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TMI Blog2016 (7) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... any (NBFC) registered with Reserve Bank of India (RBI). The assessee explained before the ld AO that it deals in shares and securities, cotton knitted fabrics and tyres and tubes. The assessee engaged in the trading of cotton knitted fabrics and incurred trading loss of Rs. 12,46,51,755/- which was disallowed by the ld AO on the pretext that the same has been self created by the assessee by indulging with transactions with controlled entities who are its related concerns having common directorship or other interests. The ld AO in the course of assessment proceedings observed that assessee had purchased as well as sold the fabric to M/s Visage Equipments Pvt. Ltd and M/s Coral Environment Pvt. Ltd. The assessee purchased 729062 Kgs of cotton knitted fabric from Coral Environment Pvt. Ltd for Rs. 27,67,94,909/- and the same was sold to M/s Visage Equipments Pvt. Ltd for Rs. 23,72,31,890/-. Again 2565837 Kgs of cotton knitted fabric was purchased from M/s Visage Equipments Pvt. ltd for Rs. 90,29,75,269/- and sold to M/s Coral Environment Pvt. Ltd for Rs. 81,78,86,533/-. In this manner, the assessee incurred loss of Rs. 12,46,51,755/- in cotton knitted fabric trading. 3.1. The ld AO m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, he found that the copy of invoice cum challan does not speak so. Based on this, the ld AO observed that it is apparent that there is no actual movement of goods but only papers in the form of purchase and sale invoices were manufactured. 3.4. The ld CITA after going through the submissions of the assessee and the findings given by the ld AO in his order, upheld the order of the ld AO. Aggrieved, the assessee is in appeal before us on the following grounds:- "1. That on the facts and in the circumstances of the case, the action of the Ld. CIT(A) to confirm the addition made by the Assessing Officer of the loss on account of trading in cotton knitted fabrics of Rs. 124651755/- is contrary to the material evidences on record and the addition made is unjustifiable and unlawful. 2. That on the facts and in the circumstances of the case, the action of the Ld. CIT(A) to confirm the addition made by the Assessing Officer of Rs. 124651755/- on account of business loss is without considering the submissions made and the material evidences on record and the addition made is bad in law. 3. That on the facts and in the circumstances of the case, the action of the Ld. CIT(A) to confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale of goods. It was also contended that the transportation is loaded in the purchase and sale bills. We find that no supporting bills were produced to support this argument. The assessee had only tried to create documents in the form of purchase and sale invoices. We don't find force in the argument of the ld AR that the tax deductions to the tune of Rs. 7.02 lacs and Rs. 6.22 lacs in the financial years ended 31.3.2008 and 31.3.2009 would have easily taken care of profits to the tune of about Rs. 20 lacs and there was no necessity to book a bogus loss equal to interest income. It was contended that the trader does business with a view to earn profit and sometimes there is profit and sometimes there is loss. Accordingly it was contended that it would be absurd and ridiculous to say that the loss is equal to the sum of interest received. We find that the assessee had consistently incurred losses in the immediately preceding two years in the trading of cotton knitted fabrics. The assessee should have stopped this business activity the moment it started incurring huge losses in the first year. The ld AR was not able to adduce proper reasoning for continuation of the same busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other without actual movement of goods thereon. It would be pertinent to note that the loss is self created and it had not occurred naturally to the assessee. All the transactions of purchase of goods being made at higher price is made from the group company having common shareholder / directorship and sold to a group company having common shareholder / directorship at a lesser price thereby incurring loss. All the entities involved in the purchase and sale of goods are group companies having common shareholders and common directorship and this fact is not disputed by the assessee. The ld AO had observed that goods sold to assessee by Coral Environments were purchased from Godawari Electro Contractors Pvt. Ltd and goods purchased from assessee were sold to Godawari Electro Contractors Pvt. Ltd. Similarly goods sold to assessee by Visage Equipments were purchased from Vaishali Holding Projects Ltd and goods purchased from assessee were sold to Vaishali Holding Projects Ltd. All these transactions with these entities by the assessee had resulted only in a loss. Though it is well settled that the businessman knows his interest best, in the present circumstances, the interest of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interests of the revenue. Instead, the ld CIT only had stated that the assessee very likely had tried to reduce its income by booking fictitious loss and that non-verification appeared to be highly suspicious. This tribunal held that the revisionary powers u/s 263 of the Act cannot be invoked on mere presumptions and surmises nor on suspicion. Based on these findings, the tribunal quashed the section 263 order of the ld CIT for the Asst Year 2007-08. We find that the ld AR placed heavy reliance on the said order of this tribunal in assessee's own case. But from the above , it could be seen that this tribunal had not quashed the revisionary jurisdiction u/s 263 of the Act by adjudicating the transactions of loss incurred on trading in cotton knitted fabrics on merits of the case as was done by the ld AO in the asst year under appeal before us. We find that this tribunal had quashed the revisionary proceedings on technical grounds that the same cannot be invoked merely on presumptions and suspicion. Hence we hold that the tribunal order for Asst year 2007-08 does not support the case of the assessee on merits of the issue for the Asst Year 2009-10. 3.9. The ld AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Indra Jalan vs ITO supra by arguing that, firstly the business was carried on in that case only for few days and totally consisted of only purchases and sales on six occasions. In the instant case before us, the transactions were carried out throughout the year. Secondly, there was a clear cut finding in that case that the purchase transactions were made by Smt. Indra Jalan with non entities, whereas in the instant case before us, the ld AO had even made enquiries with the parties with whom assessee had transacted. Thirdly, the ld AO in that case had established that the payments made by the assessee to Ashok Sarogi & Sons , one of the parties from whom the assessee stated to have purchased materials and the said firm transferred to the account of Kapoorchand Puglia and the entire amount was withdrawn in cash from the account. No such evidence in the instant case have been brought on record by the ld AO. Fourthly, there was a common introducer for all the parties for opening the bank account with Federal Bank, Bhawanipur Branch, who was the real operator and under whose instructions, cheques were issued and deposited in the bank account to give the color of genuinity in the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no space available for storing goods as claimed by the assessee. The ld AO and ld CITA had given a categorical finding that the goods were originated from Godawari Electro Contractors Pvt. Ltd and again returned back to it after changing hands amongst Coral Environment Pvt. Ltd, India Finance Ltd , Visage Equipments Pvt. Ltd and Vaishali Housing Pvt. Ltd. The directors and shareholders of various companies were connected with each other in one or other manner as per the information gathered from the ROC website which is also reproduced in para 13 of the assessment order. From the same, it could be safely concluded that that all the entities including the assessee belonged to one group. We also find that the inter connection between all the parties were also not disputed by the assessee. 3.11. We hold that in the facts and circumstances of the case, the trading loss claimed by the assessee is not a genuine trading loss and the entire transactions have been carried out in a circuitous route among the group concerns by doing paper work in the form of purchase and sales invoices only to give the colour of genuinity. We hold that the assessee had adopted merely a colourable device ..... X X X X Extracts X X X X X X X X Extracts X X X X
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