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TMI Blog2021 (8) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee on the following grounds of appeal: 1) That on the facts and in the circumstances of the case of the appellant and in law ld. CIT(A) has erred in holding that the loss booked by the appellant is not genuine and is not eligible to be set off against the income from other heads. 2) That, without prejudice to the generality of ground of appeal no.1 above, on the facts and in the circumstances of the case of the appellant and in law ld. CIT(A) has erred in placing upon the appellant the burden to produce the parties before Assessing Officer. 3) That, without prejudice to the generality of ground of appeal no.1 above, on the facts and in the circumstances of the case of the appellant and in law Id. CIT(A) has erred in holding that the Appellant did not discharge the primary onus to prove the identity of the parties. 4) That, without prejudice to the generality of ground of appeal no.1 above, on the facts and in the circumstances of the case of the appellant and in law ld. CIT(A) has erred in holding that the appellant shelved out 40% more on the purchase of rice to escape the burden of tax. 5) That, without prejudice to the gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not there in the preceding year and it was preplanned to avoid taxes. He observed that the prices charged by the assessee to its customers are much less than the purchase price and without there being any mention of quality but the bills of sales and purchases which contain the quantity rate and weight et cetera. He also observed that all the purchases and sales are routed through a small group of persons having business situated in Naya Bazaar, New Delhi. All the purchases and sales are recorded in the books without documentary proof of its delivery, transportation et cetera. He observed that all the purchases are at higher rates and sales at lower rates which is against the normal commercial transactions. In order to verify the genuineness of the transaction, the Assessing Officer issued notices to all the parties and it is returned un served. Further, the Assessing Officer referred the matter to ADIT (Inv.), New Delhi, based on their report that only five parties responded to the enquiries and balance were not traceable. Accordingly, he came to the conclusion that the transactions were not genuine and in order to show the loss from Rice trading activity, it is fabricated lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not justified that the reason of the Assessing Officer was not justified in its finding in relation to 5 parties on whom the notices were served on both occasions. The stand of the assessee has been that in spite of written requests during the course of assessment proceedings, the Assessing Officer did not furnish the assessee any so called material of non-service of 6 parties. As regards non-production of the parties by the assessee before the Assessing Officer, no adverse inference could be drawn that the parties do not exist because (i) the Assessing Officer exceeded his powers in calling upon the assessee to do so in violation of provisions of section 131 of the Act and (ii) the Assessing Officer must have appreciated that those Delhi parties would not attend at Solapur merely at the request of the assessee because they were under no obligation to do so. The CIT(A) at page 24 of its order had appreciated that there was no adverse inference against the assessee for non-service of notice on 6 parties. The stand of the assessee has been that the observation of lower authorities was not justified with regard to non-existence of parties because (i) transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch there cannot be inferred pre-agreed rates. How could any agreement be produced when the agreements were oral, in accordance with market practice? d) A letter from Sushilkumar Sons, Delhi and from Manishkumar Sushilkumar Sons, Delhi were posted from Solapur. These statements need factual verification in light of merit of case. e) Confirmation letter of Arihant Sales Corporation, Naya Bazar, New Delhi stated that the Appellant purchased rice from him whereas as per the Appellant rice was sold to and not purchased from Arihant Sales Corporation. Without seeking any clarification from Arihant Sales Corporation the Assessing Officer cannot draw adverse inference against the Appellant from what seems to be merely an inadvertent error. f) On perusal of confirmation letters of Arihant Sales Corporation, Premchand Deepakkumar and Sainath Agro India it appeared that these confirmations were commonly drafted and printed. These observations of Id. Assessing Officer and CIT(A) are on their own without seeking any explanation from the parties concerned and ignoring that these were direct correspondence between Assessing Officer and parties without appellant being told ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance and later on the goods thus purchased were sold at loss. 5.3 From the above, it may be inferred that even the authorities below have not been confronted, the material relied by them for rejecting the claim of the assessee which is not justified. It amounts in violation of principles of natural justice. We find that the Assessing Officer has power u/s.131 of the Act for enforcing the attendance of the person who could not be produced before the Assessing Officer on behalf of assessee. In such a situation, no adverse inference should be drawn if the assessee does not produce any party for examination. The Assessing Officer has mainly based his finding on assertion that the notices were issued by him in respect of 6 out of 11 parties were return undelivered by postal authorities. Similarly, notices could not be served on 6 parties by the concerned ITO, New Delhi as well. As stated above, the stand of the assessee has been that in spite of written requests during the assessment proceedings, the Assessing Officer did not furnish the assessee any material of non-service of 6 parties. In such situation, no adverse inference could be drawn that parties in question do not exists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale parties situated at the above said addresses provided by the assessee. In response, the ADIT (Inv.), New Delhi, submitted the verification report along with inspectors report. As per the above report, the inspectors were able to trace three parties and eight parties were not traceable. Based on the above enquiry report, the Assessing Officer issued show cause letter to the assessee on 23.03.2016 along with the above report, asking the assessee to explain as to why the transactions of purchase and sales should not be treated as bogus and in response the assessee submitted that the relevant point of time all the parties were carrying on the business at the address given. There may be some changes and variations due to lapse of eight years. Further, it is submitted that on enquiries made with the parties, it was learnt from the parties that many of them were served summons beyond the stipulated time to act wherein the compliance time was already over. Further, it was stated that many of the parties have already written to the Assessing Officer in response to the enquiries directly made by the Assessing Officer. 6. The Assessing Officer rejected the submissions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of a commodity are ultimatelyl settled otherwise than by the 'actual delivery. As discussed hereinabove, the appellant failed to prove with any evidence that there was physical movement or transfer or delivery of commodity from' supplier to the appellant or from the appellant to the buyer or from the supplier directly to the buyer. For taking out the transaction from the ambit of speculative transaction, actual delivery of goods was essential. As held by the ITAT,. Delhi, constructive or symbolic delivery of goods even if it were established was of no consequence (47 ITD 476). In these circumstances, the loss claimed constitutes speculation loss as per the definition of speculative transaction provided under sec 43(5)of the Income-tax Act and the case of the appellant is not covered by any of the exceptions in the proviso to the section. This speculation loss, even presuming to be genuine for a while, cannot be set off against the other profits of the appellant as laid down under sec 73 of the Income-tax Act. iii) On the basis of details available on record, a test check was made in respect of the purchase bill of M/s Manishkumar Sumitkumar and it is seen that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by the assessee, where the parties were actually not available, have been served and promptly complied with. vi) Even after confronting with the factual position by providing the copy of Investigation Report, the assessee still maintains that the transactions were actually made by it with said parties It is not known how the assessee could conduct business with the parties, which didn't exist at the addresses provided by it. vii) Further, it is pertinent to mention that the replies have been sent through speed post booked at Counter No.2 of Chandni Chowk Post Office on 01.03.2016 at 2:40 p.m and in the case of Baj rant Traders, Sainath Agro and Sumeet Kumar Naveen Kumar, the replies were sent by speed post booked from Delhi GPO at 6.24 p.m. As at the first instance the existence of the parties is in quandary, the circumstances that the notices issued at the addresses where the parties were found to be not existing and subsequent prompt compliance to said notices clubbed with the fact that the replies to the notices were booked at the same counter of a post office at the same time, further strengthens the premises that the assessee, in order to maintain its st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. In the light of the above, it is clear that the assessee again failed to utilize the opportunity granted to it to prove that the transactions were actually made by it by producing proper evidences. The assessee has even not expressed its intention of discharging its onus, but has simply stated that all the evidences have already been filed, without appreciating the facts of the case. The assessee, in the present proceedings has also failed to justify as to why the sales were effected at a lower rate than the purchase rate. The assessee has not furnished any agreements entered by it with the above parties for the purchase and sale of rice. Considering all the above, it is held that the transactions of purchase sale of rice are sham transactions and the loss booked is bogus and the same cannot be allowed to be set off against the profits/income from other heads. Accordingly, I hereby disallow entire loss shown by the assessee of ₹ 3,80,77, 164 as bogus and the same is hereby added to the total income of the assessee company. Penalty proceedings u/s.271(1)(c) of the Income- tax Act, 1961 is separately initiated for furnishing inaccurate particulars of income and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sumit Kumar Naveen Kumar 7030 20.02.2010 13. Sumit Kumar Naveen Kumar 7025 23.02.2010 14. Arihant Sales Corporation 6500 02.10.2009 15. Arihant Sales Corporation 6500 02.10.2009 Sale Transaction Sr. no. Name of Trader Rate at which rice Purchased (₹/Metric Tonne) Date of Purchase 1. Neki Ram Overseas 5958 27.02.2010 2. Divyam International 4580 28.12.2009 3. Divyam International 5958 22.02.2010 4. Shri Adeshwar Traders 4680 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Metric Tonne (PMT) whereas the sale price was around ₹ 5900/ PMT whereas purchase price is around ₹ 7500 PMT in December 2009 and sale price is around ₹ 4500 PMT. It is evident that the appellant has kept the purchase price at around 40% higher of the sale price. 3.1.17 Further, it is seen that the sale price taken by the appellant is as per the market price prevalent in market. Therefore, the factual analysis above leaves a very high scope of suspicion and manipulation in the purchase as well as sale prices. 3.1.18 The rice has been purchased and sold by the appellant from the same market i.e., Delhi. Moreover, it is seen that the appellant may have made some of purchase and sale on the same day and if it was knowing the market price rates, then, why did it keep on purchasing the rice at higher rates and selling the same at lower rate! There is something (in fact, a lot) more than what meets the eyes. For example, at sr. no.7 of purchase transaction above, the appellant has purchased the rice at 7200 PMT on 16.12.2009 7 Shri Bhagwati Traders 7200 16.12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties from New Delhi, involved in the transactions with the assessee. All the parties confirmed to the Assessing Officer that they made transactions with the assessee. After their confirmation, the Assessing Officer wanted to further verify the genuineness of the transaction and hence issued a communication only on 09.03.2016 to the ADIT (Inv.), New Delhi. He highlighted the important date of events for completion of the assessment under section 143(3) r/w section 254 of the Act. For the sake brevity, the relevant chart is reproduced below: Date Event 05.05.2014 ITAT order 2nd innings 14.01.2015 Issue of notice under section 143(2) 25.01.2016 Transfer of charge to A.O. at Mumbai 25.01.2016 Issue of notice under section 142(1) asking for addresses of purchase and sale parties 10.02.2016 Reply of assessee 11.02.2016 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessee and that the conclusion in the above case is important. He submitted that in the given case, the Assessing Officer and ADIT (Inv.) did empty formalities merely to complete the assessment. Further he relied on the following cases: i) CIT V/s U K Shah (1973) 90 ITR 396. (Bom. HC) iii) CIT v/s Dwarkadhish Investment Pvt. Ltd. [2010] 330 ITR 298 (Del.) 11. With regard to lapse of time, he submitted that the Assessing Officer has verified the transaction only after lapse of eight years of the transaction and in that process he relied on S. Hastimal v/s CIT, [1963] 49 ITR 273 (Mad.), H.R. Mehta v/s ACIT, [2016] 387 ITR 561 (Bom). 12. On the other hand, the learned D.R. heavily relied on the order of learned CIT(A) and submitted that the learned CIT(A) has discussed the facts and conclusion in detail. He submitted that the parties were never presented before the Assessing Officer and they are not traceable, therefore, the transactions are sham. With regard to submission on lapse of time, he submitted that the Assessing Officer has to go by the rules and provisions of the Act. Without prejudice to the above submission, he submitted that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances 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. 15. 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. The assessee has led go of the profit to the extent of ₹ 380,77,164/ , which literally goes out of the business. Will any prudent businessman will indulge in such transactions without their being any benefit. We presume that maximum what they wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue has not brought any material in support of their belief and applied assumptions merely on verification of address aspect of identification. Therefore, we are inclined to allow the grounds raised by the assessee and delete the addition made by the Assessing Officer. 16. In the result, assessee s appeal is allowed. ITA no.7969/Mum./2019 Assessment Year : 2010 11 17. The assessee has filed the present appeal on the following grounds of appeal: 1) That on the facts and in the circumstances of the case of the appellant and in law Id. CIT(A) has erred in holding that the loss booked by the appellant is not genuine and is not eligible to be set off against the income from other heads. 2) That, without prejudice to the generality of ground of appeal no. 1 above, on the facts and in the circumstances of the case of the appellant and in law Id. CIT(A) has erred in placing upon the appellant the burden to produce the parties before Assessing Officer. 3) That, without prejudice to the generality of ground of appeal no. 1 above, on the facts and in the circumstances of the case of the appellant and in law Id. CIT(A) has erred in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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