2023 (5) TMI 1242 - AT - Income Tax

Disallowances of losses on account of forfeiture of security deposit and inventory write off - counsel contended that the loss has been incurred by the assessee in the ordinary course of business arising from business commitment for which agreement was also executed - DR submitted that the directors of both the companies are from the same family - HELD THAT - CIT(A) has given cogent reasons for non acceptance of the claim of the assessee. AO had earlier given detailed reason which goes to show that the claim remains unsubstantiated. The onus in the instant case is very heavy on the assessee which the assessee has failed to discharge. The basis of calculation of security deposit, the proof of production of specialized glass, cost involved thereon is not available on record. The agreement with the AE is also not available in original. Except for the transfer of fund to SAL, no other substantive evidence is available to enable us to appreciate the facts in its perspective. Without repeating various reasons provided in the assessment order and the first appellate order, we are of the view that the assessee has failed to discharge the onus towards bona fides of the claim. Besides, it is not known as to how the payment made in pursuance of so called agreement entered in 2010 can be seen as loss accrued to the assessee in Assessment Year 2015-16 in question when the business operations were itself suspended in November, 2012. Both the assessee and the SAL are family controlled with common shareholding and therefore are privy to the exact affairs. It is not a case where a third party has been caught unaware resulting in unintended losses. We are not convinced at all by the defense raised by the assessee in justification. We thus decline to interfere with the findings rendered by the lower authorities. Decided against assessee.

Summary

Issues involved:
The appeal concerns the disallowance of losses claimed by the Assessee on account of forfeiture of security deposit and inventory write-off, aggregating to Rs.8,55,17,103, for Assessment Year 2015-16.

Assessment by Assessing Officer:
The Assessing Officer observed that the Assessee claimed a deduction of Rs.8,55,17,103 on account of impairment loss, which was alleged to be a sham transaction aimed at inflating losses and siphoning funds. The AO found the claimed loss arising from transactions between associated enterprises to be unsubstantiated and modified the losses claimed by the Assessee accordingly.

Appeal before CIT(A):
The Assessee appealed before the CIT(A) against the disallowance of losses. The CIT(A) examined the facts and submissions, including the agreement with the associated enterprise, and concluded that the losses claimed were not justified. The CIT(A) found no merit in the Assessee's claim and upheld the action of the Assessing Officer.

Appeal before the Tribunal:
Further aggrieved, the Assessee appealed before the Tribunal. The Assessee contended that the losses were incurred in the ordinary course of business due to failure to meet contractual commitments, leading to the forfeiture of the security deposit and inventory write-off. The Assessee argued that the losses were genuine and should be allowed.

Tribunal's Decision:
The Tribunal considered the arguments of both parties and reviewed the case records. It concurred with the Assessing Officer and CIT(A) that the Assessee failed to substantiate the claimed losses. The Tribunal noted the lack of evidence supporting the losses, such as the absence of the original agreement, proof of glass production, and justification for the fund transfer. The Tribunal found the Assessee had not discharged the heavy onus of proving the bona fides of the claim. Additionally, the Tribunal highlighted the familial relationship and common shareholding between the Assessee and the associated enterprise, casting doubt on the genuineness of the transactions. Consequently, the Tribunal dismissed the appeal of the Assessee.

Separate Judgment by the Judges:
The judgment was delivered by Shri Pradip Kumar Kedia, Accountant Member, and Shri Chandra Mohan Garg, Judicial Member.