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TMI Blog2014 (2) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 3. That the Ld.CIT(A) was not justified in failing to appreciate the facts and evidences brought on record by the AO that loss of Rs. 1.78 crore was a make- believe and stage-managed arrangement through a colourable device, premeditatedly designed by the assessee with a dubious motive of arranging a fake or unreal loss so that the assessee gets away with non-payment of taxes which are legally due on its profit earned. 4. That the Ld.CIT(A) was not correct in holding that disallowance of Rs.18,93,568/- on account of excess interest paid is not based on any tangible evidence, despite the fact that provision of section 40A(2)(b) of the Act is clearly applicable in this case. 3. Rival contentions have been heard and perused the record. Facts in brief are that the assessee is engaged in the business of trading in art works like paintings, archives, sculptors etc. During the year under consideration the assessee had claimed loss of Rs.1,78,00,000/- on account of art works sold through auction to M/s. Emami Frank Ross Ltd. [M/s. FRL] In the course of scrutiny assessment, the AO observed that M/s. Emami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal. AO has not at all addressed to various vital facts and contentions made by appellant before him. I also find that the AO has acted upon some apprehensions and not on facts. From various statements made in the assessment order it is seen that it is not based on actual facts of the case but is based on several inferences which can possibly be drawn. It is noticed that the AO has ignored various business aspects of appellant that this was first year of business, the business was new for appellant, the business of paintings and other art fact etc. is a high risk business, this is reason that banks and NBFC are not allowed to finance against stock of paintings etc., the appellant has accumulated large stock-in-trade and in view of high borrowings, appreciation in some of stocks and also falling value of some other stocks it decided to sell some of stock-in-trade to realize profit and to cut further losses in case of paintings which were falling in demand and value etc. All sales were through public auction which was well advertised and well attended and the auction was open to world at large as it was open for online ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of these facts, in my opinion any doubt cannot be raised that appellant kept the reserved price intentionally low to book loss as alleged by the AO. The inference drawn by the AO is contrary to facts and circumstances of the case. I find that the AO himself has noted at page 2 of assessment order that there is substantial profit earned in other paintings sold to the same purchase party FRL and the AO has assessed the profit of Rs.2.21 Cr earned in sale to the very same party. The A/R has rightly pointed out that had there been intention not to pay tax, appellant could have deferred the sale on paintings in which profit of Rs.2 .21 crore was earned by selling to same party (FRL). The appellant could have cancelled those sales also if it was possible, as apprehended by the AO. The main ground and reason of learned AO in action of disallowing loss of Rs. 1.78 crore is that in his view the appellant adopted a device to avoid tax and therefore he applied Mcdowells case reported at 154 ITR 148(SC) and disallowed the loss of Rs.1.78 crore. It is also seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptable as the transactions are genuine. The A/R has filed copy of judgments in cases (a) Eveready Industries India Ltd. Versus CIT [2011] 334 ITR 413 (Cal.) and (b) CIT V. M/s Pivet Finance Ltd. 2010 -TMI - 77068-(P&H) in which it has been held that loss suffered in genuine transactions cannot be disallowed even if it results in reduction of tax liability. In view of the above and keeping in view the totality of facts and circumstances the loss of Rs.1,78,00,000/- is held to be allowable and the addition made by the AO is deleted. 5. The ld.CIT(A) has also deleted the disallowance of interest of Rs.18,93,568/- by invoking the provisions of section 40A(2) of the I.T Act 1961 after having following observations:- "AO has applied S. 40A(2)(b) and disallowed interest paid in excess of rate above 12% p.a. AO has stated that market rate of interest was 9-12% but he has not given any basis for the same. AO has not brought any material to show that the appellant could have obtained loans at interest rate of 12% p.a. in the given circumstances. On the other hand A/R submitted that any party is not a person specified in S. 40A (2) (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al @12%. Therefore, disallowance of Rs.18,93,568/- is not based on any tangible evidence and is directed to be deleted. " 6 Against the above order of the ld.CIT(A), the revenue is in further appeal before us 7. We have considered the rival contentions, gone through the orders of the authorities below and found from the record that assessee was engaged in the business of sale of art works/paintings. During the course of scrutiny assessment, the AO found that in respect of some transactions the assessee has booked a loss of Rs.1,78,00,000/- on account of art works sold to M/s. Emami Frant Ross P. Ltd through auction sale on 23-02-2010. The AO further observed that the assessee has filed details of transaction with M/s. Emami Frant Ross Ltd. By observing that some of the shareholders of M/s. Emami Frant Ross Ltd are common to the shareholders of the assessee company, the AO disbelieved the loss incurred in respect of sale of some of the paintings to M/s. Emami Frant Ross Ltd. The ld. CIT(A) has deleted the same after observing that the assessee has earned profit in respect of paintings sold to very same purchasers amounting to Rs.2.21 crores. Thus, there was no justification for di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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