2021 (8) TMI 455 - AT - Income Tax

Addition u/s 68 - Huge difference in purchase and selling price of rice - sham transaction - discharge the primary onus of the assessee or not? - HELD THAT - Assessee was dealing in Rice contracts in the area Naya Bazaar, Delhi, which functions as mandi/local market and there are chances of movement of buyers and sellers over the period. In the given case, the tax authorities have verified the existence of parties after eight years of transactions. The Courts have held that after lapse of reasonable time, the findings after lapse of such reasonable time is not trustable and chances of migration is proved. In the given case, the investigation is carried out after lapse of eight years, which is after lapse of considerable time. When we considered the present issue under dispute, the Revenue authorities allege that the assessee is carrying on three types of transactions and in order to avoid tax on the huge income earned by the assessee in the insurance division and elevator division, the assessee had indulged in the trading of Rice transactions in order to book the fictitious losses to avoid the tax. When we look at the above proposition, what benefit the assessee might have gained by this way. As assessee has given all the relevant details of all the parties along with the confirmations still the Revenue doubts the identity and genuineness then it is they who has to prove that the assessee has indulged in the activities to avoid tax. In the given case, the Revenue has not brought any material in support of their belief and applied assumptions merely on verification of address aspect of identification. In the given case, AO has not carried out any useful investigation but merely followed the previous pattern of investigation and completed the assessment on preconceived notion that the parties are bogus without really verifying the real aspect - the assessee has clearly given the details of suppliers and parties with whom the assessee has made purchases and sales to Revenue authorities, not only the address but also the PAN details, sales tax details, bank details, etc., AO cannot verify one aspect of identifying the parties and neglecting the other important aspect of identification and comes to conclusion which itself is not proper. Therefore as held in the case of Dwakadhish Investment (P) Ltd. 2010 (8) TMI 23 - DELHI HIGH COURT that any matter the onus of proof is not a static one, though the initial burden of proof lies on the assessee, yet once they proves the identity of the parties by furnishing the PAN details or income tax assessment numbers and the genuineness of the transactions in their books and making payments by account payee cheques or drafts then the onus of proof would shift to the Revenue. Just because the creditors could not be found at the address given, it would not give the Revenue the right to invoke the provisions of section 68 of the Act. One must not loose the sight of the fact that it is the Revenue which has all the powers and wherewithal to trace any person. Assessee has given all the relevant details of all the parties along with the confirmations still the Revenue doubts the identity and genuineness then it is they who has to prove that the assessee has indulged in the activities to avoid tax. In the given case, the Revenue has not brought any material in support of their belief and applied assumptions merely on verification of address aspect of identification. - Decided in favour of assessee.

Issues Involved:
1. Whether the loss booked by the appellant is genuine and eligible to be set off against income from other heads.
2. Whether the burden to produce the parties before the Assessing Officer was correctly placed upon the appellant.
3. Whether the appellant discharged the primary onus to prove the identity of the parties.
4. Whether the appellant shelved out 40% more on the purchase of rice to escape the burden of tax.
5. Whether the authenticity of the certificate from All India Rice Exporters Association is in question.
6. Whether the impugned order is contrary to law, evidence, and facts of the case.

Detailed Analysis:

1. Genuineness of Loss Booked by the Appellant:
The Assessing Officer (AO) disallowed the loss of ?380,77,164 claimed by the assessee on commodity trading, asserting that the transactions were preplanned to avoid taxes. The AO observed discrepancies such as purchases at higher rates and sales at lower rates, lack of documentary proof for delivery, and non-traceable parties. The CIT(A) upheld the AO's findings, concluding that the trading activity was sham and the loss claimed was fictitious. The Tribunal, however, noted that the AO's findings were based on suspicion and lacked consideration of vital evidences like bank transactions, PAN, and TIN numbers of the parties. The Tribunal concluded that the AO did not conduct a meaningful investigation and allowed the appeal, deleting the addition made by the AO.

2. Burden to Produce Parties Before Assessing Officer:
The AO placed the burden on the assessee to produce the parties for verification. The Tribunal found this approach incorrect, noting that the AO has powers under section 131 of the Act to enforce attendance. The Tribunal emphasized that the AO should have utilized these powers instead of drawing adverse inferences against the assessee for non-production of parties.

3. Primary Onus to Prove Identity of Parties:
The CIT(A) and AO held that the assessee did not discharge the primary onus to prove the identity of the parties. The Tribunal disagreed, stating that the assessee provided sufficient details such as PAN, TIN, and bank transactions. The Tribunal highlighted that once the assessee has provided these details, the onus shifts to the Revenue to disprove the genuineness of the transactions.

4. Shelving Out 40% More on Purchase of Rice:
The CIT(A) observed that the purchase prices were significantly higher than the sale prices, suggesting manipulation to book fictitious losses. The Tribunal, however, found that the AO did not provide substantial evidence to support this claim. The Tribunal noted that the transactions were conducted through banking channels and that the Revenue did not establish any link between the parties and the assessee that would suggest collusion.

5. Authenticity of Certificate from All India Rice Exporters Association:
The CIT(A) questioned the authenticity of the certificate from the All India Rice Exporters Association. The Tribunal did not specifically address this issue, focusing instead on the overall lack of substantial evidence from the Revenue to disprove the genuineness of the transactions.

6. Impugned Order Contrary to Law, Evidence, and Facts:
The Tribunal found that the AO and CIT(A) did not properly consider the evidence provided by the assessee, such as bank transactions, PAN, and TIN numbers. The Tribunal concluded that the Revenue's investigation was inadequate and based on preconceived notions rather than substantial evidence. Consequently, the Tribunal allowed the appeal and deleted the additions made by the AO.

Conclusion:
The Tribunal allowed the appeals for both assessment years 2009-10 and 2010-11, concluding that the Revenue did not provide substantial evidence to disprove the genuineness of the transactions. The Tribunal emphasized the importance of a thorough and meaningful investigation by the Revenue authorities and the need to consider all relevant evidences provided by the assessee.

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