ACIT, CIRCLE- 3, Nagpur V. M/S SOLARIES HOLDING LTD., NEW DELHI

ITA 509/NAG/2014

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2241 (ITAT-NAGPUR)
• Duration Of Justice: 7 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Business income; Rule of consistency; Additional evidence; Accommodation entries; Sham transactions
• Section: 131; 143(3); 142(1); 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JM & SHRI ARUN KHODPIA, AM ITA No. 509/NAG/2014 Assessment Year: 2008-2009 The ACIT Circle-3, Nagpur Vs. M/s. Solaries Holdings Ltd. Thapar House, 124, Janpath, New Delhi PANNo.:AAHCS 59040 B Appellant Respondent Revenue by :ShriPiyushKolhe (CIT-DR) Assessee by: Shri K.P. Dewani (Adv.) Date of Hearing: 18/04/2022 Date of Pronouncement: 28/06/2022 ORDER PER: SANDEEP GOSAIN, J.M. This appeal has been filed by the Department against the order of the ld. CIT-II, Nagpur dated 01/09/2014 passed u/s 143(3) of the Income Tax Act, 1961 for the A.Y. 2008-09 wherein the Department has raised the following grounds of appeal. ‘’1. On the facts and in the circumstances of the case and in law the ld. CIT(A), Nagpur has erred in deleting the addition of Rs.21,16,68,693/- in respect of bogus purchases and Rs.23,24,50,899/- on account of bogus sales made by the Assessing Officer when the entire gamut of facts showed that there was no business activity or even it was in the nature of speculation. 2. On the facts and in the circumstances of the case and in law the ld. CIT(A)-, Nagpur has erred in that he did not take cognizance of the fact that the Ex-Director of the assessee company Shri M.R. Roy in his statement recorded under oath admitted that the transaction of sales and 2 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. purchases were not done through banking channels and there was no physical movement of goods for purchase or sale as both purchases and sales were bogus 2. Apropos Ground No. 1 and 2 of the Department, brief facts of the case are that the assesseefiled its return of income declaring loss of Rs.2,99,18,940/- on 26-09-2008 which was processed u/s 143(1) of the Act on 27-02-2010. The case of the assessee was selected for scrutiny under CASS and notice u/s 143(2) of the Act was sent on 04-08-2009. The notice u/s 143(2) of the Act was again sent on 22-07-2010 to the assesseealongwithquestionnaire u/s 142(1) of the Act. In response to the notice, the ld AR of the assessee appeared from time to time and submitted the requisite details for verification by the AO. The AO noted in the assessment order that the assessee is engaged in the business of trading of fabric, renting of property and has earned dividend income. During the course of hearing before the AO, the ld AR had produced the details called for, which had been test checked by the AO. The AO from the perusal of the detailed submitted by the assessee noticed that the assesee had shown sales of trading goods to the tune of Rs.23,24,50,899/- against purchase of Rs.23,16,68,693/-. The AO required from the assessee to submit the details of top 15 parties of sales& purchases. The AO in the assessment order noted that the assessee had made purchases from the following 08 parties. 3 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 1. DSR Textiles. 2. Amartex Industries Ltd. 3. GRenesisColours Pvt. Ltd. 4. Liberty Shoes Ltd. 5. Karnal Milk Food Ltd. 6. Vanasthali Textile Inds Ltd. 7. Techno Byte India Pvt. Ltd. 8. Ask Home Furnishing Pvt. Ltd. The AO further noted that assessee had made sales to the above eight parties only. All the purchase and sales had been made only in the month of Dec. 2007. There was no purchases and sales of trading goods in the immediate preceding year, no quantitative details of the goods traded was there in the Tax Audit Report and the good traded were invariably related to the fabric on which no VAT/CST is applicable. The AO in order to verify the genuineness of the transactions as well as reasonability of the new line of business of the assessee, asked the assesee vide questionnaire dated 21-12-2010 to produce all the bills in original in respect of the sales & purchases made with the above parties alongwith proof for movement of goods and details of payment received / made. In response, the CA of the company produced original bills in respect of sales & Purchases of goods traded. The same was impounded vide order u/s 133A(1)(ia) of the Act dated 27-12-2010, and the copy of which was served on the counsel of the assessee, for further examination and verification. From the perusal of the impounded material, the AO observed following facts in respect of the following parties. 4 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 1. DSR Textiles – A perusal of the invoice raised by DSR Textile shows that it is a unit of DSR Steel Pvt. Ltd. dealing in Saria. Secondly, the invoice raised by DSR Textiles in favour of Solaris Holdings Ltd. are in series as under which shows that the sales from DSR Textiles was made only to the assessee company during the period 1-12-2007 to 11-12-2007. Book No. Invoice No. Date (from / to) 1. A-037 to 050 01-12-2007 to 5-12-2006 2. A-051 to 072 05-12-2007 to 11-12-2007 In order to show that these transactions are genuine, the assessee has given billof M/s. M.S. Transport Company for each invoice raised. The AO from the perusal of these bills had noted that:- (i) None of the bilty are signed by the driver (ii) None of the bilty are signed by the customer (iii) There is no driver’s name in any of the bilty. (iv) There is no owner’s name in any of the bilty (v) There are no stamp of receipt or delivery in any of the transporter’s bilty (vi) Place of loading and place of destination of goods is not there in any of the transporter’s bility (vii) All the bilty of transporters are in series i.e. from S.No 311 dated 1-12-2007 to S.N. 346 dated 11-12- 2007 5 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. (viii) There are no labour charges in any of the transporter’s bilty The AO thus noted that since this party deals with steel and has got nothing to do it with the fabric for which he deputed the Inspector to identity the genuineness of the party. The Inspector deputed by the AO to enquire into the genuineness of the party M/s. DSR Textiles,gave report that there is no firm in the name of M/s. DSR Textiles and it was only in papers which never had any dealing with M/s. Solaries Holding Ltd. The AO in general has also observed in his assessment order that no supporting documents for movement had been submitted by the assessee in respect of following parties. (i) Amartex Industries Ltd. (ii) Genesis Colour Pvt. Ltd. (iii) Vanasthali Textile Inds. Ltd. (iv) Techno Byte India Pvt. Ltd. (v) Ask Home Furnishing Pvt. Ltd. As regards M/s. Liberty Shoes, the AO noticed that nowhere in the official site of this company trading in fabric had been mentioned as one of its business activities.As regards M/s. Karnal Milk Foods Ltd., the AO observed that it has nothing to do with the trading in Fabric. The AO through his Inspector got the information that M/s. Karnal Milk Foods Ltd deal in milk and Ghee in the brand name of Karna having factory at Karnal and this company does not deal in 6 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. cloth. The AO thus taking into consideration the above facts and circumstances of the case concluded that all the purchases to the tune of Rs.23,16,68,693/- debited to the P&L account of the assesee are bogus. The AO noted that Memorandum of Association of the assessee company shows that trading in fabrics is neither the main objects of the company nor objects incidental and ancillary to the main objects of the company. The AO thus observed that the expenses claimed by the assessee on account of purchases are not genuine and are liable to be added to the total income of the assessee and he made the addition of Rs.23,16,68,693/-. Further the AO noted that against this bogus purchases, the assessee had shown sales of Rs.23,24,50,899/-. The AO observed that since the purchases are bogus, therefore, there cannot be any sales. The AO further mentioned in his assessment order that the assessee in fact is inreceipt of income from undisclosed sources which it had tried to set off against the bogus purchases. The assessee has not produced sales tax return on the behest that the goods are not liable to Sales Tax/ Vat. If the sales had been made, there must be IR copy, Gate Pass for the vehicle and movement of goods from the premises/ godown. These details were not furnished by the assesseewhich justified that these are sham transactions. The AO thus noted that either there was no business activity or the same was in the nature of speculation and thus the AO observed that whole of the sale is not genuine sale and it is the receipt / income of the assesee company from the unknown/ undisclosed sources. 7 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. Finally, the AO treated a sum of Rs.23,24,50,899/- as income from other sources and made the addition of Rs.23,24,50,899/- in the hands of the assessee company. 2.1 In first appeal, the ld. CIT(A) has deleted both the additions of Rs.23,16,68,693/- and Rs.23,24,50,899/- by observing as under:- 9. I have considered the facts of the case and the submissions of the appellant. I have also perused the report of enquiry conducted by the investigation wing, Delhi and the remand report of the Id. AO as well as the forwarding comments of the it. CIT, Range-7, Nagpur. I have also perused the response of the appellant to the above. I find substantial force in the submissions made by the appellant. 9.1 Firstly, I shall deal with the objection of the Id. AO to the admission of additional evidence as it is the view of the Id. AO that the appellant's case was not covered by provision of Rule 46A of the IT Rules. The said issue has already been elaborated upon in para 4.5 above wherein the reasons for remanding the matter are discussed. It is evident that the Id. AO has used unverified evidences in making the disallowance of purchase/sales as the statements of the parties, which were recorded and relied upon by the Id. AO during assessment proceedings, were never provided to the appellant. Also opportunity for cross- examination was not provided to the appellant and disallowance of purchase/sales have been made relying on such unverified statements. There is merit in the submission of the appellant that no opportunity was allowed to cross-examine the following parties based on whose statement the additions in respect of purchases have been made: (i) Sh. Surinder Singh, proprietor of M/s DSR Steels Pvt. Ltd. (ii) Sh. ParveenChauhan, owner of M/s M.S. Transport Company (iii) Office boy of M/s Karnal Milk Food Pvt. Ltd. 9.2 Also additions running into crores cannot be made on the basis of the statement of an office boy of M/s Karnal Milk Food Pvt. Ltd. (recorded by an inspector). Such a statement has no evidentiary value especially when no opportunity was given to the appellant to cross-examine the said person. Also, the Id. AO never confronted the appellant with his conclusion that the websites of some of the concerns did not mention fabric trading as being part of their business activity. Evidently, one cannot conclude about the business activities of any business enterprise by merely •visiting its website as it may be active in businesses which may not be mentioned in the website. Evidently, the Id. AO never confronted the appellant about this aspect. 8 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 9.3 Thus it is evident that there has been a violation of the principles of natural justice as proper opportunity was not provided and sufficient time was not given to comply with the requirements of the notices. The appellant was not confronted with the statements used against it and opportunity of cross-examination was also not provided. Hence the admission of additional evidence and the call for remand report on the submissions and evidences filed by the appellant was in order. 10. Coming to the purchase and sale transaction entered into by the appellant in respect of fabrics, it is seen that there are certain common characteristics in all the said transactions. Each and every party is verifiable and is assessed to tax and appeared before the department during remand proceedings. The purchases as well as sales are squared off between the said eight parties only. At the end of the year, there is no closing stock or closing balance in respect of any of the parties. All the purchase / sale have been effected in the month of December 2007 only and the appellant has not entered into such transaction in earlier years. All purchases have been squared off by sales and only a small differential balance amount at year-end has been paid off or received through bank. 10.1 During the course of assessment proceedings, the Id. AO had carried out certain enquiries and come to the conclusion that some of the purchase parties are not traceable and after examining some employees and after observing their websites etc. However, during the remand proceedings, the appellant produced ample evidence to conclusively establish the existence of each of the eight parties. In respect of each of the said parties, statement of account, copy of ITR, Acknowledgement of return of Income, Final accounts for the year under consideration, copies of relevant pages of bank statement etc. were furnished. Confirmations from each of the parties concerned were also filed. Quantity details were also filed to evidence that the purchases and sales were not bogus and the parties were genuine. 10.2 The ld. AO examined almost all the parties concerned and recorded their statement on oath. Sample statements have been reproduced in earlier part of the order. From the evidences furnished and also from the statements recorded, it is evident that purchase/ sale parties are real existing entities carrying on various businesses and are not bogus concerns as concluded in the assessment order. Hence the basic premise in which the original assessment was finalized no longer exists. Also the appellant submitted complete quantity details and no adverse comments have been made by the ld AO in respect of the same in remand proceedings. Thus the appellant has given the details in form of purchase bills, copy of accounts, bank statement etc. which has not been doubted by the A.O. as mentioned in the remand report. Audited books of accounts of the appellant have been accepted by the A.O. after their examination and the quantity details in respect of traded goods has not been doubted either. 10.3 However, a defining characteristic of the transactions is the absence of any evidence to establish that the goods were actually transported either in the process 9 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. of purchase or at the time of sale. If the statements of any of the parties, recorded by the ITO Unit-V(3), New Delhi, are perused, it is seen that there is no evidence transport or of physical delivery or of the work order /physical receipt of the goods involved. None of the parties involved could provide evidence of dispatch of goods by seller and receipt of goods by the purchaser. Also, in the case of DSR Textiles, which is the only instance where transportation bilties were produced, it could be seen that there was no driver's name or the owner's name in the bilty and the bilty was not signed by the driver or customer. Also there was no stamp of receipt or delivery in any of the transporter's bilty and that the place of loading and place of destination of goods is not mentioned in any of the transporter's bilty and there are no labour charges in any of the transporter's bilty. Thus there is no evidence of transportation of goods at the end of the appellant as well at the end of each of the parties with whom the transactions were entered into. Shri M.R. Roy, workingthe appellant, in his statement stated on oath that "There is no transportation evidence like bills, receipt of goods since the purchases and sales were bogus". Above set of facts lead to the conclusion that the said transactions are artificially structured transactions with some specific intention and that actual purchase and sale never happened though large amount of paper work has been done to give the appearance of proper purchase and sale. 10.4 The appellant has also sought to explain the specific intention that was the reason behind the structured transactions. On the basis of various facts and figures, it has been explained by the appellant that it is engaged in the business of investment in shares and securities mainly in controlled companies. It is further explained that however, the appellant company had shown in its annual audited accounts the major and primary business as 'trading of Goods' i.e. a non-investment business in order to manage regulatory hardship such as (i) regulation with regard to the acceptance of deposit, (ii) capital adequacy requirement and others. Thus it is evident that the appellant, though primarily in investment business, has entered into the above artificially structured transactions with the intent of show trading as its primary business activity and to escape the attendant regulatory requirements. 10.5 It is also important to note the statement of Shri M.R. Roya, working with the appellant, was recorded on oath on 25-02-2013 u/s 131 of the I.T. Act, wherein he was categorically stated on oath that ‘’There is no transportation evidence like bills, receipt of goods since the purchases and sales were bogus’’ and the process clearly indicating and confirming that the said transactions are artificially structured transactions. It is also evident that the appellant entered into circulating trading business, which was structured with eight parties, and few of these are reputed business houses in their own field. They are all having PAN, are assessed and file their returns and have filed copy of their account for transactions with the appellant for purchase and sale of 'Fabric' during the period of December, 2007. They have all appeared before the officers of the Investigation Wing in Delhi and confirmed the transactions and shown their books also. The only evidence all of them failed to 10 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. produce and expressed their inability to produce were evidences of transportation of the goods. Thus the structured accounts in the shape of circulating business contained only book entry for purchases Rs 23.16 crore and corresponding sales Rs 23.24 crore with eight parties and the artificial / notional profit, being excess of sale price over purchases, as received through banking channel, was refcted in audited accounts i.e. Profit & loss account. 10.6 Thus from the perusal of the copies of accounts of each of the 8 parties it is clear that parties are genuine and they have apparently booked the transaction, disclosed stores inventory, paid /.received the cheque on the basis of balance in total transaction with each. Therefore, it is a case of circulating transactions within a very limited period of time in the month of December, 2007 and the nature of the transactions is such that there are no impact items such as transportation cost, carry forward or brought forward opening and closing stock, sales and other taxes. It is also clear that balance outstanding with each of the parties was settled through banking channel. 10.7 Even otherwise, the Id. AO has not come to the right conclusions by adding both the purchase amount and the sale amount. If all the purchases are taken as bogus purchases then it is beyond comprehension as to how the sales would be effected. It can never be a case where the purchases/sales can be taken as bogus for the reasons that if purchases are bogus then there cannot be any sales and vice versa and in that eventuality there cannot be any profit that can be offered to tax. There cannot be any sales/purchases in absence of the purchases/sales. 10.8 There is merit in the submission of the appellant that it maintains its accounts according to double entry book keeping system and that as per this system, if purchases are debited in the P & L, there should be corresponding credit in the P & L account i.e. sales and that the Id. AO has filed to identify the corresponding credit in the P&L account against bogus purchases as she has treated sales of Rs. 23.24 crore as income from undisclosed source of income and that the AO. has failed to identify the corresponding debit against credit in the audited accounts for income from un- disclosed source. Double entry system of accounting norms requires disclosure. Therefore, if there was actual receipt of Rs. 23,24,50,899/ from undisclosed sources, actual receipt of such "income from undisclosed sources" should have been appeared in the Balance sheet. But this is not a case as there was no genuine sale in absence of genuine purchases. 10.9 It is also admitted position under the law mere ‘’book entry’ is not liable to tax in absence of ‘’real income/ receipts’ and the burden is on revenue to establish that assessee has in fact earned income within the four corners of the law. Scores of judicial pronouncements have held that if no actual transaction has happened and the entries are mere book entries, the same cannot be brought to tax. The Hon’ble Apex Court in the case of Excell Industries 358 ITR 295 (SC) was deciding a case where the assessee, without importing any goods in real, in order to keep intact its 11 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. right on duty free entitlements, passed certain entries in its books and department taxed the amount. However, appellate courts have held that no actual transaction has happened and the entries aremere book entries. Finally matter reached to Hon'ble Apex Court and it has been held as under: "Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realization of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic". 10.10 Thus it is borne out from the facts as well there is a clear acceptance from the appellant that it has deliberately created these notional entries of sale and purchase of fabrics in order to keep the corporate status intact and to run the business of investment without any hindrance and that it was for this reason that the appellant resorted to constructive and circulated transactions involving purchases to the tune of Rs. 23,16,68,693/ which have a direct nexus to sales of Rs 23,24,50,899/ as appearing in the audited Profit and loss account and the profit earned on the said transaction comes to Rs.7,82,206/ -. 10.11 It is on the basis of the above facts that ITO Unit-V(3) New Delhi, the Id. AO and the R. CIT Range-7, Nagpur have all come to the conclusion that that the impugned transactions shown by the appellant are in the form of accommodation entries only and no actual trading has taken place and that as such no real business activity was being carried out by the assessee company during the relevant previous year. It is concluded by the ITO Unit-V(3) New Delhi as well as the Id. AO that the transactions under question are paper transactions in the form of accommodation entries and that it is inferred that there was no business activity or even if there was one it was in the nature of speculation. They however do further affirm the correctness of the additions made. 10.12 It would be pertinent to reproduce the comments contained in the coveringletter of the it. CIT Range-7, Nagpur wherein it stated as under: The assessing officer had also referred the matter to the Investigation Wing, Delhi, by issue of commission u/s,131(d) of the I T Act, for carrying out necessary on the spot inquiries and it is reported by the Investigating Officer that the impugned transactions shown by the assessee are in the form of accommodation entries only and no actual trading has taken place. As such no real business activity was being carried out by the assessee company during the relevant previous year..." 12 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 10.13 He has then concluded that the additions made in the assessment completed are in accordance with the facts of the case and are as per the applicable provision of law. 11. The facts in the case of appellant are identical to the facts in the case of Arman Fashion Pvt. Ltd., Suratvs DCIT decided by the Hon’ble ITAT ‘A’ Bench Ahemdabad. In the said case also, it was held that the appellant had merely entered into structured circular transactions and the reason for such transactions was to show increased artificial turnover so as to fulfill "turnover" criteria of banks of for getting finance. As a matter of fact, in the said case also, during the course of proceedings, the appellant filed a letter wherein it admitted that it was a case of circular transactions and that the said transactions were not real. The relevant portion of the ITAT judgement wherein the Id. CIT(A) gave his finding is reproduced belowis reproduced hereunder: "The appellant vide letter filed on 09.08.2012 admitted that it was a case of circular transactions. The said letter is reproduced herein under: ‘’......... The assessee is doing business of trading in fabrics. In addition to our previous reply we would like to submit as under: The transactions are as shown in the books of accounts of purchases and sales were made by the assessee to fulfill "turnover" criteria of banks of for getting finance. It is pertinent to note that the same was to create a turnover by internal sales and purchases to have a reasonable turnover which in return would facilitate a respectable project report for bank finance. The fact of FDR of specific amount was kept with bank added force to our submission as FOR were put so that the same shall fulfill the criteria of collateral security. Hence the turnover as mentioned in the trading and profit and loss account of the assessee was in fact not a actual turnover in common business parlance and hence the question of taxing any hypothetical profit out of such structured turnover does not arise 11. In this back ground when we see facts like a turnover 18.23 crores with gross profit of 0,4% and net profit of 0.02%, no sales in subsequent year i.e. A. Y. 2010- 11, negligible administrative expenses of Rs.46,187/- and outstanding Debtor/Creditor, it is apparent that both the purchases and sales in this case are bogus and only book entries for purchase/sale have been made. Such transactions may be for the purpose of giving bogus entries to other concerns to help them evade tax or just circular transaction whether the group to generate a fake healthy balance sheet to deceive financial institutions or for some other purpose. 12. Ethical aspects of such an exercise can be debated and there may be adverse consequences under other acts/rules for such conduct. However, as for Income Tax Act is concerned, what is required to be seen is the correct amount of taxable income generated from such transaction. As noticed (supra) the total sales of appellant are on Rs.18.23 crores. Since GP is only 13 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 0.04%, purchases are also of almost equal amount. If the appellant has given bogus entries to others, appropriate commission income for giving bogus entries need to be estimated as taxable income of the appellant. In case appellant has only indulged in circular transactions, then there may not be any taxable income in the hands of appellant except what has been shown in the return of income. However, if AO's view is accepted that purchases are not verifiable, even then it will be a case of net profit estimation... Considering all these facts a net profit of 0.5% is estimated on turnover of Rs.18.23 crores. Therefore, addition is sustained to extent of Rs. 9.12 lakl7s." 11.1 The above findings of the CIT(A) was subsequently confirmed by the Hon’ble ITAT which held as under:- ‘’9. We have carefully perused the material placed before us and also heard the arguments advanced by the ld. DR. Further, perusing the order of the ld. CIT(A), we find that the ld. CIT(A) after deliberating the issue has made the following findings:- (i) All the parties from whom the assessee had made purchases were assessed to tax and were disclosed in their trading account. (ii) The pries from whom the assessee had made purchases had only wrongly classified in their books of accounts as loan instead of showing the balance due to the assessee as receivable from the assessee as debtors. (iii) In such circumstances, the transactions of the purchases and sales made by the assessee need not be doubted. (iv) However, during the year the assessee had a turnover of Rs. 18.23 Crores with gross profit at 0.04% and net profit at 0.02%. During the subsequent assessment year, the turnover declared was nil and had shown negligible administrative expenses of Rs.46,1871- and had outstanding debtors and creditors. From these facts it could be inferred that both the purchases and sales are bogus and only book entries. Such transactions are generally made to extend bogus entries to other concerns in order to hell) them to evade tax or it could be a circular transaction to generate a healthy balance sheet to deceive financial institutions or for other purposes. (v) From the above facts, the income of the assessee could not be to the extent of 25% of unverifiable purchases. Further, drawing support from the other decisions of the ITAT Ahmedabad Benches, net profit could be estimated at 0.05% on the total turnover of Rs. 18.23 Crores. 9. The above findings of the learned CIT(A) is quite reasonable. Further, either parties did not produce any materials on record to dislodge the findings of the learned CIT(A). In these circumstances, we do not have any hesitation to confirm the order of the learned CIT(A). Consequently, the appeal of the revenue as well as the cross appeal of the assessee, both are dismissed." 14 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. [NB: The Hon'ble ITAT, 'A' Bench, Ahmedabad while affirming the order of the CIT(A) seems to have erroneously taken final NP0!0 at 0.05% as against 0.5% held by the CIT(A) who has also worked out the exact taxable income from this activity at 9.12 lacs by stating "a net profit of 0.5% is estimated on turnover of Rs.18.23 crores, Therefore, addition Is sustained to extent of Rs.9.12 lakhs.'] 11.2 Facts in the case of the appellant are identical. Both are trading in fabrics. The transactions as shown in the books were made-up in both cases for specific reasons. The transactions as shown in the books of accounts of purchases and sales were made-up by the assessee to show the primary business as 'trading of Goods' i.e. a non-investment business in order to manage regulatory hardship such as (I) regulation with regard to the acceptance of deposit, (ii) capital adequacy requirement and others. Thus the appellant, though primarily in investment business, has entered into the above artificially structured transactions with the intent of show trading as its primary business activity and to escape the attendant regulatory requirements. Hence the turnover as mentioned in the trading and profit and loss account of the assessee is in fact not actual turnover in common business parlance. 11.3 Thus, the appellant has shown fake turnover of Rs.23,24,50,899/- and the profit earned on the said transaction is a mere Rs.7,82,206/-. There are no outstanding Debtor/ Creditor, paltry squaring off payments by cheque, no labour or transportation expenses. etc. It is apparent that both the purchases and sales in this case are not real and only book entries for purchase/ sale have been made. As stated in Arman Fashion Pvt. Ltd., SuratVs DIT (Supra), the ethical aspects of an exercise seeking to show inflated bogus turnover can be debated and there may be adverse consequences under other statutes for such conduct, but for the Income Tax, what is required to be determined is the correct amount of taxable income generated from such transaction. Here, since the appellant has only indulged in circular transactions, there may not be any taxable income in the hands of appellant except what has been shown in the return of income. It may be noted that in thecase of Arman Fashion Pvt. Ltd., Suratvs DIT (supra), 0.5% GP rate was applied in view of the applicabilty of Section 40A(2)a/40A(2)b as the appellant had entered into certain transactions with group concerns. However, in the absence of any such transactions in the books of the appellant, no such addition is required to be made. 11.4 In this context, it is important to note that the appellant has submitted that in the subsequent year (AY 2009-10) it has entered into identical transactions in fabrics with various parties (including some of the parties in respect of whom disallowances have been made during the year) and that the Id. AO has duly accepted the said transactions and no additions have been made. In this regard it was submitted as under: At the outset, we would submit that M/s. Solaris Holdings Ltd., the appellant company have had the business of "Trading goods" as reported in its Profit 8c Loss account and as explained earlier. Year wise break up of purchase and sale of "Trading goods" are as under: Asst. Year Purchase Sale Profit / Loss included in P & L account 2008-09 23,16,68,693 23,24,50,899 (+) 7,82,206 15 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 2009-10 74,94,78,484 74,59,88,313 (-) 34,90,171 From the above, it is clear that purchase and sale of "Trading goods" were reported in the Profit & Loss account both the years i.e. asst. year 2008-09 and 2009-10 and the resultant profit or loss were factored in the Return of Income in the respective assessment years. Kindly refer the Paper Book containing particulars and information with regard to the purchase and sale of "Trading goods" for the asst. year 2008- 09 and2009-10. From a look at the details of purchase and sale of "Trading goods" during the financial year relevant to asst. year 2009-10 as available in the Paper Book, you will find that the quantum of the transaction was increased from Rs. 23 crore to Rs. 74 crore in the next year. Moreover, appellant company has reported loss of Rs. 34,90,733/- in the later asst. year as compare to profit Rs. 7,82,206/- in this year. Furthermore, at least 2 - 3 parties i.e. M/s. Ask Home Furnishing Pvt. Ltd., M/s. Amartex Industries Ltd. and DSR Group are common in both the asst. years. As regard, outcome of assessment in the year relevant to asst. year 2009-10, we would submit that the learned assessing officer i.e. The Joint Commissioner of Income Tax, Chandrapur, Maharashtra vide his order dated 22 nd Dec. 2011 has clearly reproduced (On page 4) the terms of income and expenditure is appearing in the Profit & Loss account wherein the above said particulars are available. Aforesaid position in respect of ‘’Trading goods’ was examined by the ld. AssessingOfficer, Chandrapur, Maharashtra and he has accepted the trading results without any adverse impact in assessment.’’ 11.5 The contentions of the appellant and the submissions were examined and are found to be true. Thus in the succeeding year, the appellant entered into identical transactions in fabrics with various parties including some of the parties in respect of whom disallowances have been made during the year under consideration. The Id. AO has accepted the said transactions and no additions have been made. M/s. Ask Home Furnishing Pvt, Ltd., M/s. Amartex Industries Ltd. and DSR Group are common in both the asst. years. In the year under consideration, the purchase as well as the sale transactions with these 3parties has been added to the income of the appellant as bogus purchases/sales. In AY 2009-10, however, the AO in respect of identical transactions in fabrics, has accepted the same and not made any addition. This is in spite of the fact that the appellant has reported a loss of Rs. 34,90,733/- in AY 2009- 10 as compare to profit Rs. 7,82,206/- in this year. Thus it is a fact that the issue of "Trading goods" has been examined by the Id. AO and he has accepted the trading results without taking any adverse view. On identical facts, a different view is not possible in the year consideration. 12. Considering the above totality of facts, the action of the Id. AO of adding the purchases and sales amounting to Rs. 231,668,693 and Rs. 232,450,899 is held to be incorrect and the said additions are directed to be deleted. These grounds are therefore allowed.’’ 16 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 2.2 During the course of hearing, the ld. DR-CIT has relied on the order of the AO and submitted that the ld CIT(A) has erred in deleting both the additions of Rs.23,16,68,693/- and Rs.23,24,50,899/- respectively as the AO has very explicitly made out the case of bogus purchases and sales by the assessee company. 2.3 On the other hand, the ld. AR of the assesseerelied on the order of the ld. CIT(A) and filed the written submission praying therein as under:- (A) Company has entered into circular transaction for purchase and sale of fabrics with eight parties which resulted into net income at Rs.7,82,206/-. The surplus realized was shown as income and same is assessed to tax at the hands of the assessee as shown. (B) Remand report would substantiate that the assessee company had purchased and sold the goods to same parties and only net amount after squaring up purchases and sales is settled by issue of cheque through proper banking channel. (C) Confirmation of transaction was submitted in assessment proceedings and same is not found to be incorrect or false. All the parties are assessed to income tax. Transaction of purchase and sale of fabrics/cloth are disclosed by such parties in their regular books of account and assessment record. (D) All the parties with whom the transactions of purchases and sales have been made are assessed to Income Tax and PAN of the parties is on record. The various parties have appeared before AO and confirmed the transactions of purchases and sales in respect of Textile goods with assessee company. Parties have also confirmed before AO as regards to receipt of difference of money in respect of purchases and sales through proper banking channel. 17 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. Parties have also placed on record the final accounts of parties as well as copy of VAT return to substantiate the transactions. (E) In the grounds of appeal itself, it has been observed that the transaction of purchases and sales is in the nature of speculation. The deletion of addition made by ld. CIT(A) cannot be faulted once if the transaction is considered to be in the nature of speculation transaction. Assessee has made purchases and sales with same parties. Assesseehas not received or made payment in respect to gross value of purchases and sales. Assessee has made only net amount in respect of transaction of purchases and sales. (F) Even if transactions are considered as not delivery based. Income arising from same will remain same as assessed. No justification for addition of entire purchase and sale value is made. (G) Revenue cannot approbate and reprobate which is impermissible. The ld. AR relied on the decision of Hon’ble Supreme Court in the case of R.N. Gosain A vsYashpalDhir vide judgement dated 23-10-1992 wherein the Hon’ble Supreme Court observed that ‘’Law does not permit a person to both approbate and reprobate. This principle is based on the doctrine of election which postulates that no party can accept and reject the same instrument and that ‘’a person cannot say at one time that a transaction is valid any thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage.’’ (H) Gross purchases and sale value cannot be assessed to tax even if transactions are not proved or are held to be not genuine. The ld. AR of the assessee relied on following decisions. (i) Eland International Pvt. Ltd. vs DCIT (2009) 124 TTJ 554 (Del) wherein at para 5.2 it has been mentioned that ‘’...it can never be a case where the purchase/sales can be taken bogus for the reason that if purchases are bogus then there 18 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. cannot be any sales and vice versa and in that eventuality there cannot be any profit which can be offered to tax. In view of the circumstances, I agree with the ld. AR that the AO has not marshalled the facts in proper perspective and the addition has been made without any basis. (ii) Kashuka Trading & Services (P) Ltd. vs ITO (2008) 26 SOT 388 (Mum). (iii) M/s Arman Fashion Pvt. Ltd vs ITO (ITA No,.2400 &2407/Ahd/2012 dated 10-05-2013 (iv) The Jt. CIT (OSD) vs M/s. Pradip Overseas Ltd. (ITA No.790/Ahd/2018) dated 16-09-2021 wherein the Hon’ble ITAT held that ‘’6..........Therefore, looking to the above facts and finding, we do not find any infirmity in the decision of ld. CIT(A) in estimating the disallowance @ 0.30% of circular trading purchases of Rs.2,83,77,87,618-/-. Accordingly, this appeal of the Revenue is dismissed.’’ (I) In the case of real income arising on transaction was declared accepted. Addition of gross value of purchases and sale is contrary to settled principle that assessment has to be of real income. The ld. AR relied decision in the case of CIT vs Excel Industries Ltd. (2013_) 358 ITR 295 wherein the Hon’ble Court observed at para 27...... Applying the three tests laid down by various decisions of this Court, namely whether the income accrued to the assesse is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realization of the benefits by the assesee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income by only hypothetical income had accrued to the assessee and Section 28(iv) would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic. (J) Transaction with similar parties accepted in assessment frame for A.Y. 2009-10. Loss as shown is accepted. 19 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. Transactions cannot be disputed by Revenue in A.Y. 2008- 09. The ld. AR relied on the decision of ITAT Mumbai Bench in the case of DCIT vs R.R. OomerbhoyPvt. Ltd. (ITA No.d4223/Mum/2017 dated 20-02-2019 wherein at para 33, it is mentioned that ....principle of consistency should be followed. It is true that in general, doctrine of ‘Res Judicata does not apply to Income Tax Proceeding but the Courts have consistently held that on identical facts, separate conclusion in two different years by the Revenue authorities are not justified.’’ 2.4 We have heard both the parties and perused the materials available on record. Brief facts of the case are that the AO made an addition of Rs.23,16,68,693/- on account of bogus purchases and further made an addition of Rs.23,24,50,899/- on account of bogus sales giving detailed reasoning in his assessment order. In first appeal, the ld. CIT(A) has considered the totality of the facts and circumstances of the case and thus deleted both the additions made by the AO amounting to Rs.23,16,68,693/- on account of bogus purchases and addition of Rs.23,24,50,899/- on account of bogus sales. In this case, each and every party is verifiable and is assessed to tax who appeared before the Department during remand proceedings. It is noted that all the purchases/ sales had been effected in the month of December 2007 only and the assessee had not entered into such transactions in earlier years. All purchases have been squared off by sales and only a small differential balance amount at year end had been paid off or received through bank. It is also noted that in respect of above mentioned parties, statement of account, copy of ITR, Acknowledgement of return of 20 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. income, Final accounts for the year under consideration, copies of relevant pages of bank statement etc. were furnished and confirmations from each of the parties concerned were also filed. It is further noted that quantity details were also filed to evidence that the purchase and sales were not bogus and parties were genuine. The AO examined all the parties concerned and recorded their statement on oath in remand proceedings. The assessee submitted complete quantity details but no adverse comments had been made by the AO in respect of the same in remand proceedings. Thus the assessee had given the details in form of purchase bills, copy of accounts, bank statement etc. Audited books of accounts of the assessee had been accepted by the AO after its examination and the quantity details in respect of traded goods has also not been doubted by the AO. It is noted that the assesee had entered into circulating trading business which was structured with 08 parties and few of them are reputed parties in their field. All these parties having PAN, are assessed and filed their Income Tax Returns. These parties also filed copy of their account for transactions with the assessee for purchase and sale of ‘FABRIC’ during the period of December, 2007. They appeared before the Officer of the Investigation Wing in Delhi and confirmed the transactions with books of accounts. The only evidence which all of them failed to produce was transportation of the goods. Thus the structured accounts in the shape of circulating business contained only book entry for purchases of Rs.23.16 crore and corresponding sales of Rs.23.24 crore with 08 parties and notional profit, 21 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. being excess of sale price over purchases as received through banking channel, was reflected in audited accounts i.e. Profit & Loss Account. It is perused from the copies of accounts records of 8 parties that parties are genuine. It is a case of circulating transactions within a very limited period of time in the month of December 2007 and the nature of transactions is such that there are no impact items such as transportation cost, carry forward or brought forward opening and closing stock, sales and other taxes. It appears from the available records that it can never be a case where the purchases/ sales can be taken as bogus for the reason that if purchases are bogus then there cannot be any sales and vice versa and in that eventuality there cannot be any profit which can be offered to tax when in the facts in the case of assessee net profit is accepted by the AO in respect of purchase and sale. It is also noted that taking into consideration the facts and circumstances of the case, the ld. CIT(A)has deleted both the additions by observing at para 11.5 and 12 of his order as under:- ‘’11.5 The contentions of the appellant and the submissions were examined and are found to be true. Thus in the succeeding year, the appellant entered into identical transactions in fabrics with various parties including some of the parties in respect of whom disallowances have been made during the year under consideration. The Id. AO has accepted the said transactions and no additions have been made. M/s. Ask Home Furnishing Pvt, Ltd., M/s. Amartex Industries Ltd. and DSR Group are common in both the asst. years. In the year under consideration, the purchase as well as the sale transactions with these 22 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 3 parties has been added to the income of the appellant as bogus purchases/sales. In AY 2009-10, however, the AO in respect of identical transactions in fabrics, has accepted the same and not made any addition. This is in spite of the fact that the appellant has reported a loss of Rs. 34,90,733/- in AY 2009-10 as compare to profit Rs. 7,82,206/- in this year. Thus it is a fact that the issue of "Trading goods" has been examined by the Id. AO and he has accepted the trading results without taking any adverse view. On identical facts, a different view is not possible in the year consideration. 12. Considering the above totality of facts, the action of the Id. AO of adding the purchases and sales amounting to Rs. 231,668,693 and Rs. 232,450,899 is held to be incorrect and the said additions are directed to be deleted. These grounds are therefore allowed.’’ We have deeply gone through both the orders of the lower authorities and found that the ld. CIT(A) has elaborately and explicitly discussed the issue of deletion of both the additions in his order. We feel that the ld. CIT(A) has considered all the aspects while deleting the addition made by the AO. We are of the considered opinion on perusal of the evidence on record that ld. CIT(A) has dealt with the facts and evidence on record extensively while granting relief in the case of assessee. Detailed order passed by the ld. CIT(A) indicating reason for deleting the addition has been reproduced in the paragraphs hereinabove. We are in agreement with the findings and reasoning recorded by ld. CIT(A) deleting the addition in the case of assessee. It is well settled that purchases and sales in respect to transaction cannot be added to levy tax thereupon in terms of settled principles of 23 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. assessing/determining real income in the assessment framed. There is no rational to assess value of purchases and sales of trading transaction. Assessee has not derived income of magnitude of value of purchases and sales for which addition is made in the case of assessee. In fact, assessee has offered income at Rs.7,82,206/- on account of circular transaction which by itself is reasonable and rational. In the ground of appeal itself it has been claimed by Revenue Authorities that transaction could be in the nature of speculation. Considering the ground of Revenue that transaction to be in the nature of speculation only income which can be subjected to tax at the hands of assessee would be Rs.7,82,206/- which has been assessed by A.O. taking the income as declared in the return. Settled principle in law of assessing real income support the case of assessee and addition made by the AO is unjustified. The addition made by A.O. in respect to purchases and sales in no manner can be sustained. In Ground No.2 Revenue has observed that ld. CIT(A) has not taken cognizance of the statement of ex-director of Appellant company Shri M R Roy. It is seen that ldCIT(A) in its finding has considered the statement of Shri M R Roy while adjudicating the matter and same is discussed at para 10.3 and 10.5 of appellate order. Ground No.2 raised by the Revenue is misconceived and rejected. Considering the totality of facts and circumstances and evidence on record, we find no merit in appeal of revenue.Thus the appeal of the Revenue is dismissed. 24 ITA No.509/Nag/2014 ACIT, Circle-3, Nagpur vs M/s. Solaries Holdings Ltd. 3.0 In the result, the appeal of the Revenue is dismissed. Order pronounced in the Open Court on...28 th June, 2022 Sd/- Sd/- (ARUN KHODPIA) (SANDEEP GOSAIN) Accountant Member Judicial Member Nagpur Dated:- 28 /06/2022 *Mishra Copy of the order forwarded to: 1. The Appellant- The ACIT, Circle-3 Nagpur. 2. The Respondent- M/s. Solaries Holding Ltd., Delhi 3. CIT 4. The CIT(A) 5. DR, ITAT, Nagpur 6. Guard File (ITA No. 509/Nag/2014) By order, Asst. Registrar