9911796707
TMI Blog2010 (3) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... had claimed loss of ₹ 43,45,978/- on goods purchased for ₹ 2,02,00,392/-. The Assessing Officer called upon the assessee to explain the reasons for the loss. The assessee replied in writing stating that the loss occurred due to fall in prices of raw wool. It was stated that it purchased 62,299 kgs of raw wool at a cost of ₹ 1,30,59,285/- and the same was sold for ₹ 86,19,125/-, resulting in loss of ₹ 44.40 lakhs. In support of the reply, the assessee filed photostat copies of some invoices and stated that the Assessing Officer may observe therefrom that the raw wool was purchased at the rate of ₹ 203/- to ₹ 251/- per kg and was sold at the rate of ₹ 127/- to ₹ 143/- per kg. On receipt of the reply, the Assessing Officer called upon the assessee to file copies of purchase bills for purchases made from parties other than its sister concern. They were filed and on perusal, the Assessing Officer observed that purchases from Suvidha Woollen Mills were made at ₹ 210/- per kg on 15.3.1996 and at the same time the assessee has sold the raw wool at prices of ₹ 127/- per kg, ₹ 137/- per kg and ₹ 165/- per kg on or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96. It was further stated by Suvidha Woollen Mills that the delivery of the second lot of 1,631 kgs was delayed but was taken in March, 1996 due to bad market. In other words, Suvidha Woollen Mills confirmed the assessee s version in its fax message. 3. The Assessing Officer, on a perusal of the replies filed by the assessee, gained the impression that it was the assessee s case that during the later part of the financial year 1995-96, the market for raw wool went down to such an extent that the assessee had to sell the stock for cash at throwaway prices. He perused the details of the sales filed by the assessee and found that cash sales for an amount less than ₹ 10,000/- came to ₹ 1,10,82,239/- out of the total sales of ₹ 1,58,56,649/-. Since none of the addresses of the purchasers was available, the Assessing Officer observed that the sales at the rate at which they were shown in the assessee s books of account were not subject to verification. He therefore stated that the only recourse open to him was to get the state of market for raw wool in Ludhiana for the year ended 31.3.1996 (year under appeal) confirmed by the parties who themselves sold raw wool to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll whether the rate variation is on account of difference in quality or on account of fluctuation in rates . The answer to the question was I practically know how much stock is there in the books but we don t record the type and made of stock in the stock register. The fluctuation of rates is very less (maximum 2 to 4%) . Mr. Mukesh Jain, according to the Assessing Officer, had further stated in reply to the next question that there was no fluctuation at all during the financial year 1995-96. 6. The Assessing Officer then referred to the statement of Shri Inderjeet Singh Bhatia, Chartered Accountant, Manager(Finance) in M/s.Amarsons Woollen Mills recorded by the ACIT., Ludhiana on 15.3.1999 in which he allegedly stated that the quality of material sold to the assessee did not fluctuate very much during the period. 7. The Assessing Officer also referred to the statement of Mr. Mahindra Singh, Chartered Accountant, Manager (Finance) of Suvidha Woollen Mills recorded on 15.3.1999 wherein he has also clearly stated that the commodities sold to the assessee did not fluctuate very much during the period from 1.12.1995 to 31.3.1996. 8. In addition to referring to the statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account which were certified by the Chartered Accountant and since all the transactions recorded therein are true, they cannot be rejected. It was also pointed out that in case any order is passed without giving cross examination it would be illegal, being in violation of the rules of natural justice. 10. The Assessing Officer examined the aforesaid reply of the assessee and dealt with the same in pages 6 to 8 of the assessment order. He first extracted the details of purchases, sales, gross profit and the interest income of the assessee for the assessment years 1996-97 (under appeal) and for the subsequent two years . These details are given in page 6 of the assessment order and they are not reproduced here for the sake of brevity. From the details set out by the Assessing Officer in the form of a chart, he drew the inference that the assessee continued to declare loss in all the three years from the business, showing huge interest income in the assessment years 1997-98 and 1998-99 which was nothing but a bold attempt to create loss from business in every year so that the same could be adjusted against the income from interest leading to Nil taxable income despite income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any material. In the certificate filed along with the letter, according to the Assessing Officer, Suvidha Woollen Mills did not make any crucial comment about the state of the market. As regards the statements recorded by the ACIT., Ludhiana, the Assessing Officer observed that they only show that there was no depression in the market so as to warrant any distress sale by the assessee. He took the view that the assessee s request for cross examination of those persons cannot be entertained as the claim of bad market made on the basis of certificate of Suvidha Woollen Mills has proved to be baseless in view of the original certificate filed along with the letter dated 26.3.1999 . According to the Assessing Officer these statements were only in the nature of confirmation of a fact established on the basis of verification of the claim made by the assessee. It was also the opinion of the Assessing Officer that the assessee s claim that there was only an oral agreement with Suvidha Woollen Mills to supply the goods at an agreed price on a particular future date did not stand the test of common sense as the quantities involved are very specific and odd quantities such as 12,624 kgs an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport dated 23.3.2006 in which it was stated that the cross examination was fixed on 23.2.2006 on which date one Sanjeev Goyal appeared on behalf of the assessee to cross examine the three parties. It was further stated in the enquiry report that a letter was received from M/s.A.T.Overseas Ltd. stating that the concerned person is unable to attend personally due to ill health. In the case of M/s.Amarsons Woollen Mills, the DDIT wrote that it has come to his notice that one Mrs. Reema Jain of this firm had been murdered and one Anil Jain of Suvidha Woollen Mills was facing trial in court and therefore nobody appeared on behalf of either Amarson Woollen Mills of Suvidha Woollen Mills for cross examination. The report went on to say that it is unlikely that any of the above parties would attend the proceedings due to circumstances mentioned above. Hence, it is requested that the enquiries from this office may kindly be allowed to be filed . It would thus appear that the three persons who gave statements before the ACIT., Ludhiana could not be cross examined and there was also no prospect of the cross examination taking place ever. These facts were noted by the CIT(A) in the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee s representative had stated before the CIT(A) on 21.3.2007, in response to a specific query by the CIT(A) that the assessee was not interested in any further cross examination (para 51 of the CIT(A) s order). In paragraphs 52 to 57 the CIT(A) has discussed the question of giving cross examination and has opined that it was not necessary to give the right of cross examination to the assessee where the evidence used was collateral in nature. (g) There is no substance or credibility in the grievance of the assessee that the proceedings were deliberately delayed for the past eight years (paragraph 58 to 66 of the impugned order). (h) The Assessing Officer has not specifically stated that he is rejecting the assessee s books of accounts but has impliedly done so and has come to the conclusion that the loss of ₹ 43,45,978/- cannot be allowed. The books of account of the assessee do not give a correct picture of the assessable income.(paragraph 69 70 of the impugned order). For the above reasons and findings the CIT(A) upheld the disallowance of loss and dismissed the appeal filed by the assessee. 14. The assessee is in further appeal before the Tribunal. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imaginary and not real and in any case they did not affect the merits of the assessee s claim, that there was no material to contradict the assessee s claim that it purchased raw wool at the rates shown in the books of account and sold them in smaller lots for a much lesser price thereby suffering a loss, that it was not necessary for the assessee to incur any expenditure on making smaller lots of raw wool for retail sales since it was the purchasers of the raw wool from the assessee who incurred such expenditure and that in these circumstances the disallowance of the loss was illegal and totally uncalled for. It was further contended that the inferences drawn by the Assessing Officer from the details, accounts and replies furnished by the assessee were imaginary and untenable and not real. As regards the allegation that the assessee deliberately cooked up the loss to adjust the same against the huge interest income and thus reduced its tax liability, it is contended that there is no basis for such a charge because the loss was proved to be real and genuine and the adjustment of the same against the interest income was permitted by the statute and therefore there is nothing wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of salary or labour or wages for splitting the raw wool into small lots of 60 to 70 kg. each which would have been normally incurred if the claim was real; (d) the loss was sought to be adjusted against the substantial interest income earned in the subsequent two years thereby reducing the tax liability. Heavy reliance was placed by the department on the findings of the income tax authorities and it was pleaded that the disallowance of the loss should be upheld. 16. We have carefully considered the facts and the rival submissions. Taking up the first grievance of the assessee namely that there was violation of the rules of natural justice and fair play inasmuch as the assessee was not afforded adequate, real and timely opportunity of cross examining the witnesses, we are inclined to uphold the same. The entire correspondence between the assessee and the income tax authorities filed before us as also the other documents and papers filed unmistakably show that there was no serious attempt to bring the witnesses before the assessee so that they could be cross examined by it. Ultimately after a delay of almost eight years it transpired that the witnesses could not be present bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be taken into account. The other material would also include the conduct of the assessee, his ability or inability to discharge the onus placed on him, the surrounding circumstances and the probabilities of the case and so on and so forth. In the present case the assessee has claimed the loss and it is therefore for it to substantiate the loss. It has no doubt maintained books of account but even so it is open to the income tax authorities to examine the entries therein or the claim made in the return of income and call upon the assessee to substantiate them. It was therefore quite in order for the Assessing Officer in the present case to have called upon the assessee to substantiate the claim of the loss. After examining the details furnished by the assessee, the Assessing Officer found the claim to be unacceptable for several reasons which we have already adverted to in the opening paragraphs of this order. The assessee had claimed that it purchased raw wool on 15.3.1996 for ₹ 210/- per kg. from Suvidha Woollen Mills. The purchase bills did support the claim. However, the cash sales effected by the assessee disclose that on the very same day, the assessee had sold raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrary to the facts. We are unable to appreciate as to how the assessee went on purchasing raw wool at rates varying between ₹ 203/- and ₹ 251/- per kg, but could sell the same only for ₹ 127/- to ₹ 143/- per kg. It was for the assessee, without being prompted by the Assessing Officer, to adduce evidence with regard to each and every transaction of purchase and sale and their genuineness in order to substantiate the claim of loss. This has not been done by the assessee. The other unusual features in this case is that out of the total sales of ₹ 1,58,56,649/-, cash sales for less than ₹ 10,000/- account for ₹ 1,10,82,239/- and these are not subject to verification. The assessee s claim in its letter dated 24/26.03.1999 that cash sales are normally effected at concessional prices is not believable because the concession given by the assessee is so huge that it defies any logic or reason. 18. In CIT (West Bengal II) Vs. Durga Prasad More (1971) 82 ITR 540, it was held by the Supreme Court that though the apparent state of affairs must be considered real until it was shown that there were reasons to believe that the apparent was not the real ..... X X X X Extracts X X X X X X X X Extracts X X X X
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