2023 (8) TMI 682 - HC - Income Tax

Disallowance of business loss - HELD THAT - As this is a case involving appreciation of the circumstances surrounding the working of the aforementioned agreement and the material placed on record by the appellant/assessee. While we agree with Appellant that the Tribunal could not have made an observation to the effect that, since better technology was available, they ought not to have entered into an arrangement with SAL, what has persuaded us to uphold the impugned order is that no material that was produced by the appellant/assessee to establish the transaction in issue was genuine.As noted by the authorities below; firstly, the appellant/assessee failed to produce the original agreement. Secondly, the amount which was forfeited towards security deposit was an odd amount. As noticed above the amount in issue is Rs. 6,95,80,595/-.Thirdly, the forfeiture notice was issued only on 22.02.2015, when, even according to the appellant/assessee, SAL had discovered that product was not of requisite quality, much earlier. Lastly, the write off of Rs. 1,59,36,508/- was carried out by SAL only in Financial Year (FY) 2014-15 AY 2015-16 , although, according to the appellant/revenue, the defect in the product and its usefulness was discovered way back in March-April 2010. We may also note that it is not in dispute that the appellant/assessee, at the relevant time, held 10% SAL s equity and some Directors were common to the appellant/assessee as well as SAL. It may be also relevant to note that, in support of his case, Mr Jain has argued that insofar as the security deposit which was forfeited by SAL was concerned, it had paid service tax on the said amount. On being queried, Mr Jain says that the relevant document was produced, for the first time, before the Tribunal. This cannot impact the conclusion reached by the Tribunal, as what was required to be ascertained was whether the agreement dated 23.01.2010 represented a genuine arrangement. Significantly, the service tax document is dated 29.03.2019.Therefore, for the forgoing reasons, we are not inclined to interfere with the impugned order.

Summary

Issues involved:
The judgment concerns an appeal related to Assessment Year 2015-16 where the appellant challenges the disallowance of a business loss by the Income Tax Appellate Tribunal.

Details of the Judgment:
The appellant entered into an agreement with a company for supplying specialized glass used in the avionics industry. The company found defects in the product, forfeited the security deposit, and added an amount to the appellant's income. The appellant failed to produce the original agreement before the authorities. The Tribunal upheld the disallowance of the loss, stating that no genuine material was produced to establish the transaction. The forfeiture notice was issued after the discovery of defects, and the write-off was done much later. The appellant's equity in the company and common directors raised concerns. The argument about paying service tax on the forfeited amount was not considered relevant to the genuineness of the agreement. The Tribunal's decision was upheld, and the appeal was disposed of accordingly.