KGR Enterprises Pvt Ltd vs Deputy Commissioner of Income-tax, Central Circle 6(1), Mumbai

Parties Involved

Facts Summary

During the course of assessment proceedings, the Assessing Officer concluded that there was circular trading wherein the transactions for sale and purchase of goods were recorded only on paper without actual movement or delivery of goods. This was proven through an analysis conducted by the Investigation Wing which the assessee was not able to rebut. The Director of the assessee company, Shri. Kailash P. Karamchandani, has accepted the circular trading transactions. The purpose of the circular trading could be seen to be the inflation of turnover for the sake of procuring bank loans for which necessary security was given in the form of the inflated turnover, receivables, and closing stock of the assessee. The expenses booked by the assessee were estimated at 3% of total sales booked through circular trading, based on prevailing market practices. The Assessing Officer completed the assessment under section 153A of the Act for KGR by computing the total income of the assessee at Rs. 1,78,60,500/- by adding Rs 49,34,155/- U/s 69A of the Act which was @3% of the sales of Rs. 16,44,71,839/-. The Assessing Officer also stated in his order that certain documents were seized/impounded during the search/survey which contained details of certain cash transactions. While the Assessing Officer made a substantive addition of Rs. 4,99,22,713/- in the hands of the Director Sh. Kailash Prakash Karamchandani, the Assessing Officer also stated that the amount was being brought to tax in the ha…

Legal Issues

• 1. The Commissioner of Income-tax (Appeals) erred in upholding the action of the Deputy Commissioner of Income-tax, Central Circle 6(1), Mumbai in issuing notice under section 153A of the Act.
• 2. The Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer and the appropriate authority under section 153D of the Act.
• 3. The Commissioner of Income-tax (Appeals) erred in estimating profit element at Rs 9,99,738, calculated at the rate of 2% of unaccounted receipts of Rs 4,99,22,713.

Judgment Outcome

Decided in favour of Partly Assessee / Partly Revenue.

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