INCOME TAX OFFICER-8(3)(4), MUMBAI V. M/S. VINATI WAX PVT.LTD., MUMBAI

ITA 6261/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55901 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 19-10-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 23-10-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI R.S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 6261/MUM/2008 ASSESSMENT YEAR: 2004-05 INCOME-TAX OFFICER- 8(3)(4), APPELLANT ROOM NO. 202, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. VINATI WAX PVT. LTD., RESPONDENT SHIV ASHISH, 2 ND FLOOR, ANDHERI KURLA ROAD, SAKINAKA, MUMBAI 400 072. (PAN AAACV1334K) APPELLANT BY : MR. T.T. JACOB RESPONDENT BY : MR. JAYANT BHATT ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-XXIX, MUMBAI, PASSED ON 21/08/2008 FOR THE A SSESSMENT YEAR 2004-05 WHEREIN THE REVENUE HAS RAISED THE FOLLOWIN G GROUND OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF T RADING LOSS MADE BY THE AO AMOUNTING TO RS. 10,75,380/-, WITHOU T APPRECIATING THE FACT THAT THE HONBLE SUPREME COUR T IN THE CASE OF SMT. SUMATI DAYAL VS. CIT (1995), 214 ITR 801 HA S HELD THAT THE TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO SU RROUNDING CIRCUMSTANCES TO FIND OUT REALITY AND THE MATTER HA S TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN PROBABILIT IES. 2. THE FACTS ARE IN BRIEF THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF TRADING ACTIVITY IN TEXTILE BUSINESS, H AD FILED ITS RETURN OF ON 11/06/04 DECLARING TOTAL INCOME AT RS. 7,03,060/ -, WHICH WAS ITA NO. 6261/MUM/08 VINATI WAX PVT. LTD. 2 PROCESSED U/S 143(1) ON 30/08/04 AND THEREAFTER ASS ESSMENT HAD BEEN COMPLETED U/S 143(3) ON 30/11/06 DETERMINING T OTAL INCOME AT RS. 22,09,926/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO NOTED THAT THE ASSESSEE SUFFERED A TRADING LOSS ON ACCOUNT OF PURCHASE AND SALE OF CLOTH AMOUNTING TO RS. 10,75,3 80/-. HE FURTHER NOTED THAT THE ASSESSEE HAD PURCHASED CLOTH FROM M/ S FAMY CARE LTD. OVER PERIOD FROM 23/09/03 TO 30/11/03 WHICH WAS SOL D ON 07/02/04, I.E. AFTER THREE MONTHS TO M/S AMALGAMATED COMMERCI AL TRADERS PVT. LTD. IT WAS NOTED THAT THE OTHER INCOME SHOWN DURIN G THE YEAR WERE INTEREST INCOME AT RS. 12,20,179/- WHICH HAD BEEN S ET OFF TO A LARGE EXTENT ON ACCOUNT OF LOSS IN TRADING OF CLOTH. IN O RDER TO VERIFY THE GENUINENESS OF TRADING LOSS, THE AO OBTAINED DETAIL S FROM THE ASSESSEE REGARDING TRANSPORTER M/S SURENDRA ROADLINES CORPOR ATION. IT WAS NOTED BY THE AO THAT THERE WERE TWO ADDRESSES OF TH E COMPANY GIVEN AT DIFFERENT TIMES. INITIAL INQUIRIES CONDUCTED BY THE AO U/S 133(6) DID NOT YIELD ANY RESULT AS THE TRANSPORTER DID NOT RESPOND, HOWEVER, NOTICE WAS DULY SERVED. THE WARD INSPECTOR REPORTED THAT THERE WAS NO PARTY BY THE NAME OF M/S SURENDRA ROADLINES CORP ORATION ON THE ADDRESS GIVEN. ACCORDINGLY, ASSESSEE WAS GIVEN AN O PPORTUNITY BY THE AO TO PRODUCE THE TRANSPORTER, BUT THE ASSESSEE SUB MITTED BEFORE THE AO WAS THAT THE MATTER PERTAINED TO FY 2003-04 AND INQUIRY WAS MADE IN 2006 AND THE ENQUIRIES WERE NOT PROPER SINC E THE SERVICE OF NOTICE U/S 133(6) WAS NOT DOUBTED AT ALL. THE ASSES SEE ALSO SUBMITTED A LETTER OF M/S MVK ASSOCIATES ALONG WITH THE COPY OF BILL, THE DETAILS OF PAYMENTS, PAN NO. AND COPY OF ACKNOWLEDGMENT OF RETURN FOR AY 2004-05 OF PROPRIETOR OF M/S SURENDRA ROADLINES COR PORATION. THE ASSESSEE CONTENDED THAT IT COULD NOT PRODUCE THE PA RTY AS IT DOES NOT HAVE POWER TO DO SO AND IF FURTHER INQUIRIES TO BE CARRIED OUT, THE AO COULD HAVE CALLED FOR THE PERSONAL PRESENCE OF THE TRANSPORTER. THE ASSESSEE FURTHER SUBMITTED BEFORE THE AO THAT ALL D ETAILS WERE FILED AND SALE AND PURCHASE WERE MADE AT PREVAILING MARKE T PRICE FOR WHICH ITA NO. 6261/MUM/08 VINATI WAX PVT. LTD. 3 THE ASSESSEE HAD NO CONTROL. THE AO GAVE A SPECIFIC FINDING THAT THE BILLS/INVOICES AND THE ASSESSEE'S CLAIM IN RESPECT OF DELIVERY OF GOODS BY M/S SURENDRA ROADLINES ARE NOTHING BUT ACCOMMODA TIVE ENTRIES. HIS FURTHER FINDING WAS THAT THE LOSS CLAIMED BY TH E ASSESSEE WITH A VIEW TO EVADE PAYMENT OF TAX . FINALLY, FOLLOWING THE VARIOUS CASE LAWS INCLUDING THE JUGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYAL VS. CIT, 214 ITR 801, THE AO HELD THAT THE TRANSACTIONS OF THE PURCHASE AND SALE OF CLOTH LEADING TO THE LO SS OF RS. 10,75,380/- HAVE BEEN PUT THROUGH WITH THE PRIMARY OBJECTIVE OF EVADING TAX AND HENCE, HE DISALLOWED THE AMOUNT OF RS. 10,75,380/- CLAIMED BY THE ASSESSEE AS TRADING LOSS. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN SU BMISSION, WHICH WAS EXTRACTED BY THE CIT(A) AT PAGE 3 TO 7 OF HIS O RDER. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CI T(A) DELETED THE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT THER E IS NO EVIDENCE ON RECORD TO SUGGEST THAT THE TRANSACTION REGARDING PURCHASE AND SALE DID NOT TAKE PLACE AND THERE IS NOTHING TO SUGGEST THAT THE QUANTUM OF LOSS INCURRED IN THE TRANSACTION HAS COME BACK TO T HE ASSESSEE IN ANY MANNER. THEREFORE, IN THE ABSENCE OF PROPER EVIDENC E TO SHOW THAT THESE TRANSACTIONS WERE NOT UNDERTAKEN, THE DISALLO WANCE CANNOT BE JUSTIFIED. AGGRIEVED BY THE ORDER OF THE CIT(A), TH E REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LEARNED DR SUBMITTED THAT THE ASS ESSEE HAD PURCHASED THE GOOD FROM M/S FAMY CARE LTD AND SOLD THE GOODS TO M/S AMALGAMATED COMMERCIAL TRADERS PVT. LTD, BUT, T HE ADDRESS OF THE SAID TWO FIRMS HAS BEEN SHOWN AS SAME, NAMELY, VIZ. 5-DS BABREKAR MARG, NEAR PRABHADEVI TELEPHONE EXCHANGE. HE CONTENDED THAT THE ASSESSEE HAS NOT GIVEN SATISFACTORY EXPLAN ATION IN RESPECT OF ITA NO. 6261/MUM/08 VINATI WAX PVT. LTD. 4 THE SELLER AND PURCHASER HAVING SAME ADDRESS NOR AN Y CLARIFICATION FROM M/S FAMY CARE LTD. HE, THEREFORE, SUBMITTED TH AT THE TRANSACTIONS LEADING TO THE LOSS OF RS. 10,75,380/- HAVE BEEN PUT THROUGH PRIMARILY WITH A VIEW TO EVADE PAYMENT OF T AX BY THE ASESSEE. THE DR CONTENDED THAT THE CIT(A) WRONGLY DELETED TH E DISALLOWANCE WITHOUT CONSIDERING THE JUDGEMENT OF THE HONBLE S UPREME COURT IN THE CASE OF SMT. SUMATI DAYAL VS. CIT, 214 ITR 801. HE, THEREFORE, PLEADED THAT THE ORDER OF THE CIT(A) MAY BE SET ASI DE AND THAT OF THE AO BE RESTORED. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE, BESIDES RELYING UPON THE ORDER OF THE CIT(A) SUBMITTED THAT ALL THE SALES AND PURCHASES WERE MADE THROUGH A/C PAYEE CHEQUES ESTAB LISHING THAT THE TRANSACTION ACTUALLY TOOK PLACE AND MERELY BECA USE LOSS HAS BEEN INCURRED, THE SAME CANNOT BE DISALLOWED. THE LEARNE D COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO PAGE 69 OF THE PA PER BOOK AND SUBMITTED THAT M/S SURENDRA ROADLINES CONFIRMED THE PAYMENT RECEIVED BY THEM. IT IS ALSO STATED THAT THE AO HA D NOT FOUND ANY DISCREPANCY DURING THE COURSE OF INVESTIGATION. THE REFORE, HE SUBMITTED THAT THE CIT(A) HAS RIGHTLY DELETED THE D ISALLOWANCE BY APPRECIATING THE FACTS ON RECORD AND HENCE, THE ORD ER OF CIT(A) MAY BE CONFIRMED. IN SUPPORT OF ASSESSEES CASE, THE LEARN ED COUNSEL FOR THE ASSESSEE HAS PLACED ON THE DECISION OF ITAT, MUMBAI BENCH J, MUMBAI IN THE CASE OF M/S SUCHIR INVESTMENT & FINAN CE PVT. LTD. IN ITA NO. 4013/MUM/07 FOR AY 2003-03 VIDE ORDER DATED 3 RD DECEMBER, 2009, A COPY OF WHICH IS AVAILABLE ON RECORD. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES. IT IS SEEN THAT THE DISALLOWANCE OF LOSS MADE BY THE AO, BASICALLY, ON THE BASIS OF NON AVAILABILITY OF TRANSPORTER. THE AO ALSO DOUBTED OF THE TRADING ACTIVITY ITA NO. 6261/MUM/08 VINATI WAX PVT. LTD. 5 IN VIEW OF THE FACT THAT ALL THE PURCHASES WERE MAD E FROM ONE PARTY AND ALL THE SALES WERE MADE TO ONE PARTY. THE AO FO UND THAT THE ADDRESSEE OF THE SELLER AND PURCHASER HAVING SAME A DDRESS AND THE ASSESSEE HAD PURCHASED CLOTH FROM M/S FAMY CARE LTD . FOR THE PERIOD OF 68 DAYS AND THE SAME WAS SOLD AFTER 2 MONTHS. TH E ASSESSEE EXCEPT THE ABOVE STATED ONE TRANSACTION, NO BUSINESS ACTIV ITY WAS CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. GENERALLY, A P RUDENT BUSINESSMAN NEVER STICKS TO ONE TRANSACTION. THE CA SE OF THE ASSESSEE SEEMS TO BE AN EXCEPTIONAL CASE WHERE THE ASSSESSEE ONLY MADE ON TRANSACTION AND THIS ASPECT WAS NEVER EXPLAINED BEF ORE THE LOWER AUTHORITIES AS WELL AS BEFORE US. WHEN THE AO SPECI FICALLY ASKED THE THE ASSESSEE TO EXPLAIN ABOUT HAVING SAME ADDRESS O F THE SELLERS M/S FAMY CARE LTD. AND M/S AMALGAMATED COMMERCIAL TRADE RS TO WHOM THE ASSESSEE SOLD THE GOODS, THE ASSESSEE FAILED TO GIVE PROPER EXPLANATION. BEFORE US IT IS SUBMITTED THAT THE ASS ESSEE HAD PURCHASED THE GOODS FROM M/S FAMY CARE LTD., 5-DS B ABREKAR MARG, NEAR PRABHADEVI TELEPHONE EXCHANGE, IS A VERY BIG G ODOWN AND, THEREFORE, THE ADDRESS IS SAME. WE ARE UNABLE TO AC CEPT THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE REASON THAT THE SAME WAS NOT SUBMITTED BEFORE THE REVENUE AU THORITIES AND EVEN IF IT IS TRUE, THE ABOVE TWO SEPARATE ENTITIES MUST HAVE SEPARATE DOOR NOS. OR SHOP NOS. SO, THE SAID SUBMISSION OF THE AS SESSEE IS NOT SATISFACTORY. WHEN THE AO CALLED UPON M/S FAMY CAR E LTD., FROM WHOM THE ASSESSEE PURCHASED THE GOODS, TO PRODUCE B ILLS, THE SAID FIRM REPLIED THAT ALL THE BILLS WERE DAMAGED DUE TO RAIN. WITH REGARD TO THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSES SEE THAT THE CONFIRMATION RECEIVED FROM M/S SURENDRA ROAD LINES THAT THE PAYMENT RECEIVED FROM THE SAID PARTY VIDE PAGE 69 O F THE PAPER BOOK, WE FIND THAT NO CONFIRMATION GIVEN BY M/S SURENDRA ROAD LINES, AND IT IS ONLY THE CONFIRMATION GIVEN BY MVK ASSOCIATES , CHARTERED ACCOUNTANTS, WHO CLAIMED TO BE FILED THE CONFIRMATI ON STATING THAT AS ITA NO. 6261/MUM/08 VINATI WAX PVT. LTD. 6 PER THEIR CLIENTS INSTRUCTIONS THEY ISSUED THE SAID CONFIRMATION. WE ARE UNABLE TO UNDERSTAND THAT AS TO WHY THE C.A. FI RM ISSUED CONFIRMATION ON BEHALF OF THE CLIENTS. WE FIND THAT THE ASSESSEE SOLD THE GOODS LESS THAN THE PURCHASES MADE BY HIM AND T HIS ASPECT IS ALSO NOT EXPLAINED SATISFACTORILY BY THE LEARNED CO UNSEL FOR THE ASSESSEE. TAKING INTO CONSIDERATION OF THE SAID FAC TS AND CIRCUMSTANCES OF THE CASE AND BY APPLYING THE TEST OF HUMAN PROBABILITIES AS LAID DOWN BY THE HON'BLE SUPREME C OURT IN THE CASE OF SUMATI DAYAL VS. CIT, 214 ITR 801, THE AO HAS RI GHTLY DISALLOWED THE ASSESSEE'S CLAIM OF TRADING LOSS OF RS. 10,75,3 80/-. THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THE CASE OF M/S SUCHIR INVESTMENT & FINANCE LTD. IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSE. THE AO FOLLOWED THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SUMATI DAYAL VS. CIT, 214 ITR 801. THE HONBLE SUPREME COURT IN THE SAID CASE HELD THAT THE SETTLEMENT COMMISSION AFTER CONSIDERING THE SURROUNDING CIRCUMSTANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES HAD RIGHTLY CONCLUDED THAT T HE APPELLANTS CLAIM ABOUT THE AMOUNT BEING HER WINNINGS FROM RACES WAS NOT GENUINE. IN THE CASE UNDER CONSIDERATION, THE AO BY CONSIDERING THE SURROUNDING CIRCUMSTANCES, NAMELY, I) MAKING THE PURCHASES FROM ONE PARTY AND SELLING TO ONE PARTY, II) HAVING THE SAME ADDRESS O F THE PURCHASER AND SELLER, III) FAILED TO PRODUCE THE PURCHASER AND SE LLER IN PERSON BEFORE HIM, IV) WHEN ASKED PURCHASE BILLS OF M/S FAMY CARE LTD. WERE NOT FURNISHED, AND FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYAL (SUPRA) THAT THE APPARENT MUST BE CONSIDERED THE REAL UNTIL IT IS SHOWN THAT THERE AR E REASONS TO BELIEVE THAT THE APPARENT IS NOT REAL AND THE TAXIN G AUTHORITIES ARE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTA NCES TO FIND OUT THE REALITY & THE MATTER HAS TO BE CONSIDERED B Y APPLYING THE TEST OF HUMAN PROBABILITIES. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THE ORDER O F THE CIT(A) AND ITA NO. 6261/MUM/08 VINATI WAX PVT. LTD. 7 RESTORE THE ORDER OF THE AO. ACCORDINGLY, THE GROUN D RAISED BY THE REVENUE IS ALLOWED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOVEMBER, 2011. SD/- SD/- (R.S. SYAL) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH NOVEMBER, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, F BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.