TaxTMI 
TaxTMI 
2023 (3) TMI 1635
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....e business income. 2. Briefly stated, facts of the case are that the assessee filed its return of income on 30.09.2015 declaring total income of Rs.16,61,970/-. The return of income filed by the assessee was selected for scrutiny and in the assessment was completed u/s 143(3) of the Act, wherein, the Assessing Officer disallowed the claim of loss of Rs.15,30,00,000/- on account of forward transaction in commodities without physical delivery of goods, firstly, on the ground of non-genuine loss, secondly, it was a speculation loss not allowed to be adjusted against business loss. 3. On further appeal, the Ld. CIT(A) upheld the finding of the Ld. Assessing Officer, observing as under: "6.3. I have carefully considered the facts of the case, the findings of the Ld.AO and the submissions of the assessee. 6.3.1 During the year under reference, the assessee entered into 4 different contracts with M/s. Arabesque Mercantile Put. Ltd (AMPL) for sale of coriander (Badami Whole Dhaniya). The details of the forward purchase contracts entered between BOL and the appellant are as under :- Contract No. Date Rate (Rs.)/MT Quantity (MT) Contract Period Amoun....
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....tely no monetary transaction during the whole process as no advance was given neither any payment was made for the settlement of the contract value. The transactions of contract settlement were adjusted against the sale of coriander during the same financial year and only the journal entries were passed on the last day of the financial year. The AO observed that the whole of the transaction was bogus and manipulated to take the fictitious loss on account of contract settlement which was ultimately adjusted against the huge profit on sale of shares. The assessee had profit on sale of shares which was adjusted against the impugned loss in commodity trading. The amount payable on account of loss as a result of settlement of the contracts were adjusted against the sale bills of coriander sold to AMPL 6.3.4 The AO further noted that the contract settlement transaction was neither carried out at any of the recognized Commodity Stock Exchange neither any broker was involved in the said transactions. The documents purporting to be agreements were not stamped neither were registered with any Government agency and, hence, the rights and obligations arising out of the said contracts ....
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....his opinion and belief without proper appreciation of the submissions of the assessee. It was further claimed that the transactions were genuine and it resulted in a genuine loss to the assessee which was allowable as adjustment with the business income of the assessee. 6.3.6 The assessee is in the business of purchasing and selling of shares. During the year it had substantial profit in the business of purchase and sell of shares. Dealing in coriander is not the regular business of the assessee. During the year the assessee has claimed to have entered into Forward Purchase Contracts for sale of Coriander to AMPL. The assessee claimed that it failed to honour the contract because of sharp increase in price of Coriander over the contract period of 30 days and it was left with no option but to purchase the commodity from the buyers itself. Apparently, no payments were made neither any goods were supplied to any of the parties in respect of the said transactions 6.3.7 In its detailed submissions, the assessee has hugely emphasized on form of the contracts to substantiate it's claim that the contracts were genuine business transactions. The assessee explained that....
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.... such an uncertain forward contract having huge monetary considerations which it failed to honour by even partially supplying the said commodity. The sole explanation provided by the assessee for cancelling the contract and buying back the commodity from the said parties (although only on paper) was that the assessee failed to deliver the commodity for the reason that the price of the same had raised sharply over the period of contract. The assessee could not, however, explain why the assessee failed to deliver the goods even partly when the prices were increasing and why the complete transactions had happened by way of buying the commodities from the same parties to meet the terms of contract. 6.3.11 It is a fact that the transactions had not happened on any Recognized Stock Exchange neither it involved any 3rd party as broker. It was also not a legal contract which could be enforceable in any Court of law. The claim of the assessee is that there is no bar in having contract note on plain paper or in having an oral contract. I agree with the view of the assessee that there is no bar in having a contract in this manner, but there could be no denying to the facts that in su....
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....st its business losses with the income from the impugned transactions and as a result of which even they did not require to pay the due amount of tax on the income arising out of the said transactions. 6.3.14 I have also taken note of the fact that an another concern naming M/S Vision Millenium Exports Put. Ltd. (VMEPL) has also entered into contracts with M/S Arabesque mercantile Pvt Ltd (AMPL), the party with whom the assessee has entered into contract with. On perusal of the details of the contract it is found that VMEPL had entered into two contracts with AMPL during the same financial year ie FY 2014-15 for sale of same commodity being coriander (Badami Whole Dhaniya). Further, another concern naming Betul Oil Ltd (BOL) has also entered into similar contracts with the said VMEPL for sale of Badami Whole Dhaniya. The total value of the transactions were Rs. 111.68 crore. In the similar manner, the said VMEPL had failed to supply the goods to AMPL and BOL within the contract period of 60 days and had purchased the goods on paper from AMPL and BOL only to honour the contract and in the process incurred loss of Rs. 26.88 crore. In this regard, besides the fact that the tr....
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....mination of the nature and circumstances of the contract, it could only be concluded that the modus operandi adopted by the assessee was for evasion of tax through a non-genuine transaction in the form of loss in commodity transactions. 6.3.18 The claim of the assessee that the rise of price of coriander could be verified from the market reports is of no consequence as it is evident that the said contracts had been placed on paper post facto the period it actually refers to for the sole motive to take undue benefit of the rise in price of the said commodity in creating a bogus loss on paper. 6.3.19 The transactions showing loss in commodity transaction, which had been set off with profit in purchasing and selling of shares, were sham transactions. It is a case of bogus loss obtained through colourable device for avoidance of tax. I find that the Id.A, who after detailed examination and discussion and going beyond the said documents has established that the contracts were a mere mask to hide the real nature of transactions. As discussed in the preceding paragraphs, I find that the findings of the Assessing Officer are also based on strong surrounding circu....
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....ssessee who had made the claim that it had a genuine loss in transactions which had no involvement of any third parties, all the facts were especially within it's knowledge. Section 102 of Indian Evidence Act makes it clear that initial onus is on person who substantially asserts a claim. In the present case, it is seen that the assessee has failed to discharge its burden of proof and the Assessing Officer, on the other hand, has brought in sufficient evidences to prove that the claim of the assessee was incorrect. 6.3.22 On the issue of circumstantial evidence and in the matters related to the discharge of onus of proof and the relevance of surrounding circumstances of the case, the Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More [(1972) 82 ITR 540], have observed as under: " .. that though an appellant's statement must be considered real until it was shown that there were reasons to believe that the appellant was not the real, in a case where the party relied on self-sewing recitals in the documents, it was for the party to establish the transfer of those recitals, the taxing authorities were entitled to look into the surrounding circu....
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....citizen to pay the taxes honestly without resorting to subterfuges." 6.3.26 Needless to say that every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make believe. In this regard, it is reiterated that the view expressed by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd Vs. CIT (1985) 154 IT 148 was upheld once again in the case of Vodafone International holding BV v. Union of India 17 taxman.com 202 by Hon'ble Supreme Court clearing the doubts about the perceived overruling effect of decision of Hon'ble Supreme Court in the case of Azadi BachaoAndolan 263 ITR 706 over the findings in the case of McDowell & Co. Ltd.(supra). 6.3.27 In this regard, it is most pertinent to note that an inference about the genuineness of apparent Commodity Trade Loss transactions, which had not been carried through any Stock exchange and which does not even involve any third party who could testify the genuineness or otherwise of the transactions has to be drawn on the basis of the surrounding circumstances and having regard to the conduct of the assessee in making payments, deli....
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....to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into surrounding circumstances to find out the reality of the recitals made in those documents." 6.3.30 On appreciation of the facts and surrounding circumstances, the irresistible conclusion in this case is that the meticulous paper work by the assessee in entering into the said contracts and making transactions apparently as per the terms of the said contracts gets exposed in the light of the glaring facts and surrounding circumstances and that the contracts entered into by the assessee were nothing but smokescreen to carry out bogus transactions of loss in the garb of sale of commodity which was not real and assessee has failed to dispel all the quarries raised by the AO to establish that the transaction in question was real and not beyond human probabilities. 6.3.31 Hence, I find it only proper to hold that in the given facts and circumstances of the case and in consideration of the surrounding circumstances and ap....