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2016 (7) TMI 759 - ITAT KOLKATA

2016 (7) TMI 759 - ITAT KOLKATA - TMI - Disallowance of loss on account of trading in cotton knitted fabrics - Held that:- 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 with an intent to evade payment of taxes. W .....

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R ORDER Per Shri M. Balaganesh, AM: This appeal by assessee is arising out of order of CIT(A), Central-1, Kolkata vide appeal No. 256/CC-VIII/CIT(A)C-1/11-12 dated 24.01.2013. Assessment was framed by DCIT, C.C-VIII, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2009-10 vide his order dated 30.12.2011. 2. The only issue to be decided in this appeal is as to whether the ld CITA is justified in upholding the disallowance of loss on account of trading .....

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gaged in the trading of cotton knitted fabrics and incurred trading loss of ₹ 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 Enviro .....

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ic trading. 3.1. The ld AO made enquiries from M/s Visage Equipments Pvt. Ltd and M/s Coral Environment Pvt. Ltd. He called for the details of purchase and sale transaction carried out by them with the assessee in the year under consideration and he also asked the names and addresses of those parties from whom they purchased the fabric sold to the assessee and viceversa. In response, M/s Coral Environment Pvt. Ltd submitted that the goods sold to assessee were purchased from M/s Godawari Electro .....

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to facilitate the assessee to create bogus loss so that the real income from interest can be set off. 3.2. The ld AO observed that assessee had purchased goods from M/s Coral Environment Pvt. Ltd during the period 4.4.2008 to 15.5.2008 mostly between price range of ₹ 375/- to ₹ 382/- per kg and sold these goods during the period 5.4.2008 to 28.6.2008 to M/s Visage Equipments Pvt. Ltd between the range of ₹ 321/- to ₹ 340/- per kg. The ld AO observed that the movement of g .....

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ld AO observed that the total expenses debited under transportation charges was only ₹ 1,63,825/- which is not commensurate with the volume of trading activities carried out by the assessee. For this, the assessee took a different plea that in number of cases, the transportation arrangements had been made by the seller or buyer as per the arrangement and understanding and the relevant charges were included in the price of goods. However, he found that the copy of invoice cum challan does .....

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o confirm the addition made by the Assessing Officer of the loss on account of trading in cotton knitted fabrics of ₹ 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 ₹ 124651755/- on account of business loss is without considering the submissions made and the material evidences .....

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f the Ld. CIT(A) to rely upon the decision of the ITAT Kolkata Bench in the case of Smt. Indira Jalan to confirm the addition of ₹ 124651755/- made by the Assessing Officer is unjustified and bad in law. 5. That the order passed by the Ld. CIT(A) is arbitrary, excessive and illegal. 6. That the order passed by the Ld. CIT(A) is bad in law. 7. That the above grounds of appeal shall be argued in detail at the time of hearing and the appellant craves leave to submit, add, alter, modify, amend .....

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est income in Asst Year 2009-10 compared to Asst Year 2008-09 had decreased, its loss in trading activity had also decreased. The following chart would depict the facts of the case in a better fashion:- Financial Year Trading loss Rs. Interest Income Rs. 2006-07 31702725 32051560 2007-08 136162256 132913163 2008-09 124651755 123851442 Hence, it is very clear that the assessee company had managed its transactions in such a way that its interest income could be set off with the loss and there woul .....

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ds for alleged purchase 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 ₹ 7.02 lacs and ₹ 6.22 lacs in the financial years ended 31.3.2008 and 31.3.2009 would have easily taken .....

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ing 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 business incurring losses in the second year and third year. It would be relevant to understand the following facts at this juncture:- 13. As mentioned in this office letter dated 20.12.11, that the goods, which were originated from M/s Godwari Electro Contractors Pvt. L .....

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s address has been given as 9, Ezra Street, Kolkata - 700001, where office of M/s Coral Environments Pvt. Ltd is situated. ii) Mr. Sovan Sengupta, who is one of the directors of M/s Coral Environments Pvt. Ltd is also the director of M/s Visage Equipments and M/s Vaishali Housing Projects Pvt. Ltd. iii) Mr. Ramkrishna Das, who is a director of M/s Godwari Electro Contractor Pvt. Ltd is also a director of the assessee-company. iv) M/s Miller Traders Pvt. Ltd. is a common shareholder of M/s Vaisha .....

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ojects Pvt. Ltd. viii) M/s Coral Environment Pvt. Ltd, Ml/ Visage Equipment Pvt. Ltd, M/s Vaishali Housing Projects Pvt. Ltd. and M/s Godwari Electro Contractors Pvt. Ltd. have bank account with common bank i.e. Kotak Mahindra Bank, Rajendranagar Branch, New Delhi. ix) M/s. Coral Environments and M/s Vaishali Housing Projects Pvt. Ltd have same office at 9, Ezra Street, Kolkata. 14. From the above details, it is very clear that all five companies including the assessee company belong to one grou .....

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reby 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 H .....

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re shifted to its group concerns. Hence on one hand the loss is getting adjusted with interest income in the hands of the assessee in the year under appeal and in the immediately preceding two assessment years, and on the other hand, the profits were shifted to another group concern through a circuitous route. In this circuit, the assessee was one of the company and benefitted by booking loss and not paying tax on the interest income. Even in the preceding two assessment years, similar losses we .....

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l cash loss for the assessee as the assessee s loss becomes the profit of another entity in the same group, the monies remain in the same group of the assessee. Having transactions with the same two companies and regularly booking only losses thereon is beyond human perception. The assessee s version that the assessee had transacted the transactions at the prevailing market prices is beyond the test of human probabilities. 3.8. It would be relevant to address the decision of this tribunal in ass .....

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iry on the part of the ld AO. Moreover, for the Asst Year 2007-08, the ld CIT had also not made any prima facie enquiry to come to a conclusion that the order passed by the ld AO as erroneous in sofaras it is 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 .....

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rits 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 also placed reliance on the following decisions in support of his contentions:- Diagonostics .....

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and payments were made by account payee cheques and transactions were properly documented, no adverse inferences could be drawn against the assessee. In these cases, the transactions were carried out with non-related entities. But the most excruciating factor in the instant case before us which comes as a distinction is that, the assessee had carried out purchase and sale transactions with the parties who belong to the same group and it is very easy to prevail upon those parties for confirming .....

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tent to book the loss by transacting with its group concerns. Hence the case laws relied upon by the ld AR are factually distinguishable with the facts of the instant case. 3.10. We also find that the reliance placed by the ld AO on the co-ordinate bench decision of this tribunal in the case of Smt Indra Jalan vs ITO in ITA No. 2177/Kol/2009 for Asst Year 2005-06 dated 13.4.2010 is very well founded. In the said case, the assessee in the business of trading in suiting and shirting, made purchase .....

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. 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 asses .....

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r of genuinity in the transactions. We find that the ld AR had only tried to distinguish the applicability of this tribunal decision to the facts of the instant case on flimsy grounds. We find that in the case of Smt Indra Jalan vs ITO supra , the ld AO observed that there was no claim of cost of transportation, loading and unloading charges evidencing the movement of goods for purchase and sale transactions. In the instant case, the assessee had debited a meager sum of ₹ 1,63,825/- (that .....

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charges were below the prescribed tax deduction limits as per section 194C of the Act. The assessee though claimed that the transportation charges were loaded in the purchase and sales bills itself, but the evidences in this regard proved the contrary. The ld AR also argued that the assessee had taken a premises on rent used for storage of goods. But on verification carried out by the Inspector of Income Tax , the assessee was only occupying a small space between the stairs of first floor and se .....

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ated that he was there only to receive letters of the assessee and to attend telephone calls. The ld ITO TDS also did not find any renovation work being done in that office. Though the assessee had submitted rent receipt in respect of godown at 6th floor, 2/7, Sarat Bose Road, Kolkata, no such office could be located in the name of the assessee at 6th floor by the department on personal verification. These facts clearly prove that there was no space available for storing goods as claimed by the .....

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