TMI Blog2014 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the transaction of assessee was through banking channel - The details of all parties including telephone, PAN, TIN number were available on record – thus, the order of the CIT(A) is set aside and the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Donation made to Political Party – Held that:- The word 'contribute' or its grammatical variation used in the section denotes the amount which a company can legally contribute to a political party or trade union - the Explanation to sec.80GGB was intended to restrict the quantum of such contribution eligible for deduction only to the extent that is admissible u/s 293A of the Companies Act - the contention of the assessee that the explanation provided to the said section which refers to Section 293A of the Companies Act, 1956 was limited to the grammatical meaning of the word used in the body of the section 'Contribute' and in no way defines the admissibility of deduction with reference to quantum of the contribution has no merit – the AO was justified in restricting the admissible deduction u/s.80GGB to the extent of 5% of the average profit of the assessee for the three immediatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Insurance, Chennai, marketing of Lifts manufactured by Thyssenkrupp Elevator (India) Pvt. Ltd., New Delhi and trading in commodities i.e. Rice Nifty Future Sales. For the assessment year under consideration, a gross revenue of ₹ 6,43,91,988/- was shown to have been earned from insurance commission (Rs. 11,36,607/-), commission on marketing of lift (Rs. 6,28,12,121/-) and other income of (Rs. 42,448/-) while loss was reported from other activities (Nifty Future sales loss of ₹ 2,11,60,817/-, Commodity trading Rice loss of ₹ 3,80,77,164/-). 2.1 On examination of the details of trading activities carried out in commodities i.e. Rice from which the assessee reported to have been sustained loss of ₹ 3,80,77,164/-, it was noted by the Assessing Officer that the assessee effected purchases of Rice at a higher rate (being in the range of ₹ 5300/- to ₹ 7150/- per quintal) while the sales were made at lower rate (ranging from ₹ 3577 to ₹ 5695/-). The value of the total purchases during the year were shown to be ₹ 14,68,67,267/- against which total sales were shown at ₹ 10,87,90,103/-. In response to the query with reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer, without such a valid and legally enforceable contract, the assessee would not have sold the goods at lower rate which it had purchased at a higher rate. The assessee stated before the Assessing Officer that there were no such contracts. Noting that in the absence of such an agreement, the assessee was under no legal obligation to supply, goods at rates lower than the market rates sustaining heavy loss, the Assessing Officer inferred that the sales shown to be made at lower rates deliberately in order to book losses to set off the profit earned in other areas. The Assessing Officer also observed that the assessee failed to produce such details supporting the movement of the goods. The Assessing Officer also noted that the claim of the assessee that such requirements were done away by virtue of the terms of agreement could not be given any credence in the absence of any valid agreement entered into between the assessee and the so-called purchasers. In order to verify the genuineness of the transactions, the Assessing Officer also issued letters seeking confirmation of genuineness of the transactions. In the following cases, the letters sent by the Assessing Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hases and sales did not contain details like quality of rice being purchased/sold but simply mentioned 'Basmati Rice'. As per the Assessing Officer, there were many varieties and species of basmati rice which carries different price tag. As per the Assessing Officer, non-furnishing such details was a deliberate attempt on the part of the appellant to pre-empt comparison of rates shown with the then prevailing market rates. The bills furnished sans the quality details had no authenticity and the same could be fabricated ones. All the purchases and sales are routed through a small group of persons having business address situated in the same locality i.e. Naya Bazar, New Delhi. Though the transactions of purchases and sales are recorded in the books, there was no documentary proof of its delivery by the seller to buyer or its storage, transportation etc. In all the transactions, the goods were sold at rates much lower than the purchases. In certain cases, more than one bill is prepared for sale to the same party on the same date at the same rate. As per the Assessing Officer, those are accommodation entries to show purchases at higher rates. Details of the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase bills were raised at the time of delivery and not at the time of placing order. It was claimed that by the time sales took place, the market had come down substantially leading to losses. The Assessing Officer did not agree with the propositions put forward on behalf of assessee. The Assessing Officer observed that no reasonable person would purchase goods at much higher rates than the prevailing market rate and sell at lower rates thereby sustaining heavy losses, merely going by the verbal agreement which was not supported by any legally enforceable agreement. 2.5 With a view to ascertain the genuineness of the parties with whom the assessee claimed to have entered into the impugned transactions, a reference was also made by the Assessing Officer to the Addl. Director of Income Tax (Inv.), New Delhi, through the Jt. Commissioner of Income Tax, Range-1, Solapur. In response, the Addl. DIT (Inv.), New Delhi is reported to have informed that out of the eleven parties referred to by the Assessing Officer; following six parties were not found to be on the address provided: 1) M/s.Vat Foods 2) M/s. Jay Ambey Trading Co. 3) M/s. Singhal Enterprises 4) Shri Raj Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineness of impugned transactions are not based on suspicion, conjectures and surmises. The well reasoned conclusions are based on the detailed examination of the claim made by the Assessing Officer. 2.3.2 To sum up, on a careful consideration of all the evidences placed on record cumulatively and submissions of the appellant, it is amply clear that the entire trading activity in Rice claimed to have been carried on by the appellant during the year is sham and the evidence furnished thereof was fabricated, self-serving and the loss claimed from alleged trading activity is fictitious loss. It is only collusive device or arrangement for creating and booking fictitious loss in the books of account of the appellant in connivance with said Delhi parties with a view to set off the same against positive income earned by the appellant from other activities and to defraud the revenue. In such circumstances, the loss claimed of ₹ 3,80,77,164/- from the said rice trading activity was rightly disallowed by the Assessing Officer. Accordingly, the disallowance of alleged loss 3,80,77,164/- made by the Assessing Officer does not warrant any interference and the same is upheld. Ground of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant could fetch on sale ₹ 108,790,103/- only resulting into trading loss of ₹ 38,077,164/-. The Appellant carried out its sale of rice to the following parties:- 1. Arihant Sales Corporation, Naya Bazar, New Delhi 110006 2. Singhal Enterprises, Naya Bazar, New Delhi - 110006 3. Shri Sai Nath Agro India, Naya Bazar, New Delhi 110006 4. Premchand Deepakkumar, Naya Bazar, New Delhi 110006 5. Bajrang Traders, Naya Bazar, New Delhi -110006 6. Sumitkumar Navinkumar, Naya Bazar, New Delhi 110006 2. The Appellant submits that the transactions of purchase and sale have been carried out through banking channels and are reflected not only in the bank account of the Appellant but in the bank account of concerned parties also having been paid received on RTGS transfer. Therefore the authenticity of the transactions cannot be doubted. Furthermore, the Appellant's transactions are supported by purchase and sale bills. All these bills contain detailed name and address of the party, TIN No., telephone no. and in most cases mobile no. also. During the course of assessment proceedings the appellant furnished all these documents, bank accounts, PAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quality of rice as 'Basmati' but those bills did not specify what type of Basmati rice. 15. The Appellant's Authorised Representative stated on 18.10.2011 that sales order preceded purchase order which stand was subsequently modified and it was stated that purchase orders preceded sales order. 16. The Appellant himself did not produce any party in spite of notice u/s. 131 served upon it. 17. According to the Assessing Officer the letters issued by him to some of the parties from whom the Appellant purchased or to whom the Appellant sold rice were received back from postal authorities with the remark No Such Firm in this Number . 18. According to the Assessing Officer the enquiry conducted by the Inspectors at New Delhi reflected that out of eleven parties six parties were not found at given address. Only four parties confirmed the transactions through messengers but nobody appeared in person. 19. According to the Assessing Officer the Auditor of the Appellant Company had agreed that the Appellant Company never involved in any trading activities. 3.1 Based upon the above reasoning learned Assessing Officer has given his findings in Para 8.3 of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the same did not contain details such as quantity, quality, rate, exact period of delivery of goods and also did not contain any consent of the appellant to any terms and conditions. 7. The assessing officer found that even the signatures contained in the letters of parties received by him did not match with the signature contained in the account confirmation statements. 8. It was noticed that the appellant kept on changing his stand during the assessment proceedings. It was first stated that sales were effected at predetermined prices but later on it was stated that purchases were effected at predetermined prices. There was no evidence that there were any agreements at predetermined prices. A few letters from some of the parties which did not contain details such as quantity, quality, rate, exact period of delivery of goods did not suffice. 9. All the payments made or received were in the last week of March. Except firing copies of accounts, the appellant failed to produce delivery challans and transportation receipts to prove actual delivery of goods. Hence, payments made through banking channels did not establish genuineness of transactions. 10. Letters of enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon by the authorities below to signify that there was anything unusual about the absence of written agreement in the appellant's case. The observation of the Assessing Officer that the Appellant should have merrily dishonoured his commitment because the contract was oral and not in writing is startling. 3.4 Both learned Assessing Officer and learned CIT(A) have argued that there was no rice trading in earlier years and the appellant had no infrastructure to keep huge quantity of rice after purchase and sale and that goods were immediately sold. These arguments show that both authorities were not familiar with contract trades in agricultural commodities. The Appellant submits that like him there are hundreds of traders who indulge in the business of purchase and sale of agricultural commodities relying upon the easy availability of required logistics on payment of requisite charges. It was not needed that the appellant should have first bought godown, trucks and such like things before taking a plunge in rice trading. The appellant could have arranged to take delivery himself and keep the goods in storage, at certain cost, as long as considered prudent. The Appellant sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and make loss in spite of their best intention. Equally mindless is the statement of the Assessing Officer that the appellant's auditor had agreed that the appellant did not indulge in rice trading. Merely because one column in the prescribed format was blank such inference could not be drawn when the same auditor has signed the annual accounts and given the certificate of the correctness and completeness of books of account. 3.6 As regards the arguments of both authorities that confirmation letters received from the parties were identically worded and appeared to have been typed on the same printing machine etc. the appellant states and submits that he was never supplied with any material whatsoever relied upon by the Assessing Officer. This was so in spite of the appellant's repeated requests during the course of assessment proceedings. Kind attention is invited to the appellant's letter dated 30th November 2011 placed at page 15 to 17 of the Paper-book. The appellant is therefore handicapped but disagrees that there are striking similarities in the format, content, structure, font and other attributes in all the papers sent by Delhi parties. Secondly, these doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption. The objections in this regard by both authorities are unrealistic, hence unwarranted. The appellant states and submits that the mention of word Basmati or Rice in the bills meets the requirement or expectation in relation to any bill issued in the ordinary course. Beyond this the quality would be determined on the basis of visual inspection or cooking and not by any description on paper. It is not explained as to how the bills in question thwarted comparison and verification when such details are by and large are not to be found in other bills as well. 3.8 The appellant submits that there is only one instance where erroneously it was mentioned that the appellant had entered into contracts to sale rice at predetermined subsequent date. This error was promptly corrected. In all other communications it has been consistently mentioned that appellant had entered into contracts to purchase rice at predetermined subsequent date. Both the Assessing Officer and CIT(A) have very unfairly tried to capitalize on this error and leveled the allegation that the appellant keeps on changing his stand. Both of them conveniently forget that the appellant has kept regular books of account wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mself on the facts of the appellant's case. He alleges that there were strange features in bank accounts whereas none has been pointed out in the assessment order or impugned order of learned CIT(A). The fact of the matter is that both authorities shunned the powerful evidence of bank transfers as they had no answer thereto. CIT(A) finds baseless defects in the bills contrary to the general practice in the trade. He belittles the letters of confirmation as they were not drafted as legal documents. Both authorities have severely commented upon the appellant not producing delivery challans whereas time and again they were told that delivery of rice was taken and given by way of the request made to the suppliers to deliver directly to the appellant's buyers; that all the parties were located at Naya Bazar Delhi; there was no question of the appellant first taking delivery in Solapur and then resend it to Naya Bazar Delhi and that such documentation if any would be available with the parties in Delhi and not the appellant. Above all, neither the Assessing Officer nor CIT(A) have made any attempt to make cross-verification with reference to the accounts and assessment records of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oever strong cannot take place of evidence - Mehta Farikh Co. v. CIT 30 ITR 181 (SC); Umacharan Shaw Bros v. CIT 37 ITR 271 (SC); Lalchand Bhagat Ambica Ram v. CIT 37 ITR 288 (SC); Sona Electric Co. V. CIT 152 ITR 507 (Del); Sukhdayal Rambilas v. CIT 136 ITR 414 (Bom); R. Y. Durlabhji v. CIT 211 ITR 178 (Raj.); CIT v. Bedi Co. Pvt. Ltd 230 ITR 580 (SC) etc. 3.12 The major part of the assessment and CIT(A) order is based on fault finding with the reply received from parties and the so called signature variations etc. None of this material constitutes evidence or material to refute the appellant's transactions that are well supported by documentary and external evidence. None of these doubts were put to the parties who wrote those letters and who issued those bills. Apart from issuance of summons no steps were taken to enforce the attendance of the parties. On the top of it both authorities have decided against the appellant because the appellant did not produce these parties for examination by the Assessing Officer at Solapur. In these circumstances the authorities cannot unilaterally raise some questions and then themselves answer against the appellant. The assessee ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguished facts of the appellant is in favour of the appellant. Hon'ble Delhi bench has decided the case against the assessee before them in the following words:- Considering the facts and circumstances of this case, we are of the view that assessee has failed to establish that the goods had in fact been purchased by it from others and that the five parties had acted merely as its intermediaries. Since assessee has not taken or given the actual delivery of goods and since the transactions between the assessee and the five parties had been settled other than by way of actual delivery of goods, the same, in our view, were speculative transactions within the meaning of s. 43(5). We, therefore, uphold the finding of the Revenue authorities that the loss suffered by the assessee is a speculative loss and not a business loss. In that case the assessing officer found that there was no evidence that goods were actually acquired and subsequently sold to others by the parties named by the appellant. In the case of the appellant the purchase and sales have been independently made by the appellant himself and there is complete documentation and confirmation of the transactions. As a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otices could not be served on those 6 parties by the concerned ITO, New Delhi as well. The Assessing Officer observed that the assessee could not produce Delhi businessmen for examination by the Assessing Officer at Solapur. The stand of the assessee has been that these findings of Assessing Officer were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer knew all the time that the delivery was given by the Appellant's suppliers on the instructions of the Appellant to the Appellant's buyers all situated at Naya Bazar, Delhi. c) The Appellant failed to produce any agreements in absence of which 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 print ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were contracted in advance. There was an error only once in the letter of CA that was promptly corrected. Otherwise there has been the consistent stand of the Appellant that it had contracted purchases well in advance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 293A of the Companies Act, 1956 r.w.s. 349 350 which restrict the quantum of such deduction equal to 5% of the 'average profits' of three immediately preceding financial years of a company. Accordingly, the deduction allowable in respect of donations made to Maharashtra Navnirman Sena by the assessee was worked out by the Assessing Officer as under:- Profits of the appellant in the immediate preceding three years: 31/3/2006 : Rs.Nil 31/3/2007 : Rs.57,689/- 31/3/2008 : Rs.2,55,170/- The profit for immediately Preceding years : Rs.3,12,859/- Average profit for the last three Finance years : Rs.1,04,286/- 5% of average profit : Rs.5,214/- Accordingly, the deduction claimed by the assessee u/s.80GGB in respect of donation made was restricted to ₹ 5,214/- as against claimed by the assessee at ₹ 20,00,000/- and the remaining amount of ₹ 19,94,790/- was disallowed. The CIT(A) has confirmed the same by observing as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment caused to be given by a company on its behalf or on its account to a person who, to its knowledge, is carrying on any activity which, at the lime at which such donation or subscription or payment was given or made, can reasonably be regarded as likely to effect public support for a political party shall also be deemed to be contribution of the amount of such nation, subscription or payment to such person for a political purpose; (b) the amount of expenditure incurred, directly or indirectly (ii) where such publication is . (4) Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party or for any political purpose to any person during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party or person to which or to whom such amount has been contributed. (5) If a company makes any contribution in contravention of the provisions of this section .. 3.3.1 The heading of Section 293A of the Companies Act itself clearly indicates that the section has been introduced to restrict the scope of contributions that can be made to poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributions that can be made to political parties. As, per proviso to the said section, in case of a company which has been in existence for not less than three financial years, the aggregate of the contribution made, directly or indirectly in any financial year shall not exceed five per cent of its average net profits determined in accordance with the provisions of sections 349 and 350 during the three immediately preceding financial years. Thus, the word 'contribute' or its grammatical variation used in the section denotes the amount which a company can legally contribute to a political party or trade union. Consequently, the Explanation to sec.80GGB was intended to restrict the quantum of such contribution eligible for deduction only to the extent that is admissible under sec.293A of the Companies Act. Therefore, the contention of the assessee that the explanation provided to the said section which refers to Section 293A of the Companies Act, 1956 was limited to the grammatical meaning of the word used in the body of the section 'Contribute' and in no way defines the admissibility of deduction with reference to quantum of the contribution has no merit. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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