Allowability ofSet off of loss of Sham and collusive transactions between sister concerns

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Allowability ofSet off of loss of Sham and collusive transactions between sister concerns

Short Overview : Loss on sham and collusive transactions entered between sister concerns could not be allowed to be set-off and carried forward.

AO noticed that assessee has warehouse rental income, weigh bridge income, truck hiring income as also long-term capital gain on sale of land. However, these incomes were wiped off on account of alleged loss in castor seed and castor oil trading. When these transactions were probed further, it was noticed that admittedly assessee did not have any storage facility for castor oil and castor seed, and there were no opening and closing balances in respect of the same. Also the assessee had nine transactions in respect of castor oil, and on all these occasions purchases were made from one Vishal Agrotech operating from the same premises from which assessee was operating, and 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. In respect of castor seed transactions also, the story was on same pattern. AO treated the transactions as non-genuine and 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 is held that : Assessee’s variations in castor oil and castor seed prices were not supported by authoritative data. The sequence of events, showing repeated loss transactions, not make sense either. It was also difficult to understand that when ultimate buyer and seller operated from same premises, why was the 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, arguments were somewhat superficial and missed the fundamental genuineness aspect and AO had rightly disallowed loss on impugned transactions.

Decision: Against the assessee.

IN THE ITAT, AHMEDABAD ‘B’ BENCH

PRAMOD KUMAR, V.P. & MADHUMITA ROY, J.M.

RPK Warehousing (P.) Ltd. v. ITO

IT Appeal No. 1401 (Ahd.) of 2015

A.Y. 2011-12

11 June, 2019

Appellant by: U.S. Bhati

Respondent by: Mudit Nagpal

ORDER

Pramod Kumar, V.P.

By way of this appeal, the assessee has challenged correctness of learned Commissioner (Appeals)’s Order, dated 12-2-2015, in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2011-12.

  1. Grievances raised by the appellant are as follows :–

“1. The learned Commissioner (Appeals) erred in law and on facts in dismissing the appeal of the appellant company.

  1. The learned Commissioner (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.
  2. The learned Commissioner (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.
  3. The learned Commissioner (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.
  4. The appellant may be allowed to add, amend, alter or raise additional grounds of appeal.”
  5. 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 assessees 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 assessees 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 under section 271(1)(c) of the Income Tax Act is initiated for furnishing inaccurate particulars of income.

  1. 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 assessees.”
  2. The loss on these transactions was thus disallowed. Aggrieved, assessee carried the matter in appeal before the Commissioner (Appeals) but without any success. Learned Commissioner (Appeals), 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 learned assessing officer 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.

Learned assessing officer 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

Month/date Inward Outward Remarks
  Quantity Value Quantity Value  
May 264.000 Mts. 19668000 264.000 Mts. 19395288 Loss = 272712
June 966.000 Mts. 71337000 966.000 Mts. 70082442 Loss = 1254558
TOTAL 1230.000   1230.000    

For castor seeds only 4 transactions have taken place during the year.

CASTOR SEED — Purchase and sale:

Month/date Inward Outward Remarks
  Quantity Value Quantity Value  
May 133.675 Mts. 4232260 133.675 Mts. 4250865 Gain = 18605
June 277.620 Mts. 8967541 277.620 Mts. 9033712 Gain = 66171
January 453.205 Mts. 22116404 453.205 Mts. 21368616 Loss = 747788
February 878.546 Mts. 45684392 878.546 Mts. 28113472 Loss = 17570920
TOTAL 1743.046   1743.046    

(DATEWISE PURCHASE AND SALE DETAILS OF CASTOR OIL)

Purchase Details Sale details
Date Qty. (MT) Rate per MT (Rs.) Item Date Qty (MT) Rate per MT (Rs.)
21-5-2010 132 74500 Castor Oil 21-5-2010 132.0 73467
24-5-2010 132 74500 Castor Oil 24-5-2010 132.0 73467
2-6-2010 176 74500 Castor Oil 2-6-2010 176.0 73467
4-6-2010 85 74500 Castor Oil 4-6-2010 85.0 73467
7-6-2010 220 74500 Castor Oil 7-6-2010 220.0 73487
10-6-2010 110 74500 Castor Oil 10-6-2010 110.0 73487
14-6-2010 195 74500 Castor Oil 14-6-2010 195.0 73487
19-6-2010 60 71000 Castor Oil 19-6-2010 60.0 72222
23-6-2010 120 71000 Castor Oil 23-6-2010 120.0 66613

The chart of castor oil and castor seeds shows trends of transactions by appellant in which major loss occurred is, in sale purchase of castor seeds and that to in the last transaction in February, 2011 amounting to Rs. 1,75,70,920. Learned assessing officer has further Observed that the purchase and sale has been executed on the same day, even the quantity of purchase and sale is different. It is purchased on higher rates and sold on same day in lower price. The logic behind given by appellant is the sale contracts entered into by appellant with the concerned parties few days before and its obligatory nature. Ld assessing officer has further pointed out that for castor oil all the purchases have been made from M/s. Vishal Agrotech and has been sold to M/s. Aditya Mariene Ltd. on the same. Even the quantity is also same, both of above firms were found operating from same address of appellant. The learned assessing officer has observed —

“As may be seen in the table above, you have purchased castor oil from M/s. Vishal Agrotech and sold the same quantity to M/s. Aditya Marine Ltd. on the same date booking loss in the transaction. Except the transaction on 19-6-2010 in which a meager profit is shown, all the transactions have resulted in loss.”

Similarly, for castor seeds transaction learned assessing officer has observed that there are total three transaction during the year —

CASTOR SEEDS TRANSACTIOIN DETAIL

Purchase Details Sale details Sold to
Date Qty (MT) Rate per MT (Rs.) Date Qty (MT) Rate per MT (Rs.)
31-1-2011 453.205 48800 31-1-2011 453.205 47150 RPK Agrotech exports (P) Ltd.
10-2-2011 363.724 52000 10-2-2011 363.724 32000 Vishal Agrotech
28-2-2011 514.822 52000 28-2-2011 514.822 32000 Vishal Agrotech

As is apparent from the table above. The appellant has purchased castor seed on 10-2-2011 at the rate of Rs. 52,000 per MT from M/s. Golden Tulip Hotel and Apartments Pvt. Ltd., operating from the same premises, and was sold same day at the rate of Rs. 32,000 per MT to M/s. Vishal Agrotech, also based in the same premises. A proper analysis reveals that the appellant have booked loss deliberately to avoid payment of tax on Capital Gains as also on the income from rent of warehouse. The transactions in castor seed and castor oil allegedly under taken by the appellant are beyond the normal logics of business.

One more interesting fact is that it is beyond any logic that the so called buyer and seller both are situated in the same building same office but they instead of going for direct transition with each other chose to go through the appellant. This is also illogical that a prudent business person will go for such type of transaction year after another, in which it has incurred huge losses and the area of business is also does not pertain to appellant company.

Learned assessing officer has also pointed out the rate difference of purchase and sale on 31-1-2011 castor seed purchase rate is @ Rs. 48,800 per MT. The sale rate on the same day is 47150 per MT. Just after 10 days the rate of purchase is Rs. 47,150per M.T. and same day it was sold @ Rs. 32,000 per MT.

As per the data available at http://www.ncdex.com/MarketData wrt to price of castor seeds in February, 2011 it is seen that there were no major variation of price of castor seed though the trend was upwardly but it was never @ 32000 per mt.

Market Data > Futures Pricese

http://www.ncdex.com/Market/Futureprices.aspx

From the above chart it is evident the appellant has cleverly chosen the particular days on which the rate of castor seed was lowest as per the data commonly available in public domain, then on that day it has shown booking in the shape of so called sale contract. This is also important that, the appellant has purchased and sold these commodities to/from the parties which are incidentally having their offices in the same premise of appellant. Still apparently being well acquainted with each other as working in same premise there is no probability of acceptance of claim of appellants wrt obligatory sale even at the cost of huge loss. It will also be in fitness of things to see the trend of these commodities during this time. It is seen in an article in (business-standard) http://www.business-standard.com) Castor prices halve in a year of record production.

“A bumper castor crop this oil year has increased the availability of the oilseed. This is pure demand-supply economics. Therefore, prices would remain under pressure till fresh demand comes up. But, if monsoon gets delayed, prices would rise further,” said an office bearer of the Solvent Extractors’ Association of India (SEA). At the Bombay Commodities Exchange, castor seed prices quoted at Rs. 3,315 per quintal oft Tuesday, after recovering from its lowest levels of Rs. 2,925 per quintal on June 9, Gastor seed hit a high of Rs. 6.000 per quintal on 11-2-2011. The prices are still lower by dose to 45 per cent from its highs. Castor oil first special grade quoted at Rs. 703 per 10 kg. on Tuesday. The prices surged to a high of Rs. 1,240 per 10 kg. on 11-2-2011. On 9-6-2012, prices hit the bottom of Rs. 625 per 10 kg.’

Apparently as evident from above study available on internet on the above mentioned sites it is clear that the appellant has just followed the market trends and claimed to book sale preferably on the days when the rate was lowest while it has chosen to purchase on the dates when the price was at its higher to work out a situation where it has claim to incur huge loss. With reference to appellant’s contention it is observed that, this is also beyond any logic that any prudent business person will keep on going for future booking when constantly it is incurring loss. The appellant has also failed to prove that it was under obligation to complete the earlier booked transactions. Further it has also failed to furnish evidence wrt to rate of purchase and sale of castor seed and castor oil as claimed by it.

Secondly if all the entities with whom the appellant has entered into transaction for the above mentioned commodities, are different as submitted by appellant then the appellant has failed to prove that why these entities could not do transaction directly with each other being placed and working from same premise.

Thirdly, the appellant has failed to furnish evidence of bearing of the transport expenses. Since there has to be huge movement of goods through the containers, who has borne the transportation expenses is not clear and has not been explained by the appellant. Even the so called sale contract are also silent on this issue.

There are some factual anomaly also wrt to name of parties booked for sale order for castor oil and castor seed as pointed out by learned assessing officer at page 8 para 8 of 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.

As per information available on internet on public domain the dealing of assessee-company is hereunder :–

RPK WAREHOUSING PRIVATE LIMITED

Basic Information

Documents

Directors

Map

RPK Warehousing Private Limited is a Private Company incorporated on 19 June 1995. It is classified as. Indian Non-Government Company and is registered at Registrar of Companies, Ahmedabad. Its authorized share capital is Rs. 10,000,000 and its paid up capital is Rs. 10,000,000.

RPK Warehousing Private Limited’s Annual General Meeting (AGM) was last held on 30-9-2014 and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was last filed on 31-3-2014.

Directors of RPK Warehousing Private Limited are Paras Liladhar Khushalani, Meenakshi Liladhar Khushalani and Rohit Liladhar Khushalani.

RPK Warehousing Private Limited’s Corporate Identification Number is (CIN) U99999GJ1995PTC026386 and its registration number is 26386.1ts E-mail address is RPKACCOUN@RPKAGROTECH.COM and its registered address is 601, ANURAG FLATS, B/H.VIDYANAGAR HIGH SCHOOL, NR-USMANPURA CHAR RASTA, AHMEDABAD, 380 013 -, Gujarat INDIA. Current status of Rpk Warehousing Private Limited is – Active.

It is pertinent to note that the e-mail id also is of RPK Agrotech.

Detail of RPK Agrotech shows that the appellant company RPK Warehousing is their subsidiary company.

Chttp://www.rpkagrotech.com/subsidary.phpompany Information

RPK Warehousing Pvt. Ltd.

We provide our customers with state of art warehousing facilities to suit their varying needs. Our warehousing facility is equipped with CCTV surveillance, well trained security and professional team. The facility is located in close proximity to the ports can offer multi-client warehousing, contract warehousing, bonded warehousing, non-bonded warehousing.

Storage facility of 100,000 Square Feet.

Located at strategic location near Kandla and Mundra Port. 15 KMS from Kandla Port and 75 KMS from Mundra Port

24 hrs. operative weigh bridge facility for weighing 100 MTS

Well equipped with electricity and security round the clock

Cargo Care Logistics

We provide our customers with powerful logistics solutions involving people, technology and location, working together to provide integrated, full service supply chain management. We specialize in crafting efficient and cost effective logistics solutions customized to customer’s specific requirements which allows you to focus on core competencies and develop a logistical edge over the competition through the use of our professional logistics services. We effectively bridge the gap between your vendors, your goods and your customers to provide you with a winning edge.

At website of India MART

About RPK Agrotech Exports Private Limited

WE ARE COMMITTED TO BE POSITIVE & AGGRESSIVE IN OUR ATTITUDE TOWARDS QUALITY AND CUSTOMER SERVICE. WE WILL NOT ALLOW QUALITY TO TAKE SECOND PLACE BEHIND COST OR SCHEDULE AS THIS IS OUR BASIC STRATEGY FOR GROWTH.

OUR CUSTOMERS DEMAND A HIGH QUALITY PRODUCT – IT IS OUR RESPONSIBILITY TO GIVE THEM WHAT THEY WANT BY SEEKING A BETTER UNDERSTANDING OF THEIR REQUIREMENTS/SPECIFICATIONS. IT IS OUR OBJECTIVE TO FURNISH HIGH QUALITY PRODUCTS. ON TIME, AND AT THE LOWEST COST. TO OUR OBJECTIVES, WE WILL MAINTAIN A CONSTANT FOCUS ON QUALITY WITH FULL DEDICATION, COMMITMENT, AND TEAMWORK.

OUR JOURNEY IS TO IMPLEMENT AND MAINTAIN OUR CONSISTENT QUALITY SATISFYING OUR CUSTOMERS SPECIFIED REQUIREMENTS THROUGH A PROCESS OF CONTROL & CONTINUOUS IMPROVEMENT. WE UNDERSTAND THAT QUALITY MANAGEMENT IS A LONG TERM COMMITMENT AIMED TO STRIVE CUSTOMER SATISFACTION WITH FULL OPERATIONAL EFFICIENCY, FOLLOWING BUSINESS ETHICS INCLUDING APPLICABLE REGULATORY AND STATUTORY REQUIREMENTS AND PROPER UTILIZATION OF RESOURCES.

GOOD NETWORK WITHIN THE AGRICULTURAL INDUSTRY FOR QUALITY SUPPLY LOCATED VERY CLOSE TO MUNDRA/KANDLA PORT ONLY ABOUT 50 KILOMETRES FROM PORTS HELPS US IN HAVING EFFICIENT OPERATIONS.

EXPERIENCE OF OVER 25 YEARS IN EXPORTS BUSINESS MAINLY OF CASTOR OIL, UNDERSTAND THE UNIQUE REQUIREMENT OF EXPORT BUSINESS.

OUR OWN LOGISTIC FLEET OF 25 TRUCKS AND OFFICES AT PORT FOR SPEEDY SHIPMENTS.

OWN WAREHOUSES TO STOCK LARGE QUANTITY OF SUPPLIES FOR EXPORT

STRINGENT QUALITY PARAMETERS LIKE IN HOUSE LABORATORY FOR TESTING ALL THE CONSIGNMENTS. SAMPLING OF CARGO WHILE AT ARRIVAL AND AT EXPORT, USE OF COMPUTERIZED WEIGHMENT. ALL EXPORT ACTIVITIES UNDER OUR OWN SUPERVISION.

SUBSIDARY

RPK WAREHOUSING PVT. LTD.

WE PROVIDE OUR CUSTOMERS WITH STATE OF ART WAREHOUSING FACILITIES TO SUIT THEIR VARYING NEEDS. OUR WAREHOUSING FACILITY IS EQUIPPED WITH CCTV SURVEILLANCE, WELL TRAINED SECURITY AND PROFESSIONAL TEAM. THE FACILITY IS LOCATED IN CLOSE PROXIMITY TO THE PORTS CAN OFFER MULTI-CLIENT WAREHOUSING, CONTRACT WAREHOUSING, BONDED WAREHOUSING, NON-BONDED WAREHOUSING.

STORAGE FACILITY OF 100.000 SQUARE FEET.

LOCATED AT STRATEGIC LOCATION NEAR KANDLA AND MUNDRA PORT 15 KMS FROM KANDLA PORT AND 75 KMS FROM MUNDRA PORT

24 HRS OPERATIVE WEIGH BRIDGE FACILITY FOR WEIGHING 100 MTS.

WELL EQUIPPED WITH ELECTRICITY AND SECURITY ROUND THE CLOCK

CARGO CARE LOGISTICS

WE PROVIDE OUR CUSTOMERS WITH POWERFUL LOGISTICS SOLUTIONS INVOLVING PEOPLE, TECHNOLOGY AND LOCATION, WORKING TOGETHER TO PROVIDE INTEGRATED, FULL SERVICE SUPPLY CHAIN MANAGEMENT. WE SPECIALIZE IN CRAFTING EFFICIENT AND COST EFFECTIVE LOGISTICS SOLUTIONS CUSTOMIZED TO CUSTOMERS SPECIFIC REQUIREMENTS WHICH ALLOWS

YOU TO FOCUS ON CORE COMPETENCIES AND DEVELOP A LOGISTICAL EDGE OVER THE COMPETITION THROUGH THE USE OF OUR PROFESSIONAL LOGISTICS SERVICES. WE EFFECTIVELY BRIDGE THE GAP BETWEEN YOUR VENDORS, YOUR GOODS AND YOUR CUSTOMERS TO PROVIDE YOU WITH A WINNING EDGE.

OVER THE YEARS HAVE GROWN BOTH IN TERMS OF FLEET OF TRUCKS AND THE ARGO HANDLED

HAS GOOD NETWORK WITHIN THE INDUSTRY AND IS AMONG THE MOST RELIABLE LOGISTIC OPERATOR FOR CARGO FROM MUNDRA/KANDLA

ALSO LOOKS INTO THE CLEARING AND FORARDING ACTIVITIES ON BEHALF OF ITS CUSTOMER

CUSTOMER VIEW CARGO CARE LOGISTIC AS ONE STOP SOLUTION FOR THEIR LOGISTIC NEEDS

While going through the appellant submission it is seen that as claimed by it the parties with whom the appellant has made transaction of ‘castor oil and castor seed are apperantly its related parties only. As per information available on internet the address of M/s. R.P.K. Agrotech Exports (P) Ltd. is in following :–

Postal address

Regd. Office.

601, Anurag Apartments, Behind Vidya Mandir, Usmanpura, Ahemdabad, Gujarat – 380014

Telephone: +91 79 7545096

Corporate Office

Plot No 351, 2nd Floor, Sector 1/A, Gandhidham, Gujarat – 370201

Telephone: +91 2836 230927

Fax:+91 2836 252417

Factory

Plot No. 51, Sector No 2, KASEZ, Gandhidham, Gujarat – 370201

Telephone: +91 2836 252490

I have also observed while searching internet and surfing website of M/s. RPK AGROTECH EXPORTS P. LTD. that undoubtedly M/s. RPK Warehousing Pvt. Ltd. is a subsidiary concern of M/s. RPK AGROTECH EXPORTS (P) LTD. Even the office address of corporate office RPK Agrotech P. Ltd. is same as of M/s. GOLDEN TULIP HOTEL AND APATMENTS.

While as per information available from the website https://www.zaubacorp.com/company/GOLDEN-TULIP-HOTELS-AND-APARTMENTS-PRIVATE-LIMITED/the address is same as of as the appellant and even the director are also same the address of M/s. RPK AGROTECH EXPORTS P. LTD. is also same as discussed above and as per scanned copy of bill copy of bill of M/s. GOLDEN TULIP HOTEL AND APARTMENTS.

GOLDEN-TULIP HOTELS AND APARTMENTS PRIVATE LIMITED

Basic Information

Documents

Directors

Map

Golden-tulip Hotels and Apartments Private Limited is a Private Company incorporated on 11 February 2008. It is classified as Indian Non-Government Company and is registered at Registrar of Companies, Ahmedabad. Its authorized share capital is Rs. 100.000 and its paid-up capital is Rs. 100,000.

Golden-tulip Hotels and Apartments Private Limited’s Annual General Meeting (AGM) was last held on 30-9-2014 and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was last filed on 31-3-2014.

Directors of Golden-tulip Hotels and Apartments Private Limited are Paras Liladhar Khushnlani and Meenakshi Liladhar Khushalani.

Golden-tulip Hotels and Apartments Private Limited’s Corporate Identification Number is (CIN) U55101GJ2008PTC052874 and its registration number is 52874. Its E-mail address is trisuns@rediffmail.com and its registered address is 601, ANURAG APARTMENT, B/H. VIDYANAGAR HIGH SCHOOL USMANPURA, AHMEDABAD – 380014, Gujarat INDIA. Current status of Golden-tulip Hotels and Apartments Private Limited is – Active.

Further one of other party M/s. Vishal Agrotech is also situated at the same premise of M/s. RPK AGROTECH EXPORTS (P.) LTD. having address, at 351 SACOND FLOOR SECTOR 1/A. GANDHIDHAM KUTCH. as per scanned copy of bill furnished by appellant in its paper-book, The appellant has claimed to sold castor seeds at very low price @ Rs. 32,000after purchasing it @ Rs. 52,000 from M/s. Golden Tulip Hotels & Appts. P. Ltd.: which is also situated at Plot No. 351, SACOND FLOOR SECTOR 1/A, GANDHIDHAM KUTCH.3

Hence it is undoubtely clear that all these concerns with whom the appellant has claimed to have purchase and sale transaction and had huge loss in castor oil and seec dut to so called obligatory sale contract are sister concern. All are situated in same premises and even the director are also same as per information available on internet on pubic domain. In view of analysis of above facts it is undoubtedly clear that these so called sale purchase of castor oil and castor seed are nothing but a clear eyewash. Hence the learned assessing officer rightly treated these transactions as sham transaction with an intention of just to mitigate the huge capital gain.

I have further observed that even the veracity of claim of transaction through Aditya Marine Limited is also apparently non-genuine. So the very nature of work of Aditya Mrine Ltd. is totally different as evident from the information available on internet the address given as per bills of Aditya Marine and as per on net is same however the work profile of the co is a service provider. As per the information available and the address given by the appellant in its paper book the profile of M/s. Aditya Marine Limited is different from the one as claimed by appellant as per information available on internet details of M/s. Aditya Marine Limited are as under :–

Aditya Marine Limited Suresh Nair +91-2836-228931

No. 11/12/13.

Dhiraj Chambers. Plot 36, Sector 9-A

Gandhidham – 370201

Gujarat. India

Company Profile

The age of our company reflects the youth and vigour in our team & vision. M/s. ADITYA MARINE LIMITED (AML) was incorporated in the year 2004, however we have been in this field of activity for over 25 years with exposure and experience garnered at various ports in India. We have evolved after going through various opus, shapes and avatars to come to this current form.

Economical Logistic Management has become the need of the hour. With the advent of real-time communication viz. internet, and live quotes, etc., costs of trading physical produce has become transparent world over, diminishing margins to insignificant levels. Industry in turn has realised the importance of associating with trusted total logistic solution providers, like us, who have exposure across the entire spectrum of business activity.

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Fact Sheet

Nature of Business

Service Provider

“The age of our company reflects the youth and vigour in our team & vision. M/s. ADITYA MARINE LIMITED (AML) was incorporated in the year 2004, however we have been in this field of activity for over 25 years with exposure and experience garnered at various ports in India. We have evolved after-going through various opus, shapes and avatars to come to this current form.

Economical Logistic Management has become the need of the hour. With the advent of real-time communication viz. internet, and live quotes, etc., costs of trading physical produce has become transparent world over, diminishing, margins to insignificant levels. Industry in turn has realised the importance of associating with trusted total logistic solution providers, like us, who have exposure across the entire spectrum of business activity.

AML consists of a core team of dedicated personnel who have extensive exposure across all ambits of a business enterprise, be it Sourcing, Processing, Manufacturing, Trading, Import, Export, Shipping, Chartering, Warehousing, Logistics, Vessel Agency, Custom Clearance, Marine Supply, etc. All this supported by in-house infrastructures, equipments and cargo handling machinery, has made us a company of choice. Quick access to outsourced, creditable technical advisors, taxation consultants, and legal counsel, as and when needed is an additional resource we have been delivering to our clients in need of such services.

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We are focused on our role and the practical exposure to many situations that our clients face in the course of their business activity has made us the value added service provider we are today. Very often we are invited to participate by our clients in their in-house management meetings wherein we are called upon to contribute and help address logistic issues. Pre-planning jointly with them has helped our clients improve bottom lines in their balance sheets. Appraisal and appreciation of all situations has made us deliver better in our jobs.”

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Hence in view if all the facts of the case In my considered opinion the action of learned assessing officer is right to treat the transaction as sham transaction, in castor oil and seed with the parties whose offices are situated in the premises of appellant only. The appellant has also failed to produce the concerned person relating to these parties. Even these persons also did not attend office of learned assessing officer in compliance of summons under section 131. Therefore it is clear that these parties were under direct influence of appellant have also avoided investigation. Hence it is undoubtedly clear that all these concerns with whom the appellant has claimed to have purchase and sale transaction and had incurred huge loss in castor oil and castor seeds due to so called obligatory sale contract are sister concern. All are situated in same premises and even the director are also same as per information available on internet on public domain. In view of analysis of above facts it is undoubtedly clear that these so called sale purchase of castor oil and castor seed are nothing but a clear eyewash. Hence the learned assessing officer rightly treated these transactions as sham transaction with an intention of just to mitigate the huge capital gain. The facts of the case are as such that, I am inclined to agree with the contention of learned assessing officer Therefore the disallowance of business loss of Rs. 1,68,35,722 by learned assessing officer is upheld. Accordingly, the appeal on this ground is dismissed.

  1. The assessee is aggrieved and is in appeal before us.
  2. We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
  3. All that the learned counsel has contended before us is that the mere fact that these entities were operating from the same premises cannot lead to the inference that these were sister concerns or the transactions were collusive. He invites our attention to the elaborate documentation in support of genuineness of the transaction and submits that this documentation cannot be ignored. The contentions raised before the authorities below were reiterated.
  4. In our considered view, the arguments of the learned counsel are somewhat superficial and miss the fundamental genuineness aspect as has been well elaborated by learned Commissioner (Appeals) in an erudite analysis. The variations in castor oil and castor seed prices are not supported by the authoritative data reproduced by the Commissioner (Appeals). The sequence of events, showing repeated loss transactions, do not make sense either. It is also difficult to understand that when ultimate buyer and the seller operate from the same premises, why is the assessee roped in every time, and every time that happens, assessee incurs a loss. There is no explanation about the nature of office sharing arrangement or the nature of their association. The “ease of business” for every connected party operating from the same premises is too vague an explanation to merit judicial approval.
  5. As we hold so, we are reminded of Hon’ble Supreme Court’s observation, in the case ofCIT v. Durga Prasad More (1971) 82 ITR 540 (SC) : 1971 TaxPub(DT) 0375 (SC), to the effect that “Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities”. Similarly, in a later decision in the case of Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) : 1995 TaxPub(DT) 1173 (SC), Hon’ble Supreme Court rejected the theory that it is for alleger to prove that the apparent and not real, and observed that, This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. ………….Similarly the observation ……………… that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available ……….In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant’s claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably”. We will be superficial in my approach in case we simply go by the self serving documents filed by the assessee and overlook clear the unusual pattern in the documents filed by the assessee and pretend to be oblivious of the ground realities. As Hon’ble Supreme Court has observed, in the case of Durga Prasad More (supra), ……..it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents”. As a final fact finding authority, this Tribunal cannot be superficial in its assessment of genuineness of a transaction, and this call is to be taken not only in the light of the face value of the documents sighted before the Tribunal but also in the light of all the surrounding circumstances, preponderance of human probabilities and ground realties. Genuineness is a matter of perception but essentially a call on genuineness of a transaction is to be taken in the light of well settled legal principles. There may be difference in subjective perception on such issues, on the same set of facts, but that cannot be a reason enough for the fact finding authorities to avoid taking subjective calls on these aspects, and remain confined to the findings on the basis of irrefutable evidences. Hon’ble Supreme Court has, in the case of Durga Prasad More (supra), observed that “human minds may differ as to the reliability of a piece of evidence but in that sphere the decision of the final fact finding authority is made conclusive by law”. This faith in the Tribunal by Hon’ble Courts above makes the job of the Tribunal even more onerous and demanding and, in my considered view, it does require the Tribunal to take a holistic view of the matter, in the light of surrounding circumstances, preponderance of probabilities and ground realities, rather than being swayed by the not so convincing, but apparently in order, documents and examining them, in a pedantic manner, with the blinkers on.
  6. In view of the above discussions and bearing in mind entirety of the case, we approve well reasoned order of the Commissioner (Appeals) and decline to interfere in the matter.
  7. In the result, the appeal is dismissed.

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