TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 33
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....ven presuming for a while that the loss claimed is genuine, the same is speculation loss and cannot be setoff against the other profits of the appellant as laid down u/s. 73 of the Act. 3. 3) That on the facts and in the circumstances of the case of the appellant and in law Id. CIT(A) has erred in not directing the AO to allow the appellant full deduction of the donation of Rs. 20 Lacs made by it to the political party MNS during the year. 4. That the impugned order being contrary to law, evidence and facts of the case may kindly be set aside, amended and modified in the light of the grounds of appeal enumerated above and the appellant be granted such relief as is called for on the facts and in the circumstances of the case of the appellant and in law. 5. That each of the grounds of appeal enumerated above is without prejudice to and independent of one another. 6. That the appellant craves leave to reserve to himself the right to add, to alter or amend any of the grounds of appeal before or at the end of the hearing and to produce such further evidence, documents and papers as may be necessary. 2. The assessee is stated to be a company carrying out various business activities ....
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....as been that before the Assessing Officer that the orders for sale of rice were taken before hand depending upon the future market. It was claimed that the rate of commodities was highly fluctuating and in honour of the order already taken, the assessee had to buy rice from the market at the existing rate on the date pre-agreed for delivery at the pre-decided price. It was also claimed that the transactions were carried out on delivery basis where the goods remained in the go-down of the supplier till the time the same was lifted by the buyer and therefore, there was no question of dispatch, transportation of goods, etc. The assessee also sought to justify the adjustment of loss claimed to be sustained in business against the income from other activities, inter alia, stating that the assessee has carried out trading activities and not speculative one. The Assessing Officer did not agree with the contention of assessee. Seeking clarifications of the assessee that the sales were effected on a pre-agreed price. The assessee was called upon to furnish sale contract rate agreement in support of the arrangement entered into with the buyers as according to the Assessing Officer, without s....
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.... transactions. The Assessing Officer also stated that the confirmation letters furnished by the assessee on behalf of other parties to support its case that the purchases were effected pursuant to pre-agreed terms, did not bear other vital details like purchase rate, quantity and quality agreed, delivery schedule etc. and some of them were even undated. Countering the pre-decided purchase price theory, it was also highlighted by the Assessing Officer that the relevant purchase bills clearly showed that the goods were purchased just one or two days before those were sold by the assessee company. The various defects noted/observations made by the Assessing Officer which, according to him, put the entire arrangement under a shadow, are summarized by the Assessing Officer as under:- "The auditor of the appellant has also reported that the company was never involved in any trading activity like trading in rice; Trading activity started from August 2008 immediately after receiving commission income as this line of business was not there in the preceding year and thus, this was a preplan to avoid taxes. The bills produced in respect of purchases and sales did not contain details like q....
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....and more or less similar formatting. Some of such bills, namely in the case of Sushil Kumar & Sons, Shiv Agro India, Manish Kumar Sumit Kumar are scanned and placed at page No.30 to 33 of the assessment order. As per the Assessing Officer, this clearly indicated that the bills could be fabricated which in turn, questions the very genuineness of the transactions. The appellant could produce none of the parties for examination by the Assessing Officer despite summons u/s.131 of the IT. Act having been issued. Thus, the appellant failed to substantiate the existence of the parties and the transactions." 2.4 The Assessing Officer has also observed that the assessee changed its stand during the course of the assessment proceedings with regard to the transactions in question. The director of the assessee company was confronted on the issue by the Assessing Officer while recording his statement u/s.131 of the IT. Act in response to which he reportedly claimed that the purchases rates were agreed upon at the time of finalization of verbal contract which usually took place 2 to 3 months prior to the sale transactions, though the purchase bills were raised at the time of delivery and not a....
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....d to have entered into with the various parties found to be not genuine in the light of the enquiries conducted by the Investigation Wing of the Department at New Delhi. The Assessing Officer, thus, holding that the entire trading activity in Rice claimed to have been done by the assessee was not genuine and the evidence furnished thereof were fabricated, the loss claimed of Rs. 3,80,77,164/- from the said activity was disallowed by the Assessing Officer. 2.8 The matter was carried before first appellate authority, wherein the various contentions were raised on behalf of assessee and having considered the same, the CIT(A) concluded as under: "2.3.1 In view of the above, the Assessing Officer is perfectly justified in holding that the transactions in question are only accommodation entries and sham transactions entered into by the appellant in collusion with the said Delhi parties for the purpose of creating and booking fictitious loss on the basis of fabricated documents in the form of purchase invoices, sale bills etc. The conclusions / observations drawn by the Assessing Officer regarding genuineness of impugned transactions are not based on suspicion, conjectures and surmises.....
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....ts of the appellant as laid down under sec. 73 of the Income Tax Act." 3. Before us, it was submitted on behalf of assessee as under: "1. The main dispute in this appeal, represented by Grounds of appeal no. 1 & 2, is against disallowance of the claim of the Appellant of set-off of loss incurred from trading in rice. During the year the Appellant indulged into rice trading and for that purpose entered into agreements to purchase rice at a pre-determined rate for deliveries to be executed at a future date from following parties :- 1. Shiv Agro India, Naya Bazar, New Delhi -110006 2. Manish Kumar Sumit Kumar, Naya Bazar, New Delhi - 110006 3. Vats Foods, S. P. Mukherjee Marg, New Delhi -110006 4. Sushil Kumar & Sons, Naya Bazar, New Delhi - 110006 5. Jai Ambe Trading Co., Naya Bazar, New Delhi - 110006 Unfortunately, the price of rice had considerably reduced in the intervening period prior to the contracted date of delivery and therefore the appellant decided to sell the same immediately. Thus as against the agreed purchase consideration of Rs. 146,867,267/- the Appellant could fetch on sale Rs. 108,790,103/- only resulting into trading loss of Rs. 38,077,164/-. The Appellan....
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....e in the rate at which rice was purchased and sold. 7. According to the Assessing Officer the Appellant's transactions resulted into loss which is not normal incidence of business. 8. Trading in rice was not there in the preceding year. 9. According to the Assessing Officer confirmation letters received from the parties were identically worded and appeared to have been typed simultaneously. 10. According to the Assessing Officer mere confirmation letters were not sufficient. There should have been agreement in writing. 11. According to the Assessing Officer some of the parties who confirmed the transactions with the Appellant sent letters to the Assessing Officer by speed post from Solapur post office and not New Delhi. 12. According to the Assessing Officer there is variation in signature of the same person between the bill and the letter of confirmation of transaction. 13. According to the Assessing Officer certain bills of different parties got same handwriting. 14. The bills of sale and purchase mentioned quality of rice as 'Basmati' but those bills did not specify what type of Basmati rice. 15. The Appellant's Authorised Representative stated on 18.10.....
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....e of further details as to which quality of Basmati Rice, it was not possible to compare the rates shown in the purchase invoices and sales bills with the then prevailing market rates. 3. There was no documentary proof like dispatch notes, freight receipts, delivery challans, etc. for storage, transportation, delivery of goods by sellers to the appellant or by the appellant to buyers or by the sellers directly to the buyers. 4. In all the cases the goods were shown to have been sold at rates much lower than the purchase unlike normal trading activity where there would be profit in some transactions and loss in other transactions. 5. The appellant had no previous experience, infrastructure and holding capacity for such huge quantity of rice and therefore it was inconceivable that the appellant entered into huge transactions on credit and at predetermined rates on the strength of so called oral agreements. 6. The assessing officer did receive in a few cases letters from the parties concerned but the same did not contain details such as quantity, quality, rate, exact period of delivery of goods and also did not contain any consent of the appellant to any terms and conditions. 7. ....
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....e Judgment of Hon'ble Supreme Court in the case of Kishinchand Chellaram Vs. CIT 125 ITR 713 (SC) did not Advance the case of the appellant because in the case of the appellant only local inquiries were conducted by IT. Offices to ascertain the existence and identity of the parties and no material was collected behind the back of the appellant. 3.3 The appellant submits that the insistence of Assessing Officer and learned CIT(A) upon the requirement of written agreements is unjustified. In business oral contracts are often made and executed. Transactions worth millions of rupees take place every day by word of mouth. For example, in diamond trade goods worth millions of rupees are handled, exchange hands, kept in possession for several days without any record in writing most of the time. There is no prescription in any law including Income-tax Act, in this respect and it is left to the parties to transact in the manner they deem fit. Not an iota of material has been relied upon by the authorities below to signify that there was anything unusual about the absence of written agreement in the appellant's case. The observation of the Assessing Officer that the Appellant should....
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....nd sale. For this purpose he should have borne in mind that the contract had been made between the Appellant and its suppliers much before the execution of trade. The Appellant further submits that the rates at which the purchase and sale were made are supported by the Certificate of market rates issued by All India Rice Exporters Association and that certificate was furnished to the Assessing Officer. As regards the observations of learned CIT(A) that the appellant could not have reached oral agreements for purchase of huge quantity of rice, the appellant submits that these are unilateral conjectures of learned CIT(A) without having been based on any material at all. 3.5 The objections of both the authorities that because everyone looks for profits the Appellant's transactions should not have resulted into loss are surprising. They are correct that everyone looks for profit but not so in their assumption that everyone must succeed in making profit. Some parties fail and make loss in spite of their best intention. Equally mindless is the statement of the Assessing Officer that the appellant's auditor had agreed that the appellant did not indulge in rice trading. Merely bec....
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....g officer to do so but learned Assessing Officer chose to ignore that. Instead the Assessing Officer ordered the parties all situate in Delhi and not under any control or supervision of the appellant be produced before him in Solapur. No efforts were made to enforce the attendance of the parties upon whom allegedly notices were served. There is hardly any enquiry worth credibility as regards the parties upon whom allegedly notices could not be served. The appellant does not know even whether any proper steps had been taken for service of summons upon such parties. 3.7 Both authorities have raised the issue that the bills do not indicate what quality of Basmati rice. This shows the intensity of their bias. It is not the general market practice to mention further specifications of rice beyond the broad description, if at all, such as Basmati, Parmal, Kamod, Indrayani, Pusa etc. Any further identification of quality is done based on samples and not on any written description. The objections in this regard by both authorities are unrealistic, hence unwarranted. The appellant states and submits that the mention of word Basmati or Rice in the bills meets the requirement or expectation i....
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....emselves on the facts of the case. The Assessing Officer alleges that the parties with whom the appellant had carried out purchase and sale of rice did not exist after overlooking and ignoring the essential facts such A. All the 11 parties have issued their bills or vouchers which contain detailed address, TIN no., telephone no. and in most cases mobile no. also. B. All payments have been made or received through RTGS and thus transactions are from Bank Account to Bank Account. C. Each of 11 parties have PAN that were furnished to Assessing Officer D. Notices and summons were indeed served upon and responded to by many parties. On these facts the finding that the parties did not exist and that the documents relied upon by the appellant are fabricated is entirely unsustainable. Thus the very basis on which the Assessing Officer has disallowed the deduction of loss is contrary to the facts of the case. Learned CIT(A) also has severely misdirected himself on the facts of the appellant's case. He alleges that there were strange features in bank accounts whereas none has been pointed out in the assessment order or impugned order of learned CIT(A). The fact of the matter is that....
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....en to the Assessing Officer to leave out the cogent evidence furnished by the assessee if the same does not fall in line of the objective of disallowance and that even then there is duty of the assessee to prove its transactions conclusively. Thus according to CIT(A) their suspicion is enough and the appellant must rule out the suspicion conclusively. The appellant states and submits that this is not the law of the land. Law is that the apparent state is real and the onus to prove that the apparent is not the real is on the party who claims it to be so. If it is revenue which claims that the apparent is not the real the onus is on revenue. Reference in this respect is invited to CIT v. U. M. Shah 90 ITR 396 (Bom); CIT v. Daulat Ram Rawatmull 87 ITR 349 (SC); CIT v. Bedi & Co. Pvt. Ltd. 230 ITR 580 (SC) and a host of other cases where this dictum has been applied. This burden of proof is onerous and it cannot be discharged by suspicion. Suspicion howsoever strong cannot take place of evidence - Mehta Farikh & Co. v. CIT 30 ITR 181 (SC); Umacharan Shaw & Bros v. CIT 37 ITR 271 (SC); Lalchand Bhagat Ambica Ram v. CIT 37 ITR 288 (SC); Sona Electric Co. V. CIT 152 ITR 507 (Del); Sukhday....
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.... by the provisions of s. 68, 69, 69A to 69D. There is no special or additional burden of proof cast upon the appellant. Hence, the case of the appellant is far stronger than the case law relied upon in the foregoing paragraphs. 3.15 Learned CIT(A) has raised a new issue in Para 2.3.3 of the impugned order that in any case the loss incurred by the appellant being speculation loss cannot be set off against the appellant's income from sources other than speculation. For this purpose he alleges that in the case of the appellant the transactions for purchase and sale of commodity are ultimately settled otherwise than by actual delivery. In the same vein he argues, relying upon ITAT decision in the case of Bishwanath Traders and Investors Co. Ltd. v. DCIT 47 ITD 476 (Del) that constructive or symbolic delivery of goods is of no consequence. That decision has been based on the peculiar facts and circumstances of that case and by virtue of distinguished facts of the appellant is in favour of the appellant. Hon'ble Delhi bench has decided the case against the assessee before them in the following words:- "Considering the facts and circumstances of this case, we are of the view tha....
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....epresentative submitted that the order of authorities below be set aside and the Assessing Officer be directed to allow the assessee's deduction of loss as claimed by him. On the other hand, learned Departmental Representative has strongly supported the order of CIT(A) the order of authorities below. With regard to set off of losses being no genuine and the learned Departmental Representative drew our attention to the various parts of authorities below to justify their order. 5. After going through the rival submissions and material on record, we find that the Assessing Officer has held that the parties from whom the assessee purchased rice and parties to whom the assessee sold the rice did not exists, therefore, both purchases and sales are bogus. The Assessing Officer has based his finding on assertion that notices issued by him in respect of 6 out of 11 parties were returned undelivered by postal authorities and similarly, the notices could not be served on those 6 parties by the concerned ITO, New Delhi as well. The Assessing Officer observed that the assessee could not produce Delhi businessmen for examination by the Assessing Officer at Solapur. The stand of the assessee has....
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....d the back of the assessee and the same could not be used against the assessee while the same has not been corroborated by clinching evidence. Both the authorities below have raised doubt about the transactions which they did not put to the assessee or parties with whom the assessee has transacted. The various questions which are basis for order by authorities below have not been confronted to the assessee. For example :- a) In absence of any contract in writing, the assessee company was not under obligation to honour the contracts and make losses. This shows that the Assessing Officer has scant knowledge of commercial practice. b) For any transaction to be held on 'Delivery basis' there has to be Quantity Inward physically to its storage, its transportation through lorries, maintaining delivery details, freight bills, delivery challans, dispatch notes. These arguments have been raised while the Assessing Officer knew all the time that the delivery was given by the Appellant's suppliers on the instructions of the Appellant to the Appellant's buyers all situated at Naya Bazar, Delhi. c) The Appellant failed to produce any agreements in absence of which there canno....
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....d on the Appellant's transactions in rice during the year. j) The bills of sales and purchase nowhere mention the quality or specie of rice. Bills or Invoices without quality or type are actually no bills. Assessing Officer or CIT(A) do not rely on any material to indicate that it was mandatory to mention quality of rice in the bills. The Appellant stated and submitted that these bills are issued in ordinary course as per the market practice at Naya Bazar, Delhi at the relevant time. k) Not a single party was produced in-spite of requisition. The Assessing Officer's requisition is illegal. U/s 131 the personal attendance of a person has to be enforced by the Assessing Officer himself and no adverse inference can be drawn if the Assessee does not produce any party for examination by him. l) The appellant modified its stand as to whether sales were contracted in advance or purchases were contracted in advance. There was an error only once in the letter of CA that was promptly corrected. Otherwise there has been the consistent stand of the Appellant that it had contracted purchases well in advance and later on the goods thus purchased were sold at loss. 5.3 From the above,....
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....unt of Donation paid to a political party, namely, Maharashtra Navnirman Sena. It was noted by the Assessing Officer that in the revised computation filed in the course of the assessment proceedings, the gross total income of the assessee stated to be Rs. 20,75,908/- from which deduction for an amount of Rs. 20,00,000/- was claimed under Chapter VIA, though in the revised return filed, such deduction was claimed to the extent of gross total income of Rs. 75,908/- declared therein. The Assessing Officer further found that deduction of Rs. 20,00,000/- was claimed in the books of accounts under the major head 'Establishment Expenses' under the nomenclature 'Donation to Political party' as revenue expenses. However, the Assessing Officer held that donations to political parties are admissible as deduction u/s.80GGB subject to the provisions of sec.293A of the Companies Act, 1956 r.w.s. 349 & 350 which restrict the quantum of such deduction equal to 5% of the 'average profits' of three immediately preceding financial years of a company. Accordingly, the deduction allowable in respect of donations made to Maharashtra Navnirman Sena by the assessee was worked out b....
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....n shall, subject to the other provisions of this section, be deemed to be justification in law for the making and the acceptance of the contribution authorised by it. Explanation.-Where a portion of a financial year of the company falls before the commencement of the Companies (Amendment) Act, 1985, and a portion falls after such commencement, the latter portion shall be deemed to be a financial year within the meaning and for the purposes, of this sub-section. (3) Without prejudice to the generality of the provisions of sub-sections (1) and (2)- (a) a donation or subscription or payment caused to be given by a company on its behalf or on its account to a person who, to its knowledge, is carrying on any activity which, at the lime at which such donation or subscription or payment was given or made, can reasonably be regarded as likely to effect public support for a political party shall also be deemed to be contribution of the amount of such nation, subscription or payment to such person for a political purpose; (b) the amount of expenditure incurred, directly or indirectly ......... (ii) where such publication is .......... (4) Every company shall disclose in its profit and ....