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2019 (2) TMI 1791 - AT - Income TaxDirections u/s. 144A - non affording any opportunity to the assessee - HELD THAT:- The law in the matter is well-settled. In Guduthur Bros. [1960 (7) TMI 5 - SUPREME COURT] a decision by it’s larger bench, the Apex Court explained that the proceedings shall go back to the stage where the irregularity had set in - The matter therefore, where the assessee’s claim is admitted, shall accordingly have go back to the stage of providing it opportunity before the competent authority. Reference in this context may be made to the decision in Bhagwat Prasad v. CIT [1997 (9) TMI 75 - ALLAHABAD HIGH COURT] Loss on trading in Narma (raw cotton) - genuineness of loss - HELD THAT:- The genuineness of the transactions, on the conspectus of the case, is completely unproved - The business purpose or economic rationale that informs the agreement is conspicuous by its absence. Is the assessee acting on the basis of the some past experience or demonstrated price behavior? What is the information or the data, acting on the basis of which the assessee, as a business man, with a business purpose and, rather, in the interest of his business, enters into these contracts covering the entire sale of Narma for the season 2008-09. It is this basis, based on objective material, that shall provide the economic justification for entering into the agreement/s. It is this, and this alone, that would justify the genuineness thereof. We say so as the absence of any such basis implies self-infliction of loss, which cannot be regarded as incurred in the normal course of business No credit period is specified, so that the supplies, made latest by 15.12.2008, continue, as it appears, to outstand for payment even up to 31.03.2009, with in fact the assessee even financing one of the buyers, so that the payment received, which is from one of them, again, does not form part of the assessee’s working capital (system) and, rather, gets deployed for the benefit of the said buyer! Now, could it be that while the assessee is under the contract obliged to, even if at a loss, supply the goods, the same does not carry any corresponding obligation as to payment, making the buyer liable for penal consequences for non-payment within the stipulated credit period? The non-payment, then, is itself a ground enough for the assessee to rescind the agreement, which is clearly a make-believe, being without any sense of (business) purpose or proportionality. In fact, even the delivery is not proved, which though important in-as-much as it only will prove (narma) sale, is in the final analysis not determinative of the matter. We, for the reasons afore-stated, find no infirmity in the disallowance of the assessee’s claim of business loss on the sale of narma Disallowance of interest on borrowed capital u/s. 36(1)(iii) - disallowance was effected in the absence of the assessee furnishing any business purpose of an advance during the relevant period on interest-free basis - HELD THAT:- Impugned advance thus stands advanced to the extent of 80.12% by borrowed capital. The interest disallowed is on proportionate basis, i.e., in proportion to the period each amount comprising ₹ 16.50 lacs outstands during the year. The assessee shall get further relief, i.e., to the extent of 19.88% thereof on account of being financed by trade liabilities and own capital, both being non-interest bearing. This in fact takes a liberal view of the matter inasmuch as credit for the entire profit for the year – arising during the year; in fact, during the season which falls in the latter part of the year, stands allowed. We decide accordingly. Disallowance of ginning charges and depreciation - HELD THAT:- As it appears to us, it is the lack of proper articulation of his case, substantiating his claims by the assessee, that has led to the impugned disallowance. Why did, for instance, the assessee prepare a trading account of cotton, suggesting it of being sold as it is, when, as claimed before us, ginning was done to convert cotton and cotton waste into standard quality, also incurring expenditure on power and labour. The assessee should have, accordingly, prepared a manufacturing account, debiting the ginning and pressing charges, besides the said two expenses to this account. Even as the same is a matter of presentation, by itself not decisive, it does raise a question which, given his own accounts, duly audited, requires explanation. Further, why, one wonders, the explanation/facts being now stated were not furnished before the Revenue authorities? The electricity charges, debited in accounts, as we observe, are for ₹ 3.74 lacs and not for, as stated, ₹ 4.20 lacs and, besides, there are pressing charges (₹ 67,808/-) as well. Though the matter, strictly speaking, should be set aside for verification of these claims, we do not think, given the time that has lapsed since, that any proper purpose would be served by doing so. We also cannot be oblivious to the burden, both on the assessee and the administrative machinery, that accompanies such a restoration, particularly as the same includes third party confirmation/evidences. The assessee’s case seems prima facie acceptable, in view of which, as well as to give a quietus to the matter, we direct the allowance of the impugned claims
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