TMI Blog2022 (9) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... ate his contention that the loss in question claimed by the assessee and supported by the relevant documentary evidence in the form of bills/vouchers, complete quantitative details, audited books of account etc is an artificial loss. We, therefore, find no justifiable reason to take a different view on this issue in the year under consideration than the view taken by the Tribunal in AYs 2009-10 and 2011-12 by passing a well discussed and well reasoned order. - Decided in favour of assessee. - ITA No. 1077/Ahd/2015 - - - Dated:- 7-9-2022 - Shri P.M. Jagtap, Vice-President And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri Aseem Thakkar, AR For the Revenue : Shri Vijay Kumar, Jaiswal, CIT-DR ORDER PER P.M. JAGTAP, VICE-PRESIDENT : This appeal filed by the assessee is directed against the order of learned Commissioner of Income-tax (Appeals), Ahmedabad-5 [ CIT(A) in short] dated 26.02.2015; and, the solitary issue involved therein relates to the addition made by the Assessing Officer and confirmed by the learned CIT(A) on account of disallowance of assessee s claim for loss of Rs.12.64 crores. 2. The assessee, in the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be indicated. Reference to the concept of materially has been made and it is stated that the financial statements should disclose all material items the knowledge of which might influence the decision of the user of the financial statement. It has also been alleged that since interest income has been shown in the trading account instead of being included in the P L account and thereby the GP is reduced and the correct and complete picture of financial position of business has not been reflected your Honours have proposed to reject the books of accounts u/s. 145(2) of the Act. 3. It has also been stated that the verification of the copy of the accounts, value wise valuation of stock and copy of the bills indicate that we have purchased gold, diamond at higher rate from closely held parties/companies or sold gold / companies or sold gold / diamonds at lower rate to closely held parties / companies and thereby shown GP loss or at 0% in comparison to GP at 0.9% in the earlier years. On this ground you have proposed to reject the books of accounts u/s. 145(2) and the estimate GP as per the provision of sec. 145 of the Act. 4. At the outset it is clarified that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the year consideration would show the decline in GP from 0.09% to 0.04%. At this stage attention is invited to the audited accounts for the year under consideration. The turnover has increased from Rs. 75.98 crores to Rs. 395.42 crores. Therefore, there is an increase of about 400% in the total turnover the GP is bound to fall. We have reduced our margin to capture a larger market share. However, as pointed out earlier all the transactions have been undertaken with the parties who has duly been identified and with whom cross verification has also been undertaken. 4.3. The above discussion would clearly go on the reveal that the interest income had been included in the trading account in the earlier year and also the fact that there is a huge increase in turnover which is one of the reasons for a fall in GP. Furthermore, the cross verification of the trading transactions have also been undertaken and there is no specific defect or discrepancy pointed out. 5. It would not be correct to presume the GP would be consistent on year basis. In fact, the business is not a machine which can produce identical results on the year to year basis. The demand supply position, market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated all the trading transactions resulting into loss of Rs.12.64 crores as not genuine and disallowing the said loss, addition of Rs.12.64 crores was made by him to the total income of the assessee in the assessment completed under Section 143(3) of the Act vide an order dated 25.03.2013. 4. Against the order passed by the Assessing Officer under Section 143(3) of the Act, an appeal was preferred by the assessee before the learned CIT(A) and detailed submission was made by the assessee in writing before the learned CIT(A) in support of his case that the disallowance made by the Assessing Officer on account of trading loss of Rs.12.64 crores was not sustainable in the facts and circumstances of the case. The learned CIT(A), however, did not accept the case of the assessee. He found that an identical issue was involved in assessee s own case for the immediately preceding year, i.e. AY 2009-10; and the similar disallowance made by the Assessing Officer on account of assessee s claim for trading loss in the sale of gold and diamonds to the closely held/related parties was confirmed by the learned CIT(A). He accordingly followed the order of his learned predecessor passed in ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of transactions involved in the year under consideration is similar to that of the other years, it is difficult to accept the claim of the assessee for loss which is continuously incurred year after year. He contended that it appears that this is a case of artificial losses claimed by the assessee just to offset the gain. He contended that if the interest income earned by the assessee is ignored, there was overall loss incurred by the assessee in his business during the year under consideration which is not acceptable. 7. In the rejoinder, the learned Counsel for the assessee submitted that there was overall profit as declared by the assessee from his business for the year under consideration as well as for the other years and, therefore, the claim of the assessee for loss in certain transactions cannot be treated as artificial loss. He submitted that the assessee actually had earned profit in voluminous transactions and after setting off the loss incurred in certain transactions, net profit was offered to tax. He also submitted that the loss suffered by the assessee had resulted in corresponding profits to the closely held/related parties which were duly offered to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intentionally manipulated by the assessee. 11. We further observe that when the issue came up before the first appellate authority, relating to these three parties as to whether the three parties are related to the assessee was adjudicated in detail by ld. CIT(A) who concluded with a view that on the basis of documents presented before him the impugned three parties are not related to the assessee as sister concern nor they are covered in the list of relatives provided in section 40A(2)(b) of the Act. But ld. CIT(A) confirmed the disallowance of losses of Rs.77,95,670/- on the basis of his observation which erupted out of the additional plea taken by the assessee. During the course of assessment proceedings and before the first appellate authority assessee had submitted that primarily all the impugned 15 transactions have been entered into in the normal course of business, no objection has been raised with regard to the purchases made and transactions entered with the other parties during the year and no anomaly has been found in the books of account and assessee has shown a better GP. Assessee took an additional plea by submitting that it has received huge interest free advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to ACPL at Rs.1306 per gm and on the very same day there has been purchases from Deep Impex @ Rs.1580 per gm. Ld. Assessing Officer has alleged that assessee had purchased gold bars on 17.3.209 from Deep Impex at Rs.1580 per gm and has sold to ACPL at Rs.1306 per gm. giving rise to loss of Rs.11,06,960/- and has termed these transactions as colourable but on the very same day assessee made some purchases @ Rs.1305 per gm which is evidenced by the bill. Both these purchases from Deep Impex and Harsh Jewellers have not been held to be ingenuine which proves the contention of assessee that there was a high volatility. Ld. Assessing Officer has questioned the genuineness of sale @ Rs.1306 per gm., but has not raised any objection with regard to purchases made at Rs.1305 per gm. on the very same day. Similarly on 20.3.2009 the alleged sale transaction to ACPL of gold bar is at Rs.1306 per gm. and on the very same day there is a purchase of Rs.1305 per gm from Harshad Jewellers vide its bill No.205 dated 20.3.2009. These facts in itself proves the volatility of gold/silver market and also shows the genuineness of the business transaction entered by the assessee which remains disproved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious assessment a case commencing a proceeding for reassessment under section 147(6) may be made out, Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act, Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring ks shares to that subsidiary company and thus forgoing pan of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible under law. In view of this legal position and particularly in view of the decision of this High Court in Commissioner- of Income-tax v. Keshavlal Ckandulal [1966] 59 ITR 120 (Guj) unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with this case it may be pointed out that we fail to understand how the Income-tax Officer arrived at the figures of addition back for each of these assessment years without comparing the prevailing market price of the tobacco of the particular quality purchased from the partners and Chaturbhai Kishabhai Patel on the dates of purchase with the purchase price actually paid to the partners and Chaturbhai Kishabhai Patel. The qualities of tobacco differ very widely and also there may be fluctuations in the market from time to time and striking an average of the price of all tobacco purchased during the entire season irrespective of qualities and irrespective of the fluctuations in the market rates, was a very unscientific method followed by the department in arriving at its conclusion but in any event he had no right to depart from the prices shown in the books of account unless he found the transaction not to be a bona fide one or to be a sham one or unless he found that the prices paid were not what was shown in the books of account and since none of these three conclusions had been reached by him. he had no right to depart from the books of account of the assessee-firm. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was difficult to know the mind of man. Therefore, an inference could be drawn in the facts of this case as noted by the Tribunal that there was understatement of value in the document. Though the legislation in question is to remedy the social evil and should be read broadly and should be so read that the object is fulfilled, yet the onus of establishing a condition of taxability must be fulfilled by the revenue. There is no evidence direct or inferential that the consideration actually received by the assessee was more than what was disclosed or declared by him. The relationship between the parties has been established. The desire to defeat the claims of the revenue has also been established but that fact that for this the assessee had stated a false fact in the document is not established. What appears from the Tribunal's order was that the real and main object was to safeguard these shares from being taken over by the Government in settlement of tax dues, and also that the buyer and seller were indirectly connected with each other. 15. The first proviso to section 12B(2) provides 'full value of the consideration for which the sale, exchange, relinquishment or trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the High Court. The appeals are accordingly dismissed. 15. Further we also observe that Hon. Supreme Court in the case of CIT vs. Calcutta Discount Co. Ltd. (supra) on a similar issue has held as under :- It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case had arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus forgoing part of its own profits and at the same time enabling its subsidiary to earn some profits, such a course was not impermissible under law. 16. We also observe that Hon. Jurisdictional High Court in the case of CIT vs. Amitbhai Gunvantbhai (supra) has held as under :- The Tribunal had overlooked one important fact, namely, that the entries in the books of account of 'G ', (HUF) were not challenged by the department as a device or as a cloak to evade the tax. Nowhere on the record the department challenged that the entries did not reflect the real transaction between the parties. In the absence of any such challenge, accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed in preceding paras, we find that the ratios laid down in these judgments contemplate that if there is no challenge to the transactions entered in the books or to the genuineness of the entries, then it is not open on the side of Revenue to contend that what is shown in the transactions/entries is not the real state of affairs. In the instant case also we find that Revenue has miserably failed to make any attempt or to prove that entries made in the books are not genuine nor any other adverse material has been placed on record to show that the impugned loss was false and assessee has received more consideration than the actual transaction of sale. Further even in the independent enquiries conducted on the alleged three parties it ended up without giving any iota of evidence against the assessee as the same have nowhere been highlighted in the assessment order. 18. We are, therefore, of the view that the action of ld. Assessing Officer was erroneous as he has selected only few transactions on which only loss has incurred without giving cognizance to the fact that assessee has gained in other transactions with the impugned parties which are very well evidenced with the inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every assessment year is separate and the similar loss incurred by the assessee in the similar transaction year after year cannot be accepted being artificial one, he has not been able to point out any distinction in the facts involved in the year under consideration vis- -vis the facts involved in AYs 2009-10 and 2011-12 wherein a similar issue is decided by the Tribunal in favour of the assessee. He has also not been able to support and substantiate his contention that the loss in question claimed by the assessee and supported by the relevant documentary evidence in the form of bills/vouchers, complete quantitative details, audited books of account etc is an artificial loss. We, therefore, find no justifiable reason to take a different view on this issue in the year under consideration than the view taken by the Tribunal in AYs 2009-10 and 2011-12 by passing a well discussed and well reasoned order. Respectfully following the said orders of the Co-ordinate Bench of this Tribunal, we delete the disallowance of Rs.12.64 cores made by the Assessing Officer and confirmed by the learned CIT(A) on account of assessee s claim for loss incurred in the sale of gold and diamonds to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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