COMMISSIONER OF INCOMRE TAX vs. M/S FATHU DHINGA RICE MILLS

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ITA/402/2006HC Punjab & HaryanaPHHC01075120200616 February 2011Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL4 pages

AI SummaryRemanded

What did the High Court hold?

The High Court held that the AO had disallowed the loss of Rs. 20,00,000 on rice trading because the assessee failed to establish the identity of the sellers and did not produce purchase bills. The AO noted that the purchase bills were not produced, and the identity of parties from whom rice was purchased was withheld. The High Court observed that the CIT(A) and the Tribunal reversed the AO's finding without referring to any material relating to the identity of the sellers. While the CIT(A) and Tribunal noted that purchase and sales bills were produced, a perusal of their orders showed no discussion regarding these bills. Therefore, the findings of the CIT(A) and Tribunal were vitiated and could not be sustained. The appeal was allowed, and the orders of the CIT(A) and Tribunal were set aside. The matter was remitted to the CIT(A) to decide afresh.

What were the facts?

The assessee, M/s Fathu Dhinga Rice Mills, filed its return for assessment year 2001-02 declaring 'nil' income. The Assessing Officer (AO) framed an assessment on March 19, 2004, determining total income at Rs. 3,91,596. The AO made additions, including Rs. 20,00,000 on account of disallowed losses claimed in rice trading. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the addition of Rs. 20,00,000 on March 31, 2005. The revenue appealed to the Income Tax Appellate Tribunal (ITAT), which upheld the CIT(A)'s order and dismissed the revenue's appeal. The revenue has now filed this appeal before the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the CIT(A) whereby he had deleted the addition of Rs. 20,00,000/- accepting the misleading contentions of the assessee and ignoring the observations of the AO incorporated in the body of the assessment order? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not appreciating the facts of the case in right perspective thereby rendering its order to be perverse? Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The AO disallowed the loss of Rs. 20,00,000 because the assessee failed to establish the identity of the sellers and did not provide purchase bills. The CIT(A) and Tribunal erred in deleting the addition without considering the AO's observations and by accepting the assessee's contentions without proper appreciation of facts, leading to a perverse order.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 16.2.2011 The Commissioner of Income Tax, Jalandhar-II ....Appellant. Versus M/s Fathu Dhinga Rice Mills ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Vivek Sethi, Advocate for the appellant. Mr. J.S. Bhasin, Advocate for the respondent. AJAY KUMAR MITTAL, J.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 6.1.2006 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, in ITA No. 365/(ASR)/2005, relating to the assessment year 2001-02, claiming the following substantial questions of law:- “1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of Ld. Commissioner of Income Tax (Appeal) whereby he had deleted the addition of Rs.20,00,000/- accepting the misleading contentions -2- of the assessee and ignoring the observations of the AO incorporated in the body of the assessment order?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not appreciating the facts of the case in right perspective thereby rendering its order to be perverse?”

Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee-firm filed its return of income for the assessment year 2001-02 on 29.10.2001 declaring its income as 'nil'. The assessment was framed on 19.3.2004 at a total income of Rs.3,91,596/-. During assessment proceedings, the Assessing Officer made various additions including an addition of Rs.20,00,000/- on account of losses disallowed claimed in trading of rice. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 31.3.2005 deleted the aforesaid addition of Rs.20,00,000/- and against the same, the revenue approached the Tribunal. The Tribunal vide order dated 6.1.2006 upheld the view of the CIT(A) and dismissed the appeal. Hence, the present appeal by the revenue.

We have heard learned counsel for the parties.

The Assessing Officer while disallowing the claim of the assessee with regard to loss on account of trading in rice amounting to Rs.20,00,000/- had noticed that the assessee had failed to show that the identity of the sellers was established. The relevant

findings recorded by the assessing officer reads thus:- -3- “The assessee was specifically required to give a separate trading account of purchase and sale of these commodities i.e. Rice, Wheat & Basmati and also to explain the reasons for loss in the said trading. The assessee submitted an account of opening balance, purchases, sales and closing stock of these cereals without accounting for the incidental expenses. Further details of sales and purchases party wise of these commodities was also requested with evidence. The assessee submitted a list of sale and purchases of rice bill wise without mentioning the quality of Rice purchased/sold. The purchase bills, which were specifically required to be produced, were not produced and ultimately it was said that the same are with D.C.Kapurthala (no such evidence was led). Out of total purchases of 45827.71 qtls of rice, purchase of 43621.26 qtls are made at purchase rate above Rs.900/- per qtls ranging between Rs.900/- per qtls to 950 per qtls. The rest of purchase of 2006.45 qtls is below Rs.900/- per qtls. The average purchase rate thus comes to Rs.906/- per qtls. The complete identity of parties from whom rice was purchased was also withheld. Some instances of party names to show that identity of Sellers was not provided are as under:-

Oberoi Enterprises, Amritsar

R.S.Agro India, Delhi

M.M.Exports, Amritsar

Puneet Bros., Amritsar -4-

G.J.Agro Inds., Jalandhar. It is, therefore, observed that purchases of rice are not verifiable with reference to parties and also in the absence of purchase bills.”

The CIT(A) and the Tribunal had reversed the said finding without referring to any material relating to the identity of the aforesaid sellers. The CIT(A) as well as the Tribunal had noticed that the purchases and sales bills had been produced by the assessee to establish the same, but a perusal of the said orders clearly shows that there is no discussion with regard to the sales and purchases bills alleged to have been produced by the assessee. Accordingly, the findings recorded by the CIT(A) and affirmed by the Tribunal are vitiated and cannot be sustained.

In view of the above, the present appeal is allowed and the orders of the CIT(A) and the Tribunal are set aside. The matter is remitted to the CIT(A) to decide the matter afresh in accordance with law.

The parties through their counsel are directed to appear before the CIT(A) on 30.5.2011 for further proceedings in the matter. (AJAY KUMAR MITTAL) JUDGE February 16, 2011 (ADARSH KUMAR GOEL) gbs JUDGE

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