K.P.S.Oil Mills, Erode V. ACIT, Erode

ITA 2326/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9164 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 04-05-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 28-12-2015
• Court: TRIBUNAL
• Department Lawyers: K N DHANDA
• Assessee Lawyers: S SRIDHAR
• Keywords: Accommodation entries; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.2326/MDS/2015 / ASSESSMENT YEAR : 2012-13 M/S K.P.S OIL MILLS NO.117, BHAVANI ROAD ERODE 638 004 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE I ERODE [PAN AAFFK 2695 A ] ( &' / APPELLANT) ( ()&' /RESPONDENT) ./ I.T.A.NO.2327/MDS/2015 / ASSESSMENT YEAR : 2012-13 M/S MAHARAJA SIVAM INDUSTRIES P. LTD NO.119, BHAVANI ROAD ERODE 638 004 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE I ERODE [PAN AABCM 3049 D] ( &' / APPELLANT) ( ()&' /RESPONDENT) ./ I.T.A.NO.2350/MDS/2015 / ASSESSMENT YEAR : 2012-13 SMT. S . SARADHA PROPX. SRI MAHARAJA TRADER 117 BHAVANI ROAD ERODE 638 004 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE I ERODE [PAN AJCPS 0707 K ] ( &' / APPELLANT) ( ()&' /RESPONDENT) ITA NOS.2326/15 ETC. :- 2 -: / APPELLANT BY : S HRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI K.N.DHANDAPANI, JCIT / DATE OF HEARING : 04 - 05 - 2016 ! / DATE OF PRONOUNCEMENT : 09 - 06 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER ALL THE THREE APPEALS OF THE INDEPENDENT ASSESSEE S ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE COMMI SSIONER OF INCOME- TAX (APPEALS)-3, COIMBATORE, DATED 18.11.2015, FOR ASSESSMENT YEAR 2012-13. SINCE COMMON ISSUE ARISES FOR CONSIDERATIO N IN ALL THE APPEALS, WE HEARD THEM TOGETHER AND DISPOSING OF TH E SAME BY THIS COMMON ORDER. 2. SHRI S. SRIDHAR, LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE-FIRM, M/S K.P.S OIL MILLS, IMPORTED R BD PALMOLIEN OIL AND SOLD THE SAME TO THE SISTER CONCERNS. ACCORDING TO THE LD. COUNSEL, A LETTER OF CREDIT WAS OPENED IN RESPECT OF THE IMPOR T OF RBD PALMOLIEN OIL AND DUE TO EXCHANGE RATE FLUCTUATION, THE ASS ESSEE SUFFERED A LOSS OF ` 84,88,115/-. THE ASSESSEE HAS ALSO INCURRED EXPE NDITURE OF ` 96,07,514/- IN RESPECT OF THE IMPORT AND SALE OF RB D PALMOLIEN OIL. REFERRING TO THE ASSESSMENT ORDER MORE PARTICULARLY PAGES 3 & 4, THE LD. COUNSEL SUBMITTED THAT THE ASSESSING OFFICER H AS REFERRED ALL THE TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE AND THE SISTER ITA NOS.2326/15 ETC. :- 3 -: CONCERNS. THE GOODS PURCHASED WAS SOLD TO THE SIST ER CONCERNS ON THE SAME DAY AND THE LC OPENED WAS ALSO DISCOUNTED. TH E ASSESSING OFFICER DISALLOWED THE CLAIM OF LOSS OF ` 1,16,91,347/- ON THE GROUND THAT THEY ARE ALL ACCOMMODATION ENTRIES FOR TRANSFE RRING FUNDS TO THE SISTER CONCERNS. WHILE OBSERVING SO, THE ASSESSING OFFICER HIMSELF ALLOWED THE LOSS TO THE EXTENT OF ` 73,99,454/-. THE LD. COUNSEL FURTHER CLARIFIED THAT IT IS NOT KNOWN HOW THE ASSE SSING OFFICER COMPUTED THE LOSS AT ` 73,99,454/- IN THE HANDS OF THE FIRM M/S K.P.S OIL MILLS. REFERRING TO THE ASSESSMENT ORDER, THE LD. COUNSEL SUBMITTED THAT THE ASSESSING OFFICER ADMITS THAT THE BUSINESS OF THE ASSESSEE IS PURCHASING AND SELLING OIL TO ITS SISTER CONCERNS. THE ASSESSING OFFICER FURTHER FOUND THAT THE TRANSACTION OF PURCHASE AND SALE OF OIL DOES NOT BRING ANY MONITORY ADVANTAGE TO THE ASSESSEE, HOWE VER, THE LOSSES WERE SHIFTED TO THE SISTER CONCERNS. THE ASSESSING OFFICER HAS ALSO FOUND THAT SHIFTING OF LOSSES MAY NOT HAVE ANY TAX ADVANTAGE TO SISTER CONCERNS FOR THE YEAR UNDER CONSIDERATION. HOWEVER , THERE MAY BE AN IMPACT ON THE SISTER CONCERNS ON A LONG RUN. ACCOR DING TO THE LD. COUNSEL, THE FINANCIAL IMPACT THAT MAY RESULT ON TH E SISTER CONCERNS CANNOT BE ANTICIPATED NOW. BY OBSERVING SO, THE AS SESSING OFFICER FOUND THAT THE TRANSACTIONS ARE GENUINE AND THERE M AY BE AN ANTICIPATED IMPLICATION ON THE FINANCIAL MATTERS OF THE SISTER CONCERNS IN FUTURE. ACCORDING TO THE LD. COUNSEL, THIS KIND OF OBSERVATION CANNOT ITA NOS.2326/15 ETC. :- 4 -: BE A REASON FOR DISALLOWING THE CLAIM OF THE ASSES SEE. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE LOSS SUFFERED BY THE ASSESSEE IS ON THE GENUINE TRANSACTION OF IMPORT AND SALE OF RBD P ALMOLIEN OIL, HENCE THE SAME HAS TO BE ALLOWED. THE ASSESSING OFFICER, IN FACT, RESTRICTED THE LOSS AT ` 73,99,454/- AS AGAINST THE LOSS CLAIMED BY THE AS SESSEE AT ` 1,16,91,347/-. IN THE CASE OF MAHARAJA SIVAM INDU STRIES PVT. LTD., THE ASSESSING OFFICER DISALLOWED LOSS TO THE EXTENT OF ` 55,48,460/- AS AGAINST THE CLAIM OF ` 63,52,739/-. IN THE CASE OF SMT. S. SARADHA, THE ASSESSING OFFICER DISALLOWED LOSS TO THE EXTENT OF ` 45,50,321/- AS AGAINST THE CLAIM OF ` 62,23,780/-. THEREFORE, ACCORDING TO THE LD. COUNSEL, PART OF THE CLAIM OF LOSS WAS ACCEPTED BY THE ASSESSING OFFICER AND WHAT WAS DISALLOWED IS ONLY A PART OF T HE LOSS CLAIMED. THEREFORE, THE ASSESSING OFFICER HAS ACCEPTED THE T RANSACTION AS GENUINE. MERELY BECAUSE THERE MAY BE SOME FINANCIAL IMPLICATION IN FUTURE, THAT CANNOT BE ANTICIPATED DURING THE YEAR UNDER CONSIDERATION. ACCORDING TO THE LD. COUNSEL, THE ASSESSMENT HAS TO BE MADE ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD FOR THE Y EAR UNDER CONSIDERATION. IN ANTICIPATION OF FUTURE FINANCIAL IMPLICATION, THERE CANNOT BE ANY DISALLOWANCE FOR THE YEAR UNDER CONSI DERATION. 3. ON THE CONTRARY, SHRI K.N. DHANDAPANI, LD. DEPARTME NTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IMPORTE D RBD PALMOLIEN OIL AND SOLD THE SAME IN HIGH SEAS TO THE SISTER C ONCERNS. ALL OTHER ITA NOS.2326/15 ETC. :- 5 -: PURCHASES AND SALES ARE FROM AND TO THE SISTER CON CERNS ONLY. ONE SISTER CONCERN PURCHASES OIL AND THE SAME WAS SOLD TO ANOTHER SISTER CONCERN ON THE SAME DAY. THEREFORE, IT IS OBVIOUS THAT THE GOODS WERE NOT RECEIVED PHYSICALLY AND THE ENTIRE TRANSACTION WAS MADE ONLY THROUGH BOOK ENTRY. THE SISTER CONCERN, IN FACT, GI VES LC TO THE ASSESSEE ON THE SAME DATE OF SALE AND THIS WAS DISC OUNTED BY THE ASSESSEE. THE REALIZATION OF THE DISCOUNTED VALUE OF THE LC WAS TRANSFERRED TO THE OTHER SISTER CONCERN ON THE SAME DATE ON WHICH IT WAS DISCOUNTED. THE MATURITY OF LC WAS REMITTED TO SOME OTHER SISTER CONCERN AND LC WAS ULTIMATELY CLOSED. THE ASSESSE E CLAIMS THAT IT CHARGES FOR THE LC AS EXPENDITURE. ON A QUERY FROM THE BENCH WHEN THE ASSESSING OFFICER ACCEPTED THAT THE MAIN BUSINE SS OF THE ASSESSEE IS PURCHASE AND SALE OF OIL TO SISTER CONCERNS AND SHIFTING OF THE LOSS TO THE SISTER CONCERNS MAY NOT HAVE ANY TAX ADVANTAGE, HOW THE DISALLOWANCE CAN BE MADE DURING THE YEAR UNDER CONS IDERATION, THE LD. DR CLARIFIED THAT THE ASSESSING OFFICER IN ANTICIPA TION OF FINANCIAL IMPLICATION IN FUTURE, DISALLOWED THE CLAIM OF THE ASSESSEE. THE LD. DR FURTHER CLARIFIED THAT THE ASSESSING OFFICER OBSERV ED IN THE ASSESSMENT ORDER THAT THE LOSS IS NOT A NOTIONAL ONE. THE ASS ESSING OFFICER FURTHER DOUBTED THE TRANSACTION BETWEEN THE SISTER CONCERNS . THERE WAS NO COMMERCIAL REQUIREMENT FOR DISCOUNTING THE LC EXCEP T RAISING FUNDS FOR THE SISTER CONCERNS. THEREFORE, THE ASSESSING OFFI CER HAS RIGHTLY FOUND ITA NOS.2326/15 ETC. :- 6 -: THAT THE TRANSACTION MADE BY THE ASSESSEE ARE ONLY ACCOMMODATION TRANSACTIONS. ON A FURTHER QUERY FROM THE BENCH, T HE LD. DR CLARIFIED THAT SHIFTING OF LOSS OF ONE CONCERN TO ANOTHER BET WEEN THE SISTER CONCERNS CANNOT BE CONSIDERED AS A TAX PLANNING. S INCE THE ASSESSING OFFICER FOUND THAT THE TRANSACTION WAS QUESTIONABLE , THE LOSS CLAIMED BY THE ASSESSEE WAS DISALLOWED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADM ITTEDLY, ALL THE THREE ASSESSEES ARE SISTER CONCERNS. RBD PALMOLIEN OIL IMPORTED BY M/S K.P.S OIL MILLS, THE ASSESSEE IN I.T.A.NO.2326/MDS /2015 WAS SOLD TO SISTER CONCERNS ONE AFTER ANOTHER. FROM THE MATERI AL AVAILABLE ON RECORD IT APPEARS THAT THERE ARE FIVE SISTER CONCER NS WHO ARE INVOLVED IN THIS TRANSACTION. THOUGH THE ASSESSEE EARNED P ROFIT IN THE EARLIER ASSESSMENT YEAR ON SALE OF RBD PALMOLIEN OIL, THE ASSESSEE IN FACT SUFFERED LOSS IN DISCOUNTING THE LC. THE ASSESSEE WANTS TO SET OFF THIS LOSS. THE ASSESSING OFFICER FOUND THAT THE CLAIM O F THE ASSESSEE THAT LOSS IS NOT A NOTIONAL ONE IS NOT CORRECT. THEREBY THE ASSESSING OFFICER ADMITS THAT THE LOSS CLAIMED BY THE ASSESSEE IS NO T A NOTIONAL ONE AND ACTUAL LOSS. THE ASSESSING OFFICER FURTHER FOUND T HAT THERE WAS NO COMMERCIAL REQUIREMENT FOR SALE OF RBD PALMOLIEN OI L TO OTHER SISTER CONCERNS AND DISCOUNTING THE LC OTHER THAN RAISING FUNDS. IT IS NOT KNOWN HOW THE ASSESSING OFFICER CAME TO THE CONCLUS ION THAT THERE ITA NOS.2326/15 ETC. :- 7 -: WAS NO COMMERCIAL EXPEDIENCY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT RAISING FUNDS BY THE SISTER CONCERNS I S ALSO ONE OF THE COMMERCIAL EXPEDIENCY. THE ASSESSING OFFICER AT PA GE 5 OF THE ASSESSMENT ORDER FOUND THAT SHIFTING OF LOSS OF O NE CONCERN TO ANOTHER CONCERN CANNOT BE CONSIDERED TO BE A TAX PL ANNING. IF SHIFTING OF LOSS FROM ONE CONCERN TO ANOTHER CANNOT BE CONSI DERED TO BE A TAX PLANNING, IT IS NOW KNOWN HOW THE LOSS CLAIMED BY T HE ASSESSEE CAN BE DISALLOWED OR RESTRICTED BY THE ASSESSING OFFICE R. IF THE ASSESSING OFFICER FELT THAT THE ENTIRE TRANSACTION WAS ONLY A CCOMMODATION ENTRY, HE SHOULD HAVE DISALLOWED THE ENTIRE CLAIM OF LOSS AS NOTIONAL ONE. IN THIS CASE, IT IS NOT THE CASE OF THE ASSESSING OFFI CER THAT THE TRANSACTION WAS NOT GENUINE AND THE LOSS CLAIMED BY THE ASSESS EE WAS NOTIONAL ONE BECAUSE OF THE ACCOMMODATION ENTRIES. THE ASSE SSING OFFICER IN OTHER WORDS, ADMITS THAT THE LOSS IS NOT A NOTIONAL ONE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ANT ICIPATION, A FUTURE FINANCIAL IMPACT ON THE DECLARED LOSS CANNOT BE A R EASON FOR RESTRICTING THE LOSS CLAIMED BY THE ASSESSEE OR DISALLOWING TH E ENTIRE CLAIM OF THE ASSESSEE. THEREFORE, THIS TRIBUNAL IS UNABLE TO U PHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY THE ORDERS OF T HE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW CLAIM OF LOSS AS CLAIMED BY THE ASSESSEES. ITA NOS.2326/15 ETC. :- 8 -: 5. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSES SEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JUNE, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 9 TH JUNE, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF