INCOME TAX ACT, 1961

Section 28

Business loss - Loss claimed by assessee on commodity trading - AO held that transactions were not genuine and in order to show the loss from Rice trading activity, it was fabricated loss to avoid taxes. -

AO disallowed loss claimed by assessee on commodity trading with the observation that assessee was carrying out three different segments of activities-one being insurance agent for Chola MS General Insurance Chennai, 2nd being marketing of lifts for Thyssenkrupp Elevator (India) Private Limited, New Delhi and 3rd dealing in commodities that is Rice and Nifty Future sales. AO observed that the trading in commodities were started from August, 2008 immediately after receiving commission income as this line of business was not there in the preceding year and it was preplanned to avoid taxes. He observed that prices charged by assessee from its customers were much less than the purchase price and without there being any mention of quality but the bills of sales and purchases which contained the quantity rate and weight. He also observed that all the purchases and sales were routed through a small group of persons having business situated in Naya Bazaar, New Delhi. All the purchases and sales were recorded in the books without documentary proof of its delivery, transportation et cetera. He observed that all the purchases were at higher rates and sales at lower rates which was against the normal commercial transactions. In order to verify genuineness of the transaction, AO issued notices to all the parties and it was returned un -- served. Further, AO referred the matter to ADIT (Inv.), New Delhi, based on their report that only five parties responded to the enquiries and balance were not traceable. Accordingly, he came to conclusion that transactions were not genuine and in order to show the loss from Rice trading activity, it was fabricated loss to avoid taxes. Held: AO merely relying on the findings of ADIT (Inv.) and only verifying the address aspect for identification of parties, came to conclusion that concerned parties were bogus and did not exist. He did not care to verify other evidences filed by assessee like bank details, PAN, sales tax details, etc. Assessee had given relevant details of all the parties along with confirmations still revenue doubted identity and genuineness, then it was AO who had to prove that assessee had indulged in the activities to avoid tax. AO had not brought any material in support of the belief and applied assumptions merely on verification of address aspect of identification, which was not justified. Therefore, disallowance was deleted.

Supported by:CIT-IV v. Dwarkadhish Investment (P) Ltd. and Dwarkadhish Capital (P) Ltd. (2010) 330 ITR 298 (Del.) : 2011 TaxPub(DT) 374 (Del-HC).