Jt. CIT (OSD), Circle-3(1)(1), Ahmedabad V. M/s. Pradip Overseas Ltd., Ahmedabad

ITA 790/AHD/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5820 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 02-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA
• Keywords: Business income; Accommodation entries
• Section: 143(3); 201; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (CONDUCTED THROUGH VIRTUAL COURT) BEFORE: SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEM BER THE JT. CIT(OSD), CIR-3(1)(1), AHMEDABAD (APPELLANT) VS M/S. PRADIP OVERSEAS LTD. A-601, 603 NAR NARAYAN COMPLEX, NR. SWASTIK CROSS ROAD, NAVRANGPURA, AHMEDBAD-380009 PAN: AACCC6293J (RESPONDENT) REVENUE BY: SHRI O.P. SHARMA, SR. D.R. ASSESSEE BY: SHRI SAKAR SHARMA, A.R . DATE OF HEARING : 26-08-2021 DATE OF PRONOUNCEMENT : 16-09-202 1 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THIS REVENUES APPEAL FOR A.Y. 2013-14, ARISES FRO M ORDER OF THE CIT(A)-11, AHMEDABAD DATED 17-01-2018, IN PROCEEDI NGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE A CT. 2. THE SOLITARY GROUND OF APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) IN RESTRICTING THE ADDITION OF RS. 14,18,89,380/- TO RS. 85,13,363/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF CIRCULAR TRADING PURCHASES. ITA NO. 790/AHD/2018 ASSESSMENT YEAR 2013-14 I.T.A NO. 790/AHD/2018 A.Y. 2013-14 PAGE NO JT. CIT(OSD) VS. M/S. PRADIP OVERSEAS LTD. 2 3. THE FACT IN BRIEF IS THAT ASSESSEE HAS FILED RE TURN OF INCOME SHOWING RS. NIL INCOME ON 29 TH SEP, 2013. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) WAS ISSUED ON 5 TH SEP, 2014. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN TO TAL SALES OF RS. 942.93 CRORE AND THE ASSESSING OFFICER OBSERVED THAT THERE WAS DECLINE IN THE SALE DURING THE YEAR COMPARED TO TOTAL SALES OF RS. 1618 .78 CRORES IN A.Y. 2012- 13 AND TOTAL SALE OF RS. 1931.82 CRORES IN A.Y. 201 1-12. ON QUERY, THE ASSESSEE ADMITTED THAT DURING THE YEAR HE WAS INDUL GED IN CIRCULAR TRADING TRANSACTION IN ORDER TO SHOW BETTER TURNOVER. THE ASSESSEE HAS ADMITTED THAT MAJORITY OF ITS PURCHASES WERE MERELY PAPER PURCHAS E TRANSACTION AS IT WAS ENGAGED IN CIRCULAR TRADING ACTIVITIES WHEREIN THE BILLS/INVOICES CHANGE HANDS WITHOUT MOVEMENT OF PHYSICAL GOODS. VARIOUS PROPR IETARY CONCERNS WERE FLOATED THROUGH WHICH THE CIRCULAR TRADINGS WERE CA RRIED OUT. IN THE CIRCULAR TRADING VARIOUS SALE BILLS WOULD BE ISSUED WHICH WO ULD BE CIRCULATED AMONGST THESE FICTITIOUS CONCERNS AND FINALLY THEY WOULD END UP IN SALES TO THE ASSESSEE BY THE LAST ENTITY. THE ADVANTAGE TAK EN BY THE INTERMEDIARY WERE THAT THEY DISCOUNTED THE SALE BILLS MADE BY TH EM TO THE FIRST CREATED ENTITY AND OBTAINED LOAN FROM BANK, THROUGH THE BIL L DISCOUNTING METHOD. FROM THE MONEY OBTAINED FROM BILL DISCOUNTING THEY WOULD THEN MAKE THE PAYMENT FOR THE LAST ENTITY FROM WHOM THEY MADE PUR CHASE. FROM THESE PAYMENTS MADE BY THE ASSESSEE, THE ENTITIES WOULD M AKE THE SUBSEQUENT PAYMENT AND THE FUNDS WOULD FINALLY REACH THE ASSES SEE. IN ADDITION TO THIS, THE ASSESSEE ALSO OBTAINED LOANS FROM OTHER BANKS O N THE FINAL PURCHASE ENTRIES MADE BY IT FROM THE ENTITIES. AFTER CONSI DERING THE SUBMISSION OF THE ASSESSEE, THE ASSESSING OFFICER HAS STATED THAT THE PURCHASES WERE NOT RELIABLE AND WERE PAPER PURCHASES, THEREFORE, PURCH ASES TO THE TUNE OF 5% OF I.T.A NO. 790/AHD/2018 A.Y. 2013-14 PAGE NO JT. CIT(OSD) VS. M/S. PRADIP OVERSEAS LTD. 3 TOTAL PURCHASES OF RS. 2,83,77,87,618/- WHICH WORKE D OUT TO THE TOTAL AMOUNT OF RS. 14,18,89,380/- WAS DISALLOWED AND ADDED TO T HE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE TH E LD. CIT(A). THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE EXTEN T OF RS. 85,13,363/-. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPR ODUCED AS UNDER:- DECISION 4.3 I HAVE GONE THROUGH THE FACTS OF THE CASE, FIND INGS OF ASSESSING OFFICER IN ASSESSMENT ORDER AND S UBMISSIONS OF THE APPELLANT. THE A.O. ALLEGED THAT THE ASSESSEE HAD A DMITTED THAT DURING THE YEAR IT HAD RESORTED TO CIR CULAR TRADING, WHEREIN THE BILLS / INVOICES CHANGE HANDS WITHOUT MOVEMENT OF PHYSICAL GOODS AND MENTIONED MOVEMENT OF INVOICE S AND FUNDS IN PARA 3.1 OF ASSESSMENT ORDER. THE A.O. TREATED SUCH PURCHASES OF RS. 2,83,77,87,618/- AS NOT RELIABLE AND PAPER PURCHASES. THE A.O. CONCLUDED THAT THE BENEFIT DERIVED BY THE ASSESSEE FROM, SUCH BOGUS CIRCULAR PAPER PURCHASE B ILLS CAN BE AROUND 5% AND DISALLOWED RS. 14,18,89,380/- OF PURCHASES. 4.3.1 IN ASSESSMENT PROCEEDINGS AND BEFORE ME IN AP PELLATE PROCEEDINGS, THE APPELLANT SUBMITTED THAT: (I) IN CIRCULAR TRADING, THERE ARE NO BOGUS / FIC TITIOUS PURCHASES / SALES, BUT THE CIRCULAR TRADING IS ADHERED TO SHOW BETTER TURNOVER. (II) THE APPELLANT COMPANY HAS FURNISHED CIRCULAR T RADING SAMPLE BILLS AND CHART BEFORE SETTLEMENT COM MISSION VIDE SUBMISSION DATED 21-12-2015 (PG. NO. 48), COPY OF T HIS LETTER ALSO FILED WITH AO, SUMMARY OF SUCH CIRC ULAR TRADE TRANSACTIONS ARE AS UNDER: SALE BY POL TO 1ST PARTY SALE BY 1ST PARTY TO 2ND PARTY SALE BY 2 ND PARTY TO POL NAME OF PURCHASE AMOUNT NAME OF PURCHASE AMOUNT NAME OF PURCHASE AMOUNT A.M ENTERPRISE 2633882 BALAJI ENTERPRISE 2636482 PRADIP OVERSEAS LTD. 2639406 JAYS ENTERPRISE 3923219 SHREE BALAJI TRADING CO. 3926259 PRADIP OVERSEAS LTD. 3931961 NIRMAL CORPORATION 3428637 KRISHNA ENTERPRISE 3432290 PRADIP OVERSEAS LTD. 3439191 BALAJI IMPEX 3699008 SHREE SAI TRADING CO. 3705425 PRADIP OVERSEAS LTD. 3710638 SHRI RAM ENTERPRISE 3549322 S.K ENTERPRISE 3552811 PRADIP OVERSEAS LTD. 355710S SHIV TRADING CO. 2744456 SHIVRAJ TRADERS 2748054 PRADIP OVERSEAS LTD. 2752191 VENKATESWARA TRADING CO. 3923517 JAY TRADERS 3929222 PRADIP OVERSEAS LTD. 3936069 A.M ENTERPRISE 2399220 SHREE BALAJI TRADING CO. 2403403 PRADIP OVERSEAS LTD. 2408050 VINAYAK ENTERPRISE 2998752 KRISHNA ENTERPRISE 3002550 PRADIP OVERSEAS LTD. 3007382 SHRI RAM ENTERPRISE I 3879402 I BALAJI ENTERPRISE 3884753 PRADIP OVERSEA: LTD. 3890940 I.T.A NO. 790/AHD/2018 A.Y. 2013-14 PAGE NO JT. CIT(OSD) VS. M/S. PRADIP OVERSEAS LTD. 4 TOTAL 331794151 33221249 J 33272933 (III) THE APPELLANT SOLD GOODS WORTH RS. 3,31,79,41 5/- IN CIRCULAR TRADING TO THE FIRST PARTY, WHO IN- TURN SOLD SUCH GOODS TO SECOND PARTY AT RS. 3,32,21,249/- AND FINALLY THE S ECOND PARTY SOLD SUCH GOODS TO THE APPELLANT COMPAN Y (POL) AT RS. 3,32,72,933/-. IN THESE TRANSACTIONS THE PURCHASES VALUE OF GOODS INCREASED BY RS. 93,5187- (SALE BY P OL RS. 3.31,79,415/- LESS PURCHASES BY POL RS. 3,32,72,933/-), WHICH IS 0.28% OF CIRCULAR PURCHASES BY THE APPELLANT (POL). (IV) PROFIT ON CIRCULAR TRANSACTIONS DULY RECORDED AND OFFERED BY APPELLANT COMPANY (POL) AT THE TIME OF MAKING SALE TO INTER-MEDIATORY PARTIES. CHARGES BY THE INTER-MEDIA TORY @ OF 0.28% OF CIRCULAR TRADING PURCHASES / TRA NSACTIONS NULLIFIED FROM THE IMPACT OF PROFIT DULY OFFERED ON FIRST SAL E, WHICH IS ONLY PAPER TRANSACTION. THEREFORE, NEIT HER ANY BENEFIT DERIVED NOR ANY EXPENSE BOOKED BY THE APPELLANT FROM SUCH C IRCULAR TRANSACTIONS / PURCHASES, AS ALLEGED BY THE AO. (V) APPELLANT SUBMITTED THAT IDENTICAL ISSUE OF CIR CULAR TRANSACTION WAS DECIDED BY HON'BLE JURISDICTI ONAL TRIBUNAL IN CASE OF M/S. ARMAN FASHION PVT. LTD. VS. ITO IN ITA NO,2 400 AND 2407/AHD/2012 (AHMEDABAD). 4.3.2 THE A.R. OF THE APPELLANT ARGUED THAT THE A.O . IN PARA 3 OF ASSESSMENT ORDER HAS GIVEN FINDING T HAT THE ASSESSEE IS ENGAGED IN CIRCULAR TRADING ACTIVITIES, WHEREIN THE BILLS / INVOICES CHANGE HANDS WITHOUT MOVEMENT OF PHYSICAL GOODS, CONTRARY TO THIS IN PARA 4 OF ASSESSMENT ORDER THE A.O, CONCLUDED THAT THE PURCHASES ARE NOT RELIABLE AND ARE PAPER PURCHASES. THE A.O. IN PARA 3.1 OF ASSESSMENT ORDER NARRATED THAT THE CIRCULAR TRADING IS RESORTED WHE RE VARIOUS SALE BILLS ISSUED, WHICH CIRCULATED AMONGST FICTITIOUS CONCERN S AND FINALLY THEY ENDED UP IN SALES TO THE ASSESSE E BY THE LAST ENTITY. THE A.R. FURTHER STATED THAT NO BENEFIT IS DERIVED THROUGH THESE CIRCULAR TRADE TRANSACTIONS, IT IS ON LY TO SHOW BETTER TURNOVER IN FINANCIAL ACCOUNTS. SALE BY POL TO 1ST PARTY SALE BY 1ST PARTY TO 2ND PARTY SALE BY 2ND PARTY TO POL NAME OF PURCHASE AMOUNT NAME OF PURCHASE AMOUNT NAME OF PURCHASE AMOUNT A.M ENTERPRISE 2633882 BALAJI ENTERPRISE 2535482 PRADIP OVERSEAS LTD. 2639406 JAYS ENTERPRISE 3923219 SHREE BALAJI TRADING CO. 3926259 PRADIP OVERSEAS LTD. 3931961 NIRMAL CORPORATION 3428637 KRISHNA ENTERPRISE 3432290 PRADIP OVERSEAS LTD. 3439191 I BALAJI IMPEX 3699008 SHREE SAI TRADING CO. 3705425 PRADIP OVERSEAS LTD. 3710638 SHRI RAM ENTERPRISE 3549322 S.K ENTERPRISE 3552811 PRADIP OVERSEAS LTD. 3557105 I SHIV TRADING CO. 2744456 SHIVRA] TRADERS 2743054 PRADIP OVERSEAS LTD. 2752191 VENKATESWARA TRADING CO, 3923517 JAY TRADERS 3929222 PRADIP OVERSEAS LTD 3936069 A.M ENTERPRISE 2399220 SHREE BALAJI TRADING CC. 2403403 PNTIIP OV ERSEAS LTD. 2408050 VINAYAK ENTERPRISE 2998752 KRISHNA ENTERPRISE 3002550 PRADIP OVERSEAS LTD. 3007382 SHRI RAM ENTERPRISE 3879402 BALAJI ENTERPRISE 3884753 PRADIP OVERSEAS LTD, 3890940 TOTAL 33179415 33221249 33272933 4.3.3 FROM THE ABOVE FACTS OF THE CASE, SUBMISSIONS OF THE APPELLANT AND FINDINGS IN ASSESSMENT ORDER FOLLOWING FACTS EMERGES: (I) THE TRANSACTIONS OF PURCHASES AND SALES MADE BY APPELLANT ARE IN THE NATURE OF CIRCULAR TRADE TR ANSACTIONS, WHERE THE APPELLANT OFFERED PROFIT IN THE SALE TRAN SACTIONS AND PURCHASED THE SAME GOODS THROUGH CIRCU LAR TRADE AT SOME HIGHER VALUE. THE APPELLANT FURNISHED SAMPL E BILLS / INVOICES, WHERE THE GOODS ARE TRAVELLED A S SALE BY THE APPELLANT (POL) AND RECEIVED BACK AS PURCHASES BY THE APPELLANT (POL): IN THESE TRANSACTIONS THE PURCHASES VALUE OF GOODS INCREASED BY RS. 93.518/- (SALE BY POL RS. 3,31,79,415/- LESS PURCHASES BY PO L RS. 3.32,72,933/-) WHICH IS 0.28% OF CIRCULAR PURCHASES BY THE APPELLANT (POL). I.T.A NO. 790/AHD/2018 A.Y. 2013-14 PAGE NO JT. CIT(OSD) VS. M/S. PRADIP OVERSEAS LTD. 5 (II) THE APPELLANT VIDE LETTER DATED 15.03.2016 FURNISHED ABOVE EXPLANATIONS AND W ORKINGS. THE PARA IS REPRODUCED HEREUNDER: ......................................... DURING THE YEAR CIRCULAR TRADE TRANSACTIONS ARE ADH ERE TO SHOW BETTER TURNOVER. IN THIS CONNECTION DET AILED EXPLANATION WERE ALSO FILED TO THE HON'BLE SETTLEME NT COMMISSION VIDE LETTER 21-12-2015 AND COPY OF TH E SAME FILED WITH YOUR OFFICE ON 22-12-2015. SUCH TURNOVER IS PART OF RAW MATERIAL INWARD AND FINALLY SHOWN A S SALE OF FINISHED GOODS. HOWEVER, THERE IS NO ELEMENT OF ANY LOSSES AS THE TRANSACTIONS ARE MADE ON MEAGER PROF ITS.' III) ON THE IDENTICAL ISSUE OF CIRCULAR TRANSACTION , HON'BLE JURISDICTIONAL TRIBUNAL VIDE ORDER DATED 10.05.2013 IN THE CASE OF M/S. ARMAN FASHION PVT. LTD. VS. ITO IN ITA NO.2400 AND 2407/AHD/2012 (AHMEDABAD) MADE FOLLOWING FINDINGS: 6. THE LEARNED CIT(A) AFTER THOROUGHLY EXAMINING TH E ISSUE ARRIVED AT THE FOLLOWING DECISION:- 9. DECISION IT IS AN UNDISPUTED FACT THAT ALL PURCHASE PARTIES ARE ASSESSED TO TAX AND SALE APPELLANT HAS BEEN SHO WN IN THEIR TRADING ACCOUNTS. WRONG CLASSIFICATION OF DEBIT BAL ANCE IN THEIR BOOKS AS LOAN INSTEAD OF DEBTORS CANN OT BE A GROUND FOR DISALLOWANCE IN THE CASE OF APPELLANT. M OREOVER, IF A. 0. DOUBTED PURCHASES FROM TWO PARTIE S, THAN THE ENTIRE PURCHASES SHOULD HAVE BEEN DISALLOWED. THERE IS NO BASIS FOR ACCEPTING 75% OF AMOUNT AS GE NUINE AND TREATING 25% OF THE AMOUNT AS BOGUS PURCH ASES IN RESPECT OF THE SAME PARTY. BESIDES DOUBTING THE PURCHASES, THE A- O. ALSO DOUBTED THE SALES MADE BY THE APPELLANT AS MENTIONED ON PAGE -7 (6TH LINE) OF THE ASSESSMENT ORDER, REPRODUCED ON PAGE 8 OF THIS ORD ER. MOREOVER IT IS NOTICED THAT M/S. RAMAN FABRICS PVT. LTD., A PURCHASE PARTY HAS SIMILAR ADDRESS AS THE SALE PARTY M/S. BANI THANI FASHIONS PVT. LTD. THE ONLY DIFFERE NCE IS IN SHOP NO, WHICH IS 128E, SANGHVI TOWER IN THE CASE OF PURCHASE PARTY AND 128B, SANGHVI TOWER IN T HE CASE OF SALE PARTY. ANOTHER SALE PARTY M/S. NAKO DA TEXTILE INDUSTRIES LTD. HAS THE ADDRESS 128D, SANGH VI TOWER. THE APPELLANT'S ADDRESS RELATE TO FEW PAR TIES AND ALMOST THE ENTIRE AMOUNT OF PURCHASE AS WELL AS SAL ES IS OUTSTANDING NOR ONLY ON 31.03.2009 BUT ALSO O N 31.03.2010. BOTH THE SUNDRY DEBTORS AND CREDITORS O N 31.03.2009 ARE RS. 10.92 CRORES EACH. THERE ARE O NLY TWO PARTIES IN SUNDRY CREDITORS. IN RESPECT OF BOTH THE SE PARTIES 25% DISALLOWANCE HAS BEEN MADE BY A.O. T HERE ARE FIVE PARTIES IN SUNDRY DEBTORS. THE APPELLANT HAS C LAIMED THAT PAYMENTS HAVE BEEN MADE/RECEIVED IN RES PECT OF THESE CREDITORS/DEBTORS IN A. Y. 2012-13. THEREFORE , IT IS NOT A CASE WHERE PURCHASE PARTIES DON'T EXI ST OR HAVE DENIED HAVING TRANSACTIONS WITH APPELLANT. THE APPELLANT VIDE LETTER FILED ON 09.08.2012 ADMIT TED THAT IT WAS A CASE OF CIRCULAR TRANSACTIONS. TH E SAID LETTER IS REPRODUCED HEREIN UNDER:..............,......,.. ....... ................... IT IS APPARENT THAT BOTH THE PU RCHASES AND SALES IN THIS CASE ARE BOGUS AND ONLY BOOK ENTRIES FOR PU RCHASE/SALE HAVE BEEN MADE. SUCH TRANSACTIONS MAY B E FOR THE PURPOSE OF GIVING BOGUS ENTRIES TO OTHER CONCER NS TO HELP THEM EVADE TAX OR JUST CIRCULAR TRANSACT ION WHETHER THE GROUP TO GENERATE A FAKE HEALTHY BALANC E SHEET TO DECEIVE FINANCIAL INSTITUTIONS OR FOR SO ME OTHER PURPOSE. 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 SUC H TRANSACTION. AS NOTICED (SUPRA) THE TOTAL SALES O F APPELLANT ARE ON RS.18.23 CRORES. SINCE GP IS ONLY 0.04%, PURCHASES ARE ALSO OF ALMOST EQUAL AMOUNT, I F THE APPELLANT HAS GIVEN BOGUS ENTRIES TO OTHERS, APPROP RIATE COMMISSION INCOME FOR GIVING BOGUS ENTRIES NE ED TO BE ESTIMATED AS TAXABLE INCOME OF THE APPELLANT. IN CA SE APPELLANT HAS ONLY INDULGED IN CIRCULAR TRANSACT IONS, 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 PURC HASES ARE NOT VERIFIABLE, EVEN THEN IT WILL BE A CA SE OF NET PROFIT ESTIMATION. 13. APPELLANTS DECLARED BUSINESS IS TRADING IN TEXT ILES. IN THE CASE OF M/S. OPULENT JEWELS PVT. LTD., A.Y. 2007- 08, WHEREIN 25% OF UNVERIFIABLE PURCHASES WERE ADDE D MY PREDECESSOR HELD THAT IT WAS A CASE OF GIVING BOGUS ENTRIES AND ESTIMATED A NET PROFIT OF 15% ON PURCHA SES AS INCOME FOR GIVING ACCOMMODATION ENTRIES OR PURCHASES / SALES..................... 14. CONSIDERING THE FACTS OF THE CASE AND THE DECISIONS RELIED UPON BY APPELLANT, THE ESTIMATION OF INCOME IN THIS CASE MAY BE BETWEEN WHAT IS SHOWN IN THE RETURN OF INCOME TO 1.5% OF TURNOVER DEPENDING UPON WHETHER I T IS A CASE OF CIRCULAR TRANSACTIONS, UNVERIFIABLE PURCHAS E OR BOGUS ENTRIES. IN CASE OF GIVING ACCOMMODATION ENTRIES THE PROFIT ESTIMATION IN DIAMOND CASES REFERRED TO SUPRA HAS BEEN AT 1.5% WHILE FOR TEXTILE CASE THE I TAT AHMEDABAD HAS TAKEN A PERCENTAGE OF 0.125%. SINCE R ATE OF COMMISSION FOR GIVING ENTRIES IN TEXTILE TRA DE ARE BOUND TO BE LOWER THAN THE RATES FOR DIAMOND TRADE, ESTIMATE HAS TO BE CLOSER TO 0.125% AND NOT 1.5%. ALTERNATIVELY, IF IT IS CASE OF UNVERIFIABLE PURCHA SES IN TEXTILE BUSINESS, THEN THE ESTIMATE OF NET P ROFIT FOR A TURNOVER OF THIS SIZE MAY BE BETWEEN 0.5% TO 1%. TH E PRESENT CASE FALLS IN NEITHER OF THE CATEGORIES. IT IS A CASE OF CIRCULAR TRANSACTIONS TO SHOW A FAKE HEALTHY BAL ANCE SHEET. HOWEVER, THE APPELLANT CANNOT ESCAPE TH E PROVISIONS OF SECTION 4QA(2)A/40A(2)B EVEN IN CASE OF CIRCULAR TRANSACTIONS WITHIN GROUP CONCERNS. THE REFORE A REASONABLE ESTIMATE C* PROFIT IS REQUIRED EVEN IN T HAT CASE IN VIEW OF SECTION 40A(2)A/40A(2)B. CONSID ERING ALL THESE FACTS A NET PROFIT OF 0.5% IS ESTIMATED ON TU RNOVER OF RS.13.23 CRORES. THEREFORE, ADDITION IS S USTAINED TO EXTENT OF RS.9.12 LAKHS.' 7. ' NONE APPEARED ON BEHALF OF THE ASSESSEE WHILE AS THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED AC SNO PRAYED THAT THE SAME MAY BE SUSTAINE D. 8. WE HAVE CAREFULLY PERUSED THE MATERIALS PLACED B EFORE US AND ALSO HEARD THE ARGUMENTS ADVANCED BY T HE LEARNED DR. FURTHER, PERUSING THE ORDER OF THE LEAR NED CIT(A) WE FIND THAT THE LEARNED CIT(A) AFTER DELIBERATING THE ISSUE HAS MADE THE FOLLOWING FINDI NGS:- I.T.A NO. 790/AHD/2018 A.Y. 2013-14 PAGE NO JT. CIT(OSD) VS. M/S. PRADIP OVERSEAS LTD. 6 (I) ALL THE PARTIES FROM WHOM THE ASSESSEE HAD MADE PURCHASES WERE ASSESSED TO TAX AND WERE DISCLOSED IN THEIR TRADING ACCOUNT. (II) THE PARTIES FROM WHOM THE ASSESSEE HAD MADE PU RCHASES HAD ONLY WRONGLY CLASSIFIED IN THEIR BOOKS OF ACCOUNTS AS LOAN INSTEAD OF SHOWING THE BALANCE DUE TO THE ASSESSEE AS RECEIVABLE FROM THE ASSESSSE AS DEBTORS. (III) IN SUCH CIRCUMSTANCES, THE TRANSACTIONS OF TH E PURCHASES AND SALES MADE BY THE ASSESSEE NEED NOT BE DOUBTED. (IV) HOWEVER, DURING THE YEAR THE ASSESSEE HAD A TU RNOVER OF RS.18.23 CRORES WITH GROSS PROFIT AT 0-04 % AND NET PROFIT AT 0.02%. DURING THE SUBSEQUENT ASSESSME NT YEAR, THE TURNOVER DECLARED WAS NIL AND HAD SHOW N NEGLIGIBLE ADMINISTRATIVE EXPENSES OF RS.46,187/-AN D 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 CON CERNS IN ORDER TO HELP THEM TO EVADE TAX OR IT COUL D BE A CIRCULAR TRANSACTION TO GENERATE A HEALTHY BALANCE SHEET TO DECEIVE FINANCIAL INSTITUTIONS OR FOR OTHE R PURPOSES. (V) FROM THE ABOVE FACTS, THE INCOME OF THE ASSESSE E COULD NOT BE TO THE EXTENT OF 25% OF UNVERIFIABLE PURCHASES. FURTHER, DRAWING SUPPORT FROM THE OTHER DECISIONS O F THE ITAT AHMEDABAD BENCHES, NET PROFIT COULD BE ESTIMATED AT 0.05% ON THE TOTAL TURNOVER OF RS.18.2 3 CRORES, 9. THE ABOVE FINDINGS OF THE LEARNED CIT(A) IS QUIT E REASONABLE. FURTHER, EITHER PARTIES DID NOT PRODU CE 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.' 4.3.4 CONSIDERING ABOVE FACTS OF THE CASE, SUBMISSI ONS OF THE APPELLANT AND FINDINGS IN ASSESSMENT ORD ER, I AM OF CONSIDERED VIEW THAT THE TRANSACTIONS ARE IN THE NA TURE OF CIRCULAR PURCHASES AND THERE IS NO SPACE TO HOLD THAT THE PURCHASES ARE NOT RELIABLE AND PAPER PURCHASES. THE APPELLANT RIGHTLY SAID THAT THE PROFIT ON SALE TRA NSACTIONS IS OFFERED BY APPELLANT COMPANY (POL), BUT DURING THE YEAR THE AP PELLANT HAS SHOWN NEGATIVE GROSS PROFIT AND NET LOS S IN RETURN OF INCOME. THEREFORE, THIS IS NOT A CASE OF ESTIMATION OF NET PROFIT ON CIRCULAR PURCHASES BUT THIS IS A CASE, WHERE THE APPELLANT HAS INCURRED EXPENSES FOR CIRCULAR PURCHASES / TRAN SACTIONS @ 0.28%. ACCORDINGLY, I ESTIMATE DISALLOWA NCE @ 0.30'% OF CIRCULAR TRADING PURCHASES OF RS. 2,83,77,87,618/- BEING CHARGES TO INTER-MEDIATORY NOT FOR THE PURPOS E OF BUSINESS. THE ADDITION IS SUSTAINED TO THE EXTENT OF RS. 85,13,36 3/- AND THE APPELLANT GET RELIEF OF RS. 13,33,76,01 7/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BE FORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT LD. CIT(A) HAS INCORRECTLY RELIE D ON THE FACTS AND ISSUES PERTAINING TO THE EARLIER YEAR ON THE BASIS OF REPO RT SUBMITTED BY THE ASSESSEE BEFORE THE SETTLEMENT COMMISSION. ON THE OTHER H AND, LD. COUNSEL HAS CONTENDED THAT ASSESSING OFFICER HAS NOT CONSIDERED THE COMPLETE SUBMISSION OF THE ASSESSEE AND MADE THE ADDITION UN REASONABLY WITHOUT GIVING ANY REASON. THE LD. COUNSEL HAS ALSO SUBMI TTED THAT LD. CIT(A) HAS RIGHTLY ADJUDICATED THE ISSUE AS THE FACTS ARE IDEN TICAL TO THE EARLIER YEAR FOR WHICH ASSESSEE HAS MADE SUBMISSION BEFORE THE SETTL EMENT COMMISSION. 6. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. DURING THE COURSE OF ASSESSMENT, THE ASSESSEE HAS ADMITTED THA T IT WAS ENGAGED IN CIRCULAR TRADING WHEREIN THE BILLS/INVOICES CHANGED HANDS WITHOUT MOVEMENT OF PHYSICAL GOODS. THE ASSESSING OFFICER HAS TREAT ED SUCH PURCHASE OF RS. I.T.A NO. 790/AHD/2018 A.Y. 2013-14 PAGE NO JT. CIT(OSD) VS. M/S. PRADIP OVERSEAS LTD. 7 2,83,77,87,618/- AS NOT RELIABLE AND DISALLOWED 5%O F SUCH PURCHASES WHICH WORKED OUT TO RS. 14,18,89,380/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT AND APPE LLATE PROCEEDINGS THE ASSESSEE EXPLAINED THE COMPLETE MODUS OPERANDI OF C IRCULAR TRADING TRANSACTION WHICH WAS CARRIED OUT TO SHOW BETTER TU RNOVER. WITHOUT REITERATING THE FACTS AS ELABORATED IN THIS ORDER, IT IS UNDISPUTED FACT THAT ASSESSEE WOULD MAKE PAYMENT TO THE ENTITY FROM WHOM IT MADE PURCHASES, WHO IN TURN WOULD MAKE CONSEQUENT PAYMENT AND THE F UNDS WOULD FINALLY REACH BACK TO THE ASSESSEE. IN CIRCULAR TRADING T HE PAYMENTS WERE MADE THROUGH CHEQUES AND PROFIT ON CIRCULAR TRADING WAS DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME. IN THE EARLIER ASSESSMEN T YEAR, THE ASSESSEE HAS GONE TO SETTLEMENT COMMISSION AND FURNISHED THE CIRCULAR TRADING/SAMPLE BILLS AND CHART WHICH WAS DISCUSSED BY THE LD. CIT(A) IN HIS FINDINGS AS SUPRA IN THIS ORDER. THE COMPLETE PARTICULARS OF CIRCULAR T RANSACTION IN THE TABLE OF TRANSACTION GIVEN IN THE FINDING OF LD. CIT(A) DEMO NSTRATED THAT ASSESSEE HAD SOLD GOODS WORTH RS. 3,31,79,415/- IN CIRCULAR TRAD ING THROUGH FIRST PARTY WHO IN TURN SOLD SUCH GOODS TO THE SECOND PARTY AT RS. 3,32,72,933/- AND THE LAST PARTY HAS SOLD BACK TO THE ASSESSEE AT RS. 3,3 2,72,933/- ULTIMATELY THE DIFFERENCE IN THE FIRST SALE AND THE LAST SALE WAS OF 0.28% OF CIRCULAR PURCHASES MADE BY THE ASSESSEE. THE LD. CIT(A) HAS ALSO REFERRED THE DECISION OF THE ITAT AHMEDABAD ON THE IDENTICAL ISS UE OF CIRCULAR TRANSACTION IN THE CASE OF M/S. ARMAN FASHION PVT. LD. VS. ITO VIDE ITA 2400 AND 2407/AHD/2012. THE LD. CIT(A) HAS ALSO D ISCUSSED IN HIS FINDING THAT THIS WAS NOT A CASE OF ESTIMATION OF NET PROFI T ON CIRCULAR PURCHASES BUT THIS WAS A CASE WHERE THE ASSESSEE HAD INCURRED EXP ENSES FOR CIRCULAR PURCHASES/TRANSACTION @ 0.28% AND ESTIMATED THE DIS ALLOWANCE @ 0.30% OF I.T.A NO. 790/AHD/2018 A.Y. 2013-14 PAGE NO JT. CIT(OSD) VS. M/S. PRADIP OVERSEAS LTD. 8 CIRCULAR TRADING PURCHASES. THE LD. CIT(A) HAS ALSO EXPLAINED IN HIS FINDING REGARDING ANALYSIS OF THE TRANSACTION MADE BY THE A SSESSEE THAT THESE TRANSACTIONS WERE CARRIED OUT IN ORDER TO SHOW BETT ER TURNOVER IN FINANCIAL ACCOUNTS. THE REVENUE COULD NOT CONTROVERT THE FA CTS REPORTED BY THE LD. CIT(A) WITH ANY RELEVANT MATERIAL. THEREFORE, LOO KING TO THE ABOVE FACTS AND FINDING, WE DO NOT FIND ANY INFIRMITY IN THE DE CISION OF LD. CIT(A) IN ESTIMATING THE DISALLOWANCE @ 0.30% OF CIRCULAR TRA DING PURCHASES OF RS. 2,83,77,87,618. ACCORDINGLY, THIS APPEAL OF THE RE VENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16-09-2021 SD/- SD/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMEBR A CCOUNTANT MEMBER AHMEDABAD : DATED 16/09/2021 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,