RPK Warehousing (P.) Ltd. Vs ITO (ITAT Ahmedabad)
Conclusion: Loss on the transactions in castor oil and castor seeds entered between sister concerns could not be allowed to be set-off against business income and LTCG on sale of land as these were speculative transactions as assessee had not obtained the delivery of goods of alleged trading since the purchased item was sold on the same day in the same quantity and also that there was no transportation expenses claimed by assessee.
Held: During the course of scrutiny assessment proceedings, AO noted that assessee had warehouse rental income, weigh bridge income, truck hiring income as also long term capital gain on sale of land. However, these incomes had been wiped off on account of alleged loss in castor seed and castor oil trading. When these transactions were probed further, it was noted that admittedly assessee did not have any storage facility for castor oil and castor seed, and that there were no opening and closing balances in respect of the same. It was also found that the assessee had nine transactions in respect of castor oil, that on all these occasions purchases were made from one Vishal Agrotech operating from the same premises from which assessee was operating, that on all the occasions castor oil was sold to Aditya Marine Ltd on the same date in the same quantity but on a substantially lower rate, and that the transactions, therefore, seemed dubious. In respect of castor seed transactions also, the story was on the same pattern. All the transactions in castor oil and castor seeds were speculative transactions as assessee had not obtained the delivery of goods of alleged trading since the purchased item was sold on the same day in the same quantity and also that there was no transportation expenses claimed by assesses. The loss on these transactions was thus disallowed. Assessee contended that mere fact that concerned entities were operating from the same premises could not lead to the inference that these were sister concerns or the transactions were collusive. It was held variations in castor oil and castor seed prices were not supported by authoritative data. The sequence of events, showing repeated loss transactions, not made sense either. It was also difficult to understand that when ultimate buyer and seller operated from same premises, why was assessee roped in every time, and every time that happened, assessee incurred a loss. There was no explanation about nature of office sharing arrangement or the nature of association. The “ease of business” for every connected party operating from the same premises was too vague an explanation to merit judicial approval. Thus, AO had rightly disallowed loss on impugned transactions.
FULL TEXT OF THE ITAT JUDGMENT
1. By way of this appeal, the assessee has challenged correctness of learned CIT(A)’s order dated 12th February 2015, in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2011-12.
2. Grievances raised by the appellant are as follows:-
“1.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in dismissing the appeal of the appellant company.
2.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in holding that M/s Vishal Agrotech is a sister concern of the appellant company because of its office in the same premises and M/s Aditya Marine Limited is also a sister concern because of its different kind of nature of work.
3.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in upholding the finding of the Assessing Officer that the transactions in castor oil and castor seeds were sham transactions and thereby excluding the total purchases and sales of the appellant company from the working of the total income.
4.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in upholding the action of the Assessing Officer in assessing the total income at Rs.1,66,58,916/- against the returned loss of Rs.28,03,216/-.
5.0 The appellant may be allowed to add, amend, alter or raise additional grounds of appeal.”
3. Briefly stated, the relevant material facts are like this. During the course of scrutiny assessment proceedings, the Assessing Officer noted that the assessee has warehouse rental income of Rs.42,17,319/-, weigh bridge income of Rs.3,67,915/-, truck hiring income of Rs.14,40,000/- as also long term capital gain of Rs.1,39,35,612/- on sale of land. However, these incomes have been wiped off on account of alleged loss in castor seed and castor oil trading. When these transactions were probed further, it was noted that admittedly the assessee did not have any storage facility for castor oil and castor seed, and that there were no opening and closing balances in respect of the same. It was also found that the assessee had nine transactions in respect of castor oil, that on all these occasions purchases were made from one Vishal Agrotech operating from the same premises from which the assessee is operating, that on all the occasions castor oil was sold to Aditya Marine Ltd on the same date in the same quantity but on a substantially lower rate, and that the transactions, therefore, seemed dubious. In respect of castor seed transactions also, the story was on the same pattern. All the three purchase transactions for castor seed were from Golden Tulip Hotels & Apartments Pvt Ltd, all the three sale transactions were to RPK Agrotech Exports and Vishal Agrotech, and all these concerns were operating from the same premises from which the assessee was operating. When assessee was put to notice as to why loss incurred on these transactions not be disallowed, it was submitted that the transactions were genuine business transactions “executed at arm’s length” and the parties “enjoyed the address of the registered office for ease of work, and the same has been used for a short span” but their different addresses were also furnished. Rejecting these submissions, the Assessing Officer observed as follows:-
“8. The written submission of the assesses has been carefully considered. The contention of the assessee that It had done purchase and sale of castor seed and castor oil because of the contract already entered into is devoid of any merit. To prove that there was obligatory contract, the assesses has furnished copy of ‘Sale Orders’ on simple paper in which the assessee has requested M/s. Aditya Marine Ltd, Vishal Agrotch and RPK Agrotech Exports (P) Ltd to supply certain goods. The Photo copy of these so called ‘Contract Notes’ which are eight in number are annexed to this assessment order (numbered 1 to 8) and shall form part of the assessment order. The assessee had, as per invoices furnished, sold Castor Oil to M/s. Aditya Marine Ltd but as per these ‘Sale orders’, the assessee has requested M/s. Aditya Marine Ltd to supply Castor Oil. Similarly, the assessee had, as per copy of invoice, sold Castor seed to M/s. R.P.K. Agrotech Exports (P) Ltd but as per these ‘sale orders’, the assessee has requested M/s. R.P.K. Agrotech Exports (P) Ltd to supply castor seed. These papers are only an afterthought and fails to prove the so called ‘contract’ between the assessee and the other party. Therefore, these papers to prove ‘contract sale’ are rejected these do not have any evidentiary value to prove ‘obligation to sale’. As far as address of M/s. Golden Tulip Hotels & Appts (P) Ltd, M/s. Vishal Agrotech and M/s RPK Agrotech are concerned, these have been shown based at the assessee’s premises only as per the invoices furnished in written submissions. Photo copy of these invoices are also annexed to this order (numbered 9 to 11) and shall form part of the assessment order. Admittedly, M/s. Golden Tulip Hotels & Appts (P) Ltd and M/s. RPK Agrotech Pvt. Ltd. are associate concern also. Thus the theory of ‘contract sale’ or ‘obligatory sale’ contended by the assessees is rejected and the loss claimed by the assessee in castor oil and castor seeds trading transactions is ignored and all transactions in castor oil and castor seeds are held as sham transactions. Penalty Proceedings u/s 271(1)(c) of the Income-tax Act is initiated for furnishing inaccurate particulars of income.
9. Without prejudice to the above, all the transactions in castor oil and castor seeds are speculative transactions as the assessee has not obtained the delivery of goods of alleged trading since the purchased item was sold on the same day in the same quantity and also that there is no transportation expenses claimed by the assesses.”
4. The loss on these transactions was thus disallowed. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A), in a very elaborate and well reasoned order, confirmed the action of the Assessing Officer by observing as follows:-
2.2 I have carefully considered the rival contentions. After carefully going through detailed submissions filed by appellant and assessment order I am not inclined to agree with the contention of appellant. There are several important aspect of claim. of appellant which fails the test of common logic. The most important fact is that dealing of appellant in such kind of activity which is not at all the regular business carried on by the appellant .As per available record the appellant is carrying on regular business of hiring of goods vehicle, rent from letting out of warehouse, income from weigh bridge. The appellant has reflected total income of Rs.60,81,866/- from these regular activities during the year. However as rightly observed by Id AO the income from regular business has been negated by loss incurred in purchase and sale of castor oil and castor seeds. At the ‘same time the appellant has earned long term capital gain of RS 1,39,35,612/–, which also stand set off against loss from sale purchase of castor oil and castor seeds. Largely above analogy itself explains the sudden change of pattern in the. business income of appellant and huge loss on sale purchase of castor oil and castor seeds. At the same time also a question arises that when in immediate preceding year the appellant has incurred loss of Rs. 22,61,987/- in same activity of sale purchase of castor oil and castor seeds ,then why the appellant has chosen to venture into it again.
Ld. A.0 has also observed in the assessment order that for castor oil there are total 9 transactions during the year. The detail of transaction is hereunder :CASTOR OIL FSG – Purchase and sale
