2019 (8) TMI 1260 - AT - Income Tax

Bogus loss in castor seed and castor oil trading - CIT (A) upholding the finding of the AO that the transactions in castor oil and castor seeds were sham transactions - good purchases from concern operating from same premises and sold at loss - HELD THAT - The sequence of events, showing repeated loss transactions, do not make sense either. It is also difficult to understand that when ultimate buyer and the seller operate from the same premises, why is the assessee roped in every time, and every time that happens, assessee incurs a loss. There is no explanation about the nature of office sharing arrangement or the nature of their association. The ease of business for every connected party operating from the same premises is too vague an explanation to merit judicial approval. Genuineness is a matter of perception but essentially a call on genuineness of a transaction is to be taken in the light of well settled legal principles. There may be difference in subjective perception on such issues, on the same set of facts, but that cannot be a reason enough for the fact finding authorities to avoid taking subjective calls on these aspects, and remain confined to the findings on the basis of irrefutable evidences. Hon'ble Supreme Court has, in the case of Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT , observed that human minds may differ as to the reliability of a piece of evidence but in that sphere the decision of the final fact finding authority is made conclusive by law . This faith in the Tribunal by Hon'ble Courts above makes the job of the Tribunal even more onerous and demanding and, in my considered view, it does require the Tribunal to take a holistic view of the matter, in the light of surrounding circumstances, preponderance of probabilities and ground realities, rather than being swayed by the not so convincing, but apparently in order, documents and examining them, in a pedantic manner, with the blinkers on. In view of the above discussions and bearing in mind entirety of the case, we approve well reasoned order of the CIT(A) and decline to interfere in the matter.- Decided against assessee.

Issues Involved:

1. Dismissal of the appellant's appeal by the Commissioner of Income-tax (Appeals) (CIT(A)).
2. Classification of M/s Vishal Agrotech and M/s Aditya Marine Limited as sister concerns.
3. Determination of transactions in castor oil and castor seeds as sham transactions.
4. Assessment of total income against the returned loss.
5. Permission to add, amend, alter, or raise additional grounds of appeal.

Detailed Analysis:

1. Dismissal of the Appellant's Appeal by CIT(A):

The appellant challenged the CIT(A)’s order dated 12th February 2015, which dismissed their appeal regarding the assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2011-12. The appellant contended that the CIT(A) erred in law and on facts in dismissing their appeal.

2. Classification of M/s Vishal Agrotech and M/s Aditya Marine Limited as Sister Concerns:

The CIT(A) upheld the Assessing Officer's (AO) finding that M/s Vishal Agrotech and M/s Aditya Marine Limited were sister concerns of the appellant company. This conclusion was based on the fact that these entities operated from the same premises as the appellant. The CIT(A) noted that these entities had the same directors and were involved in transactions that appeared to be dubious and collusive.

3. Determination of Transactions in Castor Oil and Castor Seeds as Sham Transactions:

The AO found that the appellant’s transactions in castor oil and castor seeds were sham transactions designed to create artificial losses. The AO noted that the appellant did not have storage facilities for these commodities and that all transactions were executed on the same day with the same quantity but at substantially lower rates. The CIT(A) confirmed this finding, observing that the appellant had booked losses deliberately to avoid paying taxes on capital gains and other incomes. The CIT(A) emphasized that these transactions lacked business logic and were conducted with related parties operating from the same premises.

4. Assessment of Total Income Against the Returned Loss:

The AO assessed the total income at ?1,66,58,916/- against the returned loss of ?28,03,216/-. This assessment was based on the disallowance of the losses claimed from the castor oil and castor seed transactions. The CIT(A) upheld this assessment, noting that the appellant's claim of losses was not genuine and that the transactions were sham.

5. Permission to Add, Amend, Alter, or Raise Additional Grounds of Appeal:

The appellant sought permission to add, amend, alter, or raise additional grounds of appeal. However, the tribunal did not find any merit in the appellant's contentions and dismissed the appeal.

Tribunal's Conclusion:

The tribunal, after considering the rival submissions and the material on record, upheld the CIT(A)’s well-reasoned order. It agreed with the CIT(A) that the transactions were sham and designed to create artificial losses. The tribunal noted that the appellant's arguments were superficial and did not address the fundamental genuineness of the transactions. It emphasized the need to judge the evidence by applying the test of human probabilities and surrounding circumstances, as highlighted by the Hon'ble Supreme Court in the cases of CIT v. Durga Prasad More and Sumati Dayal v. CIT.

Final Decision:

The tribunal approved the CIT(A)’s order and dismissed the appeal, concluding that the transactions in castor oil and castor seeds were sham and that the disallowance of the claimed losses was justified. The appeal was dismissed in its entirety.

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