Loss on sham and collusive transactions between sister concerns not allowed
IN THE INCOME TAX APPELLATE TRIBUNAL
The Relevant Text of Order are as follows :
5. The assessee is aggrieved and is in appeal before us.
6. 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.
7. 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.
8. 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 CIT(A) in an erudite analysis. The variations in castor oil and castor seed prices are not supported by the authoritative data reproduced by the CIT(A). 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.
9. As we hold so, we are reminded of Hon’ble Supreme Court’s observation, in the case of CIT v. Durga Prasad More  82 ITR 540, 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  214 ITR 801/80 Taxman 89 (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.
10. In view of the above discussions and bearing in mind entirety of the case, we approve well reasoned order of the CIT(A) and decline to interfere in the matter.
11. In the result, the appeal is dismissed. Pronounced in the open court today on the 11th June, 2019.
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