2019 (7) TMI 1557 - AT - Income Tax

Revision u/s 263 - huge losses claimed - HELD THAT - Assessee company during the year has engaged in high sea purchase and sale transaction on 16 different occasions on back-to-back basis. The origins of the goods where the same and ultimate destination was same that is Ruchi Soya limited. The transactions were entered into in a short period of 2 months . Except for 2 transactions where small profit of ₹ 6,280/- was booked, losses of ₹ 241842096/- were booked. All these transactions are entirely nondelivery based. The contracts for the high sea sales were entered mid of September 2012 to October 2012. The contracts were not registered. In these circumstances it was amply clear that the transactions were dubious in nature and required proper explanation. The fact that the transactions were unusual the ultimate consignee was Ruchi Soya Ltd. was glaring. The assessing officer has asked the assessee to give details of its sister concern's. But the assessee never gave the details. The detail of sister concern would certainly shed light on the parties with whom the transactions have been entered as to whether they are at arm s length with each or not. The unusual loss hence obviously needed explanation. The assessing officer asked the assessee to explain the reason for the unusual loss. The assessee never gave any explanation. The assessing officer without any application of mind and without bringing on record the reply or the result of any further enquiry laconically passed the summary assessment order allowing the huge loss. In these circumstances the Learned counsel of the assessee s contention that assessee has provided all the necessary details and the assessing officer has applied his mind is clearly not sustainable. Assessee has not given the explanation for the unusual loss despite inquiry. It has also not given details of sister concern. This is vital in view of the dubious nature of layered transaction. Hence in the background of the aforesaid discussion and precedent in our considered opinion there is no infirmity in the order of learned CIT. hence, we uphold the same. - Decided against assessee.

Summary

Issues Involved:
1. Validity of the assessment order under Section 263 of the Income Tax Act.
2. Adequacy of the Assessing Officer’s inquiry into high seas transactions.
3. Legitimacy of the losses claimed by the assessee in high seas transactions.

Detailed Analysis:

1. Validity of the Assessment Order under Section 263 of the Income Tax Act:
The appeals were filed by companies within the same group against the order of the Commissioner of Income Tax (CIT) under Section 263 for the Assessment Year (A.Y.) 2013-14. The CIT noted that the original assessment order dated 18.03.2016 allowed the assessee to carry forward a loss of ?24,18,42,096/- without proper inquiry into high seas transactions.

2. Adequacy of the Assessing Officer’s Inquiry into High Seas Transactions:
The CIT observed that the assessee company engaged in high seas transactions involving the purchase and sale of crude palm oil on 16 occasions within two months, resulting in significant losses. The transactions were non-delivery based and involved the same consignee, Ruchi Soya Industries Limited. The CIT found that the Assessing Officer (AO) failed to make proper inquiries into these suspicious transactions, which appeared devoid of commercial substance and potentially aimed at creating artificial losses and inflating turnover.

The assessee argued that the AO had verified the transactions through notices under Section 133(6) and had applied his mind. However, the CIT was not convinced, noting that the AO did not ascertain the basis of sale and purchase prices and failed to investigate the transactions' genuineness. The CIT emphasized the importance of verifying the basis of the prices and the final delivery of the goods, which the AO neglected.

3. Legitimacy of the Losses Claimed by the Assessee in High Seas Transactions:
The CIT concluded that the high seas transactions lacked commercial substance and appeared to be part of a scheme to create artificial losses. The CIT directed the AO to verify the transactions' genuineness, including the basis for the prices and the final delivery of the goods. The CIT noted that similar issues were found in the assessee’s case for A.Y. 2014-15, where the AO had disallowed losses from non-delivery based transactions after a detailed inquiry.

The assessee contended that the assessment order was not erroneous or prejudicial to the revenue, as the AO had duly examined the transactions. However, the CIT found that the AO had not made proper inquiries or verified the transactions' genuineness, rendering the assessment order erroneous and prejudicial to the revenue.

Conclusion:
The Tribunal upheld the CIT’s order, finding that the AO had failed to make proper inquiries into the high seas transactions, which were suspicious and lacked commercial substance. The Tribunal noted that the assessee did not provide details of its sister concerns, which was vital to understanding the transactions' nature. The Tribunal found no infirmity in the CIT’s order and dismissed the assessee's appeals, directing the AO to verify the transactions' genuineness and provide the assessee an opportunity to be heard.

Order Pronounced:
The order was pronounced in the Court on 19.7.2019, and the appeals by the assessee were dismissed.