Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 6234 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 4 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-08-2020
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
24-03-2020
Assessment Year
2012-2013
Appeal Filed On
07-04-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) ITA. NO: 860/AHD/2017 (ASSESSMENT YEAR: 2012-13) DCIT, CIRCLE-1(1)(2), AHMEDABAD V/S CVM JEWELS PVT. LTD. B/2, ASHOKA APARTMENT, NR. GANDHIGRAM RAILWAY CROSSING BEHIND ORIENT CLUB, AHMEDABAD-380006 (APPELLANT) (RESPONDENT) PAN: AACCM5772G APPELLANT BY : SHRI SAMIR TEKRIWAL, CIT/DR RESPONDENT BY : SHRI SAMIR JANI, HARSH JANI, AR ( )/ ORDER DATE OF HEARING : 12 -02-2020 DATE OF PRONOUNCEMENT : 31 -08-2020 PER BENCH THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-1, AHMEDABAD DATED 30.01.2017 PERTAINING TO A.Y. 2012-13. ITA NO. 860/AHD/2017 . A.Y. 2012-13 2 2. THE ONLY ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 6,14,20,769/- TREATING THE SAME AS CAPITAL LOSS, WHEREAS THE LD. CIT-A TREATED THE SAME AS A TRADING LOSS. 3. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF TRADING IN GOLD, SHARES, AND STOCK AND TRADING IN GOLD IN MCX. THE ASSESSEE HAS BORROWED MATERIAL LOAN IN THE FORM OF SILVER WEIGHING 4938.423 KG FROM 3 PARTIES, RELATED WITHIN THE MEANING AS PROVIDED UNDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSEE OBTAINED THE MATERIAL LOAN VIDE AGREEMENT DATED 26 MAY/27 MAY 2008 FOR 3 YEARS. THE ASSESSEE AT THE END OF THE LOAN PERIOD WAS UNDER THE OBLIGATION TO RETURN THE SAME IN THE FORM OF QUANTITY ONLY. 3.1 AS PER THE AGREEMENT THE ASSESSEE WAS UNDER THE OBLIGATION TO PAY INTEREST ON SUCH MATERIAL LOAN AT THE RATE OF 2% PER ANNUM WHICH THE ASSESSEE HAS BEEN PAYING REGULARLY. THE DEDUCTION OF THE SAME WAS ALSO ALLOWED TO THE ASSESSEE. 3.2 THE DETAILS OF THE LOAN INCLUDING THE NAME OF PARTIES, QUANTITY AND ITS VALUE STAND AS UNDER: SR NO. NAME & PAN OF THE FAMILY CONCERN GIVING SILVER LOAN QUANTITY OF SILVER RECEIVED AS LOAN (KG.) RATE ON THE DATE OF AGREEMENT AMOUNT CREDITED IN CREDITORS A/C (QTY X VALUE) 1 DEEPAK N.DHOLAKIYA PAN - ABJPC0536B 795.785 22300 17746006 2 JUGAL N. DHOLAKIYA PAN - ABQPD2710D 743.467 22300 16579314 3 M/S, CHOKSI VACHRAJ MAKANJI & CO. PAN-AABFC3586E 3399.172 22300 75801356 ITA NO. 860/AHD/2017 . A.Y. 2012-13 3 3.3 THE MATERIAL LOAN TAKEN BY THE ASSESSEE WAS RECORDED IN THE ACCOUNTS AS STOCK IN TRADE BY CREDITING THE CURRENT LIABILITIES/SUNDRY CREDITORS. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION CLAIMED TO HAVE REPAID THE MATERIAL LOAN IN THE FORM OF QUANTITY BY CREDITING THE SALES ACCOUNT AT THE VALUE OF THE LOAN OBTAINED INITIALLY I.E. 11,01,26,856/-AND DEBITING THE SUNDRY CREDITORS ACCOUNT AT THE ORIGINAL VALUE I.E. 11,01,26,856/- ONLY. 3.4 THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS ALSO TAKEN FRESH MATERIAL LOAN FROM THE SAME PARTIES AT A VALUE OF RS. 58,100 PER KG. THE DETAILS OF THE FRESH LOAN INCLUDING THE NAME OF PARTIES, QUANTITY AND ITS VALUE STAND AS UNDER: SR. NO. NAME OF LENDER QUANTITY (KG) DATE RATE AMOUNT(RS.) 1 JUGALKISHORE N. DHOLAKIA 743.467 08/04/2011 58100 43195433 2 DEEPAK N. DHOLAKIA 795.785 08/04/2011 58100 46235108 3 CVM & CO. 1394.178 12/04/2011 58900 82117084 TOTAL 2933.430 171547625 3.5 THE FRESH MATERIAL LOAN TAKEN BY THE ASSESSEE WAS RECORDED IN THE ACCOUNTS AS STOCK IN TRADE IN THE TRADING ACCOUNT BY DEBITING THE PURCHASE ACCOUNT AND CREDITED THE CURRENT LIABILITIES/SUNDRY CREDITORS SIMULTANEOUSLY. 3.6 THE PURCHASES IN THE FORM OF FRESH LOAN WERE RECORDED AT THE CURRENT MARKET VALUE IN THE BOOKS OF THE ACCOUNTS WHEREAS THE SALES, IN THE FORM OF REPAYMENT OF THE LOAN, WERE RECORDED AT THE VALUE OF THE LOAN OBTAINED BY THE ASSESSEE IN THE YEAR 2008- 09 WHICH RESULTED A LOSS OF RS. 6,14,20,769/- ONLY. ITA NO. 860/AHD/2017 . A.Y. 2012-13 4 3.7 THE ASSESSEE ALSO CLAIMED THAT IT HAS REVALUED THE FRESH MATERIAL LOAN AT THE END OF THE ACCOUNTING YEAR AS ON 31 MARCH 2012 WHICH HAS RESULTED GAIN TO IT WHICH WAS OFFERED TO TAX. 4. HOWEVER, THE AO WAS DISSATISFIED WITH THE CLASSIFICATION OF SUCH MATERIAL LOAN UNDER THE HEAD SUNDRY CREDITORS BY TREATING THE SAME AS TRADING LIABILITY. AS SUCH THE MATERIAL LOAN SHOULD HAVE BEEN CLASSIFIED BY THE ASSESSEE UNDER THE HEAD LOAN ACCOUNT AND ANY LOSS INCURRED THEREON SHOULD BE TREATED AS CAPITAL LOSS WHICH CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME UNDER THE HEAD BUSINESS AND PROFESSION. 4.1 THE AO WAS ALSO OF THE VIEW THAT THE ASSESSEE HAS NOT RETURNED THE MATERIAL LOAN OF 4938.426 KG OF SILVER TO THE RESPECTIVE PARTIES AS IT HAD NO STOCK OF SILVER IN ITS BOOKS OF ACCOUNTS. AS SUCH THE ASSESSEE BY WAY OF MAKING A BOOK ENTRY WITH THE LOAN PARTIES BEING CLOSELY RELATED UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, HAS CREATED SUCH LOSS IN THE BOOKS OF ACCOUNTS. AS SUCH THE ENTIRE ARRANGEMENT IS BASED ON THE PAPERS AND THEREFORE THE CONTENTION OF THE ASSESSEE THAT IT HAS MADE HAND DELIVERY OF THE MATERIAL LOAN TO THE PARTIES IS WITHOUT ANY SUBSTANCE, MORE PARTICULARLY WHEN THERE IS NO SUCH VOUCHER FOR THE REPAYMENT OF SILVER, TRANSPORTATION OF THE SILVER ETC. 4.2 IN VIEW OF THE ABOVE THE AO HELD THAT THE ENTIRE FLOW OF TRANSACTION IS NOTHING BUT A COLORABLE DEVICE TO CREATE SUCH FICTITIOUS LOSS WHICH IS NOT ALLOWABLE AS HELD BY THE HONBLE SUPREME COURT OF IN THE CASE OF MC DOWELL & CO. LTD. VS. COMMERCIAL TAX OFFICER REPORTED IN 22 TAXMAN 11. ACCORDINGLY THE AO DISALLOWED THE LOSS OF RS. ITA NO. 860/AHD/2017 . A.Y. 2012-13 5 6,14,20,769/- CLAIMED BY THE ASSESSEE BY WAY OF MAKING BOOK ENTRIES IN THE MANNER AS DESCRIBED ABOVE AND DETERMINED THE INCOME OF THE ASSESSEE AT RS. 1,11,92,998/- ONLY. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 5. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITTED THAT IT HAS TAKEN A MATERIAL LOAN FROM THE PARTIES WHICH WAS SHOWN AS STOCK IN TRADE. THE SALE OF SUCH STOCK IN TRADE/MATERIAL LOAN WAS SHOWN AS SALE PROCEEDS IN THE PROFIT AND LOSS ACCOUNT AT THE MARKET RATE AND THE DIFFERENCE WAS OFFERED AS INCOME TO TAX. HOWEVER AT THE TIME OF REPAYMENT OF THE MATERIAL LOAN IN THE FORM OF QUANTITY ONLY, THE PRICE OF THE SILVER HAS GONE HIGH WHICH RESULTED LOSS. AS SUCH THE ENTIRE MATERIAL LOAN WAS UTILIZED FOR THE PURPOSE OF THE BUSINESS AND THEREFORE THE SAME IS IN THE NATURE OF TRADING LIABILITY. THUS, ANY LOSS QUA TO MATERIAL LOAN WAS ALLOWABLE AS DEDUCTION. 5.1 AS PER THE ASSESSEE THE VALUE OF THE MATERIAL LOAN (SILVER) AS ON 27TH MAY 2008 WAS TAKEN AT RS. 22,300/- PER KG. WHEREAS THE VALUE OF THE MATERIAL HAS GONE HIGH AT THE TIME OF REPAYMENT OF SUCH LOAN AT RS. 58,100/- PER KG. THUS THE LOSS WAS INCURRED IN THE COURSE OF THE BUSINESS WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 37 OF THE ACT. 5.2 THE FACT OF OBTAINING THE MATERIAL LOAN BY THE ASSESSEE WAS ACCEPTED BY THE REVENUE IN THE ASSESSMENT YEAR 2009-10, 2010-11 AND 2011-12. 5.3 THE ASSESSEE ALSO CLAIMED THAT THE FRESH MATERIAL LOAN OBTAINED IN THE YEAR UNDER CONSIDERATION WAS REVALUED AT THE LOWER VALUE WHICH RESULTED GAIN OF RS. 49,28,802/-AND THE SAME WAS OFFERED TO TAX IN THE FINANCIAL STATEMENT AS ON 31 MARCH 2012 WHICH WAS DULY ACCEPTED BY THE REVENUE. ITA NO. 860/AHD/2017 . A.Y. 2012-13 6 5.4 THE ASSESSEE ALSO CLAIMED TO HAVE FILED PROVISIONAL ACCOUNTS AS ON 28.03.2015 WHEREIN A GAIN OF RS. 3,04,25,624.00 ON ACCOUNT OF REVALUATION OF MATERIAL LOAN HAS BEEN CREDITED AND ADVANCE TAX HAS BEEN PAID ACCORDINGLY ON SUCH INCOME. 5.5 THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 3.6. IT IS SEEN FROM THE CASE RECORDS AND SUBMISSIONS OF THE APPELLANT THAT THE APPELLANT IS UNDOUBTEDLY A TRADER IN SILVER. IT TRADES IN SILVER BY PURCHASING FROM OPEN MARKET, MCX AND SILVER LOAN. THE APPELLANT CONSISTENTLY FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THERE IS NO CHANGE IN THE METHOD OF ACCOUNTING DURING THE YEAR UNDER APPEAL. THIS IS CONSISTENT NATURE OF BUSINESS SINCE INCORPORATION AND MORE PARTICULARLY SINCE A.Y.2008-09. THE PROCUREMENT OF LOAN IS A CONTRACTUAL LIABILITY WITH CERTAIN TERMS OF AGREEMENT. ACCORDINGLY, FIRST SUCH AGREEMENT WAS EXECUTED ON A STAMP PAPER DATED 27.05.2008 WITH EACH PARTY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SAME WERE DULY FILED BEFORE THE AO AND THE FACTUM OF AGREEMENT IS NOT DISPUTED BY THE AO. IN FACT THE CLAIM OF RECEIPT OF MATERIAL LOAN FROM RESPECTIVE PARTIES IS INDEPENDENTLY VERIFIABLE FROM THE FACT THAT THE APPELLANT DEBITED USANCE CHARGES @2% OF THE AMOUNT OF SILVER LOAN AND APPLICABLE TDS WAS ALSO MADE AND THE RESULTANT INCOME IS ALSO SHOWN BY THE RESPECTIVE PARTIES IN THEIR PERSONAL RETURN OF INCOME. IN THE SCRUTINY ASSESSMENTS MADE IN THE CASE OF THE APPELLANT FOR AY 2009-10 TO 2011-12, THE CLAIM OF PAYMENT OF USANCE CHARGES IS ALSO ALLOWED BY THE AO AND THEREFORE, THERE CANNOT BE ANY DISPUTE ABOUT THE RECEIPT OF MATERIAL LOAN. AT CLAUSE 2 OF THE SAID AGREEMENT, IT IS PROVIDED THAT THE FINE SILVER LOAN SHALL BE REPAID IN TERMS OF MATERIAL ONLY. FURTHER, AT CLAUSE 4, IT IS STATED THAT THE FINE SILVER LOAN IS GRANTED FOR A FIXED TERM OF 3 YEARS FROM THE DATE OF LENDING AND EARLY REPAYMENT WOULD ATTRACT CERTAIN AMOUNT OF PENALTY AS SPECIFIED THEREIN. WHEN THE LOAN IS PROCURED, IT IS DEBITED TO TRADING ACCOUNT AND CREDITED TO PARTY SILVER LOAN ACCOUNT AT THE PREVAILING MARKET PRICE AS ON THE DATE OF PROCUREMENT OF SUCH LOAN. 3.7. IT IS ALSO SEEN THAT THE ACCOUNTING TREATMENT FOR FINE SILVER LOAN IS CONSISTENT AND THERE IS ABSOLUTELY NO CHANGE EVEN DURING THE YEAR UNDER APPEAL. EVEN OTHERWISE, THE IMPACT OF SUCH PROCUREMENT REFLECTS ON BOTH THE SIDES OF TRADING ACCOUNT IN A WAY AS THE CLOSING STOCK (IF SILVER LOAN REMAINS UNSOLD) INCREASES TO THAT EXTENT OR IF IT IS SOLD, THE SALES INCREASE TO THE EXTENT OF LOAN PROCURED. IN BALANCE SHEET, ON THE LIABILITY SIDE, THE SILVER LOAN IS REFLECTED BY WAY OF CREDITS OF THE MARKET VALUE OF SILVER ON THE DATE OF TAKING THE MATERIAL LOAN IN THE ACCOUNTS ITA NO. 860/AHD/2017 . A.Y. 2012-13 7 OF THE RESPECTIVE PARTIES. ON THE OTHER SIDE, I.E. ASSET SIDE, THE SAME AMOUNT BECOMES PART OF THE CLOSING STOCK. THIS MATERIAL LOAN FELL DUE FOR REPAYMENT IN 2011 AND AS SUCH THE SAME WAS REPAID WHICH IS EVIDENCED BY DULY SIGNED ISSUE AND RECEIPT VOUCHERS OF THE RESPECTIVE PARTIES. ON REPAYMENT OF OLD LOAN, AS CONTENDED BY THE APPELLANT, ALL THE PARTIES RENEGOTIATED FOR A FRESH FINE SILVER LOAN AND ENTERED IN TO FRESH AGREEMENTS ON A STAMP PAPER DATED 09.09.2011 WITH IDENTICAL TERMS OF THE AGREEMENT DATED 27.05.2008 AND AGAIN THE SAME HAS NOT BEEN DISPUTED BY THE AO. SIMILAR ENTRIES AS MADE EARLIER WERE PASSED IN THE BOOKS OF ACCOUNTS DURING F.Y.2011-12 WHICH ARE SUPPORTED BY DULY SIGNED RECEIPTS AND ISSUE VOUCHERS OF THE RESPECTIVE PARTIES AND ENTRIES IN STOCK REGISTERS MAINTAINED BY ALL THE PARTIES. THE APPELLANT HAS DEBITED USANCE CHARGES TO PROFIT & LOSS ACCOUNT OF RESPECTIVE YEARS AS PER CLAUSE-7 OF THE AGREEMENT AND THE SAME IS ALLOWED AS REVENUE EXPENDITURE IN ALL THE YEARS SINCE A.Y.2009-10 INCLUDING THE YEAR UNDER APPEAL. DURING THE A.Y.2012-13, THE APPELLANT HAS REVALUED THE LOAN AS ON 31.03.12 AND SINCE THE PRICE WAS LESS THAN THE AMOUNT DEBITED TO TRADING ACCOUNT AT THE TIME OF PROCURING THE MATERIAL LOAN, IT CREDITED TRADING ACCOUNT BY SHOWING REVALUATION INCOME OF RS.49,28,802/- WHICH IS TAXED BY THE AO AS BUSINESS INCOME. THE JURISDICTIONAL HIGH COURT IN THE CASE OF WIELDING RODS MFG. CO. V. COMMISSIONER OF INCOME TAX 93 TAXMAN 324(225 ITR 525) HAD THE OCCASION TO CONSIDER SIMILAR ISSUE AND THE COURT HAS LAID DOWN THAT THE SAME IS OF REVENUE IN NATURE. 3.8. ONE MORE ASPECT TO BE DECIDED IS WHETHER IT IS A TRADING LIABILITY OR NOT. IN THIS REGARD, THE APPELLANT PLACED ON RECORD THAT FIRST SUCH LOAN WAS PROCURED DURING A.Y.2009-10 AND SIMILAR ACCOUNTING TREATMENT WAS DONE AND THE THEN AO HAD ACCEPTED THE SAME AS TRADING LIABILITY WHILE PASSING THE ORDER U/S 143(3) FOR THAT YEAR. IN ALL SUBSEQUENT SCRUTINY ASSESSMENTS FOR A.Y.2010-11, 2011-12 ALSO, THE SAME HAS BEEN ACCEPTED AS TRADING LIABILITY. THE APPELLANT HAS BROUGHT TO THE NOTICE THAT RECENTLY, WHILE PASSING SCRUTINY ASSESSMENT FOR A.Y.2013-14 THE AO VIDE ORDER DATED 15.12.2016 HAS ACCEPTED THE SAME AS TRADING LIABILITY. THUS, IT HAS BEEN CONSISTENTLY ACCEPTED AS TRADING LIABILITY BY THE AO IN ALL SCRUTINY ASSESSMENTS SINCE A. Y.2009-10, EXCEPT FOR THE YEAR UNDER APPEAL. CONSIDERING THE ISSUE IN APPEAL ON PRINCIPLE OF CONSISTENCY, IT IS CRYSTAL CLEAR THAT EXCEPT FOR THE YEAR UNDER APPEAL, IN ALL THE PRECEDING YEARS THE SAME HAS BEEN TREATED AS TRADING LIABILITY AND ACCEPTED BY THE AO. ON TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON DUE APPRECIATION OF THE MATERIALS AND EVIDENCES ON RECORD AND FOLLOWING THE RATIOS LAID DOWN IN THE CASES OF RADHASOAMI SATSANG V/S CIT [1992] 193 ITR 321/60 TAXMAN 248 (SC) AND DEPUTY COMMISSIONER OF INCOME-TAX, BHARUCH CIRCLE V/S GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. [2014] 42 TAXMANN.COM 438 (GUJARAT) AND WIELDING RODS MFG. CO. V/S COMMISSIONER OF INCOME TAX 93 TAXMAN 324 / 225 ITR 525, IT IS HELD THAT THE AO HAS ERRED IN RECORDING THE FINDINGS ON THE BASIS OF WHICH DISALLOWANCE OF RS.6,14,20,769/- IS MADE. THE SAME IS THEREFORE, DIRECTED TO BE DELETED. THE GROUND OF APPEAL IS ALLOWED. ITA NO. 860/AHD/2017 . A.Y. 2012-13 8 BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED DR BEFORE US SUBMITTED THAT THE ASSESSEE HAS FILED THE FRESH DOCUMENTS ON THE DIRECTION OF THE ITAT, THEREFORE THE MATTER SHOULD BE SET ASIDE TO THE AO FOR FRESH ADJUDICATION. 6.1 THE LEARNED DR ALSO CONTENDED THAT THE DOCUMENTS FILED BY THE ASSESSEE SHOWING THE RETURN OF MATERIAL LOAN ARE SELF-SERVING DOCUMENTS AND WITHOUT MENTIONING ANY PARTY NAME, VEHICLE NUMBER, QUANTITY THEREIN. SIMILARLY, THERE WAS ONLY THE TOLL TAX RECEIPTS SHOWN BY THE ASSESSEE WITHOUT HAVING ANY VEHICLE NUMBER. AS SUCH THERE WAS NO EVIDENCE FOR SHOWING THE PHYSICAL DELIVERY OF THE SILVER TO THE LOAN PARTIES. 6.2 THE LEARNED DR ALSO SUBMITTED THAT THERE IS MISMATCH IN THE DATE WHEN THE MATERIAL LOAN WAS OBTAINED BY THE ASSESSEE VIZ A VIZ THE AGREEMENT FOR THE MATERIAL LOAN WAS ENTERED. FURTHERMORE, THESE AGREEMENTS WERE NOT NOTARIZED. THE LEARNED DR ALSO FOUND CERTAIN DEFECTS REGARDING THE VALUATION OF THE CLOSING STOCK WHETHER THE ASSESSEE HAS USED AVERAGE PRICE METHOD OR FIFO/NET REALIZABLE METHOD. SIMILARLY, THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER. 7. ON THE OTHER HAND THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 450 AND SUBMITTED THAT THE ADDITIONAL DOCUMENTS WERE FILED AT THE INSTANCE OF THE BENCH. THEREFORE THE SAME CANNOT BE TREATED AS ADDITIONAL DOCUMENTS. ITA NO. 860/AHD/2017 . A.Y. 2012-13 9 7.1 THE LEARNED AR FURTHER CLAIMED THAT THE SILVER WAS HANDED OVER TO THE PARTIES BY HAND. THE LEARNED AR IN SUPPORT OF HIS CONTENTION DREW OUR ATTENTION ON THE VOUCHERS WHICH ARE AVAILABLE ON RECORD. 7.2 THE LEARNED AR ALSO CLAIMED THAT THE AMOUNT OF MATERIAL LOAN HAS ALREADY BEEN ACCEPTED BY THE REVENUE IN THE EARLIER YEARS. THEREFORE THE SAME CANNOT BE DOUBTED IN THE YEAR UNDER CONSIDERATION MERELY ON THE REASONING THAT THE AGREEMENT WAS MADE AFTER OBTAINING THE LOAN FROM THE PARTIES ON A LATER DATE. 7.3 THE LEARNED AR ALSO CLAIMED THAT THE REVENUE HAS ALREADY ACCEPTED THE IMPUGNED AMOUNT OF MATERIAL LOAN AS TRADING LIABILITY IN THE EARLIER YEARS. THEREFORE THE SAME CANNOT BE TREATED AS CAPITAL IN NATURE. 8. BOTH THE LEARNED DR AND THE AR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CASE HAVE BEEN DISCUSSED IN THE PRECEDING PARAGRAPH AND THERE IS NO DISPUTE QUA THE FACTS. THEREFORE WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY AND CONVENIENCE. 9.1 AT THE THRESHOLD, WE NOTE THAT THE DOCUMENTS FILED BY THE ASSESSEE AS PER THE DIRECTION OF THE BENCH CANNOT BE TREATED AS ADDITIONAL DOCUMENTS. IT IS BECAUSE THE ASSESSEE AT ITS OWN HAS NOT FILED THESE DOCUMENTS IN THE FORM OF ADDITIONAL DOCUMENTS. THEREFORE, WE HOLD THAT THESE DOCUMENTS FILED AT THE INSTANCE OF THE BENCH CANNOT BE CATEGORIZED AS ADDITIONAL DOCUMENTS. ITA NO. 860/AHD/2017 . A.Y. 2012-13 10 9.2 BESIDES THE ABOVE, WE ALSO FIND THAT THERE ARE OTHER DOCUMENTS, OTHER THAN THE SO CALLED ADDITIONAL DOCUMENTS AS ALLEGED AFORESAID, AVAILABLE ON RECORD WHICH ARE SUFFICIENT TO DECIDE THE ISSUE ON HAND. HENCE, WE DO NOT FIND ANY REASON TO SET ASIDE THE ORDER TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 9.3 ADMITTEDLY, THE ASSESSEE HAS TAKEN THE MATERIAL LOAN FROM THE RELATED PARTIES AS SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT, WHICH WAS SUBJECT TO INTEREST AT THE RATE OF 2% OF SUCH LOAN AMOUNT. ACCORDINGLY THE ASSESSEE HAS PAID THE INTEREST ON THE MATERIAL LOAN WHICH WAS ALSO ACCEPTED BY THE REVENUE. THUS, THERE IS NO DISPUTE ABOUT THE GENUINENESS OF THE MATERIAL LOAN SHOWN BY THE ASSESSEE. 9.4 INDEED, IN THE PRESENT CASE THE LOAN WAS NOT OBTAINED BY THE ASSESSEE UNDER THE NORMAL PREVAILING MARKET PRACTICES. GENERALLY, THE LOANS ARE OBTAINED IN CASH WHICH ARE SUBJECT TO INTEREST AND REPAYABLE OVER A CERTAIN PERIOD OF TIME AS AGREED BETWEEN THE PARTIES. HOWEVER, IN THE CASE ON HAND THE ASSESSEE HAS TAKEN A MATERIAL LOAN IN THE FORM OF SILVER WITH THE UNDERSTANDING THAT IT HAS TO RETURN THE SILVER ONLY TO THE PARTIES CONCERNED AT THE END OF THE AGREEMENT. THE AGREEMENT IN QUESTION CAME TO AN END IN THE YEAR UNDER CONSIDERATION. 9.5 IT IS A FACT ON RECORDS THAT THE MATERIAL LOAN OBTAINED BY THE ASSESSEE WAS UTILIZED FOR ITS BUSINESS PURPOSES. AS SUCH THE ASSESSEE AFTER RECEIVING THE MATERIAL FROM THE PARTIES HAS STARTED MAKING SALES AT THE MARKET RATE WHICH WAS RECORDED AS SALES IN THE TRADING ACCOUNT. ACCORDINGLY, THERE HAS TO BE CORRESPONDING PURCHASES AGAINST THE SALES. AS SUCH THE SALES CANNOT BE MADE WITHOUT MAKING THE PURCHASES. THUS WHAT THE ASSESSEE HAS DONE, IT HAS SHOWN THE MATERIAL LOAN AS STOCK IN TRADE IN ITS TRADING ACCOUNT WHICH WAS UTILIZED FOR MAKING THE SALES. THE PROFIT GENERATED BY THE ITA NO. 860/AHD/2017 . A.Y. 2012-13 11 ASSESSEE ON ACCOUNT OF SALES MADE OF THE MATERIAL (TAKEN IN THE FORM OF LOAN) WAS OFFERED TO TAX WHICH WAS ACCEPTED BY THE REVENUE. 9.6 THE ENTIRE FLOW OF TRANSACTION CAN BE BETTER UNDERSTOOD WITH THE HELP OF AN EXAMPLE AS DISCUSSED BELOW: 10. IF THE ASSESSEE TAKES THE LOAN IN THE FORM OF CASH WHICH WAS UTILIZED FOR THE PURCHASE OF MATERIAL 10.1 THE ASSESSEE SHALL MAKE THE FOLLOWING ENTRIES ON THE RECEIPT OF LOAN AND PURCHASE OF THE MATERIAL: (I) CASH DR. TO LOAN A/C CR. (II) PURCHASE DR. CASH CR. 10.2 IN THE ABOVE ENTRIES THE LOAN SHALL BE SHOWN IN THE LIABILITY SIDE OF THE BALANCE SHEET UNDER THE HEAD CURRENT LIABILITIES OR LOAN LIABILITIES DEPENDING UPON THE NATURE OF LOAN. BUT IF IT IS THE CASH CREDIT FROM THE BANK, THEN IT HAS TO BE CLASSIFIED UNDER THE HEAD CURRENT LIABILITY. HOWEVER, IN EITHER CASE THE UNDISPUTED FACT IS THAT THE IMPUGNED LOAN HAS BEEN UTILIZED FOR THE PURPOSE OF BUSINESS ACTIVITY OF THE ASSESSEE. 10.3 THE PURCHASE ACCOUNT SHALL BE SHOWN ON THE DEBIT SIDE OF THE TRADING ACCOUNT BEING AN ITEM OF REVENUE IN NATURE. 10.4 IF THE ASSESSEE TAKES THE MATERIAL LOAN WHICH WAS UTILIZED FOR THE BUSINESS ACTIVITIES OF THE ASSESSEE. ITA NO. 860/AHD/2017 . A.Y. 2012-13 12 10.5 THE ASSESSEE SHALL MAKE THE FOLLOWING ENTRIES ON THE RECEIPT OF MATERIAL LOAN AND PURCHASE OF THE MATERIAL: (I) PURCHASE DR. TO LOAN CR. 10.6 IN THE ABOVE ENTRIES THE LOAN SHALL BE SHOWN IN THE LIABILITY SIDE OF THE BALANCE SHEET UNDER THE HEAD CURRENT LIABILITIES OR LOAN LIABILITIES DEPENDING UPON THE NATURE OF LOAN. BUT IF IT IS THE CASH CREDIT FROM THE BANK, THEN IT HAS TO BE CLASSIFIED UNDER THE HEAD CURRENT LIABILITY. HOWEVER, IN EITHER CASE THE UNDISPUTED FACT IS THAT THE IMPUGNED LOAN HAS BEEN UTILIZED FOR THE PURPOSE OF BUSINESS ACTIVITY OF THE ASSESSEE. 10.7 THE PURCHASE ACCOUNT SHALL BE SHOWN ON THE DEBIT SIDE OF THE TRADING ACCOUNT BEING AN ITEM OF REVENUE IN NATURE. 10.8 IN ANY OF THE SITUATION DESCRIBED ABOVE, THE UNDISPUTED FACT IS THAT THE LOAN LIABILITIES WHETHER MATERIAL LOAN/CASH LOAN WAS UTILIZED FOR THE PURPOSE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. IN THE PRESENT CASE THE ASSESSEE WAS ABLE TO CARRY ON ITS BUSINESS ACTIVITIES WITH THE ASSISTANCE OF THE MATERIAL LOAN WITHOUT WHICH IT WAS NOT POSSIBLE FOR IT TO CARRY ON THE BUSINESS. THEREFORE IN OUR CONSIDERED VIEW SUCH BUSINESS LOSS HAS BEEN INCURRED IN THE COURSE OF THE BUSINESS AND THEREFORE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER THE PROVISIONS OF SECTION 37/28 OF THE ACT AS THE CASE MAY BE. IN THIS REGARD WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF WEILDING RODS MFG. CO. VS. CIT REPORTED IN 93 TAXMAN 324 WHEREIN IT WAS HELD AS UNDER: ITA NO. 860/AHD/2017 . A.Y. 2012-13 13 IN EXAMINING ANY TRANSACTION ON ENTRY IN THE MERCANTILE SYSTEM OF ACCOUNT THE COURT MUST GIVE MORE REGARD TO THE REALITY AND SPECIFICALLY TO THE SITUATION RATHER THAN TO A PURELY TECHNICAL ASPECT. IT MUST LAY GREATER EMPHASIS ON THE BUSINESS ASPECT OF THE MATTER BY VIEWING THE TRANSACTION AS A WHOLE WITHOUT DISREGARDING STATUTORY LANGUAGE. IN THE INSTANT CASE, THE ASSESSEE WAS LIABLE TO RETURN THE WIRE RODS BORROWED FROM ITS SISTER CONCERN ON DEMAND. CONSEQUENTLY, THE ASSESSEE MUST MAKE PROVISION IN ITS ACCOUNT OF THE PRICE OF THE SAID LOAN IN VIEW OF THE MATERIAL TAKEN ON LOAN SO AS TO ENABLE IT TO PURCHASE THE SAME IN THE OPEN MARKET. THE RATE OF THE GOODS SHOWN BY THE ENTRY IN THE ASSESSEES ACCOUNTS WAS NOT CHALLENGED OR WAS NOT ALLEGED TO BE INFLATED ONE. UNLESS THE DISPUTED ENTRY WAS ALLOWED, IT WAS NOT POSSIBLE TO KNOW AND FIND OUT THE ASSESSEES BUSINESS PROFITS WHICH WERE TAXABLE. NO DOUBT, THE ASSESSEE HAD NOT SPENT THE AMOUNT OF THE ENTRY IN QUESTION AS WELL AS THE MAIN ENTRY. BUT IN THE MERCANTILE SYSTEM OF ACCOUNTING THE BUSINESSMAN HAS TO TAKE INTO CONSIDERATION HIS LIABILITIES, WHICH MIGHT BE EVEN CONTINGENT IN ORDER TO ARRIVE AT WHAT IS REAL BUSINESS PROFIT IN THAT YEAR. HE HAS TO TAKE INTO CONSIDERATION HIS LEGAL LIABILITIES. IT IS NOT THE CLAIM OF THE DEPARTMENT THAT UNDER SPECIFIC OR IMPLIED PROVISION OF THE ACT HE COULD NOT MAKE THE ENTRY IN QUESTION UNLESS HE HAD ACTUALLY EXPENDED THAT AMOUNT. THUS, THE ENTRY IN QUESTION IN THE LIABILITY ACCOUNT WAS CORRECT AND PROPER AND THE SAME MUST BE ACCEPTED BY THE DEPARTMENT. 11. THE ASSESSEE, SINCE DAY ONE HAS TREATED SUCH MATERIAL LOAN AS STOCK IN TRADE, THUS THE QUESTION OF TREATING THE CONVERSION OF CAPITAL ASSETS AS STOCK IN TRADE DOES NOT ARISE. SIMILARLY, THE PROVISIONS OF SECTION 45 OF THE ACT AS ALLEGED BY THE AO CANNOT BE ATTRACTED IN THE PRESENT FACTS AND CIRCUMSTANCES. 11.1 IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE WAS SUPPOSED TO REVALUE MATERIAL LOAN AT THE END OF EACH ACCOUNTING YEAR BUT HE HAS NOT DONE SO. BUT THAT DOES NOT MEAN THAT THE ASSESSEE IS NOT ENTITLED FOR SUCH LOSS CLAIMED IN THE YEAR OF REPAYMENT. HOWEVER, WE FIND THAT THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS REVALUED THE FRESH LOAN OBTAINED BY IT AT THE END OF THE YEAR AS ON 31 MARCH 2012 AND BOOKED A ITA NO. 860/AHD/2017 . A.Y. 2012-13 14 GAIN AS BUSINESS INCOME AMOUNTING TO RS. 49,28,802/- WHICH WAS ACCEPTED BY THE REVENUE. 11.2 THE ASSESSEE ALSO CLAIMED TO HAVE FILED PROVISIONAL ACCOUNTS AS ON 28.03.2015 WHEREIN AN INCOME OF RS. 3,04,25624.00, ON ACCOUNT OF REVALUATION OF MATERIAL LOAN HAS BEEN CREDITED AND ADVANCE TAX HAS BEEN ACCORDINGLY ON SUCH INCOME. ON PERUSAL OF THE FINANCIAL STATEMENT AS 31-3-2015, AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS DECLARED AN INCOME OF RS. 4,35,90,952.00 IN THE INCOME TAX RETURN AFTER INCORPORATING THE ABOVE INCOME. THUS IN OUR VIEW THE LOSS INCURRED BY THE ASSESSEE ON THE SAME ITEM IN THE YEAR UNDER CONSIDERATION IS ELIGIBLE FOR DEDUCTION. 11.3 THUS WHAT IS TRANSPIRED THAT THE REVENUE ON ONE HAND HAS DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF INCREASED IN THE VALUE OF THE MATERIAL LOAN BUT ON THE OTHER HAND THE REVENUE HAS ACCEPTED THE GAIN SHOWN BY THE ASSESSEE ON ACCOUNT OF DECREASE IN THE VALUE OF THE MATERIAL LOAN. IN OUR CONSIDERED VIEW, IF THE REVENUE IS NOT INCLINED TO ALLOW THE LOSS TO THE ASSESSEE THEN IT HAS NO AUTHORITY TO TAX THE GAIN SHOWN BY THE ASSESSEE AS DISCUSSED ABOVE. AS SUCH THE REVENUE CANNOT PICK AND CHOOSE BY PROVIDING DIFFERENT TREATMENT OF IDENTICAL TRANSACTION ACCORDING TO ITS CONVENIENCE AND IN A MANNER BENEFITING TO IT. AS SUCH IT HAS TO MAINTAIN/PROVIDE THE SAME TREATMENT FOR THE IDENTICAL TRANSACTIONS. 11.4 THE ASSESSEE HAS TAKEN THE MATERIAL LOAN IN THE YEAR 2008 WHICH WAS RECORDED AT PARTICULAR VALUE AND IT WAS NOT POSSIBLE FOR THE ASSESSEE OR ANY PERSON OF PRUDENT MIND TO FORESEE THE VALUE OF MATERIAL LOAN AT THE TIME OF REPAYMENT. AT THE TIME OF REPAYMENT THE VALUE OF THE MATERIAL LOAN HAS INCREASED MANY FOLDS WHICH WERE NOT CHALLENGED BY THE AUTHORITIES BELOW. AS SUCH IT WAS NOT POSSIBLE FOR THE ASSESSEE TO QUANTIFY SUCH AMOUNT AT THE TIME OF REPAYMENT OF LOAN. THE RATES FOR THE SILVER ARE ITA NO. 860/AHD/2017 . A.Y. 2012-13 15 GOVERNED BY THE MARKET FORCES. THEREFORE, THE ASSESSEE CANNOT BE FAULTED IF THE RATE HAS GONE HIGH AT THE TIME OF REPAYMENT OF SUCH LOAN. 12. WE ALSO NOTE THAT THE AO IN HIS ORDER HAS GIVEN A FINDING THAT THERE WAS NO STOCK AVAILABLE WITH IT OF THE SILVER AT THE TIME OF REPAYMENT OF MATERIAL LOAN IN THE FORM OF QUANTITY. HOWEVER ON PERUSAL OF THE INDIVIDUAL LEDGERS OF THE PARTIES WHO HAVE EXTENDED THE MATERIAL LOAN TO THE ASSESSEE, WE FIND THAT THE ASSESSEE BEFORE ACCEPTING THE FRESH LOAN HAS MADE THE ENTRY FOR THE REPAYMENT OF THE LOAN IN ALL CASES EXCEPT IN ONE CASE NAMELY CVM & CO. WHERE ONLY PART PAYMENT OF LOAN WAS SHOWN BEFORE ACCEPTING THE FRESH LOAN. THUS FROM THE ABOVE LEDGERS IT IS TRANSPIRED THAT THE ALLEGATION OF THE AO THAT THERE WAS NO SILVER STOCK AVAILABLE WITH THE ASSESSEE AT THE TIME OF REPAYMENT OF THE LOAN DOES NOT APPEAR TO BE CORRECT. IN ADDITION TO THE ABOVE WE ALSO NOTE THAT THE AO IN HIS ORDER HAS ACCEPTED THE OPENING STOCK OF FINE SILVER AS ON 1 APRIL 2011 WEIGHING 3343.27 KG WHICH SHOWS THE AVAILABILITY OF STOCK IN THE HANDS OF THE ASSESSEE. 12.1 THE RELEVANT EXTRACT OF THE ORDER OF THE AO STANDS AS UNDER: ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, IT IS SEEN THAT THERE WAS AN OPENING STOCK OF FINE SILVER WEIGHING 3343.27 KG. 12.2 THUS IT IS INFERRED THAT THE ABOVE QUANTITY OF THE SILVER WAS AVAILABLE WITH THE ASSESSEE WHICH WAS UTILIZED FOR MAKING THE REPAYMENT OF SILVER LOAN BY SHOWING THE SALES IN ITS BOOKS OF ACCOUNTS. THUS THE ENTIRE FRESH MATERIAL LOAN TAKEN BY THE ASSESSEE DURING THE YEAR CANNOT BE SAID TO HAVE ADJUSTED AGAINST THE INITIAL LOAN TAKEN BY THE ASSESSEE. ITA NO. 860/AHD/2017 . A.Y. 2012-13 16 12.3 REGARDING THE PHYSICAL DELIVERY OF THE MATERIAL LOAN TO THE PARTIES, WE NOTE THAT THE ASSESSEE BEFORE US HAS FILED INSURANCE RECEIPTS WHICH IS PLACED ON RECORD JUSTIFYING THAT THE ASSESSEE HAS TAKEN THE INSURANCE FOR THE TRANSPORTATION OF THE SILVER. INDEED THE QUANTITY OF THE SILVER WAS HUGE AND THEREFORE THE ASSESSEE MUST HAVE UTILIZED SERVICES OF SOME TRANSPORTERS. HOWEVER, THE ASSESSEE CONTENTION IS THAT IT HAS HANDED OVER THE MATERIAL LOAN TO THE PARTIES BY HAND. IN THE GIVEN FACTS AND CIRCUMSTANCES, THE ITEMS OF SILVER BEING PRECIOUS ITEMS, THE ARGUMENT OF THE ASSESSEE CANNOT BE NEGLECTED IN TOTALITY. HOWEVER, THERE ARE OTHER CLINCHING EVIDENCES SUPPORTING THE MATERIAL LOAN TRANSACTION INCLUDING THE AGREEMENT, PAYMENT OF INTEREST WHICH CANNOT BE IGNORED. 12.4 EVEN FOR THE SAKE OF ASSUMING, THE MATERIAL LOAN HAS NOT BEEN RETURNED BY THE ASSESSEE ON THE TERMINATION OF THE AGREEMENT, BUT THE ASSESSEE HAS REVALUED ITS CURRENT LIABILITY AT THE MARKET RATE AND ANY LOSS THEREON AS A RESULT OF REVALUATION HAS TO BE ALLOWED TO THE ASSESSEE BEING ARISING IN THE COURSE OF THE BUSINESS ACTIVITIES. 12.5 WE ALSO NOTE THAT THE AO IN HIS FINDING HAS HELD THAT ASSESSEE HAS USED THIS TRANSACTION AS A COLOURABLE DEVICE TO REDUCE ITS TAX LIABILITY BY MAKING THE BOOK ENTRY OF THE IMPUGNED LOSS. REGARDING THIS WE NOTE THAT HONBLE SUPREME COURT IN CASE OF MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (154 ITR 148) DATED 17-4-1985 WHEREIN APEX COURT OBSERVED THAT TAX PLANNING WITHIN THE LAW IS PERMITTED, BUT COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING. 12.6 IN THE CASE OF MCDOWELL & CO, THE ASSESSEE WAS NOT COLLECTING THE SALES TAX LIABILITY ON THE EXCISE DUTY EVEN AFTER THE AMENDMENT IN THE DISTILLERY RULES 76 & 79 W.E.F. 4-8-1981. AS SUCH BEFORE THE AMENDMENT IN THE RULES, I.E., DISTILLERY RULES 76 & 79 W.E.F. 4-8-1981, THE BUYERS WERE LIABLE TO DEPOSIT THE EXCISE DUTY DIRECTLY TO THE STATE GOVERNMENT. THEREFORE THE ASSESSEE DID NOT COLLECT THE SALES TAX ON SUCH EXCISE ITA NO. 860/AHD/2017 . A.Y. 2012-13 17 DUTY. IT IS PERTINENT TO NOTE THAT THE HONBLE SC BEFORE THE AMENDMENT IN THE RULES 76 & 79 DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE REPORTED IN 1 SCR 914 DATED 25-10- 1976. THUS THE ASSESSEE DEFAULTED TO COMPLYING IN THE AMENDED DISTILLERY RULES 76 & 79 W.E.F. 4- 8-1981. THUS THE HONBLE APEX COURT DECIDED THE ISSUE IN FAVOR OF REVENUE. HENCE WE ARE OF THE CONSIDERED VIEW THAT THE PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT CANNOT BE APPLIED IN THE CASE BEFORE US AS THE FACTS ARE DIFFERENT. 12.7 IT IS ALSO PERTINENT TO NOTE HERE THAT THE HONBLE APEX COURT IN CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN (263 ITR 706) DISCUSSED THE CASE MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (SUPRA) IN DETAIL AND DISTINGUISHED FROM IT BY OBSERVING AS UNDER: WE MAY IN THIS CONNECTION USEFULLY REFER TO THE JUDGMENT OF THE MADRAS HIGH COURT IN M.V.VALLIPAPPAN AND OTHERS V. ITO , WHICH HAS RIGHTLY CONCLUDED THAT THE DECISION IN MCDOWELL CANNOT BE READ AS LAYING DOWN THAT EVERY ATTEMPT AT TAX PLANNING IS ILLEGITIMATE AND MUST BE IGNORED, OR THAT EVERY TRANSACTION OR ARRANGEMENT WHICH IS PERFECTLY PERMISSIBLE UNDER LAW, WHICH HAS THE EFFECT OF REDUCING THE TAX BURDEN OF THE ASSESSEE, MUST BE LOOKED UPON WITH DISFAVOUR. THOUGH THE MADRAS HIGH COURT HAD OCCASION TO REFER TO THE JUDGMENT OF THE PRIVY COUNCIL IN IRC V. CHALLENGE CORPORATION LTD. , AND DID NOT HAVE THE BENEFIT OF THE HOUSE OF LORDS'S PRONOUNCEMENT IN CRAVEN , THE VIEW TAKEN BY THE MADRAS HIGH COURT APPEARS TO BE CORRECT AND WE ARE INCLINED TO AGREE WITH IT. 12.8 FURTHER, WE ALSO NOTE THAT HONBLE JURISDICTIONAL HIGH COURT IN CASE OF BANYAN AND BERRY VS. COMMISSIONER OF INCOME TAX (222 ITR 831) HELD THAT TAX PLANNING WITHIN THE LAW IS PERMISSIBLE AND ONLY IF ANY TRANSACTION WHICH IS REDUCING THE TAX LIABILITY CANNOT BE REGARDED AS A COLOURABLE DEVICE. THE COURT ALSO DISCUSSED THE MEANING OF COLOURABLE DEVICE AND CASE OF MCDOWELL & CO. LTD VS. COMMERCIAL TAX OFFICER (SUPRA) IN DETAIL. THE RELEVANT EXTRACT OF THE ORDER IS READ ASUNDER: FROM THE AFORESAID, IT IS APPARENT THAT ON THE FACTUAL ASPECT THE COURT WAS CONSIDERING THE CASE WHERE IN A GOING BUSINESS A LIABILITY TO PAY DUTY WHICH WAS LEGALLY OF THE ASSESSEE AND WHICH ON SUCH PAYMENT WAS TO BECOME PART OF ITS COST ITA NO. 860/AHD/2017 . A.Y. 2012-13 18 OF COMMODITY SOLD BY IT AND TO BECOME PART OF ITS SELLING PRICE TO THE BUYERS, WAS AS A RESULT OF ARRANGEMENT BETWEEN THE SELLER AND BUYER SPLIT INTO TWO, NAMELY - DUTY SO FAR PAID SEPARATELY DIRECTLY TO THE TAX AUTHORITIES AND THE BALANCE SO PAID TO THE SELLER; THE ARRANGEMENT WAS EXISTING SOLELY FOR THE PURPOSE OF NOT PAYING THE TAX AND IT IS NOT A TRANSACTION IN REALITY OF RECEIVING LESS PRICE THAN THE ONE ON WHICH IT WAS MARKETING. THE COURT NO WHERE SAID, THAT EVERY ACTION OR INACTION ON THE PART OF THE TAXPAYER WHICH RESULTS IN REDUCTION OF TAX LIABILITY TO WHICH HE MAY BE SUBJECTED IN FUTURE, IS TO BE VIEWED WITH SUSPICION AND BE TREATED AS A DEVICE FOR AVOIDANCE OF TAX IRRESPECTIVE OF LEGITIMACY OR GENUINENESS OF THE ACT; AN INFERENCE WHICH UNFORTUNATELY, IN OUR OPINION, THE TRIBUNAL APPARENTLY APPEARS TO HAVE DRAWN FROM THE ENUNCIATION MADE IN MCDOWELL'S CASE (SUPRA). RATIO OF ANY DECISION HAS TO BE UNDERSTOOD IN THE CONTEXT IT HAS BEEN MADE. THE FACTS AND CIRCUMSTANCES WHICH LED TO MCDOWELL'S DECISION (SUPRA) LEAVES US IN NO DOUBT THAT THE PRINCIPLE ENUNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE FREEDOM OF CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS, HIS WISHES IN THE MANNER OF DOING ANY TRADE, ACTIVITY OR PLANNING HIS AFFAIRS WITH CIRCUMSPECTION, WITHIN THE FRAME WORK OF LAW, UNLESS THE SAME FALL IN THE CATEGORY OF COLORABLE DEVICE WHICH MAY PROPERLY BE CALLED A DEVICE OR A DUBIOUS METHOD OR A SUBTERFUGE CLOTHED WITH APPARENT DIGNITY. IT WAS WITH THIS CONSCIOUSNESS THAT THE COURT HAS USED THESE EXPRESSIONS WHILE DEPRECIATING THE SCHEMES OF TAX AVOIDANCE IN THE NAME OF TAX PLANNING. ALL THE EXPRESSIONS USED BY THEIR LORDSHIPS IN DEPRECIATING THE METHODOLOGY OF TAX AVOIDANCE THROUGH TAX PLANNING OF RESORTING TO 'COLORABLE DEVICE', 'DUBIOUS METHODS OR SUBTERFUGE' HAVE SPECIAL SIGNIFICANCE IN LEGAL WORLD. IN THE CONTEXT OF THE PRESENT DISCUSSION, THE MEANING ASSIGNED TO 'COLORABLE' IN BROWN'S JUDICIAL DICTIONARY HAS BEEN DEFINED AS 'REVERSE OF BONAFIDE'. BLACK'S LAW DICTIONARY EXPLAIN 'COLORABLE' TO MEAN 'THAT WHICH IS IN APPEARANCE ONLY, AND NOT IN REALITY, WHAT IT PURPORTS TO BE, HENCE, COUNTERFEIT, FEIGNED HAVING THE APPEARANCE OF TRUTH'. SO ALSO A DEVICE. THE CONTEXT IN WHICH THE EXPRESSION DEVICE HAS BEEN USED IN ITS ORDINARY DICTIONARY MEANING AS PER SHORTER OXFORD DICTIONARY MEANS 'INNEUITY, SOMETHING DEVICE, ARRANGEMENT, PLAN, CONTRIVANCE, A PLOT OR A TRICK. BLACK'S DICTIONARY REFERS TO DEVICE AS CONTRIVANCE, A SCHEME, TRICK. SUBTERFUGE - ACCORDING TO ORDINARY MEANING AS PER THE SHORTER OXFORD ENGLISH DICTIONARY - MEANS THAT TO WHICH ONE REFERS FOR ESCAPE OR CONCEALMENT. SUBTERFUGE ON HISTORICAL PRINCIPLES MEANS, AN ARTICLE OR DEVICE TO WHICH A PERSON REFERS IN ORDER TO ESCAPE THE FORCE OF AN ARGUMENT, AN EXCUSE WITH WHICH CONCEALS ACLUE. SO ALSO THE EXPRESSION DUBIOUS REFERS TO A DOUBTFUL OR OF QUESTIONABLE CHARACTER. THAT IS TO SAY WHAT HAS BEEN DEPRECATED AS TAX PLANNING FOR AVOIDANCE OF TAX ARE THOSE ACTS WHICH HAVE DOUBTFUL, OR QUESTIONABLE CHARACTER AS TO THEIR BONA FIDE AND RIGHTEOUSNESS. NOT ALL LEGITIMATE ACTS OF A TAXPAYER WHICH IN ORDINARY COURSE OF CONDUCTING HIS AFFAIRS A PERSON DOES AND ARE UNDER LAW HE IS ENTITLED TO DO, CAN BE BRANDED OF QUESTIONABLE CHARACTER ON THE ANVIL OF MCDOWELL(SUPRA). ITA NO. 860/AHD/2017 . A.Y. 2012-13 19 WE ARE UNABLE TO READ IN THE AFORESAID DECISION THAT ANY ACT OF AN ASSESSEE WHICH RESULTS IN REDUCTION OF HIS TAX LIABILITY OR EXPECTATION OF TAX BENEFIT IN FUTURE AMOUNTS TO COLORABLE DEVICE, A DUBIOUS METHOD OR SUBTERFUGE TO AVOID TAX AND CAN BE IGNORED IF THE ACTS ARE UNAMBIGUOUS AND BONA FIDE, MERELY ON THE GROUND THAT TREATING THOSE AS DELIBERATE WOULD RESULT IN TAX LIABILITY INFUTURE. WHILE THE PLANNING ADOPTED AS A DEVICE TO AVOID TAX HAD BEEN DEPRECATED, PRINCIPLE CANNOT BE READ AS LAYING DOWN THE LAW THAT A PERSON IS TO ARRANGE HIS AFFAIRS SO AS TO ATTRACT MAXIMUM TAX LIABILITY, AND EVERY ACT WHICH RESULTS IN TAX REDUCTION, EXEMPTION OF TAX OR NOT ATTRACTING TAX AUTHORISED BY LAW IS TO BE TREATED AS DEVICE OF TAXAVOIDANCE. 12.9 FROM THE ABOVE IT IS TRANSPIRED THAT ALL THE TRANSACTIONS HAVING IMPACT ON THE REDUCTION OF TAX LIABILITY CANNOT BE REGARDED AS COLOURABLE DEVICE. AS SUCH REVENUE NEEDS TO SEE THE TRANSACTION IN ITS ENTIRETY, AS HELD BY THE HONBLE GUJARAT HIGH COURT IN THE ABOVEMENTIONED CASE. 13. HOWEVER, WE FURTHER NOTE THAT BEFORE APPLYING THE AFORESAID PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT IN CASE OF MCDOWELL (SUPRA) TO THE CASE ON HAND CERTAIN FACTS NEEDS TO BE CONSIDERED FOR ARRIVING AT A FINDING WHETHER A PARTICULAR SERIES OF THE TRANSACTIONS IS A COLOURABLE DEVICE OR NOT THE ONUS IS ON THE AO TO FIND OUT: (I) WHETHER THE PARTIES TO THE TRANSACTIONS HAVE CONCEALED OR HIDDEN ANY FACT AND/OR WHETHER WHAT IS SHOWN TO BE DONE COULD HAVE ACTUALLY HAPPENED IN DIFFERENT TIME OR AT DIFFERENT PLACE; ANS: REGARDING THE FACTS OF THE TRANSACTIONS, WE NOTE THAT ALL THE NECESSARY FACTS WERE DULY DISCLOSED BY THE ASSESSEE ABOUT THE MATERIAL LOAN TAKEN FROM THE PARTIES IN THE EARLIER ASSESSMENT YEARS. FURTHERMORE, THE INTEREST EXPENSES ON SUCH MATERIAL LOAN WAS ALLOWED AS DEDUCTION BY THE REVENUE. THUS, WE ARE OF THE VIEW NO FACTS WERE CONCEALED OR HIDDEN. (II) WHETHER IT COULD BE A NORMAL BUSINESS PRACTICE; ITA NO. 860/AHD/2017 . A.Y. 2012-13 20 ANS: IN EVERY BUSINESS REQUIREMENT THERE IS A NEED OF THE FUND WHICH IS ARRANGED BY THE ENTREPRENEUR/ OWNER EITHER FROM ITS OWN CAPACITY OR BY WAY OF BORROWING FROM THE BANK /FRIENDS RELATIVES. BORROWING FROM THE OUTSIDE IS A NORMAL BUSINESS PHENOMENA. HOWEVER THE ASSESSEE IN THE PRESENT CASE INSTEAD OF BORROWING IN THE FORM OF CASH LOAN HAS TAKEN IN THE FORM OF MATERIAL LOAN WHICH IS AKIN TO ANY NORMAL BUSINESS TRANSACTIONS. (III) EVEN WHERE INDIVIDUAL TRANSACTIONS OF THE DEVICE ARE LEGAL OR LEGITIMATE, WHETHER COMBINATION OF THESE STEPS CREATES AN EFFECT WHICH IS ABNORMAL IN THE BUSINESS WORLD AND COULD NOT HAVE BEEN OTHERWISE UNDERTAKEN IN NORMAL CIRCUMSTANCES; ANS. IN THE PRESENT CASE THERE WAS NO REFERENCE MADE BY THE AUTHORITIES BELOW SUGGESTING THAT THE TRANSACTION IS CARRIED ILLEGALLY. AS THE TRANSACTION IN THE INSTANT CASE WERE WITHIN THE AMBIT OF THE LAW AS NOTHING BEING ILLEGAL/ILLEGITIMATE WAS BROUGHT TO OUR NOTICE. (IV) THESE INDIVIDUAL TRANSACTIONS CREATE AN EFFECT WHICH IS CONTRARY TO HUMAN PROBABILITIES; ANS. THE TRANSACTIONS CARRIED OUT BY THE PARTIES WERE VERY MUCH NORMAL TRANSACTION. (V) WHETHER ACTIONS OF THE PARTIES FINALLY ARE AT VARIANCE WITH THE TERMS OF THE AGREEMENT; ANS. THERE WAS NO VARIANCE IN THE IMPUGNED TRANSACTION WITH REGARD TO THE TERMS OF THE AGREEMENT. ITA NO. 860/AHD/2017 . A.Y. 2012-13 21 13.1 IN VIEW OF THE ABOVE WE HOLD THAT THE IMPUGNED TRANSACTION CANNOT BE REGARDED AS COLOURABLE DEVICE MERELY ON THE REASONING THAT THERE IS REDUCTION IN THE TAX LIABILITY IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, AFTER CONSIDERING THE FACTS IN TOTALITY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (A) AND THUS WE CONFIRM THE SAME. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31- 08- 2020 SD/- SD/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 31/08/2020 RAJESH COPY OF THE ORDER FORWARDED TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD
