ORDER SHEET ITA 29 OF 2003 IN HIGH COURT AT CALCUTTA Special Jurisdiction (Income Tax) ORIGINAL SIDE M/S. SHAW WALLACE & CO.LTD Versus COMMISSIONER OF INCOME TAX, CENTRAL-I,KOL BEFORE: Hon'ble JUSTICE GIRISH CHANDRA GUPTA Hon'ble JUSTICE ARINDAM SINHA Date : 3RD FEBRUARY, 2015. For appellant : Ms.Anupa Banerjee,Advocate Mr.Amitava Mitra,Advocate Ms.Dolon Dasgupta,Advocate For respondent/revenue : Md.Nizamuddin,Advocate Court : When appeal was admitted, following question was framed. Whether appellant is entitled to deduction as trading loss in respect of advance of Rs.2.00 Crores given for purchase of merchandise which became irrecoverable in kind or cash and purported findings of Tribunal that transaction was loan or was not advance given in normal course of business and disallowing said loss have been arrived at by ignoring relevant materials and/or by taking into consideration irrelevant and/or extraneous materials and/or are otherwise arbitrary, unreasonable and perverse ? 2 assessment year involved is 1990-91. assessee, according to case run before authorities as also before us, attempted to enter into transaction hoping high returns and made advance payment of sum of Rs.2 Crores. Even written agreement was not prepared and agreement if any between assessee and so called supplier who received money in advance is evidenced by correspondence exchanged between parties. One relevant document brought to our notice by learned counsel is letter dated 31st May, 1989 which reads as follows : We acknowledge having received from you pursuant to Red Clause in Credit No.I/90376 of Citibank N.A. 43, Chowringhee Road, Calcutta- 700017, amount of Rs.2,00,00,000/- (Rupees two crores only). We undertake that this sum will be used for purpose of purchasing goods, referred to in said Credit and for purpose of paying expenses incidental to preparation and sale of said goods and that in due course we will hand over to you our drafts for cost thereof and accompanied by documents in accordance with terms of said Credit. We further undertake to refund to you on demand, any portion of said sum which shall not be used 3 for purpose aforesaid and any time you may so require, to grant you lien over any such goods purchased. aforesaid letter admittedly was issued by alleged seller after receiving sum of Rs.2 Crores by way of advance on 25th May, 1989. case of assessee is that goods were to be supplied within three months from date of advance. From letter dated 31st May, 1989 it appears that parties had contemplated that money to be advanced by assessee shall not be used for any purpose other than supply of goods to assessee. Learned counsel was, however, unable to bring to our notice any letter written by assessee to alleged seller making any serious enquiry as to user of sum of Rs.2 Crores paid by assessee. First such letter brought to our notice by learned counsel is written sometime in November, 1989. By letter dated 11th September, 1989 alleged seller had already informed assessee that former had become sick industry and all its bank accounts were frozen. facts and circumstances of case in totality led assessing officer to believe that 4 What transpires from incidents narrated by assessee is that above transaction is only colourable device used by assessee in order to reduce its profits. Accordingly, sum of Rs.2 Crores was not allowed to be deducted as expenditure. assessee preferred appeal which was allowed by CIT(A) reversing order of assessing officer. In further appeal by revenue, learned Tribunal has reversed order of CIT(A) and restored order of assessing officer. learned Tribunal has meticulously considered facts and circumstances of case and arrived at following finding : We have also noted that assessee company opened red clause letter of credit in favour of supplier which is de facto as good as giving advance to supplier and yet no precautions were taken to secure its interests. This is also not in harmony with normal business practices. As for assessee s contention that assessee had relied upon balance sheet for year ended 31st March, 1988, we do not see much support from this either, when such huge advance is made, it is customary that even unpublished accounts are requisitioned from company to whom advance is being given and 5 assessee does not wait till accounts are published. In addition information about financial position is collected from other sources but way assessee has behaved, i.e. he has merely relied upon information which was already published is very unusual. In any event even in that year s financial statements entire profit after tax was Rs.1.05 crores whereas assessee s de facto unsecured advance stood at Rs.2 crores. assessee s order was at one third value of entire turnover of supplier for that amount, and yet assessee behaved in manner as if assessee is one of ordinary customers and getting same margin as normal dealer does. As we have stated earlier, this was new line of business of assessee and in fact this business never took off. only activity that took place for business was placing order for Rs.3.01 crores and nothing else. Even some of items for which orders were placed were such that these could not have been sold through dealer network and normally no one will place order for such high value items for keeping them as stock in trade. We find it inconceivable that dealer will have inventory of 30 meter high mast costing Rs.2,95,000 each as inventory item. When we take all these factors into account, we are inclined to conclude that advance of Rs.2 crores to Genelec Limited was de facto unsecured loan which turned bad and we are also of view that this loan was not given in normal course of business inasmuch as assessee did not have any 6 business dealings with Genelec Limited. As has been observed by Hon ble Supreme court in landmark case of CIT vs. Durga Prasad More (82 ITR 540), it is true that apparent must be considered real until it is shown that there are reasons to believe that apparent is not real but then taxing authorities were not required to put on blinkers while looking at documents produced before them. Their Lordships have further observed that Science has not yet invented any instrument to test reliability of evidence placed before court or tribunal. Therefore, courts and tribunals have to judge evidence before them by applying test of human probabilities. Examined in light of this guidance also, we reach same conclusion. For detailed reasons set out earlier in this paragraph, documentation placed before us does not inspire any confidence and it is, in our considered view, only aimed at showing transaction as normal business transaction. In view of these discussions, we vacate order of CIT(A) and restore disallowance made by Assessing Officer. We have enquired of learned counsel as to necessity to open letter of credit. assessee wanted to advance money . Such advance could have been made by account payee cheque. What advantage did assessee get by opening letter of credit ? answer of learned counsel was that 7 assessee had to borrow money from bank for purpose of giving this advance and that is reason why letter of credit was opened which is further pointer to show that view taken by Tribunal affirming views of assessing officer that transaction was aimed at reducing taxable profit is possible view. learned counsel drew our attention to judgement of Apex Court in case of CIT v. Mysore Sugar Co.Ltd. reported in (1962) 46 ITR 649 (SC). This judgement was cited before learned CIT(A) as also before learned Tribunal. They have considered this judgement. This judgement, in our view, has no manner of application because Supreme Court was concerned with case in which bona fide of advance was never in doubt. assessee in that case had refrained from taking steps for recovery on basis of request made by state and it is, in those circumstances, advance was allowed to be treated as expenditure. facts of present case are not at all similar. 8 Therefore, view taken by Apex Court in case of Mysore Sugar Co.Ltd. has no manner of application to facts and circumstances of this case. In appeal under Section 260A of Income Tax Act we are not supposed to reappraise evidence and to arrive at finding. finding of Tribunal has been assailed on basis that it is perverse. We are unable to accept this submission. finding is based on evidence and view taken is possible view. By no stretch of imagination, view taken by Tribunal is perverse. evidence taken into consideration by Tribunal was relevant evidence. We, as such, are of opinion that question framed has to be answered in negative and in favour of revenue. (GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) ssaha AR(CR) M/s. Shaw Wallace Co. Ltd. v. Commissioner of Income-tax, Central-I, Kolkata