DCIT RG 8(3), MUMBAI V. VIRAL ALKALIS LTD, MUMBAI

ITA 6717/MUM/2011

• Counselvise Citation: 671719914 RSA 2011
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 20-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: S LODHA
• Section: 2; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 6717 /MUM./ 2011 ( / ASSESSMENT YEAR : 200 5 06 ) ASSTT. COMMISSIONER OF INCOME TAX 8(3) AAYAKAR BHAVAN, 101, M.K. ROAD MUMBAI 400 020 .. / APP ELLANT V/S VIRAL ALKALIS LTD. SHIV ASHISH ANDHERI KURLA ROAD SAKINAKA, MUMBAI 400 072 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACV1364P / REVENUE BY : MR. O.P. SINGH / ASSESSEE BY : MR. S. LODHA / DATE OF HEARING 20 .0 1 .201 4 / DATE OF ORDE R 22.01.2014 / ORDER , / PER AM IT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE, CHALLENGING THE IMPUGNED ORDER 6 TH JULY 2011 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) XVIII, MUM BAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER VIRAL ALKALIS LTD. 2 SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 2005 06 ON THE FOLLOWING GROUNDS OF APPEAL: 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF TRADING LOSS OF RS. 25,07,260/ - SHOWN BY THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE AND ALL ITS VARIOUS GROUP CONCERNS AND COMPANIES HAVE SHOWN SUCH TRADING LOSSES YEAR AFTER YEAR SINCE AYR.2000 - 01 TILL AYR.2006 - 07, WHICH ARE NOTHING BUT MERE NON - GENUINE PAPER TRANSACTIONS S HOWN TO REDUCE THEIR TAX LIABILITY ON INCOMES FROM OTHER HEADS. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE INCOME TAX APPELLATE TRIBUNAL BEING THE FINAL FACT FINDING AUTHORITY MAY EXERCISE ITS DISCRETION AND CALL FOR THE AS SESSMENT RECORDS OF THE ASSESSEE AND ALL ITS GROUP CONCERNS AND COMPANIES SINCE A YR.2000 - 01 AND EXAMINE THE QUANTUM OF TRADING LOSSES SHOWN BY EACH OF THEM IN VARIOUS YEARS AND DETERMINE THE NATURE OF SUCH LOSSES, WHICH NO PRUDENT BUSINESS MAN WOULD INCUR YEAR AFTER YEAR.' 2 . FACTS IN BRIEF QUA THE AFORESAID GROUNDS ARE THAT THE ASSESSEE COMPANY HAD SHOWN TRADING LOSS ON ACCOUNT OF PURCHASE AND SALE OF CLOTH AMOUNTING TO ` 25,07,260. THE ASSESSING OFFICER NOTED THAT, IN THE EARLIER ASSESSMENT YEAR I.E., 200 4 05, SIMILAR TRADING LOSS OF ` 10,98,931 WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY SUCH A LOSS SHOULD NOT BE DISALLOWED FOLLOWING THE EARLIER ASSESSMENT ORDER, THE ASSESSEE COULD NOT SUBMIT ANY REPLY BEFORE THE ASSESSING OFFICER TO SUBSTANTIATE THE GENUINENESS OF THE TRADING LOSS. FROM THE DETAILS FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, IT WAS NOTED BY HIM THAT THE ASSESSEE HAD PURCHASED CLOTHS FROM TWO PARTIES NAMELY M/S. DILSHAD TRADING CO. PVT. LTD. AND M/S. DWISONS PVT. LTD. AND HAS SOLD THE SAME TO M/S. AMALGAMATED COMMERCIAL TRADERS PVT. LTD. ON SUCH A TRADING, THE ASSESSEE HAS SUFFERED A LOSS. THE LIST OF PURCHASES AND SALE MADE HAS BEEN INCORPORATED BY THE ASSESSING OFFICER AT PAGE 4 OF THE VIRAL ALKALIS LTD. 3 ASSESSMENT ORDER. THEREAFTER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS GIVEN NO OTHER INFORMATION IN RESPECT OF THE QUALITY OR ANY OTHER DETAILS IN RESPECT OF THE MATERIAL PURCHASED / SOLD MENTIONED ON THE PURCHASE OR S ALE INVOICES. NO PRUDENT BUSINESSMAN WILL TRADE FOR A LOSS AND THAT TO BE YEAR AFTER YEAR . THE ASSESSEE HAS PURCHASED CLOTHS FROM TWO PARTIES AND SOLD THE SAME TO ONE PARTY WITHIN A SHORT PERIOD OF TIME. THIS GOES TO SHOW THAT THE ASSESSEES TRADING WAS NO N GENUINE AND IT IS MERELY A SHAM TRANSACTION. HE ALSO REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN SUMATI DAYAL V/S CIT, [ 1995 ] 264 ITR 801 (SC) AND CIT V/S DURGA PRASAD MORE, [1071] 82 ITR 540 (SC) . THUS, HE HELD THAT THE ASSESSEE IS CONTINUO USLY GENERATING TRADING LOSSES FROM EARLIER YEARS WHICH HAS BEEN SET OF AGAINST OTHER TAXABLE INCOME. HE ALSO REFERRED THAT IN OTHER GROUP CONCERN OF THE ASSESSEE, THE ASSESSMENTS HAVE BEEN COMPLETED UNDER SECTION 143(3) AND THERE ALSO THERE HAVE BEEN INCI DENCES OF TRADING LOSSES OVER THE YEARS, DETAILS OF WHICH HAS BEEN GIVEN AT PAGE 6 AND 7 OF THE ASSESSMENT ORDER. ACCORDINGLY, HE DISALLOWED THE TRADING LOSS AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE BY TREATING THE TRANSACTION OF SALE AND PURCHAS E OF CLOTH AS SHAM WITH THE PRIMARY OBJECTIVE OF EVADING TAX. 3 . BEFO R E THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE SUBMITTED THAT (I) SELLERS AND BUYERS HAVE DULY CONFIRMED ALL THE TRANSACTIONS ; (II) PURCHASE AND SALE WERE MADE THROUGH ACCOUNT PAYEE CHEQUES AND ARE REFLECTED IN THE BANK STATEMENT; (III) EXPENSES INCURRED FOR TRANSPORTATION OF GOODS AND COPY OF LEDGER ACCOUNT WAS ALSO ENCLOSED; (IV) THE ASSESSING OFFICER HAS NOT VERIFIED THE FACTS FROM THE CONCERNED PARTIES AND HAS NOT CARRIED OUT ANY ENQUIRY; (V) MERELY THE ASSESSEE HAD SUFFERED LOSS, THE TRANSACTIONS CANNOT BE CONSIDERED VIRAL ALKALIS LTD. 4 AS BOGUS; (VI) NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE TRANSACTIONS WERE MERELY A CIRCUITOUS TRANSACTIONS NOT RESULTING IN ACTUAL LOSSES AND LASTLY, THE A SSESSING OFFICER DID NOT POINT OUT ANY DISCREPANCY IN THE TRANSACTIONS. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LEARNED COMMISSIONER (APPEALS) THAT THE DIRECTORS OF THE ASSESSEE COMPANY HAVE NO INTEREST IN ANY OF THE CONCERNS FROM WHOM SALE AND PURCHAS E WERE MADE I.E., THEY WERE UNRELATED PARTIES. THE LEARNED COMMISSIONER (APPEALS), AFTER EXAMINING THE RECORDS, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AFTER OBSERVING AND HOLDING AS UNDER: 6. THE INFORMATION ON RECORD IS CAREFULLY EXAMINED. THE AP PELLANT SUBMITTED COPIES OF SALE BILLS, PURCHASE BILLS, COPY OF LEDGER ACCOUNT OF TRANSPORTATION AND FORWARDING CHARGES ETC. HE ALSO FILED A LETTER DATED 10.08.2010 STATING THAT, THE DIRECTORS OF THE APPELLANT COMPANY HAVE NO INTEREST IN ANY OF THE CONCERN S FROM WHOM THE PURCHASES OR SALES WERE MADE. FROM THE COPIES OF THE LEDGER ACCOUNT OF PURCHASES AND SALES, IT IS EVIDENT THAT ALL THE PAYMENTS WERE MADE THROUGH BANK ACCOUNT AND ARE REFLECTED IN APPELLANT'S BANK ACCOUNT STATEMENT. IT IS ALSO PERTINENT TO MENTION THAT THE SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE APPELLANT IN APPELLANT'S SISTER CONCERN NAMELY M/S. SUCHIR INVESTMENT & FINANCE PVT.LTD. AY 2002 - 03 BY LEARNED C IT(A) - XXIX, MUMBAI VIDE ORDER DATED 12.03.2007 ON THE GROUND THAT 'THERE IS NO EVIDE NCE TO SUGGEST THAT THE TRANSACTIONS DID NOT TAKE PLACE, THERE IS NOTHING TO SUGGEST QUANTUM OF LOSS INCURRED HAS COME BACK TO THE APPELLANT IN ANY MANNER, THIS IS IMPORTANT BECAUSE THE AMOUNT OF LOSS IS GREATER THAN THE TAX SAVED. IN THE ABSENCE OF PROPER EVIDENCE TO SHOW THAT THESE TRANSACTIONS WERE NOT UNDERTAKEN THE DISALLOWANCE IS NOT JUSTIFIED. FURTHER, FOR A.Y. 2004 05, IN THE CASE OF VIRAL CHEMICALS PVT. LTD. A GROUP CONCERN, SIMILAR TRADING LOSS WAS ALLOWED BY CIT(A) XXIX, VIDE ORDER DATED 21.08.2 008. 6.1 IT IS ALSO PERTINENT TO MENTION THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY HON'BLE ITAT VIDE ORDER NO. 4013/MUM./07 DATED 03.12.2009 IN THE CASE OF SUCHIR INVESTMENT & FINANCE PVT. LTD., A GROUP CONCERN FOR A.Y. 2002 03. IN VIEW OF TH E ABOVE DISCUSSION, THIS GROUND OF APPEAL IS ALLOWED. VIRAL ALKALIS LTD. 5 4 . THUS, THE LEARNED COMMISSIONER (APPEALS), RELYING UPON THE DECISION OF THE TRIBUNAL IN ONE OF THE GROUP CONCERNS OF THE ASSESSEE, WHEREIN, SIMILAR ISSUES WERE INVOLVED AND ALSO THE FACTS AND MATERIAL ON RECORD, ALLOWED THE TRADING LOSS INCURRED TO THE ASSESSEE. 5 . BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEES MAIN BUSINESS WAS IN DEALING IN CHEMICALS AND MANUFACTURING OF POTASSIUM CARBONATE. THE ASSESSEE HAS ALSO SHOWN TRADING OF CLOTH FOR WHICH LOSSES HAVE BEEN INCURRING REGULARLY. NOT ONLY THIS, ALL THE GROUP CONCERNS OF THE ASSESSEE ARE ENTERING INTO SUCH KIND OF BOGUS TRANSACTIONS ONLY SHOW LOSSES TO BE SET OF AGAINST TAXABLE INCOME. HE SUBMITTED THAT THE ASSESSEE H AS ONLY PURCHASED THE CLOTHS FROM TWO PARTIES AND SOLD TO ONE PARTY BETWEEN THE PERIOD FROM NOVEMBER 2004 TO FEBRUARY 2005. IN SUCH A SHORT SPAN, THE ASSESSEE HAD SHOWN TRADING LOSS THAT TOO YEAR AFTER YEAR WHICH IS NOT BELIEVABLE. THE REASONING GIVEN BY T HE ASSESSING OFFICER FOR DISALLOWING THE LOSS IS ABSOLUTELY CORRECT. 6 . THE LEARNED COUNSEL SUBMITTED THAT IN THE YEAR 2004 05, SIMILAR ADDITION WAS MADE WHEREIN THE LEARNED COMMISSIONER (APPEALS) CARRIED OUT ENQUIRY AND CALLED FOR A REMAND REPORT FROM THE A SSESSING OFFICER. THE ASSESSING OFFICER, IN THE REMAND REPORT, HAS ACCEPTED THE ASSESSEES CONTENTION AFTER VERIFYING THE RECORDS AND THAT IN THE EARLIER YEARS, THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE . H E ALSO REPORTED THAT SUCH AN ADDITION H AS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY ALL THE AUTHORITIES. RELYING ON SUCH A REMAND REPORT, THE LEARNED COMMISSIONER (APPEALS) DELETED THE ADDITION WHICH HAS ATTAINED FINALITY. SIMILARLY, IN THIS YEAR ALSO, THE ASSESSEE HAD SHOWN THE TRANSACTIONS TH ROUGH ACCOUNT PAYEE CHEQUES AND BANKING CHANNELS VIRAL ALKALIS LTD. 6 WHICH IS NOT BEING DISPUTED ALONG WITH THE EVIDENCE OF TRANSPORTATION. THUS, THE FINDINGS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) SHOULD BE UPHELD. 7 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDI NGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICERS MAIN REASONING FOR DISALLOWING THE TRADING LOSS WAS THAT IN THE EARLIER YEARS, SIMILAR TRADING LOSS HAS BEEN DISALLOWED. HOWEVER, SUCH A REASONING OF THE ASSE SSING OFFICER STANDS VITIATED BY THE FACT THAT IN THE EARLIER YEAR, THE LEARNED COMMISSIONER (APPEALS), AFTER CONDUCTING ENQUIRY THROUGH THE ASSESSING OFFICER, HAS DELETED THE ADDITION. MOREOVER, SIMILAR ISSUE WAS INVOLVED IN ONE OF THE GROUP CONCERNS OF T HE ASSESSEE I.E., IN SUCHIR INVESTMENTS & FINANCE PVT. LTD., ITA NO.4013/MUM./2007, ORDER DATED 3 RD DECEMBER 2009, HAS HELD THAT SUCH A LOSS CANNOT BE DISALLOWED. IN THE PRESENT CASE ALSO, THE ASSESSING OFFICER HAS DISBELIEVED THE TRANSACTIONS WITHOUT CARR YING OUT ANY FURTHER ENQ UIRY FROM THE CONCERNED PARTIES AND HAS DISBELIEVED THE TRANSACTIONS PURELY ON SURMISES , WHICH HAS NO LEGS TO STAND ON THE FACE OF THE RECORD AND THE EVIDENCE FURNISHED BY THE ASSESSEE . THAT IS THE SELLERS AND THE BUYERS HAVE CONFIR MED THE TRANSACTIONS OF THE PURCHASE AND SALE WHICH HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES DULY REFLECTED IN THE BANK STATEMENT, EVIDENCE OF TRANSPORTATION OF GOODS WHICH ARE ALSO REFLECTED IN THE LEDGER ACCOUNT AND LASTLY, THE CONCERNED PARTIES ARE NOT RELATED TO THE ASSESSEE. THUS, ON THESE FACTS, THE PREPONDERANCE OF PROBABILITY IS THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS OF TRADING WHICH CANNOT BE DISBELIEVED WITHOUT ANY FURTHER ADVERSE MATERIAL ON RECORD TO SHOW THAT THESE TRANSACTIONS WERE SHAM. THUS, WE DO NOT FIND ANY REASON TO DEVIATE VIRAL ALKALIS LTD. 7 FROM THE FINDINGS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) AND ACCORDINGLY, WE AFFIRM THE SAME. CONSEQUENTLY, THE GROUNDS RAISED BY THE REVENUE ARE TREATED AS DISMISSED. 8 . 8. IN THE RESULT, REVENUES APPEAL IS TREATED AS DISMISSED. 22 ND JANUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY 2014 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 22 ND JANUARY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI