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2017 (1) TMI 1759 - AT - Income TaxAddition for the losses incurred by the appellant - certain transactions ending up with loss entered into with three parties namely Aryavart Commodities Pvt. Ltd. (ACPL), Jay Jewellers and S. K. Jewellers in relation to sale of gold items - Assessee is in the business of trading in gold, silver, bullion, gold ornaments and diamonds - CIT(A) making detailed submissions which mainly emphasized on the fact that the impugned transactions entered into with the above referred three parties are not covered under the provisions of section 40A(2)(b) of the Act as these three parties are not sister concerns falling under the provisions of section 40A(2)(b) - HELD THAT - We find that during the course of assessment proceedings ld. Assessing Officer selected 15 transactions out of which one each was Jay Jewellers and S. K. Jewellers and 13 transactions with ACPL. All these 15 transactions took place between 3.11.2008 to 28.3.2009 having one common factor that in all these 15 transactions gold bars purchased during the day were sold at a lower rate giving rise to losses. Assessing Officer ignoring the assessee s submissions that the gold prices are very volatile and the impugned transactions were entered in the normal course of business took a view that assessee has been unable to justify that there was actually so much fluctuation in the gold and diamond market in these days due to which sales were made at such lower prices. Ld. Assessing Officer also took a view that these three impugned parties are related/sister concerns of the assessee and losses have been intentionally manipulated by the assessee From going through the series of judgments of Hon. Supreme Court and Hon. Jurisdictional High Court it contemplate that if there is no challenge to the transactions entered in the books or to the genuineness of the entries, then it is not open on the side of Revenue to contend that what is shown in the transactions/entries is not the real state of affairs. In the instant case also we find that Revenue has miserably failed to make any attempt or to prove that entries made in the books are not genuine nor any other adverse material has been placed on record to show that the impugned loss was false and assessee has received more consideration than the actual transaction of sale. Further even in the independent enquiries conducted on the alleged three parties it ended up without giving any iota of evidence against the assessee as the same have nowhere been highlighted in the assessment order AO was erroneous as he has selected only few transactions on which only loss has incurred without giving cognizance to the fact that assessee has gained in other transactions with the impugned parties which are very well evidenced with the independent itemwise transaction details forming part of the books of account of assessee - AO also failed to point out any mistake in the alleged transactions except mentioning that the loss has been incurred. He completely failed to appreciate that every assessee has his own style of doing business and more specifically in the kind of business assessee is entered into it is well established that there is regular fluctuations in the prices of gold/silver/diamonds and jewellery due to which profit/loss are incurred. In the present case when the assessee is maintaining regular books of account which are audited and all transactions are fully supported by bills and vouchers, impugned transactions have taken place through banking channels, confirmations have been received from the alleged parties no adversity has been found in the statements recorded by the Revenue of the alleged parties, quantitative records are regularly maintained, similar transactions have not been disputed even in the subsequent assessment u/s 143(3) of the Act as supported by the copy of the order u/s 143(3) of the Act for Asst. Year 2012-13 framed on 13.2.2015. We, therefore, hold that the impugned 15 transactions giving rise to loss are genuine and cannot be termed as colourable with the intention of evasion of tax - Decided in favour of assessee.
Issues Involved:
1. Confirmation of addition of ?77,95,670/- made by the Assessing Officer for losses incurred in transactions with Jay Jewellers, Aryavart Commodities Pvt. Ltd. (ACPL), and S.K. Jewellers. 2. Applicability of section 40A(2)(b) of the Income-tax Act, 1961. 3. Genuineness of the transactions resulting in losses. 4. Commercial expediency of the transactions in question. Detailed Analysis: 1. Confirmation of Addition of ?77,95,670/-: The primary issue revolves around the confirmation of the addition of ?77,95,670/- made by the Assessing Officer (AO) for the losses incurred by the appellant in transactions with Jay Jewellers, ACPL, and S.K. Jewellers. The appellant argued that these transactions were bona fide and conducted at prevailing market rates, emphasizing the volatility of the gold and diamond market. However, the AO was not satisfied with the explanations provided, considering them general and unsubstantiated. The AO noted significant price differences in transactions, particularly with ACPL, and concluded that the losses were not genuine. 2. Applicability of Section 40A(2)(b): The appellant contended that the transactions with the three parties did not fall under the provisions of section 40A(2)(b) as they were not sister concerns or related parties. The CIT(A) accepted this contention, noting that the AO did not provide evidence to prove that the parties were related under section 40A(2)(b). The CIT(A) allowed the ground of appeal regarding the applicability of section 40A(2)(b) but sustained the AO's action of disallowing the loss claim based on the lack of genuineness of the transactions. 3. Genuineness of the Transactions: The CIT(A) and AO questioned the genuineness of the transactions, emphasizing that the appellant repeatedly incurred losses in transactions with the same parties, which was not commercially prudent. The CIT(A) noted that the appellant's argument of market volatility did not justify the intraday losses, as gold prices do not fluctuate significantly within a single day. The CIT(A) also dismissed the appellant's argument that the losses were offset by notional interest on interest-free advances from ACPL, considering it a colorable transaction aimed at avoiding tax. 4. Commercial Expediency: The Tribunal examined the commercial expediency of the transactions. It noted that the appellant maintained regular books of account, which were audited, and all transactions were supported by bills and vouchers. The Tribunal observed that the AO selectively picked transactions resulting in losses without considering profitable transactions. It also highlighted that the AO did not dispute similar transactions in subsequent assessments. The Tribunal referred to judicial precedents emphasizing that if transactions are bona fide and supported by genuine entries, they should not be disregarded. Conclusion: The Tribunal concluded that the impugned transactions were genuine and conducted in the normal course of business. It held that the AO erred in disallowing the loss claim based on selective scrutiny and unsupported assumptions about market volatility and commercial expediency. The Tribunal set aside the order of the CIT(A) and allowed the appeal of the assessee, confirming that the losses of ?77,95,670/- were genuine and not colorable transactions aimed at tax evasion.
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