On the basis of information received from the Investigation Directorate that the assessee-company had made bogus payment of Rs. 10.32 crores to RA and RS which were paper companies engaged in providing accommodation entries or sending bogus foreign remittances to entities based in Hong Kong and the U. A. E. in the guise of bogus import purchases.

The Assessing Officer stated that the assessee had failed to produce the parties as well as the new address of that party and therefore no independent verification could be done and hence the purchases were unproved.

Similarly, commission paid to four parties, which were not traceable at the addresses given in the return of income, the assessee submitted copies of the ledger account, the bills, invoices, debit notes and the bank statement to show the payment. Three parties did not respond. Accordingly, the Assessing Officer disallowed commission paid to all four parties.

With respect to the commission expenditure, the Commissioner (Appeals) held that the Assessee had submitted the debit notes, details of tax deducted at source, bank statements and financial statements along with the income tax return of those parties, that in all cases of the recipients of the commission, the commission income had been accepted. The Commissioner (Appeals) further noted that even in the proceedings initiated u/s. 24 of the Prohibition of Benami Property Transactions Act, 1988 initiated against the recipients of the commission these entities were not held bogus and accordingly deleted the addition of Rs. 83,15,211/-.

On appeal to the Tribunal, challenging the reversal of the additions on account of bogus purchases of Rs. 11.66 crores on account of accommodation entries and the addition on account of commission expenditure or Rs.82,15,211/-it was held that there was no infirmity in the finding of the Commissioner (Appeals). Even if it was held that the purchases from these parties were bogus, the proper course would be to determine the profit arising from the purchases by looking at the corresponding sales. If the alleged bogus purchases showed a gross profit higher than the regular gross profit shown by the assessee, no further addition was required to be made in the hands of the assesse. 

[Applied: CIT v.. Sundaram Gems P. Ltd. (I. T. A. No. 6785 of 2010, dated November 30, 2011) (Bom)]

That all the four entities who received commission were assessed by the same Assessing Officer, who, in scrutiny assessments, had taxed the commission income as income from other sources, in their hands. All these parties had responded to the notice issued u/s. 133(6) of the Act, submitted the ledger confirmation reflecting the details of the transactions with the assessee as well as the debit note of the working of the commission with their return of income.

The assessee had produced details of other commission expenditure incurred by the assessee which were also identical. There was no infirmity in the order of the Commissioner (Appeals) in deleting the disallowance of Rs.83,15,211 of commission expenditure.(AY.  2012-13)