C I T JAIPUR vs. M/S MARU SECURITIES PVT LTD

By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed

This court while admitting the appeal on 1.11.2010 framed following substantial question of law:- “1. Whether in the facts and circumstances of the case, the ITAT was justified in deleting the addition made on account of bogus loss claimed on transactions not routed through stock exchange in spite of the fact that the assessee failed to discharge its onus of proving

Whether in the facts and circumstances of the case, the ITAT was justified in law in deleting the total addition of (2 of 12) [ITA-276/2010]

The brief facts of the case are that the assessee company has shown profits from trading in the figures and options (F&O) and derivatives and also from dealing in shares and securities. The assessee company has shown loss of Rs.2,82,68,294/- from trading in commodities. During the course of assessment proceeding, the AO required the assessee company to submit further details of brokers through whom the trading in commodities has been done. After ascertaining the said information, the AO had issued summons u/s 131 to 3 brokers to furnish copy of account of the assessee company on the trading done through them. After receiving information, the AO had observed that as per information furnished by the brokers the total loss incurred by the assessee company was Rs.2,82,42,642/- while it has shown such loss at Rs.2,82,68,294/- and the said difference of Rs.25,642/- which has excessive loss claim has been brought to the notice of assessee company and it ws required to explain the same but considering no explanation it was disallowed.

1 Thereafter, AO has discussed the modalities of transaction for the broker and for the client. Thereafter, on order to verify the information furnished, the AO had issued letter to National Commodities and Derivative Exchange Ltd. Mumbai to intimate the details of transaction carried out by the assessee company through Moti Commodities Futures (P) Ltd. And through Arihant &

2 Further, regarding balance loss of Rs.92,36,713/-, the AO has given a finding that it was not an issue related to one, two or ten transaction but such sale transaction run into 517 crores and purchase transaction run into Rs.518 crores and taking together transactions worth more than Rs.1000 crore have been undertaken and therefore, the argument given by assessee company that it was because of punching error cannot be accepted. The contract note issued by Moti Commodities Futures (P) Ltd. Shows 40 to 50 transaction a day and even more and (4 of 12) [ITA-276/2010]

Counsel for the appellant has contended that AO while considering the matter, after taking into consideration the inquiry which was conducted and taking into consideration the books of accounts, has disallowed the loss and computed the income as under:- Computation of Income Income from Business (As Declared) Rs.1,01,46,322/- Add: Loss disallowed (Para A) Rs. 25,642/- Loss disallowed (Para B) Rs.15,26,110/- Loss disallowed (Para C) Rs.92,36,713/- Rs.1,07,88,465/- ________________ Rs.2,09,34,787/-

1 He contended that CIT(A) & Tribunal have wrongly allowed the expenses. He further contended that view taken by the both the authorities is contrary to law and the view taken by the AO is required to be accepted.

Counsel for the respondent contended that all the transactions are routed through the stock exchange and in that event for the genuine loss incurred because of the transaction

He relied on the following decisions:

1 In Jiyajeerao Cotton Mills Ltd. vs. Commissioner of Income Tax and Excess Profits Tax, Bombay (1958) 34 ITR 888(SC) wherein Supreme Court held as under:- “4. At the very outset, the question calls for an answer, does any question of law arise on the order of the Tirbunal ? It is only if it does, that the decision of the Tribunal will be open to consideration by the court under section 66 of the Act. Stating the same proposition in a different form, if that decision is one of fact turning on the appreciation of evidence, this court would not interfere with it in appeal under article 136 of the Constitution. Now, the point in dispute in these proceedings is whether the sum of Rs. 27,30,094 received by the appellant as profits in 1942-1943 is taxable under the Act, and that, in turn, depends on whether the forward contracts which resulted in these profits were made at Gwalior as contended by the appellant or at Bombay as held by the Tribunal. That would clearly be a question of fact, and the decision of the Tribunal thereon would not be liable to be challenged in these proceedings. Counsel for the appellant does not dispute this position, but he contents that a finding of the Tribunal even on a question of fact would be erroneous in law, if there is no evidence whatsoever to support it or if it is perverse. This question was quite recently considered by this court in Meenakshi Mills v. Commissioner of Income-tax, and the law was thus stated : "The position that emerges on the authorities may thus be summed up : (1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision

We have considered all the contentions urged on behalf of the appellant at some length. We would like to make it clear that we are not sitting here as a court of appeal on facts. We have examined the record only with a view to see whether there is any misdirection or non-direction, such as is likely to have affected the result, and we have come to the conclusion that there is none, and that the finding of the Tribunal is not therefore open to attack.

2 In Commissioner of Income Tax Jaipur vs. M/s. Riverside Farma P Ltd. ITA No.476/2009 decided on 1.8.2017 wherein it has been held as under:- “3. On 25.04.2017, when the matter was under:-

It was next contended that if there had been transfer of profits by Jwaladutt Kishanprasad from Cotton Agents Ltd., to J. R. Pillani, Gwalior, that must appear in the accounts of the latter, that those accounts

We have so far dealt with the criticisms leveled by the appellant against the evidence, direct and positive, in support of the finding of the Tribunal that the contracts were concluded at Bombay. But to view the matter in its proper perspective, we must look at the picture at the other end, and consider the evidence adduced to prove that the agreements were made in Gwalior. Now, the facts found by the Incometax authorities are these : The three brokers in whose names the contracts stood were, having regard to their means, not likely to have been thought of for contracts of the magnitude which we have. They had not done business in cotton futures prior to the present contracts nor subsequent thereto. They had no bank accounts and large amounts to the tune of Rs. 30 lakhs are supposed to have been paid to them in cash by J. R. Pillani, Gwalior, and turned over by them in cash to the appellant. They produced no accounts for their dealings and the ankdas produced by them at a late stage were found to have been freshly written up. When Durgaprasad Mandalia, the manager of the appellant, was asked as to what securities he held as cover in respect of the huge transactions he entered into with men of such means, he answered that they were men of character. Sagarmal Dingliwala, the manager of J. R.

Turning next to the accounts produced by the appellant, it is seen that the transactions of the three brokers were entered in Kherij Khata, which is said to have been maintained for parties for whom there are small dealings and whose accounts are cleared up in short time. But then, these transactions are not small transactions, nor were they close in a short time. Though the dealings went on for several months and there were several settlements, it was not until the 15th March, 1943, that payments are alleged to (9 of 12) [ITA-276/2010]

Mr. Kolah argued that the contracts between the appellant and the three brokers expressly recite that they are as between principals and principals, that there were clauses therein providing for delivery and payment at Gwalior and that there was no reason for not accepting them as correct. But it is pointed out by the Income-tax authorities that the contracts provide for the business being done in accordance with the rules and bye-laws of the East India Cotton Association, Bombay, that according to bye-law No. 44-A of that Association "every contract made subject to these bye-laws shall take effect as contract wholly made in Bombay", and that further under the rules, the delivery of the goods must take place in Bombay. In view of this, the Income-tax Officer was of the opinion that the contracts in question had been got up for the purpose of supporting the present version of the appellant.

Mr. Kolah also contended that the evidence of Birlas would have been material in deciding whether they settled the contracts at Bombay as contended for by the Department and that though the order of remand stated that their evidence should be taken, that had not been done and that was a serious irregularity. The portion of the order of remand relevant for the present purpose is as follows : "The managing director of the assessee company or rather the person responsible for ordering these transactions on behalf of the assessee company should also be similarly examined."

Now, the obvious intention behind this order, read as a whole, was that persons connected with the several links in the chain of contracts and series of payments concerned in these transaction should be examined with a view to elucidate the true

In Raymond Woollen Mills Ltd. v. Income-tax Officer and Ors. , the Supreme Court held that what is required to be seen in a case such as this is whether prima facie there was some material before the Assessing Officer on the basis of which he could reopen the case of the assessed. The sufficiency or correctness of the material is not to be considered because it is open to the assessed to prove that the facts assumed by the Assessing Officer in the notice were erroneous.

Much earlier, in Phool Chand Bajrang Lal and Anr. v. Income-tax Officer and Anr. , the Supreme Court reviewed the entire case law and concluded that: (a)There must be some specific, reliable and relevant information available with the Assessing Officer. (b) The Assessing Officer must have reasons, which he must record, that income has escaped assessment. (c) The case should not be one of a mere change of opinion by the Assessing Officer or the drawing of a different inference from the same facts but that those reasons must be based on facts which have subsequently come into possession of the Assessing Officer. (d) The sufficiency of reasons for forming the belief is not for the Court to (11 of 12) [ITA-276/2010]

This Court also had occasion to deal with the issue of reopening a completed assessment in United Electrical Co. P. Ltd. v. Commissioner of Income-tax and Ors. (2002) 258 ITR 317. This decision has been relied upon by the Tribunal but we find that it is clearly distinguishable because in that case the Division Bench came to the conclusion that the statement on the basis of which reopening was sought was too general and it did not mention any name, much less the name of the assessed. It was, therefore, held that there was no information on record which could provide a foundation for the Assessing Officer's belief that the assessed's transaction was not genuine and that this income had escaped assessment on that account.”

Counsel for the respondent has relied dated 15.09.2010 in ITA No.125/2009.”

3 In that view of the matter, both the issues are answered in favour of the assessee and against the department.