M/s. MONIKA INDIA, MUMBAI v. ITO Wd. - 12(2)(1), MUMBAI

ITA 3148/MUM/2007 | 1996-1997
Pronouncement Date: 26-03-2010 | Result: Dismissed

Appeal Details

RSA Number 314819914 RSA 2007
Bench Mumbai
Appeal Number ITA 3148/MUM/2007
Duration Of Justice 2 year(s) 11 month(s) 1 day(s)
Appellant M/s. MONIKA INDIA, MUMBAI
Respondent ITO Wd. - 12(2)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 26-03-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 26-03-2010
Date Of Final Hearing 01-04-2010
Next Hearing Date 01-04-2010
Assessment Year 1996-1997
Appeal Filed On 24-04-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH MUMBAI. BEFORE SHRI R.V.EASWAR SR.VP AND SHRI RAJENDRA SINGH AM I.T.A. NO.3148/MUM/2007 (ASSESSMENT YEAR: 1996-97) M/S. MONIKA INDIA 109 CHURCHGATE CHAMBERS 5 NEW MARINE LINES MUMBAI-400 020. PAN:AABFM6640H VS. THE INCOME TAX OFFICER WARD-12(2)(1) AAYAKAR BHAVAN MUMBAI-400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. S.P.GOYAL RESPONDENT BY : MR. VIRENDRA OJHA DR O R D E R PER R.V.EASWAR SENIOR VICE PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE RELATING TO THE ASSESSMENT YEAR 199 6-97 AND IT ARISES OUT OF THE ASSESSMENT MADE UNDER SECTION 143 (3) OF THE INCOME TAX ACT BY AN ORDER DATED 30 TH MARCH 1999. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TR ADING IN ITEMS LIKE RAW WOOL SYNTHETIC WASTE AND ACRYLIC FI BRE. THE EFFECTIVE GROUND TAKEN IN THE APPEAL IS AGAINST THE DISALLOWANCE OF THE BUSINESS LOSS OF RS.43 45 978/- IN THE ASSES SMENT ORDER. THE BRIEF FACTS IN CONNECTION WITH THE DISPUTE MAY BE NOTICED. IN THE RETURN OF INCOME THE ASSESSEE DECLARED A LO SS OF RS.58 81 580/-. THE RETURN WAS FIRST PROCESSED UNDE R SECTION 143(1)(A) BUT LATER SELECTED FOR SCRUTINY AND NOTI CE UNDER SECTION 143(2) WAS ISSUED. IN THE COURSE OF THE AS SESSMENT PROCEEDINGS IT WAS OBSERVED BY THE ASSESSING OFFIC ER THAT THE ASSESSEE HAD CLAIMED LOSS OF RS.43 45 978/- ON GO ODS PURCHASED FOR RS.2 02 00 392/-. THE ASSESSING OFFIC ER CALLED UPON THE ASSESSEE TO EXPLAIN THE REASONS FOR THE LO SS. THE ASSESSEE REPLIED IN WRITING STATING THAT THE LOSS O CCURRED DUE TO ITA NO.3148/M/07 2 FALL IN PRICES OF RAW WOOL. IT WAS STATED THAT IT P URCHASED 62 299 KGS OF RAW WOOL AT A COST OF RS.1 30 59 285/- AND T HE SAME WAS SOLD FOR RS.86 19 125/- RESULTING IN LOSS OF RS.44 .40 LAKHS. IN SUPPORT OF THE REPLY THE ASSESSEE FILED PHOTOSTAT COPIES OF SOME INVOICES AND STATED THAT THE ASSESSING OFFICER MAY OBSERVE THEREFROM THAT THE RAW WOOL WAS PURCHASED AT THE R ATE OF RS.203/- TO RS.251/- PER KG AND WAS SOLD AT THE RAT E OF RS.127/- TO RS.143/- PER KG. ON RECEIPT OF THE REP LY THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FILE COPIES OF PURCHASE BILLS FOR PURCHASES MADE FROM PARTIES OTHE R THAN ITS SISTER CONCERN. THEY WERE FILED AND ON PERUSAL THE ASSESSING OFFICER OBSERVED THAT PURCHASES FROM SUVIDHA WOOLLE N MILLS WERE MADE AT RS.210/- PER KG ON 15.3.1996 AND AT T HE SAME TIME THE ASSESSEE HAS SOLD THE RAW WOOL AT PRICES O F RS.127/- PER KG RS.137/- PER KG AND RS.165/- PER KG ON OR A ROUND THE AFORESAID DATE. THESE DETAILS ARE GIVEN IN PAGE 2 O F THE ASSESSMENT ORDER AND HENCE NOT REPRODUCED HERE FOR THE SAKE OF BREVITY. FROM THESE DETAILS IT WAS NOTICED BY THE A SSESSING OFFICER THAT ON OR AROUND 15.3.1996 THE MARKET FOR RAW WOOL DID NOT WITNESS ANY FLUCTUATION SO AS TO JUSTIFY T HE SELLING RATE OF RS.127/- PER KG ON THAT DATE AS CLAIMED BY THE A SSESSEE. IN OTHER WORDS IT WAS THE CASE OF THE ASSESSING OFFIC ER THAT THE ASSESSEES STAND THAT THERE WAS A FALL IN THE PRICE S OF RAW WOOL WAS NOT JUSTIFIED ON FACTS. THE ASSESSEE WAS ASKED TO EXPLAIN AND IN REPLY A LETTER DATED 17.11.1998 REPRODUCED IN THE ASSESSMENT ORDER WAS FILED BY THE ASSESSEE. THE GI ST OF THIS LETTER IS THAT THE PRICES OF RAW WOOL WENT ON FALL ING FROM TIME TO TIME AND WITH PARTICULAR REFERENCE TO THE PURCHASE OF RAW WOOL AT RS.210/- PER KG ON 15.3.1996 FROM SUVIDHA WOOLLE N MILLS THE ASSESSEE SUBMITTED THAT IT HAD AGREED SOMEWHERE IN NOVEMBER 1995 TO PURCHASE 12 624 KGS OF RAW WOOL F ROM SUVIDHA WOOLLEN MILLS AT RS.230/- PER KG TO BE DELI VERED IN DECEMBER 1995 AND 1 631 KGS AT RS.210/- PER KG TO BE ITA NO.3148/M/07 3 DELIVERED IN MARCH 1996. IN OTHER WORDS THE ASSES SEES ARGUMENT WAS THAT THE PRICES OF RS.210/- PER KG PA ID ON 15.3.1996 WAS PRE-FIXED OR PRE-AGREED. THE ASSESSE E ALSO POINTED OUT OTHER INSTANCES OF PURCHASE OF RAW WOOL IN JANUARY 1996 AT RS.220/- PER KG FROM M/S. AMARSONS WOOLLEN MILLS WHICH WERE SOLD FOR RS.143/- PER KG IN FEBRUARY 19 96 WHICH ACCORDING TO IT CLEARLY SHOWED THAT PRICES WERE FA LLING. THE ASSESSEE ALSO GAVE INSTANCES OF SALE ON 25.3.1996 A T PRICES OF RS.135/- 136/- AND RS.142/- PER KG AND COPIES OF T HESE DETAILS IT WAS POINTED OUT HAD ALREADY BEEN SUBMI TTED. THE ASSESSEE ADDED THAT IT WENT ON ACCEPTING THE GOODS FROM SUVIDHA WOOLLEN MILLS ALTHOUGH THE PRICES WERE FALL ING BECAUSE OF THE EARLIER COMMITMENT. PHOTOCOPIES OF THE FAX M ESSAGE CLAIMED TO HAVE BEEN RECEIVED FROM SUVIDHA WOOLLEN MILLS WERE ALSO FILED IN WHICH SUVIDHA WOOLLEN MILLS ACCORDIN G TO THE ASSESSEE HAD CONFIRMED THE PLACEMENT OF ORDERS BY THE ASSESSEE FOR PURCHASE OF RAW WOOL IN NOVEMBER 1995 FOR DELIVERY IN 1995 OF 12 624 KGS AT THE RATE OF RS.23 0/- PER KG FOR WHICH DELIVERY WAS TAKEN BY THE ASSESSEE IN DECEMBE R 1995 ITSELF AND PURCHASES OF 1 631 KGS OF RAW WOOL AT RS .210/- PER KG FOR DELIVERY IN DECEMBER 1995 OR JANUARY 1996. IT WAS FURTHER STATED BY SUVIDHA WOOLLEN MILLS THAT THE DELIVERY OF THE SECOND LOT OF 1 631 KGS WAS DELAYED BUT WAS TAKEN IN MARCH 1996 DUE TO BAD MARKET. IN OTHER WORDS SUVIDHA WOOLLEN MILL S CONFIRMED THE ASSESSEES VERSION IN ITS FAX MESSAGE. 3. THE ASSESSING OFFICER ON A PERUSAL OF THE REPL IES FILED BY THE ASSESSEE GAINED THE IMPRESSION THAT IT WAS THE ASSESSEES CASE THAT DURING THE LATER PART OF THE FINANCIAL Y EAR 1995-96 THE MARKET FOR RAW WOOL WENT DOWN TO SUCH AN EXTENT THAT THE ASSESSEE HAD TO SELL THE STOCK FOR CASH AT THROWAWA Y PRICES. HE PERUSED THE DETAILS OF THE SALES FILED BY THE ASSES SEE AND FOUND THAT CASH SALES FOR AN AMOUNT LESS THAN RS.10 000/- CAME TO ITA NO.3148/M/07 4 RS.1 10 82 239/- OUT OF THE TOTAL SALES OF RS.1 58 56 649/-. SINCE NONE OF THE ADDRESSES OF THE PURCHASERS WAS A VAILABLE THE ASSESSING OFFICER OBSERVED THAT THE SALES AT THE R ATE AT WHICH THEY WERE SHOWN IN THE ASSESSEES BOOKS OF ACCOUNT WERE NOT SUBJECT TO VERIFICATION. HE THEREFORE STATED THAT T HE ONLY RECOURSE OPEN TO HIM WAS TO GET THE STATE OF MARKET FOR RAW WOOL IN LUDHIANA FOR THE YEAR ENDED 31.3.1996 (YEAR UNDER A PPEAL) CONFIRMED BY THE PARTIES WHO THEMSELVES SOLD RAW WO OL TO THE ASSESSEE. HE THEREFORE ISSUED COMMISSION TO THE AC IT. LUDHIANA TO SUMMON M/S.AMARSONS WOOLLEN MILLS SUV IDHA WOOLLEN MILLS AND AT OVERSEAS LTD. AND TO EXAMINE THE ASSESSEES CLAIM THAT THE MARKET FOR RAW WOOL WAS B AD AT THE RELEVANT TIME. THE ACIT. LUDHIANA CONDUCTED NECE SSARY ENQUIRY AND FROM THE STATEMENTS OF THE THREE PARTIE S WHO ATTENDED THE PROCEEDINGS BEFORE HIM THE ASSESSING OFFICER OBSERVED THAT THE MARKET FOR RAW WOOL WAS NOT BAD OR DEPRESSED AS CLAIMED BY THE ASSESSEE. 4. ACCORDINGLY THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ON 19.3.1999 IN WHICH AFTER RECORDING THE PAST NOTICES AND THE REPLIES OF THE ASSESSEE H E STATED THAT THE ASSESSEE DID NOT FILE THE ORIGINAL OF THE FAX M ESSAGE RECEIVED FROM SUVIDHA WOOLLEN MILLS AS ALREADY ASSURED BY T HE ASSESSEE. THE ASSESSEE WAS CALLED UPON TO FILE THE SAME AS AL SO CONFIRM WHETHER THERE WAS ANY WRITTEN AGREEMENT WITH M/S. S UVIDHA WOOLLEN MILLS AND IF THERE WAS ONE TO PRODUCE THE SAME. THE ASSESSING OFFICER ALSO POINTED OUT CERTAIN DISCREPA NCIES IN THE ASSESSEES REPLY FILED EARLIER WHICH ACCORDING TO H IM SHOWED THAT THE CERTIFICATE PRODUCED ON BEHALF OF SUVIDHA WOOLL EN MILLS CLEARLY CONTRADICTS THE CLAIM OF ANY PRIOR AGREEMEN T WITH THE ASSESSEE FOR SUPPLY OF RAW WOOL. IT WAS FURTHER POI NTED OUT BY THE ASSESSING OFFICER THAT IT IS HIGHLY IMPROBABLE FOR PARTIES TO ENTER INTO AGREEMENT IN ADVANCE FOR PURCHASE/SALE F OR PRECISE ITA NO.3148/M/07 5 QUANTITIES SUCH AS 12 624 KGS AND 1 631 KGS. THE A SSESSING OFFICER FURTHER POINTED OUT THAT ACCORDING TO THE A SSESSEE THE RAW WOOL OF 1631 KGS. WAS RECEIVED BY TEMPO FROM M /S.SUVIDHA WOOLLEN MILLS ON 10.3.1996 AND AN AMOUNT OF RS.7 53 5/- WAS CHARGED AS CARTAGE BY THE SELLER AS MENTIONED IN TH E BILL WHEREAS ON A PERUSAL OF THE INVOICE IT WAS SEEN TH AT THE AMOUNT CLAIMED AS CARTAGE WAS ACTUALLY SALES TAX @ 2.20%. THE ASSESSEE WAS ASKED TO CLARIFY THIS DISCREPANCY ALSO . 5. IN ADDITION TO THE ABOVE THE ASSESSING OFFICER ALSO INFORMED THE ASSESSEE ABOUT THE STATEMENT OF ONE MR . MUKESH JAIN SON OF MR. MAHINDRA JAIN DIRECTOR OF A.T.OVE RSEAS LTD. RECORDED BEFORE THE ACIT. LUDHIANA ON 3.3.1999. IN PARTICULAR THE ASSESSING OFFICER DREW THE ATTENTION OF THE ASS ESSEE TO QUESTION NO.4 BY WHICH MR. MUKESH JAIN WAS ASKED : HOW DO YOU ASSESS YOUR DEMAND AND WHY ARE THE MAKES NOT SP ECIFIED IN THE BILL? I WANT YOU TO HELP ME TO DIFFERENTIATE FR OM YOUR BILL WHETHER THE RATE VARIATION IS ON ACCOUNT OF DIFFERE NCE IN QUALITY OR ON ACCOUNT OF FLUCTUATION IN RATES. THE ANSWER TO THE QUESTION WAS I PRACTICALLY KNOW HOW MUCH STOCK IS THERE IN THE BOOKS BUT WE DONT RECORD THE TYPE AND MADE OF STOC K IN THE STOCK REGISTER. THE FLUCTUATION OF RATES IS VERY LE SS (MAXIMUM 2 TO 4%). MR. MUKESH JAIN ACCORDING TO THE ASSESSIN G OFFICER HAD FURTHER STATED IN REPLY TO THE NEXT QUESTION TH AT THERE WAS NO FLUCTUATION AT ALL DURING THE FINANCIAL YEAR 199 5-96. 6. THE ASSESSING OFFICER THEN REFERRED TO THE STATE MENT OF SHRI INDERJEET SINGH BHATIA CHARTERED ACCOUNTANT MANAGER(FINANCE) IN M/S.AMARSONS WOOLLEN MILLS REC ORDED BY THE ACIT. LUDHIANA ON 15.3.1999 IN WHICH HE ALLEG EDLY STATED THAT THE QUALITY OF MATERIAL SOLD TO THE ASSESSEE D ID NOT FLUCTUATE VERY MUCH DURING THE PERIOD. ITA NO.3148/M/07 6 7. THE ASSESSING OFFICER ALSO REFERRED TO THE STATE MENT OF MR. MAHINDRA SINGH CHARTERED ACCOUNTANT MANAGER (FINA NCE) OF SUVIDHA WOOLLEN MILLS RECORDED ON 15.3.1999 WHEREI N HE HAS ALSO CLEARLY STATED THAT THE COMMODITIES SOLD TO TH E ASSESSEE DID NOT FLUCTUATE VERY MUCH DURING THE PERIOD FROM 1.12 .1995 TO 31.3.1996. 8. IN ADDITION TO REFERRING TO THE STATEMENTS AS AB OVE THE ASSESSING OFFICER ALSO ATTACHED THE COPIES OF THE S TATEMENTS OF THE SHOW CAUSE NOTICE FOR THE PERUSAL OF THE ASSESS EE AND CALLED UPON THE ASSESSEE TO EXPLAIN WHY YOUR BOOKS OF ACC OUNT SHOULD NOT BE REJECTED BECAUSE THE SALES RATES REFLECTED B Y YOU IN RESPECT OF RAW WOOL SOLD IN CASH ARE NOT VERIFIABLE AT ALL. THE ASSESSING OFFICER THUS DIRECTED THE ASSESSEE TO EXP LAIN WHY THE CLAIM OF LOSS OF RS.42 45 978 SHOULD NOT BE DISALLO WED. 9. THE ASSESSEE FILED A REPLY DATED 24.3.1999 IN RE SPONSE TO THE SHOW CAUSE NOTICE. THE SAID REPLY IS REPRODUCED IN THE ASSESSMENT ORDER AT PAGES 5 & 6 AND HENCE NOT REPRO DUCED HERE FOR THE SAKE OF BREVITY. THE GIST OF THE REPLY IS T HAT THE ASSESSEE RELIED ON THE CREDIT BILLS ISSUED TO CONTINENTAL SP INNERS LTD. AND APEX WOOLLEN SYNTHETICS AS EVIDENCE OF THE RULING P RICE OF THE WOOL AND POINTED OUT THAT IN THE LIGHT OF THE EVIDE NCE THERE WAS NO QUESTION OF DOUBTING THE CASH SALES. A FRESH CER TIFICATE FROM M/S. SUVIDHA WOOLLEN MILLS REGARDING ITS FAX MESSAG E TO THE ASSESSEE WAS FILED WITH THE REPLY. IT WAS ADMITTED THAT THERE WAS NO WRITTEN AGREEMENT WITH SUVIDHA WOOLLEN MILLS AN D EVEN THE CERTIFICATE ISSUED BY SUVIDHA WOOLLEN MILLS DID NO T MENTION ANY AGREEMENT BUT ONLY REFERRED TO THE ORDER BEING PLAC ED AND NORMALLY ORDERS ARE PLACED ORALLY. IT WAS THEREFORE POINTED OUT THAT THERE WAS NO CONTRADICTION BETWEEN THE ASSESSE ES CLAIM AND THE CERTIFICATE ISSUED BY SUVIDHA WOOLLEN MILLS . AS REGARDS THE CHARGES PAID AS CARTAGE IN THE AMOUNT OF RS.7 5 35/- IT WAS ITA NO.3148/M/07 7 SUBMITTED THAT THE ASSESSEE WAS TRYING TO GET CLAR IFICATION FROM LUDHIANA. IT WAS POINTED OUT THAT IN ANY CASE IT WO ULD NOT AFFECT THE COST OF GOODS PURCHASED. WITH REGARD TO THE STA TEMENTS SUPPLIED TO THE ASSESSEE WHICH WERE RECORDED BY ACI T. LUDHIANA THE ASSESSEE REQUESTED THE ASSESSING OFFI CER TO PRODUCE THE PERSONS FOR CROSS EXAMINATION SO THAT T HE FACTS COULD BE BROUGHT ON RECORD AND SUBMITTED THAT FURTH ER EXPLANATION WOULD BE GIVEN AFTER THE CROSS EXAMINAT ION. CROSS EXAMINATION OF SHRI INDERJEET S.BHATIA WAS DEMANDED FOR THE PARTICULAR REASON THAT HE WAS A CHARTERED ACCOUNTAN T AND WAS NOT COMPETENT TO COMMENT ON MARKET CONDITIONS. FINA LLY THE ASSESSEE REQUESTED THAT CROSS EXAMINATION BE PROVID ED ON 29.3.1999 SO THAT IT COULD FILE ITS REPLY BY 30.3.1 999 IN THE LIGHT OF THE SAME. IT WAS STATED THAT THE ASSESSEE WAS MA INTAINING DAY-TO-DAY BOOKS OF ACCOUNT WHICH WERE CERTIFIED BY THE CHARTERED ACCOUNTANT AND SINCE ALL THE TRANSACTIONS RECORDED THEREIN ARE TRUE THEY CANNOT BE REJECTED. IT WAS A LSO POINTED OUT THAT IN CASE ANY ORDER IS PASSED WITHOUT GIVING CRO SS EXAMINATION IT WOULD BE ILLEGAL BEING IN VIOLATION OF THE RULES OF NATURAL JUSTICE. 10. THE ASSESSING OFFICER EXAMINED THE AFORESAID RE PLY OF THE ASSESSEE AND DEALT WITH THE SAME IN PAGES 6 TO 8 OF THE ASSESSMENT ORDER. HE FIRST EXTRACTED THE DETAILS OF PURCHASES SALES GROSS PROFIT AND THE INTEREST INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEARS 1996-97 (UNDER APPEAL) AND FOR THE SUBSEQUENT TWO YEARS . THESE DETAILS ARE GIVEN IN P AGE 6 OF THE ASSESSMENT ORDER AND THEY ARE NOT REPRODUCED HERE F OR THE SAKE OF BREVITY. FROM THE DETAILS SET OUT BY THE ASSESSI NG OFFICER IN THE FORM OF A CHART HE DREW THE INFERENCE THAT THE ASSESSEE CONTINUED TO DECLARE LOSS IN ALL THE THREE YEARS FR OM THE BUSINESS SHOWING HUGE INTEREST INCOME IN THE ASSES SMENT YEARS 1997-98 AND 1998-99 WHICH WAS NOTHING BUT A BOLD ITA NO.3148/M/07 8 ATTEMPT TO CREATE LOSS FROM BUSINESS IN EVERY YEAR SO THAT THE SAME COULD BE ADJUSTED AGAINST THE INCOME FROM INTE REST LEADING TO NIL TAXABLE INCOME DESPITE INCOME FROM INTEREST TO THE TUNE OF RS.1 11 43 542/- IN TWO ASSESSMENT YEARS THAT IS 1 997-98 AND 1998-99 . AS REGARDS THE VERIFICATION OF CASH SAL ES EFFECTED BY THE ASSESSEE THE ASSESSING OFFICER OBSERVED THAT N O ENQUIRY COULD BE MADE BECAUSE THE PERSONS TO WHOM CASH SALE S WERE MADE ARE NOT TRACEABLE. HE THUS JUSTIFIED HIS APPRO ACH BY STATING THAT THE ONLY WORTHWHILE ENQUIRY THAT COULD BE CONDUCTED WAS REGARDING MARKET CONDITIONS FOR RAW W OOL PREVAILING IN THE YEAR UNDER APPEAL SO AS TO TAKE A DECISION ON THE ALLOWABILITY OF THE LOSS. HE REFERRED TO THE SA LES OF RAW WOOL EFFECTED BY A SISTER CONCERN OF THE ASSESSEE BY NAM E CANNON STEELS PVT. LTD. FOR THE ASSESSMENT YEAR 1996-97 WHICH CONSTITUTED RS.1 42 28 442/- AND POINTED OUT THAT SUCH HUGE SALES WAS INDICATIVE OF THE FACT THAT THE MARKET O F RAW WOOL DID NOT SUFFER FROM ANY DEPRESSION AS CLAIMED BY THE A SSESSEE IN THE FORM OF DISTRESS SALE. THEREAFTER THE ASSESSIN G OFFICER SET OUT IN THE FORM OF A CHART THE DETAILS OF THE CASH SALES OF RAW WOOL SHOWING THE DATE NUMBER OF PURCHASERS AVERAG E QUANTITY PER PURCHASE AND AVERAGE SALE PROCEEDS. AFTER SETT ING OUT THE CHART AT PAGE 7 OF THE ASSESSMENT ORDER THE ASSESS ING OFFICER OBSERVED THAT THE DETAILS GIVEN THEREIN WOULD GIVE AN IDEA THAT THE ASSESSEE IS INTO THE BUSINESS OF RETAIL SELLIN G OF RAW WOOL WHICH WOULD REQUIRE ITS EMPLOYEES TO MAKE SMALL LO TS OF ABOUT 60 TO 70 KGS. ON THE DEMAND OF CUSTOMERS AND WEIGH ING THE SAME AS PER THE CUSTOMERS REQUIREMENTS. THE ASSESS ING OFFICER COMMENTED THAT IN THE EXPENSES DEBITED BY THE ASSES SEE TO THE PROFIT AND LOSS ACCOUNT HE DID NOT FIND ANY EXPENS ES BY WAY OF SALARIES TO EMPLOYEES OR LABOUR CHARGES FOR CARRYI NG OUT THE AFORESAID JOB. AS REGARDS THE CERTIFICATE ISSUED B Y SUVIDHA WOOLLEN MILLS ALONG WITH THE ASSESSEES REPLY DATED 24.3.1999 THE ASSESSING OFFICER STATED THAT IT WAS DIFFERENT FROM THE ONE ITA NO.3148/M/07 9 ORIGINALLY FILED IN A VERY CRUCIAL ASPECT NAMELY TH E STATE OF THE MARKET IN MARCH 1996. ACCORDING TO THE ASSESSING O FFICER THE FIRST CERTIFICATE FILED BY THE ASSESSEE HAD MENTION ED THAT THE DELIVERY TOOK PLACE IN MARCH 1996 BECAUSE OF BAD M ARKET. HOWEVER IN THE COURSE OF VERIFICATION OF THE CERTI FICATE FACTS CONTRARY TO THE AFORESAID CLAIM HAVE COME OUT AND T HERE WAS NO EVIDENCE WITH SUVIDHA WOOLLEN MILLS TO SHOW THAT TH E MARKET WAS BAD AND THE CERTIFICATE WAS GIVEN ONLY TO DEFEN D THE ASSESSEES CLAIM WITHOUT ANY MATERIAL. IN THE CERT IFICATE FILED ALONG WITH THE LETTER ACCORDING TO THE ASSESSING O FFICER SUVIDHA WOOLLEN MILLS DID NOT MAKE ANY CRUCIAL COMM ENT ABOUT THE STATE OF THE MARKET. AS REGARDS THE STATEMENTS RECORDED BY THE ACIT. LUDHIANA THE ASSESSING OFFICER OBSERVED THAT THEY ONLY SHOW THAT THERE WAS NO DEPRESSION IN THE MARKE T SO AS TO WARRANT ANY DISTRESS SALE BY THE ASSESSEE. HE TOOK THE VIEW THAT THE ASSESSEES REQUEST FOR CROSS EXAMINATION OF THO SE PERSONS CANNOT BE ENTERTAINED AS THE CLAIM OF BAD MARKET M ADE ON THE BASIS OF CERTIFICATE OF SUVIDHA WOOLLEN MILLS HAS PROVED TO BE BASELESS IN VIEW OF THE ORIGINAL CERTIFICATE FILED ALONG WITH THE LETTER DATED 26.3.1999. ACCORDING TO THE ASSESSING OFFICER THESE STATEMENTS WERE ONLY IN THE NATURE OF CONFIRMATION OF A FACT ESTABLISHED ON THE BASIS OF VERIFICATION OF THE CLA IM MADE BY THE ASSESSEE. IT WAS ALSO THE OPINION OF THE ASSESSING OFFICER THAT THE ASSESSEES CLAIM THAT THERE WAS ONLY AN ORAL AG REEMENT WITH SUVIDHA WOOLLEN MILLS TO SUPPLY THE GOODS AT AN AGR EED PRICE ON A PARTICULAR FUTURE DATE DID NOT STAND THE TEST OF COMMON SENSE AS THE QUANTITIES INVOLVED ARE VERY SPECIFIC AND OD D QUANTITIES SUCH AS 12 624 KGS AND 1 631 KGS. EVEN THE CERTIFIC ATE ISSUED BY SUVIDHA WOOLLEN MILLS AND FILED ALONG WITH THE ASSESSEES LETTER DATED 26.3.1999 DID NOT SAY ANYTHING ABOUT A NY ORAL AGREEMENT EXCEPT MENTIONING THE FACT OF SALES. TH E ASSESSING OFFICER THEREFORE CONCLUDED THAT IN THE ABSENCE OF ANY ORAL OR WRITTEN AGREEMENT WITH SUVIDHA WOOLLEN MILLS THE SA LE ON ITA NO.3148/M/07 10 15.3.1996 AT RS.210/- PER KG. WAS INDICATIVE OF MAR KET CONDITIONS. 11. FOR THE ABOVE REASONS THE ASSESSING OFFICER HEL D THAT THE LOSS CLAIMED ON ACCOUNT OF TRADING OF RAW WOOL WAS NOT GENUINE AND ACCORDINGLY DISALLOWED THE SAME FROM THE LOSS O F RS.58 81 580/- CLAIMED IN THE RETURN WHICH RESULTE D IN THE LOSS BEING COMPUTED AT RS.15 35 602/-. 12. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) TAKING THREE GROUNDS IN WHICH IT WAS CLAIMED THAT THE FACTS WERE NOT PROPERLY APPRECIATED BY THE ASSESSING OFFICER AND THAT HE WA S NOT JUSTIFIED IN ACTING ON THE STATEMENTS RECORDED BY T HE ACIT. LUDHIANA WHICH WERE NOT SUBJECTED TO CROSS EXAMINAT ION BY THE ASSESSEE . 13. THE CIT(A) PASSED AN ORDER RUNNING INTO 21 PAG ES. AFTER SETTING OUT THE FACTS IN DETAIL HE NOTICED THAT HI S PREDECESSOR HAD PASSED A REMAND ORDER ON 29.7.1999 DIRECTING TH E ASSESSING OFFICER TO PROVIDE AN OPPORTUNITY TO THE ASSESSEE TO CROSS EXAMINE THE PERSONS WHOSE STATEMENTS WERE REC ORDED BY THE ACIT. LUDHIANA AND TO CONDUCT CERTAIN FURTHER ENQUIRIES. IN DEFERENCE TO THE DIRECTIONS THE DCIT. LUDHIANA WA S ISSUED A COMMISSION UNDER SECTION 131(1)(D) FOR CONDUCTING T HE ENQUIRY. THERE APPEARS TO HAVE BEEN A DELAY IN CARRYING OUT THE DIRECTIONS OF THE CIT(A) BUT ULTIMATELY A REPORT WA S SENT TO THE CIT(A) ON 25.3.2004. THIS REPORT WAS CONSIDERED BY THE CIT(A) TO BE INCOMPLETE ON THE GROUND THAT THE DIRECTIONS GIV EN BY HIS PREDECESSOR HAD NOT BEEN CARRIED OUT COMPLETELY. TH E ASSESSING OFFICER WAS DIRECTED TO SUBMIT ANOTHER REPORT WHIC H WAS DONE ON 15.06.2005 THIS WAS ALSO NOT CONSIDERED TO BE SU FFICIENT COMPLIANCE WITH THE EARLIER DIRECTIONS OF THE CIT(A ) AND THE ASSESSING OFFICER WAS AGAIN DIRECTED TO SUBMIT A DE TAILED REMAND REPORT AT AN EARLY DATE. IN THE MEANTIME TH E ASSESSEE ITA NO.3148/M/07 11 WOULD ALSO APPEAR TO HAVE REQUESTED FOR AN EARLY CR OSS EXAMINATION AND FOR FIXING A DATE EXPRESSING VARI OUS DIFFICULTIES BECAUSE OF THE DELAY AND BECAUSE OF TH E UNCERTAINTY IN FIXING THE DATE IN THE MEANTIME THE DDIT (INV) -II LUDHIANA HAD SUBMITTED AN ENQUIRY REPORT DATED 23.3.2006 IN WHICH IT WAS STATED THAT THE CROSS EXAMINATION WAS FIXED ON 23.2.2006 ON WHICH DATE ONE SANJEEV GOYAL APPEARED ON BEHALF OF THE ASSESSEE TO CROSS EXAMINE THE THREE PARTIES. IT WAS FURTHER STATED IN THE ENQUIRY REPORT THAT A LETTER WAS RECE IVED FROM M/S.A.T.OVERSEAS LTD. STATING THAT THE CONCERNED PE RSON IS UNABLE TO ATTEND PERSONALLY DUE TO ILL HEALTH. IN T HE CASE OF M/S.AMARSONS WOOLLEN MILLS THE DDIT WROTE THAT IT HAS COME TO HIS NOTICE THAT ONE MRS. REEMA JAIN OF THIS FIRM HAD BEEN MURDERED AND ONE ANIL JAIN OF SUVIDHA WOOLLEN MILL S WAS FACING TRIAL IN COURT AND THEREFORE NOBODY APPEARED ON BEHALF OF EITHER AMARSON WOOLLEN MILLS OF SUVIDHA WOOLLEN MIL LS FOR CROSS EXAMINATION. THE REPORT WENT ON TO SAY THAT IT IS UNLIKELY THAT ANY OF THE ABOVE PARTIES WOULD ATTEND THE PROCEEDIN GS DUE TO CIRCUMSTANCES MENTIONED ABOVE. HENCE IT IS REQUEST ED THAT THE ENQUIRIES FROM THIS OFFICE MAY KINDLY BE ALLOWED TO BE FILED. IT WOULD THUS APPEAR THAT THE THREE PERSONS WHO GAVE S TATEMENTS BEFORE THE ACIT. LUDHIANA COULD NOT BE CROSS EXAMI NED AND THERE WAS ALSO NO PROSPECT OF THE CROSS EXAMINATION TAKING PLACE EVER. THESE FACTS WERE NOTED BY THE CIT(A) IN THE I MPUGNED ORDER. AFTER DOING SO AND AFTER EXAMINING THE FACT S AND OTHER CONTENTIONS RAISED BY THE ASSESSEE AGAINST THE DISA LLOWANCE OF THE LOSS THE CIT(A) CAME TO THE FOLLOWING CONCLUSI ONS AND FINDINGS :- (A) THERE WAS NO AGREEMENT WRITTEN OR ORAL WITH SUVID HA WOOLLEN MILLS FOR SUPPLY OF RAW WOOL AT A FUTURE DA TE AT AN AGREED RATE. THERE IS NO EVIDENCE THAT IN ANY O F THE EARLIER OR SUBSEQUENT YEARS PURCHASES WERE MADE FRO M ITA NO.3148/M/07 12 SUVIDHA WOOLLEN MILLS AFTER ENTERING INTO A PRIOR AGREEMENT FOR PRICE AND DELIVERY. NORMALLY IN SUCH CASES SOME ADVANCE PAYMENT IS MADE WHICH IS NOT SO IN THE PRESENT CASE. FURTHER IN THE LIGHT OF DISCREPANCIES IN THE CERTIFICATE ISSUED BY SUVIDHA WOOLLEN MILLS VIS--VIS THE FAX COPY OF THE CONFIRM ATION EARLIER SENT THE ASSESSEES CLAIM WITH REGARD TO PURCHASES FROM SUVIDHA WOOLLEN MILLS IS NOT VERIFIA BLE. (B) THE ASSESSEE HAS BOOKED LOSSES YEAR AFTER YEAR MERE LY TO SET OFF THE SAME AGAINST THE HUGE INTEREST INCOM E IN THE SUBSEQUENT YEARS WHICH IS CONTRARY TO THE CONDU CT OF ANY NORMAL PRUDENT BUSINESSMAN. FURTHER ALMOST 90% OF THE SALES ARE IN CASH AND ARE IN LOTS LESS T HAN RS.10 000/- EACH. THE ASSESSEE HAS NOT DEBITED EXPENSES LIKE SALARY WAGES OR LABOUR CHARGES WHICH ARE REQUIRED TO BE INCURRED FOR ARRANGING LOTS OF 6 0 TO 70 KGS. EACH. SEVERAL OTHER EXPENSES ARE ALSO REQUI RED TO BE INCURRED WHICH THE ASSESSEE HAS NOT DONE. ALL THESE INDICATE THE UNRELIABILITY OF THE ASSESSEES CLAIM. (C) THE JUDGEMENTS OF THE BOMBAY HIGH COURT IN CIT VS. SANJEEV WOOLLEN MILLS (264 ITR 68) AFFIRMED BY THE SUPREME COURT IN 279 ITR 434 SHOW THAT THE SISTER CONCERN (SANJEEV WOOLLEN MILLS) IS IN THE HABIT OF INDULGING IN MANIPULATIONS TO SUPPRESS THE PROFITS. THE MAIN COMMON PERSON IN ALL THESE ENTITIES IS MR. S.P.GOYAL WHO IS HANDLING THE AFFAIRS OF ALL THESE CONCERNS (PAGE 15 2 ND PARA OF THE ORDER OF THE CIT(A)). (D) THE ASSESSEE HAS NOT DISCHARGED THE ONUS TO ESTABLI SH THAT THE PURCHASE OF RAW WOOL FOR RS.210/- PER KG. IN THE MONTH OF MARCH 1996 IS GENUINE AND BONAFIDE. ITA NO.3148/M/07 13 (E) THE STATEMENT OF WITNESSES BEFORE THE ACIT. LUDHIA NA BELIE THE ASSESSEES CLAIM THAT THERE WAS A BAD MAR KET FOR RAW WOOL AND IT WAS FALLING. (F) THERE WAS NO REQUIREMENT TO GIVE CROSS EXAMINATION OF THE WITNESSES TO THE ASSESSEE. IN ANY CASE DESPITE DIRECTIONS BY THE EARLIER CIT(A) FOR SOME REASON O R OTHER CROSS EXAMINATION COULD NOT TAKE PLACE. FURTH ER THE ASSESSEES REPRESENTATIVE HAD STATED BEFORE THE CIT(A) ON 21.3.2007 IN RESPONSE TO A SPECIFIC QUER Y BY THE CIT(A) THAT THE ASSESSEE WAS NOT INTERESTED I N ANY FURTHER CROSS EXAMINATION (PARA 51 OF THE CIT(A)S ORDER). IN PARAGRAPHS 52 TO 57 THE CIT(A) HAS DISCUSSED THE QUESTION OF GIVING CROSS EXAMINATION AND HAS OPINED THAT IT WAS NOT NECESSARY TO GIVE THE RI GHT OF CROSS EXAMINATION TO THE ASSESSEE WHERE THE EVIDENC E USED WAS COLLATERAL IN NATURE. (G) THERE IS NO SUBSTANCE OR CREDIBILITY IN THE GRIEVAN CE OF THE ASSESSEE THAT THE PROCEEDINGS WERE DELIBERATELY DELAYED FOR THE PAST EIGHT YEARS (PARAGRAPH 58 TO 6 6 OF THE IMPUGNED ORDER). (H) THE ASSESSING OFFICER HAS NOT SPECIFICALLY STATED THAT HE IS REJECTING THE ASSESSEES BOOKS OF ACCOUNTS BU T HAS IMPLIEDLY DONE SO AND HAS COME TO THE CONCLUSIO N THAT THE LOSS OF RS.43 45 978/- CANNOT BE ALLOWED. THE BOOKS OF ACCOUNT OF THE ASSESSEE DO NOT GIVE A CORRECT PICTURE OF THE ASSESSABLE INCOME.(PARAGRAPH 69 & 70 OF THE IMPUGNED ORDER). ITA NO.3148/M/07 14 FOR THE ABOVE REASONS AND FINDINGS THE CIT(A) UPHEL D THE DISALLOWANCE OF LOSS AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 14. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TR IBUNAL. THE MAIN CONTENTION OF THE ASSESSEE WAS THAT THERE WAS NO MATERIAL TO JUSTIFY THE DISALLOWANCE OF THE LOSS WHICH WAS G ENUINELY SUFFERED AND THAT THE REASONS GIVEN BY THE INCOME-T AX AUTHORITIES WERE ARBITRARY AND IRRELEVANT TO THE IS SUE. IT IS FURTHER CONTENDED THAT THE DISALLOWANCE CANNOT BE S USTAINED BECAUSE IT WAS MADE WITHOUT THE STATEMENTS OF THE T HREE WITNESSES MADE BEFORE THE ACIT. LUDHIANA BEING PUT TO THE TEST OF CROSS EXAMINATION. IT IS POINTED OUT THAT THE DE PARTMENTAL AUTHORITIES WERE NOT ABLE TO PRESENT THE WITNESSES BEFORE THE ASSESSEE TO ENABLE THE LATTER TO CROSS EXAMINE THEM AND THIS IS A FATAL FLAW IN THE ASSESSMENT PROCEEDINGS RESULTING IN A WHOLLY ARBITRARY AND UNSUSTAINABLE DISALLOWANCE. IT IS POI NTED OUT FURTHER ON THE BASIS OF THE CORRESPONDENCE ENTERED INTO BETWEEN THE ASSESSEE AND THE INCOME TAX AUTHORITIES THAT THEY DELIBERATELY PROLONGED THE PROCEEDINGS DESPITE THE CLEAR DIRECTIONS OF THE EARLIER CIT(A) TO AFFORD THE ASSE SSEE THE RIGHT TO CROSS EXAMINE THE WITNESSES AND THIS HAS RESULTED I N IRREPARABLE HARDSHIP AND INJUSTICE TO THE ASSESSEE. IT IS POINT ED OUT THAT FOR ALMOST EIGHT YEARS THE DEPARTMENTAL AUTHORITIES DID NOT MOVE IN THE MATTER UNDER ONE PRETEXT OR THE OTHER ULTIMATEL Y RESULTING IN TOTAL DENIAL OF JUSTICE TO THE ASSESSEE. IT IS CONT ENDED THAT SINCE ADMITTEDLY THE PARTIES COULD NOT BE PRODUCED FOR CR OSS EXAMINATION BY THE ASSESSEE AS IS CLEARLY STATED I N THE ENQUIRY REPORT DATED 23.3.2006 SENT BY THE DDIT. LUDHIANA THE STATEMENTS OF THE THREE WITNESSES CANNOT BE RELIED UPON TO DISALLOW THE LOSS. IT IS COMPLAINED THAT THERE HAS BEEN A TOTAL DENIAL OF THE RULES OF NATURAL JUSTICE AND FAIR PLA Y AND ANY ASSESSMENT MADE IN SUCH A MANNER SHOULD BE STRUCK D OWN AS ITA NO.3148/M/07 15 ILLEGAL AND INVALID. OUR ATTENTION HAS BEEN DRAWN T O SEVERAL PAPERS FILED BEFORE US AGGREGATING TO MORE THAN 800 PAGES TO CONTEND THAT THE INCOME TAX AUTHORITIES HAVE ACTED CONTRARY TO LAW AND THE ESTABLISHED NORMS OF MAKING ASSESSMENTS . IT WAS EVEN SUGGESTED IN THE COURSE OF THE ARGUMENTS THAT THERE WAS A TOUCH OF MALAFIDE IN THEIR APPROACH TOWARDS THE ASS ESSEE. AS REGARDS THE MERITS OF THE DISALLOWANCE IT IS VEHEM ENTLY CONTENDED THAT THE EVIDENCE ADDUCED BY THE ASSESSEE FULLY JUSTIFIED THE CLAIM OF LOSS THAT THE DISCREPANCIES ALLEGED BY THE INCOME TAX AUTHORITIES BETWEEN THE FAX MESSAGE SENT BY SUVIDHA WOOLLEN MILLS AND THE LATER CERTIFICATE ISS UED BY IT WERE IMAGINARY AND NOT REAL AND IN ANY CASE THEY DID NOT AFFECT THE MERITS OF THE ASSESSEES CLAIM THAT THERE WAS NO MATERIAL TO CONTRADICT THE ASSESSEES CLAIM THAT IT PURCHASED R AW WOOL AT THE RATES SHOWN IN THE BOOKS OF ACCOUNT AND SOLD TH EM IN SMALLER LOTS FOR A MUCH LESSER PRICE THEREBY SUFFER ING A LOSS THAT IT WAS NOT NECESSARY FOR THE ASSESSEE TO INCUR ANY EXPENDITURE ON MAKING SMALLER LOTS OF RAW WOOL FOR RETAIL SALES SINCE IT WAS THE PURCHASERS OF THE RAW WOOL FROM THE ASSESSEE WH O INCURRED SUCH EXPENDITURE AND THAT IN THESE CIRCUMSTANCES TH E DISALLOWANCE OF THE LOSS WAS ILLEGAL AND TOTALLY UN CALLED FOR. IT WAS FURTHER CONTENDED THAT THE INFERENCES DRAWN BY THE ASSESSING OFFICER FROM THE DETAILS ACCOUNTS AND RE PLIES FURNISHED BY THE ASSESSEE WERE IMAGINARY AND UNTENA BLE AND NOT REAL. AS REGARDS THE ALLEGATION THAT THE ASSES SEE DELIBERATELY COOKED UP THE LOSS TO ADJUST THE SAME AGAINST THE H UGE INTEREST INCOME AND THUS REDUCED ITS TAX LIABILITY IT IS CO NTENDED THAT THERE IS NO BASIS FOR SUCH A CHARGE BECAUSE THE LOS S WAS PROVED TO BE REAL AND GENUINE AND THE ADJUSTMENT OF THE SA ME AGAINST THE INTEREST INCOME WAS PERMITTED BY THE STATUTE AN D THEREFORE THERE IS NOTHING WRONG IN THE ASSESSEES CLAIM. IT WAS THUS PLEADED THAT LOOKED AT FROM ANY ANGLE THE ASSESSME NT FRAMED WAS TO BE QUASHED. ITA NO.3148/M/07 16 15. ON THE OTHER HAND IT WAS CONTENDED FOR THE DEP ARTMENT THAT THERE WAS NO VIOLATION OF THE RULES OF NATURAL JUSTICE AND FAIR PLAY AND THAT THE ASSESSEE WAS GIVEN COPIES OF THE STATEMENTS OF THE WITNESSES WHICH WAS SUFFICIENT CO MPLIANCE WITH THE RULES AND IT WAS FOR THE ASSESSEE TO REBUT THE STATEMENTS WHICH IT COULD NOT DO. IT IS CONTENDED T HAT IT WAS NOT THE FAULT OF THE DEPARTMENT THAT THE WITNESSES COUL D NOT BE BROUGHT BEFORE THE ASSESSEE FOR CROSS EXAMINATION A ND THAT DDIT. LUDHIANA HAD IN HIS REPORT CLEARLY STATED TH E REASONS AS TO WHY IT WAS IMPOSSIBLE TO PROCEED IN THE MATTER A ND HAD SUGGESTED THAT THE PROCEEDINGS MAY BE FILED. THE AL LEGATIONS OF THE ASSESSEE IN THE COURSE OF THE HEARING WERE STOU TLY AND TOTALLY DENIED AND IT WAS SUBMITTED THAT THEY WERE BASELESS. IT WAS REITERATED THAT THE COMPLAINTS OF THE ASSESSEE WERE WITHOUT ANY MERIT AND IT WAS CONTRARY TO FACTS TO SAY THAT THE ASSESSEE WAS UNFAIRLY TREATED. THE SUGGESTION OF MALAFIDE WA S VEHEMENTLY OPPOSED AND DENIED AND IT WAS POINTED OUT THAT IT W AS FOR THE ASSESSEE TO PROVE THE LOSS WITH EVIDENCE AND MATERI AL AND THERE WAS NOTHING BROUGHT BEFORE THE INCOME TAX AUTHORITI ES TO SUPPORT THE CLAIM OF LOSS. IT WAS ALSO ARGUED THAT EVEN IF FOR THE SAKE OF ARGUMENT IT IS ASSUMED THAT THE STATEMENTS OF THE WITNESSES BEFORE THE ACIT. LUDHIANA WERE TO BE IG NORED STILL IT WAS FOR THE ASSESSEE TO PROVE THAT THE LOSS WAS REA L AND GENUINE AND ON THIS FRONT THE ASSESSEE HAS MISERABLY FAILED TO DISCHARGE ITS ONUS. IN THIS CONNECTION IT IS SUBMITTED THAT THERE WERE CERTAIN UNUSUAL FEATURES RELATING TO THE CLAIM OF L OSS AND THE CLAIM WAS OPPOSED TO THE PROBABILITIES AND THE NORM AL COURSE OF HUMAN CONDUCT. IT IS POINTED OUT THAT THE INCOME TA X AUTHORITIES ARE FREE TO POINT TO THE SURROUNDING CI RCUMSTANCES TO DISALLOW THE LOSS AND THESE ARE THAT (A) THE A SSESSEE FIRM WAS CONSISTENTLY CLAIMING LOSSES IN THE PURCHASE AN D SALE OF RAW WOOL (B) IT FAILED TO PROPERLY EXPLAIN THE DISCREPA NCIES IN THE ITA NO.3148/M/07 17 PURCHASES FROM SUVIDHA WOOLLEN MILLS SUCH AS THE A BSENCE OF A WRITTEN AGREEMENT FOR FUTURE DELIVERY AND PRICE FIX ATION MATERIAL DISCREPANCIES IN THE FAX MESSAGE AND THE LATER CERT IFICATE; (C) IT FAILED TO GIVE A REASONABLE OR ACCEPTABLE EXPLANATI ON FOR THE ABSENCE OF ANY EXPENDITURE DEBITED BY WAY OF SALARY OR LABOUR OR WAGES FOR SPLITTING THE RAW WOOL INTO SMALL LOTS OF 60 TO 70 KG. EACH WHICH WOULD HAVE BEEN NORMALLY INCURRED IF THE CLAIM WAS REAL; (D) THE LOSS WAS SOUGHT TO BE ADJUSTED AGAINS T THE SUBSTANTIAL INTEREST INCOME EARNED IN THE SUBSEQUEN T TWO YEARS THEREBY REDUCING THE TAX LIABILITY. HEAVY RELIANCE WAS PLACED BY THE DEPARTMENT ON THE FINDINGS OF THE INCOME TAX AU THORITIES AND IT WAS PLEADED THAT THE DISALLOWANCE OF THE LOS S SHOULD BE UPHELD. 16. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL SUBMISSIONS. TAKING UP THE FIRST GRIEVANCE OF THE A SSESSEE NAMELY THAT THERE WAS VIOLATION OF THE RULES OF NAT URAL JUSTICE AND FAIR PLAY INASMUCH AS THE ASSESSEE WAS NOT AFFO RDED ADEQUATE REAL AND TIMELY OPPORTUNITY OF CROSS EXAM INING THE WITNESSES WE ARE INCLINED TO UPHOLD THE SAME. THE ENTIRE CORRESPONDENCE BETWEEN THE ASSESSEE AND THE INCOME TAX AUTHORITIES FILED BEFORE US AS ALSO THE OTHER DOCUM ENTS AND PAPERS FILED UNMISTAKABLY SHOW THAT THERE WAS NO SE RIOUS ATTEMPT TO BRING THE WITNESSES BEFORE THE ASSESSEE SO THAT THEY COULD BE CROSS EXAMINED BY IT. ULTIMATELY AFTER A D ELAY OF ALMOST EIGHT YEARS IT TRANSPIRED THAT THE WITNESSES COULD NOT BE PRESENT BEFORE THE ASSESSEE DUE TO VARIOUS REASONS AND THUS THE ASSESSEE WAS DENIED THE OPPORTUNITY OF CROSS EXAMIN ING THE WITNESSES. IT IS NO DOUBT TRUE THAT THE STATEMENTS WERE GIVEN TO THE ASSESSEE IN THE COURSE OF THE ASSESSMENT PROCEE DINGS BUT THAT BY ITSELF WILL NOT BE SUFFICIENT OR EFFECTIVE OPPORTUNITY AFFORDED TO THE ASSESSEE WHO HAS THE RIGHT TO CROSS EXAMINE THE WITNESSES IF THEIR STATEMENTS ARE TO BE MADE USE OF IN THE ITA NO.3148/M/07 18 ASSESSMENT. IT MAY BE SEEN THAT IN THEIR STATEMENTS THE WITNESSES HAVE STATED THAT THERE WAS NO FALL OR DEP RESSION IN THE RAW WOOL MARKET DURING THE FINANCIAL YEAR 1995-96. THIS IS IN CONTRAST TO THE ASSESSEES CLAIM THAT THERE WAS A D EPRESSION IN THE MARKET FORCING IT TO SELL AT REDUCED PRICES AND THEREBY SUFFERING A LOSS. IN OUR OPINION IT WOULD HAVE BEE N APPROPRIATE OR EVEN NECESSARY FOR THE INCOME TAX AUTHORITIES TO HAVE TAKEN TIMELY ACTION TO PRODUCE THE WITNESSES FOR BEING CR OSS EXAMINED BY THE ASSESSEE IF THEY HAD WANTED TO MAKE USE OF T HE CONTENTS OF THE STATEMENTS IN THE ASSESSMENT PROCEEDINGS. T HAT NOT HAVING BEEN DONE AND DUE TO THE INORDINATE DELAY IN COMPLYING WITH THE DIRECTIONS OF THE EARLIER CIT(A) BY THE T IME THE ASSESSEE WAS ALLOWED TO CROSS EXAMINE THE WITNESSES THEY CO ULD NOT BE PRODUCED ON THE GROUND THAT ONE OF THEM WAS UNWELL AND UNABLE TO APPEAR AND THE TWO OTHERS COULD NOT ATTEN D AS ONE OF THEM HAD BEEN ALLEGEDLY MURDERED AND THE OTHER WAS CHARGED WITH THE MURDER AND WAS IN JAIL. WE THEREFORE UPHOL D THE GRIEVANCE OF THE ASSESSEE THAT IT HAS NOT BEEN GIVE N THE TIMELY OPPORTUNITY OF CROSS EXAMINING THE WITNESSES. 17. THAT HOWEVER DOES NOT MEAN THAT THE ENTIRE ASSE SSMENT PROCEEDINGS ARE TO BE STRUCK DOWN AS INVALID OR THA T THE DISALLOWANCE OF THE LOSS IS NOT JUSTIFIED. THE RESU LT OF NOT TESTING THE STATEMENT OF WITNESSES PROPOSED TO BE RELIED U PON IN THE ASSESSMENT PROCEEDINGS BY CROSS EXAMINATION IS THA T IT IS NOT LEGALLY PERMISSIBLE FOR THE INCOME TAX AUTHORITIES TO RELY ON THE STATEMENTS UNTESTED BY CROSS EXAMINATION IN MAKING THE ASSESSMENT. THAT DOES NOT MEAN THAT THE OTHER MATER IAL OR EVIDENCE COLLECTED BY THEM CANNOT BE RELIED UPON B Y THEM NOR DOES IT ABSOLVE THE ASSESSEE OF THE ONUS PLACED ON HIM TO SUBSTANTIATE THE RETURN FILED BY HIM. IT IS ONLY TH AT THE EVIDENCE UNTESTED BY CROSS EXAMINATION SHOULD BE TOTALLY EXC LUDED OR ELIMINATED FROM CONSIDERATION. THE OTHER MATERIAL O R EVIDENCE IN ITA NO.3148/M/07 19 THE CASE WILL HAVE TO BE TAKEN INTO ACCOUNT. THE OT HER MATERIAL WOULD ALSO INCLUDE THE CONDUCT OF THE ASSESSEE HIS ABILITY OR INABILITY TO DISCHARGE THE ONUS PLACED ON HIM THE SURROUNDING CIRCUMSTANCES AND THE PROBABILITIES OF THE CASE AND SO ON AND SO FORTH. IN THE PRESENT CASE THE ASSESSEE HAS CLAI MED THE LOSS AND IT IS THEREFORE FOR IT TO SUBSTANTIATE THE LOSS . IT HAS NO DOUBT MAINTAINED BOOKS OF ACCOUNT BUT EVEN SO IT IS OPEN TO THE INCOME TAX AUTHORITIES TO EXAMINE THE ENTRIES THERE IN OR THE CLAIM MADE IN THE RETURN OF INCOME AND CALL UPON TH E ASSESSEE TO SUBSTANTIATE THEM. IT WAS THEREFORE QUITE IN ORD ER FOR THE ASSESSING OFFICER IN THE PRESENT CASE TO HAVE CALLE D UPON THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF THE LOSS. AFT ER EXAMINING THE DETAILS FURNISHED BY THE ASSESSEE THE ASSESSIN G OFFICER FOUND THE CLAIM TO BE UNACCEPTABLE FOR SEVERAL REAS ONS WHICH WE HAVE ALREADY ADVERTED TO IN THE OPENING PARAGRAPHS OF THIS ORDER. THE ASSESSEE HAD CLAIMED THAT IT PURCHASED RAW WOOL ON 15.3.1996 FOR RS.210/- PER KG. FROM SUVIDHA WOOL LEN MILLS. THE PURCHASE BILLS DID SUPPORT THE CLAIM. HOWEVER THE CASH SALES EFFECTED BY THE ASSESSEE DISCLOSE THAT ON THE VERY SAME DAY THE ASSESSEE HAD SOLD RAW WOOL AT RS.127/- PER KG. WHICH WAS FOUND QUITE UNUSUAL AND RIGHTLY SO. THERE WERE ALSO OTHER SALES AROUND THE SAID DATE FOR RATES SUCH AS RS.127 /- PER KG. RS.137/- PER KG. AND RS.165/- PER KG. ALL THESE SAL ES WERE AT PRICES MUCH BELOW THE PURCHASE PRICE OF RS.210/- PE R KG. THE ASSESSEE ITSELF HAD STATED IN ITS LETTER DATED 30.4 .1998 (PAGE 2 OF THE ASSESSMENT ORDER) THAT IT HAD PURCHASED RAW WO OL AT RATES VARYING BETWEEN RS.203/- PER KG AND RS.251/- PER KG AND SOLD THE SAME AT RATES VARYING BETWEEN RS.127/- AND RS.1 43/- PER KG. TO REPEAT CONSISTENTLY BUYING GOODS AT HIGHER RATE AND SELLING THEM AT MUCH LOWER RATES IS NOT INDICATIVE OF A NORMAL BUSINESS TRANSACTION AND PRIMA FACIE IT HAS TO BE E STABLISHED BY THE ASSESSEE WITH JUSTIFIABLE REASONS. IT IS IN THI S BACKGROUND THAT WE HAVE TO APPROACH THE CASE OF THE ASSESSEE. IT ATTEMPTED ITA NO.3148/M/07 20 TO PROVE THE PURCHASE RATE FROM SUVIDHA WOOLLEN MI LLS BY SAYING THAT THERE WAS A PRIOR AGREEMENT ENTERED IN TO IN NOVEMBER 1995 FOR BUYING 12 624 KGS AT RS.210/- P ER KG DELIVERY IN DECEMBER AND 1 631 KGS AT RS.210/- PER KG DELIVERY IN MARCH. IT COULD NOT PROVE THE EXISTENCE OF SUCH AN AGREEMENT EITHER ORAL OR WRITTEN IN THE COURSE OF THE ASSESS MENT PROCEEDINGS. THE ASSESSEE STATED BEFORE THE ASSESSI NG OFFICER THAT MERE PLACING OF AN ORDER WITH TERMS AND CONDIT IONS COULD BE SET TO BE AN AGREEMENT. EVEN IF THAT IS SO THE RE IS NO ACCEPTABLE EXPLANATION FROM THE ASSESSEE AS TO WHY IT WENT ON PURCHASING RAW WOOL AT HIGHER RATES ONLY TO BE SOLD AFTER BEING SEPARATED INTO SMALL LOTS AT MUCH LOWER RATES. WE ARE UNABLE TO SPELL OUT ANY REASON FOR THE SAME EXCEPT THAT TH E ASSESSEE WANTED TO DELIBERATELY INCUR LOSSES IN THE BUSINESS OF RAW WOOL WHICH CAN BE USED TO SET OFF AGAINST THE SUBSTANTIA L INTEREST INCOME OF RS.89 39 127/- AND RS.22 04 415/- IN THE ASSESSMENT YEARS 1997-98 AND 1998-99 RESPECTIVELY. IT IS ALSO QUITE UNUSUAL THAT THE ASSESSEE DID NOT INCUR ANY E XPENDITURE IN SEPARATING THE RAW WOOL INTO SMALLER LOTS OF 60 TO 70 KGS FOR RETAIL CASH SALES. THE EXPLANATION GIVEN BY THE ASS ESSEE BEFORE US THAT SUCH EXPENDITURE IS INCURRED BY THE RETAIL PURCHASERS LACKS CONVICTION AND IN ANY CASE IS BEREFT OF PROOF . THE CLAIM THAT THERE WAS A DEPRESSION AND FALL IN THE MARKET RESULTING IN FALL IN THE SALE PRICES IS NOT ONLY NOT SUPPORTED B Y ANY EVIDENCE BUT IS ALSO CONTRARY TO THE FACTS. WE ARE UNABLE T O APPRECIATE AS TO HOW THE ASSESSEE WENT ON PURCHASING RAW WOOL AT RATES VARYING BETWEEN RS.203/- AND RS.251/- PER KG BUT C OULD SELL THE SAME ONLY FOR RS.127/- TO RS.143/- PER KG. IT W AS FOR THE ASSESSEE WITHOUT BEING PROMPTED BY THE ASSESSING O FFICER TO ADDUCE EVIDENCE WITH REGARD TO EACH AND EVERY TRANS ACTION OF PURCHASE AND SALE AND THEIR GENUINENESS IN ORDER TO SUBSTANTIATE THE CLAIM OF LOSS. THIS HAS NOT BEEN D ONE BY THE ASSESSEE. THE OTHER UNUSUAL FEATURES IN THIS CASE I S THAT OUT OF ITA NO.3148/M/07 21 THE TOTAL SALES OF RS.1 58 56 649/- CASH SALES FOR LESS THAN RS.10 000/- ACCOUNT FOR RS.1 10 82 239/- AND THESE ARE NOT SUBJECT TO VERIFICATION. THE ASSESSEES CLAIM IN IT S LETTER DATED 24/26.03.1999 THAT CASH SALES ARE NORMALLY EFFECTE D AT CONCESSIONAL PRICES IS NOT BELIEVABLE BECAUSE THE C ONCESSION GIVEN BY THE ASSESSEE IS SO HUGE THAT IT DEFIES ANY LOGIC OR REASON. 18. IN CIT (WEST BENGAL II) VS. DURGA PRASAD MORE ( 1971) 82 ITR 540 IT WAS HELD BY THE SUPREME COURT THAT THOU GH THE APPARENT STATE OF AFFAIRS MUST BE CONSIDERED REAL U NTIL IT WAS SHOWN THAT THERE WERE REASONS TO BELIEVE THAT THE A PPARENT WAS NOT THE REAL THE TAXATION AUTHORITIES WERE ENTITLE D TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALI TY OF SUCH AFFAIRS. IT WAS HELD THAT A LITTLE PROBING SHOULD B E DONE TO SHOW THAT THE APPARENT WAS NOT REAL AND THAT THE TAXING AUTHORITIES WERE NOT REQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM. IT WAS ALSO HELD TH AT THE COURTS AND TRIBUNALS HAVE TO JUDGE THE EVIDENCE BEF ORE THEM BY APPLYING THE TEST OF HUMAN PROBABILITIES. THIS RULI NG WAS REITERATED BY THE SUPREME COURT IN SUMATI DAYAL VS. CIT. (1995) 214 ITR 801. THEREFORE IT IS NOT MERELY A QU ESTION OF WHETHER THE ASSESSEES CLAIM IS SUPPORTED BY DOCUME NTARY EVIDENCE; IT IS FURTHER NECESSARY IN A FIT CASE T O EXAMINE WHETHER THE DOCUMENTARY EVIDENCE ACCORDS WITH THE H UMAN PROBABILITIES AND WHETHER THERE ARE SURROUNDING CIR CUMSTANCES TO SHOW THE NON-GENUINENESS OF THE CLAIM. APPLYING THESE TESTS WE FIND THAT IN THE PRESENT CASE THERE ARE SURROUND ING CIRCUMSTANCES TO JUSTIFY THE STAND TAKEN BY THE INC OME TAX AUTHORITIES AND THE ASSESSEES CLAIM WAS ALSO RIGH TLY CONSIDERED AS HAVING FAILED THE TEST OF HUMAN PROBABILITIES AN D THE NORMAL COURSE OF HUMAN CONDUCT. ITA NO.3148/M/07 22 19. FOR THE ABOVE REASONS WE HOLD THAT THOUGH THE STATEMENTS OF THE THREE WITNESSES BEFORE THE ACIT. LUDHIANA CANNOT BE RELIED UPON BY THE INCOME TAX AUTHORITIES TO JUSTIFY THE DISALLOWANCE OF THE LOSS IT WAS PERFECTLY JUST IFIED FOR THEM TO HAVE DISALLOWED THE LOSS ON THE GROUND THAT THE ASS ESSEE HAS FAILED TO SUBSTANTIATE THE SAME AND ALSO BECAUSE TH E CLAIM WAS NOT ACCEPTABLE HAVING REGARD TO THE SURROUNDING CIR CUMSTANCES AND WAS ALSO CONTRARY TO THE NORMAL COURSE OF HUMAN CONDUCT AND FAILED THE TEST OF HUMAN PROBABILITIES. WE THE REFORE UPHOLD THE DISALLOWANCE OF THE LOSS OF RS.43 45 978/- AND DISMISS THE APPEAL FILED BY THE ASSESSEE WITH NO ORDER AS TO CO STS. ORDER PRONOUNCED ON THIS 26 TH DAY OF MARCH 2010. SD/- (RAJENDRA SINGH) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI DATED 26 TH MARCH 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-XII MUMBAI. 4. THE CIT(A)-XII MUMBAI 5. THE DR F BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR I.T.A.T MUMBAI