TaxTMI 
TaxTMI 
2017 (11) TMI 1601
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....reas, the Ld. CIT (A), has allowed the claim of the assessee. 3. In the cross objection filed by the assessee disallowance was confirmed by the Ld. CIT (A) under section 14A of Rs. 1 545259/- is contested. 4. Brief facts as narrated in the orders are that assessee is an individual engaged in the business of trading in iron and steel, wheat and pulses, diamonds, garments, machinery equipments etc. He filed his return of income for assessment year 2010 - 11 for Rs. 2682029/-. The assessment under section 143 (3) of the Income Tax Act, 1961 was passed by the Ld. AO on 28th of March 2013, where in following addition were made to the total income of the assessee and it was assessed at Rs. 5, 26, 27, 260/-. I. Disallowance of Rs. 4.85 crores on account of the loss claimed by the assessee on account of partial loss reimbursed to the buyer on account of short supply of material in terms of settlement deed II. The Ld. assessing officer also made addition because of disallowance under section 14 A of the act of Rs. 1545259/-. 5. The only ground in appeal of the revenue is against disallowance of Rs. 4.85 crores because of the loss claimed by the assessee, which was....
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.... officer for the reason that evidences produced by the assessee are attached based neutral evidences and the assessee has failed to produce the further evidences did not accept this claim of the assessee. The Ld. AO further held that purchase of CR mill equipments in the hands of the buyer is not a revenue expenditure, but capital expenditure. Therefore, even if the buyer has received the sum it cannot be allowed to the assessee as deduction because the payment made by the assessee has gone into the hands of the buyer towards the expenditure on acquisition of the fixed assets. Further, the assessee is benefited to this extent, by reducing its taxable income. The assessee has not engaged any intermediary while dealing with the overseas parties. The Assessee has also not engaged any technical experts to not only to evaluate the value of CR mill equipments but also to ensure the functional viability of the goods imported. According to the Ld. Assessing Officer, no prudent businessperson would enter into such a highly risky deal for the return of 1%. The assessee has further failed to prove that it has entered into any correspondence with the overseas sellers because of short supply. T....
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....rds Short Supplies made by the sellers and that these could neither be taken as Sales Return by the buyer nor it was a case of Bad Debts, but it was in the nature of Short Supplies. The Assessing Officer disbelieved the Assessee and added an amount of Rs. 4,85,00,000/- to the income. 8.2 It has been claimed by the Appellant that the Assessing Officer was not justified in making the addition of Rs. 4,85,00,000/- in respect of genuine claim of business loss relating to High Seas Sales, the loss being duly supported by documentary evidences and that the Assessing Officer had made the addition on mechanical basis without properly appreciating the facts of the case. 8.3 It is seen that the Assessee has claimed that there was purchase of CR Mill Equipment for Rs. 1,78,86,69,647/- from 3 foreign parties by way of High Seas Sales and that this entire purchase was sold by way of High Seas Sale Contract dated 03.09.09 to M/s Rabirun Vinimay Pvt. Ltd., Kolkata and that the buyer i.e. M/s Rabirun Vinimay Pvt. Ltd. took the delivery of these goods at Paradip Port, and that after taking delivery of the containers in which the imported CR Mill Equipment was sent, M/s Rabirun Vin....
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....urned i.e. the Sales Return, simultaneously, the value of Closing Stock in the books of First Party goes up due to the goods returned being received back by the First Party. However, in the instant case, whatever may have been the terminology used for the transaction, it is a fact that the Assessee has not claimed that any goods were received back by him. In fact, the nature of the transaction i.e. High Seas Sales, is such that the goods being purchased from foreign parties were sold to the Purchaser i.e. M/s Rabirun Vinimay Ltd., who directly took possession of such goods at Paradip Port and that the nature of transaction was such that the goods never came in the actual possession of the Assessee. In such a case, it was not possible for the Assessee, when there was short supply on the High Seas Sales, to receive any goods, either in the original purchase by the Assessee or on the subsequent sale by the Assessee. The Assessing Officer has laid too much emphasis on the fact that the transaction was stated to be a Sales Return particularly when the facts of the claim of the Assessee were clear that it was a case of Short Supply of goods. The Assessing Officer could have a suspicion r....
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....the Assessing Officer has not rejected the Books of Account u/s 145 and also that the nature of the business activities of the Appellant have not been disputed. 8.6 It is seen that a very large number of documents relating to the above transactions were placed before the Assessing Officer which have been mentioned in the Written Submissions of the Appellant dated 20.09.13, reproduced above in Para 7.1 and a relevant excerpt from the same is mentioned hereunder "It is relevant to submit that fact of loss has not been disputed by the Assessing Officer and adverse observation are merely of technical nature. In the support of transactions of purchases and sales, we have furnished all the relevant documents as under: A. Documents relating to Purchases a. King Empire Group Ltd. i. Copy of Commercial Invoice with packing list ii. Copy of Bill of Lading iii. Copy of bill of exchange iv. Copy of Invoice of Shipping Company v. Copy of ledger account vi. Copy of Bank Statement b. Global Trade Commodities DMCC i. Copy of Commercial Invoice with packing list ii. Copy of ....
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....ount incurred by M/s Rabirun Vinimay Pvt Ltd for making the projecti functional. The Assessing Officer has further admitted that documents relating to such claims were given by the Assessee, which included Debit Note dated 12.03.2010 raised by M/s Rabirun Vinimay Pvt. Ltd., Settlement Deed dated 01.03.2010, copies of 3 High Seas Sales Contracts, List giving details of Short Supplied items, copy of account of the Assessee in the books of M/s Rabirun Vinimay Pvt. Ltd., bills of lading, bills of entry for home consumption issue by Customs Authorities, etc. The Assessing Officer has not given even a single adverse comment regarding any of these documents. In case the Assessing Officer suspected that the claim of Short Supply was bogus, then further verification could have been done once the List giving details of the Short Supplied items was there along with other documents. If the Assessing Officer disbelieved the copy of account of the Assessee in the books of M/s Rabirun Vinimay Pvt. Ltd., then inquiry could have been done from that party. However, rather than pointing out any specific document which was non genuine, bogus, false or that even any document which the Assessing Officer....
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....adequate. The Assessing Officer has mentioned about it not being possible to take a decision on the genuineness of the transaction on the basis of the 'Available Evidence'. If such is the situation, then it is clear that there is nothing in the 'Available Evidence' against the Assessee, as it is not as if the genuineness of the transaction is disproved by the 'Available Evidence' or that there is any adverse finding against the 'Available Evidence', but it is only that the Assessing Officer is unable to take a decision on the genuineness of the transaction. This only implies that the Assessing Officer has a general suspicion about the transaction, without having any evidence or anything specific against the transaction. In such a situation, the Onus would lie on the Assessing Officer to prove that either the 'Available Evidence' is false or that there is some other relevant evidence which has been ignored or concealed by the Assessee. In the absence of any of the 'Available Evidence' being proved to be false or any other relevant evidence being found which goes against the Assessee, it is clear that if the Assessing Officer is not fin....
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....dence'. It is also seen that the Ld. Assessing Officer has not denied that the transaction "apparently took place", and states that the 'Neutral Evidence' was required to show so. However, the Ld. Assessing Officer has stated that for showing that the transaction "really took place", some "More Evidence" was required. However, what exactly was this "More Evidence" and how was it "very crucial", has not been mentioned by the Ld. Assessing Officer. It is seen that the Ld. Assessing Officer does not deny that the transaction "apparently took place", but claims that to show that the transaction "really took place", some "More Evidence" was required without specifying as to what were the documents or evidences required. In such a situation, no adverse inference can be taken against the Assessee for the absence of such "More Evidence". 8.12 In the last sentence of Para 2.4 on page 5 of the Assessment Order, it is stated that "if this is collusive transaction the assessee stands benefitted to this extent by reducing his taxable income and on the other hand M/s Rabirun Vinimay (P) Ltd is also benefitted in the sense that part of the payment of CR Mill Equipment to the extent....
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....vailable Evidence', which apparently refers to the evidence available with the Assessing Officer, it is not possible to say with certainty as to what evidence the Ld. Assessing Officer intends to include in which category. The Ld. Assessing Officer can be appreciated for original and innovative thinking and coming up with the concept of these various types of evidence, but merely this is not sufficient for taxation, as firstly a clear concept about these evidences and the reasoning as to how adverse decision can be taken on the basis of such categories of evidence has not been explained, and secondly, a citizen can be taxed only as per law, and not on the basis of such innovative concepts, howsoever attractive they may be. 8.14 While discussing various types of evidence, the Ld. Assessing Officer has missed out the most relevant and significant type of evidence, that is the 'Relevant Evidence'. Perusal of the various judicial decisions show that it is the 'Relevant Evidence' which is the deciding factor for any legal issue. 8.15 It has been stated by the Hon'ble Gujarat High Court in the case of Commissioner of Gift-tax vs. Maneklal Hargovandas Patel, ....
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....ee was false. In such a situation, the theory about evidence and the various contentions of the Ld. Assessing Officer cannot be accepted and are hereby rejected. No addition can be made on the basis of such illogical arguments as made by the Ld. Assessing Officer. 9. The Ld. Assessing Officer has further stated in Para 2.5 on page 6 of the Assessment Order that "did not feel either the need to engage an intermediary while dealing with overseas parties or to engage a technical expert". However, it is not for the Assessing Officer to dictate as to how the Assessee is to run his business and to whom he has to take the advice from. If the Assessee feels it prudent not to involve or to spend money upon some intermediary or expert, it is not for the department to draw an adverse inference on the basis of such decision of the Assessee. In case, the Assessee engages an intermediary or expert, it can again be argued by the Assessing Officer that he does not "feel" that the Assessee should have wasted money on the intermediary or expert when the transactions could have been done directly without the effort and expenditure towards such intermediary or expert. In any case, it is not for the....
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....ot be deduced therefrom. As the onus to make out a case for rejection of books of account was on the Revenue, the assessee could not be burdened with the responsibility of proving a negative aspect of the matter meaning thereby the assessee could not be held responsible for not having earned profits at a particular rate." 9.2 It was further stated by the Hon'ble ITAT, Rajkot in the case of Girish M. Mehta (supra), in the final paragraph in the body of the order as under "In the instant case, no mistake has been pointed out by the Assessing Officer either in the books of account or in the statement of purchases, sales and Qtnnk which was maintained quantitatively on day-to-day basis. The finding recorded by the Commissioner of Income Tax (Appeals) at page Nos. 3 and 4 have not been controverted by the Department by bringing any positive material on record. We are, therefore, inclined to agree with the learned Authorised Representative, Mr. Rindani, that the assessee has maintained proper books of account and full details regarding the purchases, sales and stock registers were furnished to the Assessing Officer in which no defect whatsoever was pointed out, thus there....
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.... clearly mentions that the advice was given in the month of February 2010. If the Assessing Officer had any suspicion that the certificate from the Advocate was false, then necessary inquiries could have been done from the Advocate, but in the absence of any evidence to the contrary, the certificate of the Advocate cannot be just brushed aside. It is seen that the Advocate has stated that he had given the advice to M/s Jain Enterprises (whose proprietor is Sh. Bimal Kumar Jain, the Assessee) as under:- "1. That the parties are beyond the territorial jurisdiction of Indian Court. 2. That if the party initiate the legal proceeding and ex party decree is passed in the favour of the M/s Jain enterprises, the execution of the same is not possible as the Indian Courts does not have territorial jurisdiction for execution of the decree beyond its territorial jurisdiction, so the cost incurred in filing the recovery would be unnecessary. 3. Besides this the party accepting the goods did not verify the goods at the time of taking delivery of the same so the short fall claim would fall in the court of law." 9.6 Thus it is clear from the opinion of the Advocate th....
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....tails of the Short Supplied items. In such a case, if there was any suspicion, further inquiries could have been made, but any adverse conclusion could not be found against the Assessee merely on the basis of suspicion. 9.8 The Ld. Assessing Officer has further stated in Para 2.5 on page 6 of the Assessment Order that "Assuming but not accepting that it is not a case of sales return as shown by the assessee on 12.03.2010 in the account of M/s Rabirun Vinimay (P) Ltd. but is a case of short supplies, then the assessee should have claimed it as loss on account of short supplies. However, in no case the assessee can reduce it from its sales, when the amount of sales has been recorded in its books of accounts. Sales can be reduced only in a case of sales return.". Thus it is seen that the Ld. Assessing Officer is dissatisfied with the method of accounting of the Assessee and the nomenclature given to the transaction. However, once the nature of transaction is clear, being a case of Short Supplies, then no adverse inference can be drawn merely because the Assessee initially labeled such Short Supplies as Sales Return. The relevant issue is whether there was any such Short Supply or n....
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....basis of Short Supply, being claimed at Rs. 4,85,00,000/-, but rather than proving that the evidence on record was false or collecting any evidence or material which was contrary to the evidence produced by the Assessee or which could show that the transactions claimed by the assessee as self serving or false, the ld Assessing Officer has framed the entire assessment merely on the basis of suspicion. There is nothing to show that the loss incurred by the Assessee on account of Short Supply of goods was not bona fide or that it was not in the course of business transactions or that it was not of revenue nature,, In view of the above discussion, the addition made by the Ld. Assessing Officer amounting to Rs. 4,85,00,000/- is hereby deleted.‖ 8. On appeal before us, the Ld. departmental representative vehemently supported the order of the Ld. assessing officer submitting that the claim of the assessee with respect to the short supply of goods is not proved conclusively. He further relied upon the same reasons, which were given by the Ld. assessing officer in his order. He submitted that the Ld. CIT (A) has deleted the addition/disallowances based on the submission made by the....
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....d therefore different material was missing from all the three consignments. He further stated that assessee has contacted to the buyers on various occasions and requested them for the supply of or compensation of the missing parts however, it were not responded to by the overseas parties. Therefore, the assessee further has taken opinion of the legal expert regarding the claim to be made against the overseas parties, which was opined in negative. Therefore, it cannot be said that the assessee has not made adequate efforts for reducing its losses. In view of this, it was submitted that the claim of the assessee is genuine, supported with adequate evidences, and is incurred during the course of the business and hence allowable as deduction. 10. We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts are culled out from the orders of the lower authorities that assessee imported CR mill equipment from three different parties and these goods were sold on high seas basis, to M/s Rabirun Vinimay Limited. The amount of the purchases and the sale consideration received by the assessee are not disputed. The assessee demonstrated the fa....
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....tated the manner in which he should carry on his business. He assumes risk and earns his reward based on his business modality. The revenue is to tax on the rewards earned by the assessee. The assessee paid the above compensation to the buyer on account of short supply of goods received by it on account of high seas sales made by the assessee. Therefore, the assessee assumed such risk at the time of sales. Further, the adequate evidences furnished by the assessee before the lower authorities also supported the above loss. However, the Ld. assessing officer stated that the assessee should have produced more evidences. However, it was not stated by him that what other evidences were required. Merely because the assessee has produced the evidences. According to the wishes and design of the Ld. assessing officer the claim of the assessee cannot be denied. Further, more in the present case even the Ld. assessing officer did not state that what more evidences assessee should have submitted. On appreciation of the evidences submitted by the assessee, such as the settlement deed, the high seas sale details, the income tax return of the buyer and debit notes, it is apparent that the adequat....