Genuine business loss on cancelled fabric trades sustained where evidence supported orders, cancellation, and resulting loss.

Business loss from trading in design fabric was found genuine and allowable where the assessee produced invoices, ledger confirmations and section 133(6) replies, and the parties' statements supported the existence of purchase orders and their later cancellation. The tax authorities' reliance on surrounding circumstances, including absence of litigation, similar correspondence and lack of security, was insufficient on its own to displace the supporting evidence. The loss was not treated as fictitious merely because the transactions were oral or the venture was short-lived, and the record did not establish that the loss was sham or fabricated.

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Issues: Whether the business loss claimed by the assessee on trading of design fabric was genuine and allowable for tax purposes.

Analysis: The assessee produced invoices, ledger confirmations, replies under section 133(6), and the relevant parties were examined before the appellate authority. Their statements supported the existence of the purchase orders and the later cancellation of those orders, explaining the resultant sale at a loss. The surrounding circumstances relied upon by the tax authorities, such as absence of litigation, similarity in correspondence, and lack of security, were held to be insufficient by themselves to displace the supporting material. The loss was not shown to be fictitious merely because the transactions were oral or because the business venture was short-lived. On the totality of the evidence, the tax authorities did not establish that the loss was sham or fabricated.

Conclusion: The disallowance of business loss was not sustainable and the loss was held to be genuine and allowable in favour of the assessee.

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