This document provides a detailed analysis of the Income Tax Appellate Tribunal’s final decision on the case between DCIT, Central Circle-27, New Delhi and NKG Infrastructure Ltd., New Delhi, concerning the assessment year 2014-15. The case number is ITA 2662/DEL/2022, presided over by Judicial Member Shri C.M. Garg and Accountant Member Shri M. Balaganesh.
The appeal filed by the Department (DCIT) and the cross-appeal by the assessee (NKG Infrastructure Ltd.) were directed against the order dated 22.08.2022 passed by the Commissioner of Income Tax (Appeals)-29, New Delhi, pertaining to the assessment year 2014-15. The primary issues in this case were the disallowance of bogus purchases and commission expenditure.
During the hearing on 25.05.2023, the Revenue was represented by Ms. Raja Rajeshwari R., Sr. DR, and the assessee was represented by Shri Akshat Jain, CA and Shri Rajat Jain, CA. The Tribunal proceeded to adjudicate the appeal based on the materials on record and submissions made by both parties.
The issues involved in both these appeals were common and included:
The return of income for the assessment year 2014-15 was filed by the assessee on 30.09.2014 declaring total income of Rs. 35,84,80,808/-. The assessment was completed under Section 143(3) read with Section 153A of the Act on 18.05.2016 accepting the returned income. Later, information received through the income tax portal indicated that the assessee had made bogus purchases from Giriraj Global Limited, a company managed by Shri Anil Kumar Singhal.
The assessee argued that it had purchased TMT bars, MS Angle, MS Channel, etc., from Giriraj Global Limited by paying due VAT thereon and that the purchases were duly accounted for in the books of the assessee company. The Revenue, however, contended that the purchases were bogus based on the statement of Shri Anil Kumar Singhal, who admitted to issuing accommodation entries.
The Tribunal found that the assessee had made bogus purchases from Giriraj Global Limited and bogus sales to Barsana Fabtex Pvt. Ltd., both entities managed by Shri Anil Kumar Singhal. The Tribunal upheld the addition made on account of commission expenditure under Section 69C of the Act at 3% of the value of disputed purchases. The Tribunal also observed that the profit embedded in the bogus transactions had already been disclosed by the assessee in its returns.
The Tribunal concluded that the disallowance of bogus purchases and commission expenditure was justified. The Tribunal upheld the addition of 12.5% of the disputed purchases as the profit element embedded in the value of such purchases. The appeal of the assessee and the appeal of the Revenue were partly allowed.
Order pronounced in the open court on 27th June, 2023.
(C.M. GARG)
JUDICIAL MEMBER
(M. BALAGANESH)
ACCOUNTANT MEMBER
This case underscores the importance of proper documentation and verification of transactions to avoid disallowances under the Income Tax Act. The Tribunal’s decision to uphold the disallowance highlights the necessity for companies to ensure the genuineness of their transactions to avoid penalties and additional tax liabilities.
The appellant, DCIT, challenged the partial relief granted by the CIT(A) on the disallowance of bogus purchases, while the respondent, NKG Infrastructure Ltd., challenged the addition made on account of commission expenditure.
The appellant contended that the disallowance of bogus purchases was justified based on the statement of Shri Anil Kumar Singhal, who admitted to providing accommodation entries. The respondent argued that the purchases were genuine and duly accounted for in the books of the assessee company.
The Tribunal found that the purchases from Giriraj Global Limited were bogus and that the profit embedded in the transactions had already been disclosed by the assessee. The Tribunal upheld the addition of commission expenditure at 3% of the value of disputed purchases and the profit element at 12.5% of the value of disputed purchases.
The Tribunal’s decision in the case of DCIT, Central Circle-27, New Delhi vs. NKG Infrastructure Ltd., New Delhi, reaffirms the principle that proper documentation and verification of transactions are essential to avoid disallowances under the Income Tax Act. The disallowance was upheld, emphasizing the importance of ensuring the genuineness of transactions to avoid penalties and additional tax liabilities.
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