. 17.11.2016 49,50,000 IDBI New Delhi 3. 18.11.2016 49,65,000 Bank of Baroda New Delhi 4. 21.11.2016 48,49,500 Canara Bank New Delhi Total 1,67,64,500 The appellant explained the source of deposit to be out of opening cash in hand as on 08.11.2016. 5.4 The assessee is engaged in trading/export of rice and out of the total turnover of Rs 211 crores in the impugned year, the component of cash sale effected domestically is Rs 1.67 crores. The Assessing Officer did not dispute the fact that sales declared by the assessee was recorded in the books of accounts maintained for the relevant period and reported to GST authorities, which is further supported by corresponding purchases and stock in trade. The assessee has furnished the details of the cash sale wherein there are transactions with different parties in the month of Oct and Nov 2016 aggregating to Rs 1,57,66,969. The AO specifically notes that cash sale of Rs 1,57,66,969 in the month of October and November 2016 was significantly higher than the previous year. But, mere increase in the quantum of cash sales in comparison to the previous year cannot be the reason for holding the sales as not genuine. The assessee supported the sale with bills with details like the item sold, quantity sold, date of sale, mode of receipt etc. but without complete address of the buyer. The Printed from counselvise.com ITA No.4544/Del/2024 Page | 8 assessee also submitted that in such cases the buyers were mostly walk- in customers in the store and hence complete details of their address were not available. 5.4. The provisions of section 68 deals with unexplained cash credits. As per said section, in case the assessee is not able to explain cash credits to the satisfaction of the Assessing Officer with necessary details, then cash credits may be treated as income of the appellant for that assessment year. Further, as per section 68 of the Act, the assessee should prove three ingredients i.e., (1) identity of the creditors (ii) genuineness of the transactions (iii) creditworthiness of the parties. 5.5. In the present case, the assessee has issued sale bills to all customers and recorded sales in the books of accounts maintained for that assessment year. The Assessing Officer has doubted the identity of the customers based on their name and address given by the assessee. The jurisdictional Delhi Tribunal in the case of Kishore Jeram Bhai Khaniya vs.ITO (ITA No. 1220/Del/2011) has noted that if a customer makes cash purchase and lifts the goods, there is no duty cast upon the seller to insist for the address of the purchaser. Similarly, the Chennai Tribunal in the case of Ms Surabhi Gold (ITA 372/CHY/2023) dated 5.4.2024 held that as per Rule 114B of I.T. Rules, 1962, the assessee is not required to collect KYC details of customers if sale does not exceed Rs. 2 lakhs. Therefore, mere incomplete address in the invoice cannot be basis for negating the identity of the purchasers. Further, the sales declared by the assessee is supported by corresponding purchases and stock in trade. There is no observation from the Assessing Officer about books of accounts maintained by the assessee and their incorrectness except the cash sale invoice. No discrepancy in books of accounts is brought out in the order vis-a-vis other key evidences like purchases and stock details during assessment proceedings. 5.6. The AO further notes that there were no instances of cash sale of damaged stock in the preceding years similar to the sale shown in impugned year. The assessee however disputes this fact his submission wherein it is stated that cash sales of such damaged and other stocks are made each year and that only the quantum of such sales varied. The fact of the matter is that the assessee is dealing in a perishable commodity and has been in the business for a considerable time and yearly variations in the business trends cannot be denied. More importantly, the increase in the quantum of cash sales in the impugned year in comparison to the previous year cannot form the basis for addition unless it is established that the sale transaction in cash itself was fictitious. The AO has not brought out any discrepancy in stock statement and there is no apparent mismatch in sales of sale tax returns. Printed from counselvise.com ITA No.4544/Del/2024 Page | 9 5.7. The AO was also not satisfied with the explanation of the assessee that cash realised from sale of stock in Gandhidham was transported to Delhi on 5.11.2016. In this regard, it is to be noted the cash was deposited at the bank account in Delhi from 12.11.2016 onwards which is much later than the date(s) of cash received from sale of stock in Gandhidham. There is neither any bar on transporting the cash nor passing accounting entries relating to transactions in cash between the Head office and branch office which are the administrative decisions of the assessee. Considering the facts and circumstances of the case and following the decision of the Courts/Tribunals (supra) I am of the considered view, that the AO erred in treating cash deposits into bank account as unexplained cash credit u/s. 68 of the Act. The AO is therefore directed to delete the addition. Ground no 5 and 6 are allowed.” 10. We find that Ld. CIT(A) has considered each and every fact in detailed manner and AO except doubting the sales for the reason that the details of the buyers was not submitted, without bringing any corroborating material on record to support the allegation, has made the additions. During the course of hearing before us, we had specifically asked the assessee to file the details as to how the cash was got transferred to Gandhidham to Delhi and why the cash was not deposited in the bank account at Gandhidham. The assessee in reply stated that the banks at Gandhidham had not accepted the cash since it was demonetized currency and there was heavy rush in the bank therefore, the bank had denied to accept the cash. Under these circumstances, cash was taken to Delhi for deposit int eh bank account. Assessee also filed the necessary evidences with respect to the vehicle through which the cash was taken to Delhi by the management. It is further seen that sales have been accepted by the AO and the loss on account of damaged goods due to moisture and insects was also reported to the insurance company and Printed from counselvise.com ITA No.4544/Del/2024 Page | 10 necessary documents regarding the insurance claim are also placed before us. Under these circumstances, we find that the assessee has been able to demonstrate that the sales made of the sub- standard/defective goods in the domestic /local market cannot be doubted on mere assumptions and presumptions. In view of the above facts, we find no error in the order of Ld. CIT(A) which is hereby, upheld. Ground of appeal No.1 raised by the Revenue is thus, dismissed. 11. In Ground of appeal No.2, the Revenue has challenged the deletion of trading addition of INR 4,81,20,031/- made by the AO. 12. Before us, Ld. Sr. DR for the Revenue vehemently supported the order of AO and further filed written submissions in this regard wherein it is stated that explanation given by the assessee is not acceptable for the reason that the assessee has stated the reason for falling G.P rate is due to demonetization. Ld. Sr. DR further submits that no evidence was filed as to how the demonetization has affected adversely the profitability of the assessee and further stated that the claim of the assessee of sale of damaged goods itself shown that it was an attempt to suppress the profits and therefore, he prayed for the restoration of the additions made. The written submission filed before us is reproduced as under:-  “As per the assessee the main reason for decline in G.P was the decline in the profit margin after demonetization. But no evidence was submitted in this regard. Printed from counselvise.com ITA No.4544/Del/2024 Page | 11  Further, day to day stock register was also not maintained by the assessee.  The assessee has accounted for bogus sale of damaged stock of price at higher price to generate the source of cash deposit into bank during demonization period and it is sufficient reason to hold that book of accounts of the assessee are not reliable and the assessee is accounting the transactions without any proper and correct bills and vouchers. In light of the above facts trading result declared by the assessee are not subject to verification and provisions of section 145(3) are clearly applicable in the case which states that: \"Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.” 13. On the other hand, Ld. AR for the assessee submitted that AO has arbitrarily applied the G.P rate of 4 % by ignoring the fact that assessee is working on low margin and high turnover. He further submits that merely low G.P rate cannot be the reason for rejecting the books of account and making trading additions more particularly when no specific defect whatsoever was pointed out in the books of account maintained by the assessee. Ld. AR submits that assessee has purchased the paddy from the farmers and due to demonetization, the Paddy was stocked by various local investors who were neither the traders nor the manufacturers and after demonetization, creates artificial shortage of raw materials. Due to the storage by the investors, the price of Paddy got increased by 20- 25% in a short period of time and accordingly, the purchases of raw Printed from counselvise.com ITA No.4544/Del/2024 Page | 12 material during the post-demonetization period had increased substantially however, the sale price remained static and therefore, there was heavy loss incurred by the assessee during post- demonetization period as compared to high profits earned during pre-demonetization period. The assessee also drew our attention to the submissions filed before the AO alongwith details wherein assessee has filed the details of profit earned pre and post demonetization and further filed the details of purchases made. He submits that Ld. CIT(A) has considered these facts and deleted the additions made and therefore, prayed for the confirmation of the order of Ld. CIT(A) on this issue. 14. Heard the contentions of both parties and perused the material available on record. In the instant case, AO has alleged that the assessee has accounted for bogus sales of damaged goods at a higher price to generate source of cash deposited during demonetization in SBN and for this reason he invoked the provisions of section 145(3) of the Act and rejected the books of accounts maintained by the assessee. Besides this, there was no other reason stated for invoking the provision of section 145(3) of the Act in the instant case. While deciding Ground of appeal No.1, we have observed that cash sales of damaged goods was genuine sales and therefore, this cannot be the reason for rejection of books of accounts maintained in regular course. Further, before us, the assessee has filed complete details of the purchase and sales made during the year. As per the said details it is seen that there was no Printed from counselvise.com ITA No.4544/Del/2024 Page | 13 shortage of stock. Further due to the increase in the purchase price in post-demonetization period as compared to pre-demonetization period, assessee suffered loss. Since these purchases have not been doubted by the AO therefore, the claim of the assessee of increase in purchase price cannot brushed aside. 15. It is settled law that mere fall in G.P. rate cannot be the reason for rejection of books of accounts without bringing on record any specific defects in the said books of account. The hon’ble Delhi high court int eh case of CIT vs. Jas Jack Elegance Exports reported in 40 DTR 236 (Delhi) has held as under: ACCOUNTS – REJECTION - “Non maintenance of stock register an GP rate – Where AO has not pointed out any defects in the books of account and explanation given by the assessee regarding non-maintenance of stock register has been accepted by Tribunal while deleting addition made on account of fall in gross profit, the finding of facts cannot be disturbed – No substantial question of law arises.” 16. Further hon’ble Delhi high court in the case of Principal CIT Vs. IBLT Technologies Ltd. reported in 12 ITR Online 670 – (Delhi) Accounts has held as under: “Rejection of books of account – Fall in gross profit – No defects found by Assessing Officer in books of account – Explanation of assessee for fall in gross profit accepted by appellate authorities – Finding of fact – Fall in gross profit cannot be sole ground to reject books of account – Income tax Act, 1961, ss. 144, 145(3).” 17. Ld. CIT(A) in para 6.3 had considered all the facts and after considering the past history of the assessee, has deleted the Printed from counselvise.com ITA No.4544/Del/2024 Page | 14 addition. The observation made by ld. CIT(A) in para 6.3 & 6.4 are reproduced as under:- 6.3 “I have considered the order and the submissions of the assessee. The reason for making the addition was that the gross profit ratio of 1.72% in the impugned year was much lower in comparison to 4.09% in the preceding AY 2016-17. The assessee submitted the twin reasons of increase in the purchase price of procurement of rice and disruption in the market supply chain in the later part of the year due to demonetisation. However, the AO was not satisfied with the reply of the assessee for the reasons specified in the assessment order reproduced above. The AO relied on his findings that assessee introduced cash into the accounts using bogus sales to conclude that the accounts of the assessee was not correct and invoked section 145(3). Accordingly, the AO proceeded to estimate the gross profit in in the impugned year at 4% as declared by the assessee in preceding AY 2016-17. 6.4 Estimation of gross profit is undertaken when the AO, among other things, is not satisfied about the correctness or completeness of the accounts of the assessee. In the instant case, assessee was regularly assessed to tax and the books of account were also duly audited u/s 44AB. The gross profit declared in the years prior to the impugned assessment year are as under No. AY G P Ratio 1. 2014-15 2.35% 2. 2015-16 0.73% 3. 2016-17 4.09% 4. 2017-18 1.72% Evidently, there is a variation in gross profit declared in the preceding years. In the preceding AY 2016-17, the gross profit was the highest at 4.09%. Of course, the AO was not satisfied with the assessee's explanation of higher purchase price of rice and demonetisation as the reasons for lower gross profit in the impugned year. But the fact remains that the assessee is primarily dealing with agriculture commodity where a significant portion of procurement of produce from farmers in the supplying chain were done in cash. The gross profit may accordingly vary depending on various factors and the therefore, the submission of the assessee is not without any merits. As already discussed, the AO did not point out any specific defect in the audited books except relying the finding of introduction of cash in Printed from counselvise.com ITA No.4544/Del/2024 Page | 15 form of bogus domestic sales. However, the cash sales do not form any significant proportion of the total transactions which mainly are in form of exports and registered separately with other statutory authorities. Further, the addition on account of bogus cash sale u/s 68 is also deleted as unstainable. Therefore, there is no basis for estimating profit u/s 145(3) of the Act. The Tribunal/Courts in a catena of cases held that rejection of books of was sine qua non for estimating business income and that lower gross profit/net profit declared by the assesssee cannot by itself be a ground for estimating a higher profit. In view of this, AO's estimation of a higher gross profit is not tenable. The addition of Rs 4,81,20,031 is deleted and ground no 3 & 4 are allowed.” 18. As observed above, we have deleted the addition made on account of cash sales treated as bogus therefore, we find no reason to disbelieve the trading results declared by the assessee. Thus, by respectfully following the aforesaid judgements of hon’ble jurisdictional high court, we find no infirmity in the order of Ld. CIT(A) in deleting the addition of INR 4,81,20,031/- thus the same is hereby upheld. Ground of appeal No. 2 raised by the Revenue is accordingly, dismissed. 19. Ground of appeal No.3 raised by the Revenue is regarding deletion of commission expenditure of INR 1,90,84,935/- made by AO by invoking the provision of section 40A(2)(b) of the Act. 20. Before us, Ld. Sr. DR submits that assessee has failed to file any agreement with the parties to whom commission was paid and moreover, the assessee has not been able to substantiate the genuineness of the commission paid. Ld.Sr.DR submits that AO has Printed from counselvise.com ITA No.4544/Del/2024 Page | 16 discussed this issue in details and thus, the order of AO deserves to be upheld, more particularly, looking to the facts that AO himself has allowed 50% of the commission as genuine. He thus, prayed for the confirmation of the order of the AO. Ld. Sr DR also filed a written submission which reads as under:  The assessee has claimed export commission expenses of Rs. 3,81,69,869/-comparing to Rs. 1,37,60,242/-(increase of 198%) claimed in the immediate preceding year.  The Assessee has paid this commission to M/s Abram General Company which is covered specified person within the meaning of section 40A(2)(b) of the IT Act.  The assessee failed to prove genuineness of such huge payments made and any substantive reason for such a steep increase in expenses.  The assessee failed to produce any agreement made with these parties, any bill submitted by them or to specify the specific services for which such commission was paid. Further, no such commission was paid to these parties in the preceding year.  Hence, assessee again failed to prove genuineness of these commission expenses.” 21. On the other hand, ld. AR for the assessee vehemently supported the order of ld. CIT(A) and submits that the fact of increase in sales itself proves the services rendered by the agent. The assessee with the help of the agent has discovered new markets and new customers were identified by the agent to whom sales were made. He submits that AO himself has held the 50% of commission paid to the same party as genuine which itself proves the existence and genuineness of the sales made through this party. He therefore, requested to confirm the order of ld. CIT(A) on this issue. Printed from counselvise.com ITA No.4544/Del/2024 Page | 17 22. Heard the contentions of both parties and perused the material available on record. It is an admitted fact that sales were increased from INR 127.40 crores to INR 211 crores in the year under appeal and majority of the sales was of export out of India. It is further seen that sales of this magnitude cannot be achieved without the help of the mediator who not only identify the prospective buyer but also help in getting the transactions completed without any hassles which includes the smooth supply of goods and release of payments etc. The allegation of the Revenue is that no agreement is submitted with the commission agent is also devoid of merits as in assessment orders itself, it is clearly stated that assessee has filed the copy of the agreement with M/s. Abram General Company. The AO has failed to make out the case that commission paid to this party is unreasonable or excessive. Moreover, AO himself accepted the services rendered and 50% of the commission paid to the said party is allowed as genuine business expenditure. It is not the case of the revenue that the commission paid was exorbitantly high as compared to the prevailing market rates. This fact was duly considered by Ld. CIT(A) while deleting the disallowance so made. The relevant observations of ld. CIT(A) are as under: 7.2. “In the appeal proceedings, the assessee submitted that the AO erred in restricting the commission expense without any cogent reasons and reiterated the submission made before the AO with a plea to delete the addition. To begin with, there is no dispute that the amount of Rs 3,81,59,869 was paid as commission to M/s Abram General Trading LLC as per consignment agreement. There is also no ambiguity in the fact whether the assessee availed the requisite service in lieu of the payment Printed from counselvise.com ITA No.4544/Del/2024 Page | 18 made to the agent. In fact, there is a substantial increase in the turnover of the firm over the previous year. The only dispute is about quantum of expenditure wherein the AO allowed only Rs 1,90,84,935 ie., 50% of expenditure claimed. 7.4. It is pertinent to note that disallowance under section 40A(2)(a)/(b) can be invoked when the AO is of the opinion that such expenditure is \"excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee\". In the present case, the disallowance has been made on the ground that the payment is excessive or unreasonable but there is no finding by the A.O. as to what according to him is fair market value of the services in question. On a similar issue, the ITAT Delhi in the case of Minda Acoustic Ltd held as under:- A disallowance under section 40A(2), on percentage basis, is inherently contrary to the Act in as much as it is a condition precedent for invoking section 40A that the benchmark to be set as to what is a fair market value of the services question and then the expenditure in excess of the said benchmark is to be disallowed but then such benchmark cannot be in terms of percentage of payment by the assessee. For this reason alone, the impugned disallowance indeed deserves to be disallowed We have also noted that in the present case, there is no dispute about the facts of service being rendered and there is no benchmark set for as to what would constitute a fair market value of the services in question. Unless there is a clear finding that the market value of the services taken from the sister-concern is less than the price at which the services are obtained, there cannot be an occasion to apply the disabling provisions of s. 40A(2). This exercise, therefore, necessitates a finding about the fair market value of such services. There is no such finding in the present case. In these circumstances as also bearing in mind entirety of the case, we are of the considered view that the disallowance made by the A.O. was devoid of legally sustainable basis. The learned CIT(A) was thus quite justified in deleting the same. Ground no.2 is thus dismissed.\" In a catena of cases, the same rationale followed by various Courts/Tribunals. In view of this, I find that the disallowance of commission expense paid to M/s Abram General Trading LLC is unstainable and hence deleted. 7.5 Apart from the payment to M/s Abram General Trading LLC, the assessee also paid commission of Rs 3,40,180 to three different individuals who are related parties, which the AO disallowed. The Printed from counselvise.com ITA No.4544/Del/2024 Page | 19 assessee submitted that the commission was paid to the parties for their services in making arrangement of sales and purchases. The AO however disallowed the expenditure as the assessee failed to substantiate the expenditure with specific nature of service render along with evidence. Even in the appeal proceedings, the assessee reiterated the stand but no documents were produced in support of the claim. Hence, addition to the extent of Rs 3,40,180 is upheld.” 23. In this regard, CIT(A) has placed reliance on the judgement of Co-ordinate Bench in the case of Minda Acoustic Ltd. Vs Addl.CIT, Range-6, New Delhi [2015] 58 taxmann.com 203 (Delhi-Trib.) wherein it is held as under:- “A disallowance under section 40A(2), on percentage basis, is inherently contrary to the Act in as much as it is a condition precedent for invoking section 40A that the benchmark to be set as to what is a fair market value of the services question and then the expenditure in excess of the said benchmark is to be disallowed but then such benchmark cannot be in terms of percentage of payment by the assessee. For this reason alone, the impugned disallowance indeed deserves to be disallowed We have also noted that in the present case, there is no dispute about the facts of service being rendered and there is no benchmark set for as to what would constitute a fair market value of the services in question. Unless there is a clear finding that the market value of the services taken from the sister- concern is less than the price at which the services are obtained, there cannot be an occasion to apply the disabling provisions of s. 40A(2). This exercise, therefore, necessitates a finding about the fair market value of such services. There is no such finding in the present case. In these circumstances as also bearing in mind entirety of the case, we are of the considered view that the disallowance made by the A.O. was devoid of legally sustainable basis. The learned CIT(A) was thus quite justified in deleting the same. Ground no.2 is thus dismissed.\" 24. It is further seen that AO has failed to dispute the services rendered by the assessee and before us, the findings of ld. CIT(A) could not be controverted by the revenue. In view of these facts, we find no error in the order of Ld. CIT(A) who has rightly deleted the Printed from counselvise.com ITA No.4544/Del/2024 Page | 20 disallowance made by AO and thus the order of Ld. CIT(A) is hereby, confirmed. Accordingly, Ground of appeal No. 3 is hereby, dismissed. 25. Ground of appeal No.4 raised by the Revenue is with respect to the deletion of disallowance of INR 32,30,550/- being the amount paid under Court settlement as business loss. 26. Ld.Sr.DR for the Revenue supported the orders of the AO and submits that assessee has not produced any order directing the assessee to pay such amount and further failed to establish whether it is a capital expenditure or Revenue expenditure. He therefore, requested for the restoration of the order of AO. 27. On the other hand, Ld.AR for the assessee vehemently supported the order of Ld. CIT(A) and submits that in view of the order of Hon’ble Delhi High Court dated 15.12.2016, a settlement Agreement was entered between the assessee company and M/s. Bhagwati Lacto Vegetarian Export (P.) Ltd. According to which on failure on the part of the assessee in supply of goods in time, the opposite party had suffered heavy losses. Accordingly, Hon’ble Delhi High Court ordered the assessee to pay a sum of INR 31 Lakhs as compensation and further Court fee etc. Accordingly, the assessee has claimed INR 32,30,550/- on account of Court settlement fee. A copy of Settlement Agreement of Hon’ble Delhi High Court was Printed from counselvise.com ITA No.4544/Del/2024 Page | 21 already filed before the lower authorities and therefore, Ld.AR of the assessee submits that the order of Ld. CIT(A) in deleting the disallowance deserves to be upheld. 28. Heard the contentions of both parties and perused the material available on record. At the outset, it is seen that on the directions given by the Hon’ble Delhi High Court Mediation and Conciliation Centre for Settlement Agreement according to which the assessee was held as defaulter in not supplying the goods within stipulated time period. Since the payment was made on the failure to perform the regular business transaction and to maintain goodwill, the settlement Agreement was reached to pay INR 31 Lakhs to the opposite party. This fact has not been denied by the lower authorities and Ld. CIT(A) after considering the said order, has deleted the disallowance made by the AO. In view of above facts, we find no error in the order of Ld. CIT(A) which order is hereby, upheld. The ground of appeal No. 4 raised by the revenue is thus dismissed. 29. In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 21.11.2025. Sd/- Sd/- (ANUBHAV SHARMA) JUDICIAL MEMBER Date:- 21.11.2025 *Amit Kumar, Sr.P.S* (MANISH AGARWAL) ACCOUNTANT MEMBER Printed from counselvise.com ITA No.4544/Del/2024 Page | 22 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT 6. Guard File ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "