Shri Kamlesh J. Jhaveri, Ahmedabad V. The Income Tax Officer,Ward 10(1), Ahmedabad

ITA 1420/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9377 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Avoidance of tax; Notional interest; Commercial expediency
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM & SHRI MANISH BORAD, AM. ITA NO.1420/AHD/2013 ASST. YEAR: 2009-10 SHRI KAMLESH J. JHAVERI, B/201, SIDDH SILLA APARTMENT, B/H EKTA TOWER, BARRAGE ROAD, VASNA, AHMEDABAD. VS. ITO, WD-10(1), AHMEDABAD. APPELLANT RESPONDENT PAN AETPJ 5973L APPELLANT BY SHRI ASEEM THAKKAR, AR RESPONDENT BY SHRI JAMES KURIAN, SR.DR DATE OF HEARING: 19.01.2017 DATE OF PRONOUNCEMENT: 25/01/2017 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF ASSESSEE FOR ASST. YEAR 2009-10 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-XVI, AHMEDABAD, DAT ED 20/02/2013 VIDE APPEAL NO.CIT(A)-XVI/ITO/WD-10(1)/584/11-12 AR ISING OUT OF ORDER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SH ORT THE ACT) FRAMED ON 21.12.2011 BY ITO, WD-10(1), AHMEDABAD, ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDIT ION OF RS.77,95,670/- MADE BY THE ASSESSING OFFICER FOR THE LOSSES INCURRED BY THE APPELLANT IN THE TRANSACTIONS WITH JAY JEWELLERS, AARYAVART COMMODIT IES PVT. LTD. AND S. K. JEWELLERS AS PER ANNEXURE-A TO THE ASSESSMENT O RDER. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 2 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR MODIFY ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING OF APPEAL. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT ASSESSEE IS AN INDIVIDUAL RUNNING A SOLE PROPRIETAR Y CONCERN NAMELY M/S ADINATH IMPEX. RETURN OF INCOME FOR ASST. YEAR 2009-10 WAS FILED ON 30.09.2009 DECLARING TOTAL INCOME OF RS.4, 41, 470/-. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) OF THE ACT FOLLOWED BY NOTICE U/S 142(1) OF THE ACT ALONG WITH DETAILED QUESTIONNAIRE WERE ISSUED AND SERVED. NECESSARY DET AILS AND INFORMATION AS CALLED FOR WERE DULY SUPPLIED BY THE ASSESSEE. ASSESSEE IS IN THE BUSINESS OF TRADING IN GOLD, SIL VER, BULLION, GOLD ORNAMENTS AND DIAMONDS. DURING THE YEAR TURNOVER OF RS.395.42 CRORES WAS ACHIEVED WITH THE GP MARGIN OF 0.03% AND NET PROFIT OF RS.5,79,334/-. AFTER SCRUTINY OF VARIOUS DETAILS, B OOKS OF ACCOUNT, FINANCIAL STATEMENTS, BY LD. ASSESSING OFFICER WAS NOT SATISFIED WITH THE BONAFIDENESS OF CERTAIN TRANSACTIONS ENDING UP WITH LOSS ENTERED INTO WITH THREE PARTIES NAMELY ARYAVART COMMODITIES PVT. LTD. (ACPL), JAY JEWELLERS AND S. K. JEWELLERS IN RELATI ON TO SALE OF GOLD ITEMS. LD. ASSESSING OFFICER CALCULATED THE TOTAL O F SUCH TRANSACTION ENDING UP IN LOSS TOTALING TO RS.77,95,670/- WITH T HE OBSERVATION THAT THEY HAVE TAKEN PLACE DUE TO INTRADAY SALE AT LOWER RATE TO ITS ASSOCIATE CONCERN. 3. IN REPLY TO THE SHOW CAUSE NOTICE ISSUED WITH RE GARD TO ALLEGED TRANSACTIONS GIVING RISE OF TOTAL LOSS OF RS.77,95, 670/- BY FILING SUBMISSIONS DATED 5.12.2011 WHICH READS AS FOLLOWS :- ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 3 IT HAS BEEN STATED THAT THE VERIFICATION OF THE DET AILS FILED WITH RESPECT TO PURCHASE AND SALES REVEAL THAT WE HAVE I NCURRED LOSS OF RS. 77,95,670/- ON SALE OF GOODS PURCHASED AT A HIGHER RATE AND THE SALES THEREOF AT LOWER RATE. CERTAIN DETAILS IN SUP PORT, OF THE AFORESAID CONTENTION RAISED ARE ALLEGED TO HAVE BEE N GIVEN IN ANNEXURE - 'A' ATTACHED TO THE NOTICE. WE HAVE BEEN ASKED TO EXPLAIN WITH EVIDENCE IN SUPPORT OF THE SALES AFFEC TED AT A LOWER RATE THAN THE HIGHER RATE OF PURCHASE. AT THE OUTSE T IT IS POINTED' OUT THAT BUSINESS IS NOT A MACHINE WHICH CAN PRODUCE ID ENTICAL AND CONSISTENT RESULTS ON DAY TO DAY & YEAR TO YEAR BASIS. MERELY POINTING OUT CERTAIN INSTANCES WHERE SALES IS ALLEG ED TO HAVE BEEN GIVEN AT LOWER THEN PURCHASE RATE CANNOT BE THE REA SON, FOR DOUBTING THE GENUINENESS OF THE TRANSACTION. ALL TH E SALES HAVE BEEN MADE AT THE PREVAILING MARKET RATES. FURTHERMORE, T HE GOLD AND DIAMOND MARKET IS HIGHLY VOLATILE AND THERE ARE WID E SPREAD FLUCTUATIONS. IT MAY ALSO BE BROUGHT TO YOUR HONORS ATTENTION THAT ALL THESE SALES HAVE BEEN MADE OUTSIDE 3 RD PARTIES. THESE ARE NOT PARTIES WHICH ARE COVERED U/S. 40A(2)(B). WE HAVE F URNISHED CONTRA ACCOUNT OF THESE PARTIES. IT HAS ALSO COME TO OUR K NOWLEDGE THAT DIRECT VERIFICATION HAS BEEN UNDERTAKEN BY YOU WITH RESPECT TO THESE PARTIES WITH REGARDS THESE TRANSACTIONS. WE MAY KIN DLY BE INTIMATED IF THERE ARE ANY DISCREPANCIES OR ERROR WITH REGARD S THE INFORMATION COLLECTED. MERELY RAISING' DOUBTS ON THE GROUND THA T LOSSES HAVE BEEN INCURRED CANNOT BE THE REASON FOR NOT ACCEPTIN G PARTICULARLY WHEN THE TRANSACTION IN QUESTION ARE SUPPORTED BY B ILLS, PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES. THE PARTIES IN Q UESTION HAVE ALSO CONFIRMED WITH TRANSACTION AND IT HAS NOT BEEN PROVED OR ESTABLISHED THAT THESE TRANSACTIONS ARE COLLUSIVE I N NATURE. MERE DOUBTS AND SUSPICIONS DID NOT CONSTITUTE EVIDENCES THAT THE LOSSES ARE NOT GENUINE ON ACCOUNT OF THESE TRANSACTIONS. I N VIEW OF THE ABOVE FACTS OUR LOSSES ARE NOT GENUINE ON ACCOUNT O F THESE TRANSACTIONS. IN VIEW OF THE ABOVE FACTS OUR LOSSES WITH RESPECT TO THESE TRANSACTION AS MENTIONED TO THE ANNEXURE - 'A ' SHOULD BE ACCEPTED SINCE 'OVERWHELMING EVIDENCES HAVE BEEN FI NISHED AND ALSO THE FACT DIRECT VERIFICATION HAVE NOT RESULTED IN ANY INFORMATION ON THE BASIS OF WHICH ADVERSE INFERENCE CAN BE DRAW N. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 4 4. HOWEVER, LD. ASSESSING OFFICER WAS NOT SATISFIED WITH THE REPLY MADE BY THE ASSESSEE AND ASSESSED THE INCOME BY DIS ALLOWING THE CLAIM OF LOSS IN VARIOUS TRANSACTIONS TOTALLING TO RS.77,95,670/- AND ASSESSING THE INCOME AT RS.82,37,140/- BY MAKING FO LLOWING OBSERVATIONS :- THE SUBMISSION MADE BY THE ASSESSEE HAS BEEN CONSID ERED CAREFULLY. A PERUSAL OF ASSESSEE'S SUBMISSION CAN BE SEEN THAT T HE SAME IS GENERAL IN NATURE. FOR EXAMPLE THE ASSESSEE IN REPLY STATED THAT THE GOLD AND DIAMOND MARKET IS HIGHLY VOLATILE. HE HAS NOT PROVE D THAT ON THE PARTICULAR DAY THE GOLD AND DIAMOND MARKET WAS SO V OLATILE. HE HAS NOT PROVED THAT ON THE PARTICULAR DAY THE GOLD AND DIAMOND MARKET WAS SO VOLATILE. AS PER THE ASSESSEE'S SUBMISSION H AS STATED TO HAVE PURCHASED GOLD AT THE RATE OF RS. 1356.436/- ON 12. 01.2009 WHICH WAS SOLD AT A LOWER RATE OF 1290 .TO AARYAT COMMODITIES , A SISTER CONCERN LEAVING A SHARP DIFFERENCE OF RS. 266.33 PER GM. LI KEWISE THE ASSESSEE SOLD BARS ON 18.03.2008-TO AARYAT COMMODITIES AT TH E RATE OF RS. 1306 PER GM WHICH WAS PURCHASED ON THE SAME DAY AT A HIGHER RATE' OF RS. 1460.3 GM HAVING SHARP FALL IN SALE PRICE AT RS. 154.3 PER GM. ANOTHER IMPORTANT FEAT ONE IN. THESE TRANSACTIONS A RE OUT OF 15 TRANSACTIONS DETAILED IN ANNEXURE A 7 - 13 TRANSACTIONS ARE ENTERED IN WITH AARYAT COMMODITIES, A CLOSE BUSINESS ASSOCIATE S. INSPITE OF SPECIFIC REQUEST TO PROVE WITH EVIDENCES THE LOSS I NCURRED IN THESE TRANSACTIONS THE ASSESSEE SIMPLY GIVEN A GENERAL EX PLANATION THAT THE MARKET IS VOLATILE. THE ASSESSEE FAILED TO PROVE WI TH EVIDENCES TO. SHOW THAT THERE WAS SUCH FLUCTUATION IN THE GOLD & DIAMOND MARKET ON THAT PARTICULAR DAY AND THE ASSESSEE HAS TO SELL TH E GOODS AT SUCH A LOWER RATE LIKE SALE TO OUR CONCERNED AT SAME RATE ETC. 5. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) MAKING DETAILED SUBMISSIONS WHICH MAINLY EMPHASIZED ON THE FACT THAT THE IMPUGNED TRANSACTIONS ENTERED INTO WITH THE ABOVE R EFERRED THREE PARTIES ARE NOT COVERED UNDER THE PROVISIONS OF SEC TION 40A(2)(B) OF THE ACT AS THESE THREE PARTIES ARE NOT SISTER CONCE RNS FALLING UNDER THE ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 5 PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. IT WAS ALSO CONTENDED BY ASSESSEE BEFORE LD. CIT(A) THAT ALL THE TRANSACTION S ENTERED INTO ARE BONA FIDE IN NATURE TAKEN UP IN THE DUE COURSE OF B USINESS AND THERE WERE PROFIT TRANSACTIONS ALSO WITH THESE THREE ALLE GED PARTIES BUT LD. ASSESSING OFFICER HAS ERRONEOUSLY SELECTED ONLY THE TRANSACTIONS ENDING UP IN LOSS. LD. AR ALSO SUBMITTED THAT HUGE INTEREST FREE CREDIT BALANCE OF ONE OF THE PARTIES NAMELY ACPL IS LYING WITH THE ASSESSEE AND OVERALL THERE WILL BE NO LOSS TO THE REVENUE IF NOTIONAL INTEREST IS CALCULATED AN ADVANCE RECEIVED FROM ACPL . 6. LD. CIT(A) ACCEPTED THE ASSESSEES CONTENTIONS T O THE EXTENT THAT THE ALLEGED THREE PARTIES ARE NOT RELATED OR S ISTER CONCERNS OF THE ASSESSEE AS THEY DO NOT FALL UNDER THE PROVISIONS O F SECTION 40A(2)(B) OF THE ACT BUT SUSTAINED THE LD. ASSESSING OFFICER S ACTION OF DISALLOWING APPELLANTS CLAIM OF LOSS OF RS.77,95,6 70/- ON THE SELECTED TRANSACTIONS WITH ALLEGED THREE PARTIES BY OBSERVIN G AS FOLLOWS :- 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS MADE BY THE APPELLANT. AS FAR AS THE ISSUE CONCERNING INVOCATIO N OF PROVISIONS OF SECTION 40A(2)(B). CHALLENGED BY APPELLANT THROUGH GROUND OF APPEAL NO . 3, IS CONCERNED IT IS SEEN THAT THE ID A O DID MENTION IN HIS ORDER THAT THE IMPUGNED P ARTIES WERE APPELLANTS SISTER CONCERN AND CLOSE BUSINESS ASSOCIATES. THUS, ONE OF THE PRE MISES ON THE BASIS OF WHICH ADDITION/ DISALLOWANCE HAS BEEN MADE, RESTS ON THE APPLICABILITY OF SECTION 40A(2)(B). APPELLANTS SUBMISSIONS AND THE DETAILS FILED INDICA TE THAT THE PARTIES WITH WHOM 15 TRANSACTIONS HAVE BEEN UNDERTAKEN BY THE APPELLANT ARE NOT COVERED U/S, 40A(2)(B). SHAREHOLDING PATTERN OF ACPL MENTIONED SUPRA ALLUDE S THAT APPELLANT IS HAVING ONLY 6.34% SHAREHOLDING AND HENCE PROVISIONS OF SECTION 40A(2)(B) CANNOT BE INVOKED. INCIDENTALLY, THE ID A O EXCEPT FOR MAKING THIS PLA IN STATEMENT HAS NOT BROUGHT ON RECORD ANY EVIDENCE IN SUPPORT OF HIS FINDING THAT IMPUGNE D PARTIES ARE RELATED WITH APPELLANT U/S. 40A(2)(B), TO THIS EXTENT, THE ACTION OF THE I D A O HAS BEEN FOUND TO BE ERRONEOUS. CONSEQUENTLY, THE GROUND OF APPEAL NO. 3 RAISED DES ERVES TO BE ALLOWED AND THE SAME IS ALLOWED, IT WOULD HOWEVER BE PERTINENT TO POINT OUT THAT THE ADDITIONS MADE BY THE ID A O IS NOT RESTING ONLY ON THE ISSUE OF INVOKING PROV ISIONS OF SECTION 40A(2)(B) BUT HAS ANOTHER IMPORTANT LIMB OF LACK OF GENUINENESS OF TH E TRANSACTION. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 6 4.4 THUS, NOW COMING TO GROUND OF APPEAL NO. 2 WHICH CO NCERNS THE ADDITION OF RS. 77,95,670/- PERTAINING TO LOSS INCURRED IN TRANSACT ION WITH JAY JEWELLERS, S K JEWELLERS AND ACPL IT IS SEEN THAT THAT THE ARGUMENTS OF APPE LLANT AND THE EVIDENCES PRODUCED ARE FAR FROM CONVINCING AND CANNOT BE RELIED UPON. PERUSAL OF ANNEXURE-A SUPRA, INDICATES THE UNDISPUTED FACTS OF THE CASE THAT THE ITEMS COMPRISING DIAMONDS AND 99.5% PURITY GOLD BARS AND GOLD ORNAMENTS WAS SOLD BY THE APPEJLANT TO THE THREE PARTIES WHICH WERE PURCHASED BY HIM ON THE VERY DATE OF SAL E I.E. TO SAY THE TRANSACTION IS RESPECT OF WHICH LOSS HAS BEEN INCURRED PERTAINS TO THE PURCHASES AND SALES HAVING BEEN MADE ON THE SAME DAY PERUSAL OF THE SAID STATE MENT INDICATES THAT THE TRANSACTION OF SALE WITH JAY JEWELLERS WAS MADE ON 3-11-2008, W ITH ACPL MADE ON SEVEN DIFFERENT DATES BETWEEN THE PERIOD 12-1-09 TO 21-1-09 AND FRO M 13-3-09 TO 20-3-09. SIMILARLY THE SOLITARY TRANSACTION WITH S K JEWELLERS WAS MADE ON 25-3-09. THE ARGUMENT OF APPELLANT THAT THE LOSS INCURRED IS RELATABLE TO ITS NAIVETY WITH THE BUSINESS OF TRADING OF JEWELLERY THUS GETS DEFEATED. ASSUMING WITHOUT CONCEDING THAT THE APPELLANT WAS NEW IN THE LINE OF BUSINESS AND HENCE WOULD SUFFER THE LOSS, THE QUEST ION ARISES IS THAT NO PRUDENT BUSINESSMAN, IRRESPECTIVE OF HIS INEXPERIENCE, WOUL D REPEAT THE SAME MISTAKE AGAIN AND AGAIN. HYPOTHETICALLY ASSUMING, IT IS UNDERSTOOD TH AT LOSS MAY OCCUR IN RESPECT OF A COMMODITY BUT THE QUESTION THAT ARISES IS WHY SHOUL D ONE CONTINUE TO INCUR LOSS IN SALE / PURCHASE OF A COMMODITY REPEATEDLY FULLY KNOWING TH AT THE EARLIER TRANSACTIONS HAVE RESULTED IN LOSS. IN FACT, THE ARGUMENTS OF APPELLA NT OF NAIVETY OF BUSINESS THUS GETS SELF DEFEATED SINCE A NEW PERSON IN BUSINESS WOULD NOT A TTEMPT TO ENTER A TRANSACTION WHICH HAS EARLIER RESULTED IN A LOSS. THE ARGUMENT OF THE APPELLANT THAT THE LOSS WAS INCURRED ON ACCOUNT OF BEING NEW IN BUSINESS, THUS FAILS. 4.5 WITHOUT PREJUDICE TO ABOVE, THE ARGUMENT OF THE APP ELLANT THAT THE INCURRED LOSS IS RELATABLE TO THE ISSUE OF GOLD AND DIAMOND MARKET B EING HIGHLY VOLATILE AND FLUCTUATING HAS BEEN CONSIDERED AND FOUND TO BE NOT SUPPORTING THE APPELLANTS CASE. THERE IS NO DENYING TO THE FACT THAT THE GOLD AND BULLION MARKE T IS VOLATILE AND FLUCTUATING BUT AT THE SAME TIME IT IS ALSO TRUE THAT THE FLUCTUATIONS ARE INTER DAY AND NOT INTRADAY. THE GOLD AND BULLION MARKET THOUGH FLUCTUATES OVER A PERIOD OF TIME BUT THE FLUCTUATIONS ARE NOT SUDDEN UNLESS THERE IS SOME MAJOR CATASTROPHE IN TH E NATIONAL OR INTERNATIONAL POLITICAL, ECONOMIC OR SOCIAL SITUATION. THERE COULD BE A POSS IBILITY OF A MARGINAL INCREASE OR DECREASE IN THE PRICES WHEN A COMPARISON IS MADE BE TWEEN TWO DAYS BUT THE PRICES OF SALE AND PURCHASE FOR A PARTICULARS DAY ARE ALWAYS FIXED. IT DOES NOT WORKS LIKE A STOCK MARKET WHERE THE SALE PURCHASE PRICE OF SHARES VARY DURING A PARTICULAR DAY. THE INTRADAY PRICE VARIATIONS HAPPEN ONLY AT THE MCX -G OLD AND BULLION EXCHANGE WHEREIN TRADING OF GOLD OF PURCHASE IS DONE BUT THE FACT RE MAINS THAT THE APPELLANT HAS NOT TRANSACTED ON THE FLOOR OF MCX BUT HAS MERELY TRADE D AS AN ORDINARY BUSINESSMAN. EVEN IF ASSUMING, THAT THE SALE PRICE OF GOLD BOUGH T BY THE APPELLANT ON A PARTICULAR DAY WAS LESS THAN ITS PURCHASE PRICE, THE APPELLANT COU LD HAVE EASILY WAITED FOR THE PRICE TO RISE EITHER TO THE LEVEL OF ITS PURCHASES OR HIGHER THAN THAT. NO JUSTIFICATION IS AVAILABLE ON RECORDS, TO INDICATE AS TO WHAT WERE THE COMPELL ING CIRCUMSTANCES WITH THE APPELLANT TO SELL GOLD AND DIAMOND EVERY TIME BELOW THE PURCH ASE PRICE AND THEREBY OCCURRING A LOSS AND ERODING HIS CAPITAL,. THUS THE ARGUMENT OF THE APPELLANT TOTALLY FAIL THAT THE LOSS IS ATTRIBUTABLE TO FLUCTUATIONS IN THE GOLD AND DIA MOND MARKET. 4.6 ANOTHER ARGUMENT OF THE APPELLANT THAT THE MAJOR LO SS IS ATTRIBUTABLE TO ACPL FROM WHOM THE APPELLANT HAS OBTAINED INTEREST FREE LOAN AND THAT THE LOSS INCURRED IS JUSTIFIED AS THE SAME IS NOTIONALLY SET OFF AGAINST THE NOTIO NAL INTEREST INCOME OF RS. 48,04,106/- APPROX FROM THE SAID PARTY. IT HAS BEEN STATED THAT CONS EQUENTLY EVEN LOWER RATE OF SALE IS ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 7 JUSTIFIED SINCE OTHERWISE APPELLANT WOULD HAVE CLAI MED INTEREST EXPENDITURE OF ATLEAST RS. 48.04.106/- APPROX. THE APPELLANT HAS ARGUED THAT THERE IS THEREFORE NO REVENUE TOSS THE APPELLANT ;;HAS ALSO ARGUED THAT PRESUMING THE SALES HAVE BEE N MADE TO PARTIES AT LOWER RATES THEN SUCH PARTIES HAVE ALSO OFFERED A HIGHER PROFITS SINCE PURCHASES IN THEIR HANDS ARE LOW, THUS, ONCE AGAIN THE APPELLANT HAS RAISED THE THEORY OF NO LOSS TO THE REVENUE. THE ARGUMENT OF THE SAID PARTIES SHOWING HIGHER PRO FITS ARE PURELY HYPOTHETICAL. WITHOUT PREJUDICE TO THE FACT THAT THE APPELLANT HAS NOT PR OVIDED ANY DETAILS TO ESTABLISH HIS HYPOTHESIS, THE FACT REMAINS THAT THE ARGUMENT PER SE IS IRRELEVANT. THE ISSUE IS NOT AS TO WHETHER THE PARTIES TO WHOM SALES HAD BEEN MADE BY THE APPELLANT HAD OFFERED HIGHER PROFITS OR NOT IN RESPECT OF TRANSACTION ENTERED WI TH THE APPELLANT BUT THE CORE ISSUE IS ABOUT THE GENUINENESS OF THE CLAIM OF EXPENDITURE. THE ARGUMENT OF THE APPELLANT THAT THE LOSSES INCURRED IN TRANSACTIONS WITH ACPL ARE J USTIFIED BECAUSE THEY HAVE ADVANCED HIM INTEREST FREE FUNDS IS UNTENABLE THE ARGUMENT O F THE APPELLANT IS ACTUALLY SELF DEFEATING SINCE BY MAKING THE STATEMENT, THE APPELL ANT HAS ACTUALLY ADMITTED THAT IT HAS MADE SALES TO ACPL AT PRICES BELOW THE PURCHASE PRI CE AND INCURRED LOSS SO AS TO OFFSET THE INTEREST PAYABLE TO THE ACPL. IN THE CASE OF ME DOWELLS, HON'BLE APEX COURT HAS OBSERVED THAT WHEREAS THE TAX AUTHORITIES CANNOT EN TER INTO THE SHOES OF BUSINESSMAN AND DECIDE AS TO HOW A BUSINESS IS TO BE CONDUCTED BUT AT A SAME TIME, THEY ARE FULLY EMPOWERED TO LIFT THE CORPORATE VEIL SO AS TO DISCO VER THE TRUTH AND REALITY OF A TRANSACTION. THE HYPOTHESIS OF THE LOSS INCURRED O N TRANSACTION WITH ACPL RELATABLE TO THE ISSUE OF NON-PAYMENT OF INTEREST ON LOANS RECEI VED BY THEM APPARENTLY IS THE TRUE STORY OF THIS CASE. IT IS UNDISPUTED THAT APPELLANT , EVEN THOUGH NOT WITHIN THE MEANING OF SECTION 40A(2)(B), IS CLOSELY RELATED WITH ACPL BY VIRTUE OF HOLDING 6.34% SHARES OF THE SAID COMPANY. IT IS AN UNDISPUTED FACT THAT PRIVATE LIMITED COMPANIES ARE FORMED BY PEOPLE CLOSELY RELATED TO EACH OTHER IN TERMS OF BL OOD RELATIONS, FRIENDLY OR SOCIAL ACQUAINTANCES OR COMMON BUSINESS OBJECTIVES AND ARE ACTUALLY TOOLS FOR TAX PLANNING THE APPELLANT HAS ADMITTEDLY OBTAINED HUGE ADVANCES FROM ACPL. ORDINARILY ACPL WOULD HAVE DEMANDED AND THE APPELLANT WOULD HAVE BE EN REQUIRED TO PAY INTEREST TO ACPL ON SUCH ADVANCES. INTEREST EARNINGS IN THE HA NDS OF ACPL WOULD HAVE RESULTED IN TAX INCIDENCE IN THEIR HANDS. CONSEQUENTLY, WITH A VIEW TO AVOID THE INCIDENCE OF TAXATION, THE TWO PARTIES ENTERED INTO A CALLOUS TR ANSACTION BY WHICH THE APPELLANT AGREED TO SELL THE PARTY GOLD BARS OF 99.5% PURITY AT BELO W THE MARKET PRICE IN LIEU OF NON PAYMENT OF INTEREST ON THEIR DEPOSITS. THE PROFITS EARNED BY ACPL ON PURCHASES MADE FROM THE APPELLANT WAS THEN SET OFF AGAINST OTHER E XPENSES. IT IS PERTINENT TO POINT OUT THAT THE APPELLANT HAS INCURRED TOTAL LOSS ON TRANS ACTIONS ENTERED WITH ACPL AGGREGATING TO 70,94,680/-. THE APPELLANT HAS SUBMITTED THAT EV EN THOUGH MARKET RATE OF INTEREST IS 18% EVEN IF ASSUMING A MODEST RATE OF 15% THE NOTI ONAL INTEREST PAYABLE BY HIM ON ADVANCES RECEIVED FROM ACPL WORKS OUT TO 48.04.106/ -.NOW AT 18% THE INTEREST PAYABLE TO ACPL WOULD BE IN THE REALM OF RS 72,00,000/- APP ROX. THUS THE -FIGURE OF THE LOSS INCURRED IN TRANSACTIONS WITH ACPL AND THE FIGURE O F NOTIONAL INTEREST THAT WAS PAYABLE BY APPELLANT TO ACPL IS MORE OR LESS IDENTICAL AND PRO VES THE ABOVE TAKEN HYPOTHESIS THAT THE TRANSACTION WITH ACPI IS A COLOURABLE TRANSACTIONS ATTEMPTED WITH SOLE OBJECTIVE OF AVOIDING OF TRUE INCIDENT OF TAXATION IN THE HANDS OF THE TWO PARTIES. THE ARGUMENT OF THE APPELLANT THUS SQUARELY FAILS. THE ARGUMENT OF THE APPELLA NT THAT ALL THE SALE / PURCHASE VOUCHERS AND INVOICES WERE ENTERED IN THE BOOKS OF AC COUNTS, RECEIPTS AND PAYMENTS MADE THROUGH BANKING CHANNEL, A O IN HIS INDEPENDENT INQUI RIES WITH THE PARTIES HAVE NOT FOUND ANY INFIRMITY ARE IRRELEVANT SINCE THE MERE FACT THAT BA NKING CHANNEL HAS BEEN USED FOR A TRANSACTION DOES NOT PER SE PROVES THE GENUINENESS T HEREOF ADMISSIBILITY OR OTHERWISE OF AN EXPENDITURE IS TO BE EXAMINED FROM THE CORE ISSUE OF C OMMERCIAL EXPEDIENCY THEREOF. AS DISCUSSED ABOVE, THE TRANSACTIONS OF LOSS REPORTEDLY IN CURRED AND CLAIMED BY THE APPELLANT SUFFER FROM THE VICE OF BEING A GENUINE BUSINESS TRANS ACTION. DISCUSSIONS MADE ABOVE ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 8 INDICATE THAT THE LOSS WAS SELF CREATED AND WAS NOT N ATURALLY INCIDENTAL TO THE APPELLANTS BUSINESS. CONSEQUENTLY, IT IS HELD THAT THE ADDITION MA DE BY THE ID A O BY DISALLOWING APPELLANTS CLAIM OF LOSS OF RS. 77,95,670/- IS BASED U PON CORRECT UNDERSTANDING OF THE FACTS OF THE CASE AND DOES NOT REQUIRE ANY INTERFERENCE AT THIS STAGE. THE ADDITION MADE BY THE ID A O IS THEREFORE CONFIRMED AND THE GROUND OF APPEAL NO. 2 RAISED BY THE APPELLANT IS DISMISSED. 7. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. LD. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT IT IS AN ESTABLISHED FACT THAT THE ALLEGED THREE PARTIES NAMELY- (1) JAY JEWELLERS, ARYAVART COMMODITIES PVT. LTD. AND S. K. JEWELLERS ARE NOT R ELATED/SISTER CONCERN OF THE ASSESSEE, AS THEY DO NOT FALL UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT [AS RIGHTLY ADJUDICATE D BY LD. CIT(A)]. AS REGARDS THE ALLEGED NON BONA FIDENESS OF THE TRANSA CTIONS ENTERED INTO WITH THE THREE PARTIES, THE ASSESSING OFFICER HAS MADE DIRECT INQUIRIES AND THE TRANSACTION WITH THE APPELLANT HA VE BEEN DULY CONFIRMED WITH THEM. EXPLAINING THE DETAILS OF TRAN SACTIONS WITH THE ALLEGED THREE PARTIES LD. AR SUBMITTED THAT - (A) AS REGARDS JAY JEWELLERS, IT IS PERTINENT TO NO TE THAT JAY JEWELLERS IS NOT AN ASSOCIATED GROUP CONCERN OR EVE N A DISTANT RELATIVE OF THE APPELLANT. THE ASSESSMENT OF JAY JE WELLERS HAS ALSO BEEN COMPLETED U/S 143(3) OF THE ACT AND NO AD VERSE INFERENCE HAS BEEN DRAWN IN HIS CASE IN RESPECT OF THE PURCHASE MADE BY HIM FROM THE APPELLANT. IN FACT, T HE DIAMONDS HAVE BEEN PURCHASED ON 3.11.2008 AND SOLD AT MORE OR LESS SIMILAR RATES ON THE VERY SAME DATE. IT IS NOT POSS IBLE FOR THE PRICES TO RISE ABNORMALLY ON THE VERY SAME DATE SO AS TO ENTITLE THE APPELLANT TO HUGE PROFITS AS PRESUMED BY THE AS SESSING OFFICER. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 9 (B) AS REGARD TO ACPL THE LD. ASSESSING OFFICER HA S ASSUMED THAT AARYAVART COMMODITIES PVT. LTD. IS A GROUP CON CERN AND THERE IS COLLUSION WITH THEM WHEREBY SALES HAVE BEE N MADE AT SUPPRESSED RATES WITH A VIEW TO BOOK PAPER LOSSES. AT THE OUTSET IT IS CLARIFIED THAT THE DIRECTORS OF THE AF ORESAID COMPAY ARE NOT EVEN REMOTELY RELATED TO THE APPELLANT IN Q UESTION. APART FROM COMMERCIAL AND BUSINESS TRANSACTION THERE IS N O OTHER RELATION WHATSOEVER WITH THE AFORESAID COMPANY. COP Y OF THE ACPL IS ENCLOSED FOR YOUR KIND REFERENCE. THE PERUS AL OF THE SAME WOULD REVEAL THAT THERE ARE HUGE CREDIT BALANC ES (AMOUNT PAYABLE) WHICH CONTINUED RIGHT UPTIL 13.03.2009. TH E AMOUNT PAYABLE VARY FROM RS.21.14 CRORES TO RS.2.60 CRORES . THEREAFTER ON ACCOUNT OF THE SALES MADE THERE EXIST A MAXIMUM DEBIT BALANCE OF RS.8.39 CRORES WHICH CONTI NUES TILL 20.03.2009. THEREFORE, THE DEBIT BALANCE CONTINUES FOR HARDLY ABOUT 7 DAYS. THEREAFTER TILL 31.3.2009 THERE IS A CREDIT BALANCE RANGING FROM 12.82 CRORES TO 4.13 CRORES. THEREFORE , IT CAN BE OBSERVED THAT THE ASSESSEE HAS IN FACT UTILIZED INT EREST FREE FUNDS OF ACPL RANGING FROM 21 CRORES TO 5 CRORES. P RESUMING THAT INTEREST HAD BEEN PROVIDED AT 15% WHICH IS THE PREVAILING RATE THE INTEREST PAYABLE WOULD HAVE BEEN RS.480410 6. THE CALCULATION OF THE INTEREST PAYABLE IS ALSO FURNISH ED SEPARATELY. HOWEVER, THE APPELLANT HAS MADE NO SUCH INTEREST PA YABLE. NOW IF THE ALLEGED LOSS ON THE TRANSACTION FOR THE MONTH OF JANUARY, 2009 IS TAKEN INTO CONSIDERATION THE SAME WORKS OUT TO RS.51,01,590/- WHICH IS MORE OR LESS THE GAINS DERI VED BY THE ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 10 APPELLANT BY NON PAYMENT OF INTEREST. IT IS VERY NA TURAL CONSEQUENCE THAT THE SUPPLIER HAS TO BE COMPENSATED BY THE NON CHARGING OF INTEREST WHICH CAN BE RELATED TO TH E LOWER SELLING PRICE. ON ACCOUNT OF THE REASON THAT THE AP PELLANT WAS NOT IN A POSITION TO RAISE FUNDS FOR THE PAYMENT OF INTEREST THE SALES AT A LOWER RATE HAVE BEEN MADE WHICH IS A NOR MAL BUSINESS PRACTICE FOLLOWED. FURTHER LD. AR BY REFER RING TO THE IMPUGNED TRANSACTION ENTERED ON 17.3.2009 WITH ACPL APPRAISED THE BENCH THAT SALE TRANSACTION WHICH TOO K PLACE WITH ACPL @ RS.1306 PER GRAM WAS NOT EXAMINED WITH THE F ACT THAT ON THE VERY SAME DAY ASSESSEE MADE PURCHASES FROM M /S HARSHAD JEWELLERS VIDE BILL NO.194 DATED 17.3.2009 FROM WHOM QUANTITY OF 5,000 GRMS OF GOLD WAS PURCHASED @ RS.1 305 PER GRAM AND THESE PURCHASES FROM M/S HARSHAD JEWELLERS HAS NOT BEEN DISPUTED BY THE ASSESSING AUTHORITY AT ANY STA GE. REFERRING TO THIS FACT LD. AR SUBMITTED THAT THE AS SESSING OFFICER HAS MADE A COMPARISON OF THE PURCHASE AND SALES RAT ES WHICH IS RS.1580 AND RS.1306 RESPECTIVELY. HOWEVER, FOR I NEXPLICABLE REASONS THE ASSESSING OFFICER HAS COMPLETELY IGNORE D THE FACT THAT ON THAT VERY DAY GOLD HAS BEEN PURCHASED AT TH E RATE OF RS.1305/- ALSO. THE ASSESSING OFFICER HAS COMPLETEL Y IGNORED THE FACT THAT ON 18.3.2009 THE APPELLANT HAS PURCHA SED FROM HARSHAD JEWELLERS GOLD OF 8000 GMS AT RS.1305/-. TH E ASSESSEE HAS MADE SALES AT RS.1306/-. THEREFORE, TH ERE IS NO LOSS ARISING TO THE ASSESSEE AS HAS BEEN WRONGLY PR ESUMED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS CH OSEN TO IGNORE THE COMPARATIVE PURCHASE BILL OF THE SAME IT EM ON THAT ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 11 VERY DATE. THEREFORE, THERE IS NO LOSS OCCASIONED B Y THE APPELLANT AS PRESUMED BY THE ASSESSING OFFICER. WE HAD ALSO FURNISHED THE CONFIRMATION OF HARSHAD JEWELLERS IND ICATING THE DETAILED ADDRESS AND PAN DURING THE COURSE OF ASSES SMENT PROCEEDINGS AND AFTER THE INQUIRY THE ASSESSING OFF ICER HAS NOT BROUGHT OUT ANY MATERIAL OR EVIDENCE ON THE BASIS O F WHICH AN ADVERSE INFERENCE CAN BE DRAWN. THE ASSESSING OFFIC ER HAS STATED THAT THE PURCHASE IS OF RS.1470.20 PER 10 GM S. HOWEVER, THE AO HAS COMPLETELY IGNORED THE FACT THA T ON 20.03.2009 PURCHASE HAS ALSO BEEN MADE FROM HARSHAD JEWELLERS AT THE RATE OF RS.1305/- IF THE AFORESAID PURCHASE FROM HARSHAD JEWELLERS IS DULY TAKEN INTO CONSIDERATION THEN THERE WOULD BE NO SUCH LOSS AS PRESUMED BY THE ASSESSING OFFICER. COPY OF THE PURCHASE/SALE BILLS ARE ALSO ENCLOSED F OR YOUR KIND REFERENCE. (C) AS REGARDS S. K. JEWELLERS LD. AR SUBMITTED THA T THE ASSESSING OFFICER IN THIS CASE HAS WRONGLY PRESUMED THAT S. K. JEWELLERS IS A CLOSE BUSINESS ASSOCIATE. IN FACT AS PER OUR INFORMATION THE PROPRIETOR OF S. K. JEWELLERS HAS B EEN DULY SUMMONED BY THE ASSESSING OFFICER AND HIS STATEMENT WAS ALSO RECORDED. FURTHERMORE THE ASSESSING OFFICER HA S ALSO NOT TAKEN INTO CONSIDERATION THE GOODS OF THE SAME QUAN TITY HAVE BEEN SOLD TO HARSHAD JEWELLERS AT THE RATE OF RS.14 40/-. COPY OF THE SALE BILL IS ALSO ENCLOSED FOR YOUR KIND REF ERENCE. THUS THERE IS NO SUPPRESSION OF SALES AS PRESUMED BY THE ASSESSING OFFICER. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 12 8. LD. AR ALSO REFERRED TO THE LEDGER ACCOUNT FOR T HE F.Y.2008-09 WITH ACPL WHEREIN ROUND THE YEAR TRANSACTIONS HAVE TAKEN PLACE WITH REGARD TO GOLD PURCHASE/GOLD SALES AND MOVEMENT OF FUNDS AND LD. ASSESSING OFFICER HAS ERRED IN ONLY SELECTING THOSE TRANSACTIONS WHICH HAVE ENDED UP IN LOSS WITHOUT GIVING COGNIZAN CE TO THE FACT THAT IN MOST OF THE OTHER TRANSACTIONS ASSESSEE HAS ENDE D UP IN MAKING PROFITS. IN SUPPORT THEREOF ITEMWISE CALCULATION OF PROFITS AND LOSS WERE FILED IN THE PAPER BOOK FROM PAGES 34 TO 45. LD. AR ALSO REFERRED TO THE ASSESSMENT ORDER U/S 143(3) FOR ASST. YEAR 2012 -13 FRAMED ON 13.2.2015 WHEREIN NO SUCH ADDITION/DISALLOWANCES HA VE BEEN MADE FOR THE ENTIRE TRANSACTIONS OF PURCHASE/SALE OF GOL D ITEMS EVEN WHEN REGULAR BUSINESS TRANSACTIONS HAVE TAKEN PLACE WITH THE ALLEGED PARTIES. SUMMARISING THE SUBMISSIONS LD. AR SUBMITT ED THAT ALL THE ALLEGED TRANSACTIONS HAVE BEEN ENTERED IN THE NORMA L COURSE OF BUSINESS, THROUGH PROPER BANKING CHANNELS AND DUE C ONFIRMATIONS FROM ALL THESE PARTIES HAVE BEEN PLACED ON RECORD E VIDENCING THAT THEY HAVE BEEN REGULARLY ASSESSED TO TAX AND NO ADV ERSE VIEW IN THE CASE OF THESE THREE PARTIES HAS BEEN TAKEN. BOOKS O F ACCOUNTS ARE AUDITED, QUANTITY DETAILS ARE REGULARLY MAINTAINED, NO MAJOR DOWN FALL IN THE G.P. RATES, BOOKS OF ACCOUNT HAVE NOT BEEN R EJECTED. THEREFORE, THE LD. ASSESSING OFFICERS ALLEGATION O F THE ASSESSEE THAT THESE IMPUGNED TRANSACTIONS ARE MANIPULATED IN ORDE R TO SHOW LOSSES ARE FAR FROM TRUTH AS THESE TRANSACTIONS ARE GENUIN E AND ARE NEITHER COLOURABLE NOR SHAM AND HAVE BEEN ENTERED PRUDENTLY BY THE ASSESSEE. IN SUPPORT, LD. AR REFERRED AND RELIED ON THE FOLLOWING DECISIONS :- ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 13 MARGHABHAI KISHABHAI PATEL & CO. VS. CIT (1977) 108 ITR 54 (GUJ) CIT VS. KESHAVLAL CHANDULAL (1966) 59 ITR 120 (GUJ) CIT VS. SHIVAKAMI CO.(P) LTD. (1986) 25 TAXMAN 80K (SC), 159 ITR 71 (SC) CIT VS. CALCUTTA DISCOUNT CO. LTD. (1973) 91 ITR 8 (SC) CIT VS. AMITBHAI GUNVANTBHAI (1981) 129 ITR 573 (GU J) K.P. VARGHESE VS. ITO (1981) 131 ITR 597 (SC) 9. LD. DEPARTMENTAL REPRESENTATIVE (DR) VEHEMENTLY ARGUED SUPPORTING THE ORDERS OF LOWER AUTHORITIES STRONGLY SUPPORTING THE VIEW THAT THE IMPUGNED TRANSACTIONS HAVE GIVEN RISE TO F ABRICATED LOSSES INTENTIONALLY MADE BY THE ASSESSEE TO LOWER DOWN TH E PROFITS. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US AND GONE THROUGH THE DECISIONS REL IED ON BY THE LD. AR. ASSESSEES APPEAL REVOLVES ROUND THE SOLITARY G RIEVANCE AGAINST THE ORDER OF LD. CIT(A) CONFIRMING ADDITION OF RS.77,95,670/- MADE BY LD. ASSESSING OFFICER FOR NOT ALLOWING THE CLAIM OF LOSSES INCURRED BY THE ASSESSEE IN CERTAIN SALE TRANSACTIO NS WITH JAY JEWELLERS, ACPL & S. K. JEWELLERS. WE FIND THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER SELECT ED 15 TRANSACTIONS OUT OF WHICH ONE EACH WAS JAY JEWELLER S AND S. K. JEWELLERS AND 13 TRANSACTIONS WITH ACPL. ALL THESE 15 TRANSACTIONS TOOK PLACE BETWEEN 3.11.2008 TO 28.3.2009 HAVING ON E COMMON FACTOR THAT IN ALL THESE 15 TRANSACTIONS GOLD BARS PURCHASED DURING THE DAY WERE SOLD AT A LOWER RATE GIVING RISE TO LOSSES . WITH REGARD TO JAY JEWELLERS AND S. K. JEWELLERS LOSS ARISING ON EACH IMPUGNED TRANSACTION WAS RS.2719/- AND RS.7,05,254/- RESPECT IVELY AND THE ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 14 REMAINING LOSS OF RS.70,87,697/- WAS SUFFERED IN TH E IMPUGNED REMAINING 13 TRANSACTIONS ENTERED INTO WITH ACPL. L D. ASSESSING OFFICER IGNORING THE ASSESSEES SUBMISSIONS THAT TH E GOLD PRICES ARE VERY VOLATILE AND THE IMPUGNED TRANSACTIONS WERE EN TERED IN THE NORMAL COURSE OF BUSINESS TOOK A VIEW THAT ASSESSEE HAS BEEN UNABLE TO JUSTIFY THAT THERE WAS ACTUALLY SO MUCH F LUCTUATION IN THE GOLD AND DIAMOND MARKET IN THESE DAYS DUE TO WHICH SALES WERE MADE AT SUCH LOWER PRICES. LD. ASSESSING OFFICER AL SO TOOK A VIEW THAT THESE THREE IMPUGNED PARTIES ARE RELATED/SISTE R CONCERNS OF THE ASSESSEE AND LOSSES HAVE BEEN INTENTIONALLY MANIPUL ATED BY THE ASSESSEE. 11. WE FURTHER OBSERVE THAT WHEN THE ISSUE CAME UP BEFORE THE FIRST APPELLATE AUTHORITY, RELATING TO THESE THREE PARTIE S AS TO WHETHER THE THREE PARTIES ARE RELATED TO THE ASSESSEE WAS ADJUD ICATED IN DETAIL BY LD. CIT(A) WHO CONCLUDED WITH A VIEW THAT ON THE BA SIS 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.77,95,67 0/- ON THE BASIS OF HIS OBSERVATION WHICH ERUPTED OUT OF THE ADDITIO NAL PLEA TAKEN BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCE EDINGS AND BEFORE THE FIRST APPELLATE AUTHORITY ASSESSEE HAD S UBMITTED THAT PRIMARILY ALL THE IMPUGNED 15 TRANSACTIONS HAVE BEE N ENTERED INTO IN THE NORMAL COURSE OF BUSINESS, NO OBJECTION HAS BEE N RAISED WITH REGARD TO THE PURCHASES MADE AND TRANSACTIONS ENTER ED WITH THE OTHER PARTIES DURING THE YEAR AND NO ANOMALY HAS BE EN FOUND IN THE ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 15 BOOKS OF ACCOUNT AND ASSESSEE HAS SHOWN A BETTER GP . ASSESSEE TOOK AN ADDITIONAL PLEA BY SUBMITTING THAT IT HAS R ECEIVED HUGE INTEREST FREE ADVANCES FROM ACPL AND IF AN INTEREST RATE OF 15% IS PRESUMED THEN ALSO AN APPROXIMATE INTEREST COST OF RS.48,04,106/- WOULD HAVE BEEN BORNE BY THE ASSESSEE. WITH THIS AD DITIONAL PLEA ASSESSEE SUBMITTED THAT THERE HAS BEEN NO LOSS OF R EVENUE BECAUSE ON ONE HAND THERE HAS BEEN LOSS IN THE SALE TRANSAC TION AND ON THE OTHER HAND INTEREST HAS NOT BEEN PAID ON THE ADVANC E/CREDIT RECEIVED FROM ACPL. THIS ADDITIONAL PLEA WAS TAKEN UP BY LD. CIT(A) IN DECIDING AGAINST THE ASSESSEE BY OBSERVING THAT IF THE RATE OF INTEREST IS TAKEN AT 18% AND IT IS APPLIED ON THE CREDIT BAL ANCE LYING WITH THE ASSESSEE RECEIVED FROM ACPL THEN APPROXIMATELY NOTI ONAL INTEREST WILL WORK OUT TO RS.72 LACS WHICH IS MORE OR LESS M ATCHES WITH THE LOSS SUFFERED BY THE ASSESSEE IN THE IMPUGNED 13 T RANSACTION WITH ACPL AND, THEREFORE, THESE ARE COLOURABLE TRANSACTI ONS ATTEMPTED WITH SOLE OBJECTIVE OF AVOIDING OF TRUE INCIDENT OF TAXATION IN THE HANDS OF THE TWO PARTIES. HOWEVER, LD. CIT(A) HAS NOT DIS PUTED THE FACT THAT ALL THE SALE AND PURCHASES VOUCHERS AND INVOICES AR E ENTERED IN THE BOOKS OF ACCOUNT, RECEIPTS AND PAYMENTS HAVE BEEN M ADE THROUGH BANKING CHANNELS, NO INFIRMITY HAS BEEN FOUND IN TH E INDEPENDENT ENQUIRIES CARRIED OUT WITH THE IMPUGNED THREE PARTI ES. THEREFORE, THERE REMAINS NO FORCE IN THE VIEW TAKEN BY LD. CIT (A) OF TAKING NOTIONAL INTEREST AS A BASE TO CONFIRM THE ADDITION . THE ONLY REASON FOR WHICH BOTH THE LOWER AUTHORITIES HAVE DENIED TH E ADMISSIBILITY OF THE LOSSES WAS THAT THESE TRANSACTIONS DO NOT JUSTI FY THE BENCH MARK OF COMMERCIAL EXPEDIENCY AS THERE WAS NO SPECIFIC REASON DUE TO WHICH APPELLANT SUFFERED LOSSES AGAIN AND AGAIN. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 16 12. ON FURTHER EXAMINATION OF FACTS WE OBSERVE FROM THE LEDGER ACCOUNT FOR F.Y. 2008-09 OF ACPL PLACED ON PAGES 15 TO 19 OF THE PAPER BOOK, FROM DECEMBER, 2008 TO MARCH, 2009 REGU LAR TRANSACTIONS OF PURCHASE, SALES AND MOVEMENTS OF FU NDS HAVE TAKEN PLACE AND REVENUE HAS NOT DISPUTED THE TRANSACTIONS OTHER THAN THE 13 TRANSACTIONS AND FOUND THEM TO BE GENUINE. THESE TRANSACTIONS OTHER THAN 13 TRANSACTIONS ALSO INCLUDES THOSE IN W HICH ASSESSEE HAS GAINED PROFITS. FURTHER LD. AR TOOK US THROUGH THE PURCHASES MADE FROM HARSHAD JEWELLERS PLACED AT PAGES 22 TO 25 OF THE PAPER BOOK OUT OF WHICH ON 17.3.2009 PURCHASES OF GOLD BARS HA VE BEEN MADE AT RS.1305 PER GM. AND WHEN WE LOOK AT THE IMPUGNED TR ANSACTIONS ENTERED ON 17.3.2009 GOLD BAR HAS BEEN SOLD TO ACPL AT RS.1306 PER GM AND ON THE VERY SAME DAY THERE HAS BEEN PURCHASE S FROM DEEP IMPEX @ RS.1580 PER GM. LD. ASSESSING OFFICER HAS A LLEGED THAT ASSESSEE HAD PURCHASED GOLD BARS ON 17.3.209 FROM D EEP 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 TRAN SACTIONS AS COLOURABLE BUT ON THE VERY SAME DAY ASSESSEE MADE S OME PURCHASES @ RS.1305 PER GM WHICH IS EVIDENCED BY TH E BILL. BOTH THESE PURCHASES FROM DEEP IMPEX AND HARSH JEWELLERS HAVE NO BEEN HELD TO BE INGENUINE WHICH PROVES THE CONTENTI ON OF ASSESSEE THAT THERE WAS A HIGH VOLATILITY. LD. ASSESSING OFF ICER 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 S ALE TRANSACTION TO ACPL OF GOLD BAR IS AT RS.1306 PER GM. AND ON THE VERY SAME DAY ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 17 THERE IS A PURCHASE OF RS.1305 PER GM FROM HARSHAD JEWELLERS VIDE ITS BILL NO.205 DATED 20.3.2009. THESE FACTS IN ITS ELF PROVES THE VOLATILITY OF GOLD/SILVER MARKET AND ALSO SHOWS THE GENUINENESS OF THE BUSINESS TRANSACTION ENTERED BY THE ASSESSEE WHICH REMAINS DISPROVED EVEN BY THE REVENUE. AT THIS JUNCTURE WE WOULD LIKE TO GO THROUGH THE JUDICIAL PRECEDENCE ADJUDICATING SUCH T YPE OF ISSUES. 13. WE OBSERVE THAT HON. JURISDICTIONAL HIGH COURT IN THE CASE OF MARGHABHAI KISHABHAI PATEL & CO. VS. CIT (SUPRA) WH ILE ADJUDICATING THE ISSUE RELATING TO PURCHASE OF TOBACCO FROM ITS PARTNERS AT HIGHER PRICE THAN AVERAGE PRICE PAID TO OUTSIDE PARTIES AN D HELD THAT THE TRIBUNAL WAS NOT JUSTIFIED IN DISALLOWING A PART OF ACTUAL PRICE OF TOBACCO PAID BY ASSESSEE FIRM WHEN IT WAS NOT SHOW N THAT THE TRANSACTION WAS NOT BONA FIDE OR ONE OR TO BE SHAM ONE OR PRICE PAID WAS NOT WHAT WAS SHOWN IN THE BOOKS OF ACCOUNT. IT WAS FURTHER HELD THAT IT WAS NOT OPEN TO THE TAXING AUTHORITIES TO D ISREGARD THE FIGURES OF HE TRANSACTIONS SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM. RELEVANT PORTION OF THE JUDGMENT OF HON. HIGH COURT IS REPRODUCED BELOW :- IT MAY BE POINTED OUT THAT THE DECISION OF THE MADR AS HIGH COURT IN SRI RAMALINGA CHOODAMBIKAI MILLS LTD. V. COMMISSIONER OF INCOME-T AX [1955] 28 1095,2 (MAD) WAS APPROVED AND FOLLOWED BY THE SUPREME COURT IN COMMI SSIONER OF INCOME-TAX V. CALCUTTA DISCOUNT COMPANY LTD. [ 1973] 9_1 ITRJJ. (SC) AND THERE THE SUPREME COURT HELD: 'WHERE A TRADER TRANSFERS HIS GOODS TO ANOTHER TRAD ER AT A PRICE LESS THAN THE MARKET PRICE, AND THE TRANSACTION IS A BONA FIDE ON E, THE TAXING AUTHORITY CANNOT TAKE INTO ACCOUNT THE MARKET PRICE OF THOSE GOODS, IGNORING THE REAL PRICE FETCHED, TO ASCERTAIN THE PROFIT FROM THE TRANSACTION. AN AS SESSEE CAN SO ARRANGE HIS AFFAIRS AS TO MINIMISE HIS TAX BURDEN.' ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 18 HEGDE J., AFTER NOTINGTHE DECISION OF THE MADRAS HI GH COURT IN SRI RAMALINGA CHOODAMBIKAI MILLS LID. V. COMMISSIONER OF INCOME-T AX (1955) 28 ITR 952 (MAD) AND THE EARLIER DECISION OF THE SUPREME COURT IN COMMIS SIONER OF INCOME-TAX V. A. RAMAN & COMPANY ' TR 11 (SC) OBSERVED AT PAGE 13 OF [1973] 91 ITR 8 (SC): BUT THE LAW DOES NOT OBLIGE A TRADER TO MAKE THE M AXIMUM PRO FIT THAT HE CAN OUT OF HIS TRADING TRANSACTIONS. INCOME WHICH ACCRUES T O A TRADER TAXABLE IN HIS HANDS: INCOME WHICH HE COULD HAVE, BUT HAS NOT EARN ED, IS NOT MADE TAXABLE AS INCOME ACCRUED TO HIM. BY ADOPTING A DEVICE, IF IT IS MADE TO APPEAR THAT INCOME WHICH BELONGED TO THE ASSESSEE HAD BEEN EARNED BY S OME OTHER PERSON, THAT INCOME MAY BE BROUGHT TO TAX IN THE HANDS OF THE AS SESSEE, AND IF THE INCOME HAS ESCAPED TAX IN A PREVIOUS ASSESSMENT A CASE COMMENC ING 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 INC OME BEFORE IT ACCRUES OR ARISES TO HIM. EFFECTIVENESS OF THE DEVICE DEPENDS NOT UPO N CONSIDERATIONS OF MORALITY, BUT ON THE OPERATION OF THE INCOME-TAX ACT, LEGISLA TIVE INJUNCTION IN TAXING STATUTES MAY NOT, EXCEPT ON PERIL OF PENALTY, BE VI OLATED, BUT IT MAY LAWFULLY BE CIRCUMVENTED. IT IS A WELL ACCEPTED PRINCIPLE OF LAW THAT AN ASSE SSEE 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 LIABI LITY BY START ING A SUBSIDIARY COMPANY AND TRANSFERRING KS SHARES TO THAT SUBSIDIARY COMPANY AND THUS FORGOING PAN OF ITS OWN PROFITS AND AT THE SAME TIME ENABLIN G ITS SUBSIDIARY TO EARN SOME PROFITS, SUCH A COURSE IS NOT IMPERMISSIBLE UNDER L AW.' IN VIEW OF THIS LEGAL POSITION AND PARTICULARLY IN VIEW OF THE DECISION OF THIS HIGH COURT IN COMMISSIONER- OF INCOME-TAX V. KESHAVLAI CKANDULA! [1966] 5_JTR_12() (GUJ), UNLESS IT HAS BEEN SHOWN THAT THE TRANSACTION IN QUESTION WAS A SHAM ONE OR UNLESS THE VALUE SHOWN WAS NOT THE VALUE IN THE BOOKS OF ACCOUNTS OR UNLESS IT WAS NOT A BONA FIDE TRANSACTION, IT IS NOT OP EN TO THE TAXING AUTHORIT IES TO DISREGARD THE FIGURES OF THE TRANSACTIONS SHOWN IN THE BOOKS OF ACCOUNT OF THE F IRM. THE CASE BEFORE THE MADRAS HIGH COURT IN SRI RAMALINGA CHOODAMBIKAI MILLS LTD. V. C OMMISSIONER OF INCOME-TAX [1955] 28 ITR 952 (MAD) AND BEFORE THIS HIGH COURT IN COMMISSIONER O F INCOME-TAX V. KESHAVLAI CHANDULAL [1966] 59_ITR12P (GUJ.) WAS DIRECTLY CONVERSE OF THE CASE BEFORE US. IN KESHAVLAI CHANDULAL'S CASE [1966] 5JJT]J12 () (GUJ) THE ALLEGATION WAS THAT THE FIRM'S PROFIT WAS SHOWN LESS BY REASON OF THE FACT OF SALE TO THE PARTNERS AT AN UNDER- VALUE. IN THE INSTANT CASE BEFORE US IT IS ALLEGED THAT THE FIRM'S PROFIT HAS BEEN SHOWN TO BE LESS BY REASON OF THE FACT THAT THE PURCHASES FROM THE PARTNERS ARE SHOWN TO BE AT AN INFLATED PRICE. THE SUPREME COURT HAS POINTED OUT I N CALCUTTA DISCOUNT COMPANY'S CASE [1973] 9.1 ITR 8 , 13 (SC), QUOTING FROM COMMISSIONER OF INCOME-TAX V. A. RAMAN & COMPANY [19681 67 ITR 11 (SC): 'AVOIDANCE OF TAX LIABILITY BY SO ARRANGING COMMERC IAL AFFAIRS THAT CHARGE OF TAX IS DISTRIBUTED IS NOT PROHIBITED. A TAXPAYER MAY RE SORT TO A DEVICE TO DIVERT THE ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 19 INCOME BEFORE IT ACCRUES OR ARISES TO HIM. EFFECTIV ENESS OF THE DEVICE DEPENDS NOT UPON CONSIDERATIONS OF MORALITY, BUT ON THE OPERATI ON 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.' IN THE INSTANT CASE, IT IS NOBODY'S CASE THAT THE T RANSACTIONS OF SALE FROM THE PARTNERS AND CHATURBHAI KISHABHAI PATEL TO THE ASSESSEE-FIRM WER E NOT BONA FIDE TRANSACTIONS NOR IS IT THE CASE OF THE DEPARTMENT THAT THEY WERE SHAM TRAN SACTIONS OR THAT THE PRICE PAID IN RESPECT OF EACH OF THESE TRANSACTIONS BY THE ASSESS EE-FIRM WAS OTHER THAN THE ONE SET OUT IN THE BOOKS OF ACCOUNT OF THE FIRM. UNDER THESE CI RCUMSTANCES IT APPEARS TO US THAT THE TAXING AUTHORITIES HAD NO RIGHT TO SUBSTITUTE EITHE R THE MARKET PRICE OR THE AVERAGE PRICE IN PLACE OF THE PRICE OR VALUE AGREED TO BETWEEN TH E PARTIES TO THE TRANSACTION, SINCE THE TRANSACTION HAS NOT BEEN SHOWN TO BE A SHAM ONE NOR HAS IT BEEN SHOWN THAT THE VALUE WAS NOT THE VALUE IN THE BOOKS OF ACCOUNT. BEFORE PARTING WITH THIS CASE IT MAY BE POINTED OUT THAT WE FAIL TO UNDERSTAND HOW THE INCOME-TAX OFFICER ARRIVED AT THE FIGURES OF ADDITI ON 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 T HE 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 AVERAG E 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 UNSCIE NTIFIC 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 THA T THE PRICES PAID WERE NOT WHAT WAS SHOWN IN THE BOOKS OF ACCOUNT AND SINCE NONE OF THE SE THREE CONCLUSIONS HAD BEEN REACHED BY HIM. HE HAD NO RIGHT TO DEPART FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE-FIRM, IN VIEW OF THESE CONCLUSIONS WE HOLD THAT THE TRIBU NAL WAS NOT JUSTIFIED IN DISALLOWING A PART OF THE ACTUAL PRICE OF TOBACCO PAID TO THE PAR TNERS AND QUESTION NO. (1) MUST, THEREFORE, BE ANSWERED IN THE NEGATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN VIEW OF OUR CONCLUSION IT IS REALLY NOT NECESSARY TO ANSWER QUESTION NO. (2) BUT IN ANY EVENT IT APPEARS THAT THE CONCLUSION REA CHED BY THE TRIBUNAL THAT THE PARTNERS AND THEIR RELATIVES WERE PAID HIGHER PRICE WAS ERRO NEOUS IN LAW AS THE TRIBUNAL HAS NOT COMPARED COMPARABLES. WE, THEREFORE, ANSWER QUESTIO N NO. (2) IN THE AFFIRMATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE COMMISSIONER WILL PAY THE COSTS OF THIS REFERENCE TO THE ASSESSEE. 14. WE FURTHER OBSERVE THAT HON. SUPREME COURT IN T HE CASE OF CIT VS. SHIVAKAMICO. P. LTD. (SUPRA) ADJUDICATING THE I SSUE WHEREIN ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 20 ASSESSEE WITH A VIEW TO SEQUESTERING THE SHARES HEL D BY ASSESSEE IN THE COMPANY FROM CLUTCHES OF GOVERNMENT, IT SOLD TH EM AT A PRICE MUCH LOWER THAN THEIR MARKET VALUE AND IN FACT INCU RRED A LOSS BUT REVENUE COULD NOT PROVE THAT CONSIDERATION WAS UNDE RSTATED. HON. COURT DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OB SERVING AS FOLLOWS:- 13. IN THE INSTANT CASE, ON BEHALF OF THE REVENUE, IT W AS CONTENDED THAT IT WAS ACCEPTED BOTH BY THE TRIBUNAL AND THE HIGH COURT TH AT THE TRANSACTIONS IN QUESTION WERE DONE IN ORDER TO DEFEAT THE CLAIM OF THE REVENUE. THE FACTS FOUND WERE THAT THERE WAS A SALE. THE HIGH COURT HAS STAT ED THAT THE TRIBUNAL HAD FOUND THAT THE CONSIDERATION WAS NOT UNDERSTATED [EMPHASIS SUPPLIED]. THE COUNSEL-FOR THE REVENUE CONTENDED THAT THIS WAS NOT CORRECT. ON THE OTHER HAND, AN INFERENCE COULD BE DRAWN THAT THE CONSIDERATION WAS UNDERSTATED. THE HIGH COURT ALSO NOTED THAT THE EXPLANATION GIVEN BY THE ASSESSEE FOR EFFECTING THE SATE WAS NOT ACCEPTABLE. 14. AS IT APPEARS FROM THE DECISION OF THIS COURT IN K.P. VARGHESE'S CASE (SUPRA), THE ONUS WAS ON THE REVENUE TO PROVE THAT THERE WAS UNDERSTATEMENT IN THE DOCUMENT NOT THAT THE GOODS WERE SOLD AT UNDERV ALUE. UNDERSTATEMENT OF A VALUE IS A MISSTATEMENT OF VALUE. SELLING: GOODS AT AN UNDERVALUE TO DEFEAT REVENUE IS DIFFERENT FROM UNDERSTATING THE VALUE IN THE DOC UMENT OF SALE. THE COUNSEL FOR THE REVENUE CONTENDED THAT IN THE BACK GROUND OF TH E FACTS OF THIS CASE, THE EVIL DESIGN OF THE ASSESSEE WAS CLEAR AND HE SAID THAT I T WAS DIFFICULT TO KNOW THE MIND OF MAN. THEREFORE, AN INFERENCE COULD BE DRAWN IN T HE FACTS OF THIS CASE AS NOTED BY THE TRIBUNAL THAT THERE WAS UNDERSTATEMENT OF VA LUE 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 RE VENUE. THERE IS NO EVIDENCE DIRECT OR INFERENTIAL THAT THE CONSIDERATION ACTUALLY RECE IVED BY THE ASSESSEE WAS MORE THAN WHAT WAS DISCLOSED OR DECLARED BY HIM. THE REL ATIONSHIP BETWEEN THE PARTIES HAS BEEN ESTABLISHED. THE DESIRE TO DEFEAT THE CLAI MS OF THE REVENUE HAS ALSO BEEN ESTABLISHED BUT THAT FACT THAT FOR THIS THE ASSESSE E 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. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 21 15. THE FIRST PROVISO TO SECTION 12B(2) PROVIDES 'FULL VALUE OF THE CONSIDERATION FOR WHICH THE SALE, EXCHANGE, RELINQUISHMENT OR TRANSFE R IS MADE 1 TO BE TAKEN AS THE BASIS FOR THE COMPUTATION OF THE CAPITAL GAINS. THE REFORE, UNLESS THERE IS EVIDENCE THAT MORE THAN WHAT WAS STATED WAS RECEIVED, NO HIG HER PRICE CAN BE TAKEN TO BE THE BASIS FOR COMPUTATION OF CAPITAL GAINS. THE ONU S IS ON THE REVENUE - THE INFERENCES MIGHT BE DRAWN IN CERTAIN CASES BUT TO C OME TO A CONCLUSION THAT A PARTICULAR HIGHER AMOUNT WAS IN FEET RECEIVED MUST BE BASED ON SUCH MATERIAL FROM WHICH SUCH AN IRRESISTIBLE CONCLUSION FOLLOWS. IN T HE INSTANT CASE, NO SUCH ATTEMPT WAS MADE. 16. AS THIS COURT HAS EXPLAINED IN K.P. VARGHESE'S CASE (SUPRA) THAT THE SECOND INGREDIENT THAT IS TO SAY THAT THE WORD 'DECLARED' IN SUB-SECTION (2) OF SECTION 52 IS VERY ELOQUENT AND REVEALING. IT CLEARLY INDICATED T HAT THE FOCUS OF SUB-SECTION (2) WAS ON THE CONSIDERATION DECLARED OR DISCLOSED BY T HE ASSESSEE AS DISTINGUISHED FROM THE CONSIDERATION ACTUALLY RECEIVED BY HIM AND IT CONTEMPLATED A CASE WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE IN RESPE CT OF THE TRANSACTION WAS NOT TRULY DECLARED OR DISCLOSED BY HIM BUT WAS SHOWN AT A DIFFERENT FIGURE. CAPITAL GAINS WAS INTENDED TO TAX THE GAINS OF AN ASSESSEE, NOT WHAT AN ASSESSEE MIGHT HAVE GAINED. WHAT IS NOT GAINED CANNOT BE COMPUTED AS GAINED. ALL LAWS, FISCAL OR OTHERWISE, MUST BE BOTH REASONABLY AND JUSTLY INTER PRETED WHENEVER POSSIBLE. CAPITAL GAINS TAX IS NOT A TAX ON WHAT MIGHT HAVE B EEN RECEIVED OR COULD HAVE TAXED, IN THIS CASE, THE REVENUE HAS MADE NO ATTEMP T TO ESTABLISH THAT THERE WAS ANY UNDER STATEMENT THOUGH IT MIGHT BE THAT SHARES WERE SOLD AT AN UNDERVALUE. 17. IN VIEW OF THE RATIO OF K.P. VARGHESE'S CASE (SUPRA) THE PROVISO TO SECTION 12B(1) CAN BE INVOKED ONLY WHERE THE CONSIDERATION FOR THE TRANSFER OF CAPITAL ASSET HAS BEEN UNDERSTATED BY THE ASSESSEE. THERE I S NO EVIDENCE AS DISCUSSED ABOVE THAT THE FULL CONSIDERATION RECEIVED BY THE A SSESSEE IN THE TRANSFER OF THE ASSETS INVOLVED IN THESE CASES HAS BEEN UNDERSTATED . THE PROVISO HELPS OR ENABLES THE DEPARTMENT BY PROVIDING A WAY TO DETERMINE THE MARKET VALUE. BUT THE PROVISO IS APPLICABLE ONLY WHERE THE FULL VALUE FOR THE CON SIDERATION HAS NOT BEEN STATED. THERE IS NO EVIDENCE, DIRECT OR INFERENTIAL, IN THE SE CASES THAT THE FULL CONSIDERATION HAD NOT BEEN STATED IN THE DOCUMENT. 18. IN THAT VIEW OF THE MATTER, IN OUR OPINION, THE APP EALS MUST FAIL, THOUGH ON DIFFERENT GROUNDS THAN 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 :- ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 22 IT IS A WELL ACCEPTED PRINCIPLE OF LAW THAT AN ASSE SSEE 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 STA RTING 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 SUBSIDIAR Y TO EARN SOME PROFITS, SUCH A COURSE WAS NOT IMPERMISSIBLE UNDER LAW. 16. WE ALSO OBSERVE THAT HON. JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. AMITBHAI GUNVANTBHAI (SUPRA) HAS HELD AS UNDER :- THE TRIBUNAL HAD OVERLOOKED ONE IMPORTANT FACT, NAM ELY, THAT THE ENTRIES IN THE BOOKS OF ACCOUNT OF 'G ', (HUF) WERE NOT CHALLENGED BY THE D EPARTMENT AS A DEVICE OR AS A CLOAK TO EVADE THE TAX. NOWHERE ON THE RECORD THE DEPARTM ENT CHALLENGED THAT THE ENTRIES DID NOT REFLECT THE REAL TRANSACTION BETWEEN THE PARTIE S. IN THE ABSENCE OF ANY SUCH CHALLENGE, ACCORDING TO THE ASSESSEE, IT WAS NOT OPEN TO THE T RIBUNAL TO COME TO THE CONCLUSION THAT THE MONEY WAS NOT RECEIVED BY 'G' IN HIS CAPACITY O F HUF BUT WAS RECEIVED BY HIM IN HIS CAPACITY AS THE GUARDIAN OF THE ASSESSEE. THE BASIC PRINCIPLE IS THE SAME IN THE LAW RELATING TO INCOME-TAX AS WELL AS IN CIVIL LAW, NAMELY, THAT IF THERE IS NO CHALLENGE TO THE TRANSA CTION REPRESENTED BY THE ENTRIES OR TO THE GENUINENESS OF THE ENTRIES, THEN IT IS NOT OPEN TO THE OTHER SIDE-IN THE INSTANT CASE THE REVENUETO CONTEND THAT WHAT IS SHOWN BY THE ENTRIE S IS NOT THE REAL STATE OF AFFAIRS. NO ATTEMPT WAS MADE BY THE DEPARTMENT TO SHOW THAT, IN FACT, THOUGH THE ENTRIES WERE MADE IN THE BOOKS OF ACCOUNT OF THE HUF, THE MONEYS WERE RECEIVED OR PASSED ON TO AMITBHAI OR THAT THE MONEYS WERE RECEIVED BY G IN HIS CAPACI TY AS THE GUARDIAN OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, THE DEPARTMENT NOT HAVING CHALLENGED THE GENUINENESS OF THE ENTRIES IN THE BOOKS OF ACCOUNT OF G, (HUF) AND THE RE BEING NO OTHER MATERIAL ON THE RECORD ON WHICH IT COULD BE SAID THAT THE MONEYS WE RE RECEIVED BY G IN HIS CAPACITY AS GUARDIAN OF MINOR, THERE WAS NO EVIDENCE BEFORE THE TRIBUNAL TO COME TO THE CONCLUSION AS IT DID AT THE END OF ITS ORDER BY WAY OF INFEREN CE THAT THE AMOUNT IN QUESTION DID REACH ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 23 THE REPRESENTATIVE ASSESSEE IN HIS CAPACITY AS GUAR DIAN OF ASSESSEE. THE ENTRIES WHICH WERE THE ONLY EVIDENCE ON RECORD SHOWED THAT THE AM OUNT WAS RECEIVED BY G IN HIS CAPACITY AS KARTA OF THE HUF BUT BEYOND THAT THERE WAS NO OTHER EVIDENCE. THE TRIBUNAL WITHOUT ANY EVIDENCE ON THE RECORD HAD DRAWN THE IN FERENCE THAT THE AMOUNT IN QUESTION DID REACH THE REPRESENTATIVE ASSESSEE IN HIS CAPACI TY AS GUARDIAN OF THE ASSESSEE. TO SAY THAT G WAS REPRESENTATIVE ASSESSEE OR THAT THE AMOU NT DID REACH THE REPRESENTATIVE ASSESSEE IN HIS CAPACITY AS GUARDIAN OF THE ASSESSE E, WAS NOT CORRECT SO FAR AS THE RECORD OF THE INSTANT WAS CONCERNED. THE INFERENCE DRAWN B Y THE TRIBUNAL THAT THE AMOUNT HAVING COME TO G'S HANDS MUST BE CONSIDERED TO HAVE REACHED HIS HANDS IN HIS CAPACITY AS GUARDIAN OF ASSESSEE WAS NOT WARRANTED BY THE EV IDENCE ON RECORD AND WAS CONTRARY TO WHATEVER EVIDENCE THAT HAD BEEN LED ON BEHALF OF THE ASSESSEE AND THIS EVIDENCE HAD NOT BEEN CHALLENGED ON BEHALF OF THE REVENUE. 17. FROM GOING THROUGH THE SERIES OF JUDGMENTS OF H ON. SUPREME COURT AND HON. JURISDICTIONAL HIGH COURT DISCUSSED IN PRECEDING PARAS, WE FIND THAT THE RATIOS LAID DOWN IN THESE J UDGMENTS CONTEMPLATE THAT IF THERE IS NO CHALLENGE TO THE TR ANSACTIONS ENTERED IN THE BOOKS OR TO THE GENUINENESS OF THE ENTRIES, THE N IT IS NOT OPEN ON THE SIDE OF REVENUE TO CONTEND THAT WHAT IS SHOWN I N THE TRANSACTIONS/ENTRIES IS NOT THE REAL STATE OF AFFAI RS. IN THE INSTANT CASE ALSO WE FIND THAT REVENUE HAS MISERABLY FAILED TO M AKE 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 M ORE CONSIDERATION THAN THE ACTUAL TRANSACTION OF SALE. FURTHER EVEN IN THE INDEPENDENT ENQUIRIES CONDUCTED ON THE ALLEGED THRE E PARTIES IT ENDED UP WITHOUT GIVING ANY IOTA OF EVIDENCE AGAINS T THE ASSESSEE AS THE SAME HAVE NOWHERE BEEN HIGHLIGHTED IN THE ASSE SSMENT ORDER. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 24 18. WE ARE, THEREFORE, OF THE VIEW THAT THE ACTION OF LD. ASSESSING OFFICER WAS ERRONEOUS AS HE HAS SELECTED ONLY FEW T RANSACTIONS ON WHICH ONLY LOSS HAS INCURRED WITHOUT GIVING COGNIZA NCE TO THE FACT THAT ASSESSEE HAS GAINED IN OTHER TRANSACTIONS WITH THE IMPUGNED PARTIES WHICH ARE VERY WELL EVIDENCED WITH THE INDEPENDENT ITEMWISE TRANSACTION DETAILS FORMING PART OF THE BOOKS OF AC COUNT OF ASSESSEE PLACED AT PAGES 35 TO 45 OF THE PAPER BOOK. LD. ASS ESSING OFFICER ALSO FAILED TO POINT OUT ANY MISTAKE IN THE ALLEGED TRANSACTIONS EXCEPT MENTIONING THAT THE LOSS HAS BEEN INCURRED. LD. ASS ESSING OFFICER COMPLETELY FAILED TO APPRECIATE THAT EVERY ASSESSEE HAS HIS OWN STYLE OF DOING BUSINESS AND MORE SPECIFICALLY IN THE KIND OF BUSINESS ASSESSEE IS ENTERED INTO IT IS WELL ESTABLISHED THA T THERE IS REGULAR FLUCTUATIONS IN THE PRICES OF GOLD/SILVER/DIAMONDS AND JEWELLERY DUE TO WHICH PROFIT/LOSS ARE INCURRED. IN THE PRESENT CASE WHEN THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT WHICH ARE A UDITED AND ALL TRANSACTIONS ARE FULLY SUPPORTED BY BILLS AND VOUCH ERS, IMPUGNED TRANSACTIONS HAVE TAKEN PLACE THROUGH BANKING CHANN ELS, CONFIRMATIONS HAVE BEEN RECEIVED FROM THE ALLEGED P ARTIES NO ADVERSITY HAS BEEN FOUND IN THE STATEMENTS RECORDE D BY THE REVENUE OF THE ALLEGED PARTIES, QUANTITATIVE RECORDS ARE RE GULARLY MAINTAINED, SIMILAR TRANSACTIONS HAVE NOT BEEN DISPUTED EVEN IN THE SUBSEQUENT ASSESSMENT U/S 143(3) OF THE ACT AS SUPPORTED BY TH E COPY OF THE ORDER U/S 143(3) OF THE ACT FOR ASST. YEAR 2012-13 FRAMED ON 13.2.2015. WE, THEREFORE, HOLD THAT THE IMPUGNED 15 TRANSACTIONS GIVING RISE TO LOSS OF RS.77,95,670/- ARE GENUINE AND CANNOT BE TERMED AS COLOURABLE WITH THE INTENTION OF EVASION OF TAX AND LD. ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 25 ASSESSING OFFICER ERRED IN DISALLOWING THE SAME. WE ACCORDINGLY, SET ASIDE THE ORDER OF LD. CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2017 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 25/01/2017 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 1420/AHD/2013 ASST. YEAR 2009-10 26 1. DATE OF DICTATION: 24/01/2017 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 25/01/2017 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 25/1/17 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: