2022 (9) TMI 472 - AT - Income Tax

Disallowance of claim for loss - trading loss claimed by the assessee in the transactions of gold and diamonds with the closely held/related parties - HELD THAT - Tribunal thus passed a well-considered and a well-discussed order and decided the similar issue involved in AY 2009-10 2017 (1) TMI 1759 - ITAT AHMEDABAD in favour of the assessee after taking into consideration all the facts of the case as well as the arguments raised by both the sides. . At the time of hearing before us, even though the learned DR has contended that every assessment year is separate and the similar loss incurred by the assessee in the similar transaction year after year cannot be accepted being artificial one, he has not been able to point out any distinction in the facts involved in the year under consideration vis- -vis the facts involved in AYs 2009-10 2017 (1) TMI 1759 - ITAT AHMEDABAD and 2011-12 2021 (8) TMI 983 - ITAT AHMEDABAD wherein a similar issue is decided by the Tribunal in favour of the assessee. He has also not been able to support and substantiate his contention that the loss in question claimed by the assessee and supported by the relevant documentary evidence in the form of bills/vouchers, complete quantitative details, audited books of account etc is an artificial loss. We, therefore, find no justifiable reason to take a different view on this issue in the year under consideration than the view taken by the Tribunal in AYs 2009-10 and 2011-12 by passing a well discussed and well reasoned order. - Decided in favour of assessee.

Issues Involved:
1. Disallowance of assessee's claim for loss of Rs.12.64 crores.
2. Rejection of books of account under Section 145(2) of the Income-tax Act, 1961.
3. Comparison of Gross Profit (GP) rates between assessment years.
4. Transactions with closely held/related parties.
5. Genuineness of trading transactions and documentary evidence.

Detailed Analysis:

1. Disallowance of Assessee's Claim for Loss of Rs.12.64 Crores:
The primary issue in this appeal is the disallowance of the assessee's claim for a trading loss of Rs.12.64 crores incurred on the sale of gold and diamonds to closely held/related parties. The Assessing Officer (AO) disallowed the loss, deeming the transactions non-genuine and manipulated to conceal the actual Gross Profit (GP). The learned Commissioner of Income-tax (Appeals) [CIT(A)] upheld this disallowance, referencing a similar disallowance in the assessee's case for the previous assessment year (AY 2009-10). However, the Tribunal noted that in AY 2009-10, the disallowance had been overturned by the Tribunal, which found the transactions genuine and supported by documentary evidence. The Tribunal also observed that similar claims for loss were allowed by the AO in subsequent assessment years (AYs 2011-12 and 2012-13).

2. Rejection of Books of Account Under Section 145(2) of the Income-tax Act, 1961:
The AO proposed to reject the books of account under Section 145(2) due to inconsistencies in the GP rates and the inclusion of interest income in the trading account. The assessee argued that the books of account were duly audited, and all transactions were supported by bills, vouchers, and bank statements. The assessee maintained that the presentation of accounts was consistent with the previous year and that the decline in GP was due to increased turnover and competitive pricing strategies. The Tribunal found that the AO did not provide sufficient evidence to justify rejecting the books of account, noting that the transactions were conducted through banking channels and supported by documentary evidence.

3. Comparison of Gross Profit (GP) Rates Between Assessment Years:
The AO highlighted a significant decline in the GP rate from 0.09% in the previous year to 0.04% in the year under consideration. The assessee attributed this decline to increased turnover and competitive pricing to capture a larger market share. The Tribunal noted that the GP rate could vary due to several factors, including market conditions and business strategies. The Tribunal also observed that the inclusion of interest income in the trading account was consistent with the previous year, and the decline in GP alone was insufficient to reject the books of account.

4. Transactions with Closely Held/Related Parties:
The AO alleged that the assessee sold gold and diamonds at lower rates to closely held/related parties, resulting in a trading loss. The assessee contended that the transactions were conducted with third parties and not with specified persons covered under Section 40A(2)(b) of the Act. The Tribunal found that the AO did not provide evidence to prove that the transactions were non-genuine or manipulated. The Tribunal also noted that similar transactions in subsequent years were accepted by the AO, and the losses were offset by corresponding profits reported by the related parties.

5. Genuineness of Trading Transactions and Documentary Evidence:
The assessee provided complete bills, vouchers, quantitative details, audited accounts, and tax audit reports to support the genuineness of the transactions. The AO dismissed this evidence as insufficient, but the Tribunal found that the AO did not identify specific defects or discrepancies in the documentation. The Tribunal emphasized that the transactions were conducted through banking channels and supported by independent verification, thereby affirming their genuineness.

Conclusion:
The Tribunal concluded that the disallowance of Rs.12.64 crores was unjustified, as the AO failed to provide sufficient evidence to prove that the transactions were non-genuine or manipulated. The Tribunal noted that similar disallowances in previous and subsequent years were overturned or accepted, respectively. The Tribunal allowed the appeal, deleting the disallowance and upholding the assessee's claim for the trading loss.

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