COMMISSIONER OF INCOME TAX vs. M/S GOBIND CASTINGS P LTD

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ITA/133/2015HC Punjab & HaryanaPHHC01109757201528 July 2015Bench: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE A.B. CHAUDHARI2 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that the issue of genuineness of derivative transactions primarily involved an appreciation of evidence and did not raise a substantial question of law. The court agreed with the findings of the CIT(A) and ITAT that the transactions were genuine. The reasoning provided included that the mere absence of advance brokerage payment did not invalidate the transactions, as brokerage could be adjusted from receipts or paid subsequently, depending on the client-broker relationship. The court also found that the broker's failure to answer summons could not be held against the assessee, as the appellant had the means to enforce attendance. The fact that the broker had not paid service tax was also not held against the assessee, as the broker might not have crossed the threshold for service tax liability. Therefore, there was no warrant to interfere with the finding of fact that the transactions were genuine. The appeal was dismissed.

What were the facts?

The appeal concerns assessment year 2006-2007. The appellant, Pr. Commissioner of Income Tax (Central), Ludhiana, challenged an order of the Income Tax Appellate Tribunal (ITAT) dated 25.11.2014. The ITAT had dismissed the department's appeal against the order of the CIT (Appeals). The core of the dispute revolves around the genuineness of derivative trading transactions undertaken by the respondent assessee, M/s Gobind Castings (P) Ltd. The assessee permitted its broker to retain profits as margin, with funds often remaining with the broker. The High Court noted that the CIT(A) and ITAT had considered the evidence and facts before concluding the transactions were genuine.

What were the issues?

1. Whether, on the facts and circumstances and in law, the learned ITAT was justified in upholding the finding of the CIT(A) that the derivative trading transactions of commodity shown by the assessee were genuine? (Question of mixed law and fact). The appellant argued that the genuineness of these transactions was questionable. The respondent assessee contended that the transactions were genuine. The judgment notes that the result of other issues pressed by the appellant would follow the decision on this primary issue.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA-133-2015 (O&M) Date of decision:- 28.07.2015

Pr. Commissioner of Income Tax (Central), Ludhiana. ...Appellant Versus

M/s Gobind Castings (P) Ltd. ...Respondent

CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE

HON’BLE MR. JUSTICE G.S. SANDHAWALIA

Present: Mr. Rajesh Katoch, Advocate,

for the appellant. * * * * S.J. VAZIFDAR, A.C.J. (ORAL)

This is an appeal against the order of the Income Tax Appellate Tribunal dated 25.11.2014 dismissing the appellant/department's appeal against the order of the CIT (Appeals).

The matter pertains to the assessment year 2006-2007. 2. The only issue pressed is as follows:-

“(i) Whether on the facts and circumstances of the case and in law the ld. ITAT is justified in upholding the finding of the CIT(A) that the transactions in derivative trading of commodity shown by the assessee were genuine transactions?”

Mr. Katoch says that the result of the other issues will follow the result in respect of the first issue. 4. The question, therefore, is whether the derivative transactions entered into by the respondent/assessee are genuine or not. As noted by the Tribunal, the assessee had allowed the broker to retain the profits earned in order to provide more margin and most of the times funds remained with the broker. The CIT (Appeals) and the Tribunal have held the derivative transactions to be genuine after considering the facts of the case and AMODH SHARMA 2015.07.31 10:29 I attest to the accuracy and authenticity of this document chandigarh

ITA-133-2015 (O&M)

2ٰ weighing the evidence. The issue does not raise a substantial question of law. It essentially involves an appreciation of the evidence. It was held that the mere fact that no brokerage was paid in advance does not indicate that the transactions are not genuine. That would depend upon the relationship between the broker and the client. It is possible that brokerage could even be adjusted from the receipts. It is also possible that brokerage could be paid subsequently. The broker not having answered the summons cannot be held against the respondent/assessee. Nothing prevented the appellant from enforcing his attendance. The accounts of the broker tallied. We agree that the broker having not paid the service tax cannot be held against the assessee. As rightly observed, the broker may not have even crossed the limit making him liable to pay the service tax. 5. In these circumstances, there is no warrant for interfering with the finding of fact that the transaction is genuine. 6. As we mentioned earlier, the result of the other issues raised follows the result on the first question. 7. The appeal is accordingly dismissed.

(S.J. VAZIFDAR) ACTING CHIEF JUSTICE

(G.S. SANDHAWALIA)

JUDGE 28.07.2015 Amodh AMODH SHARMA 2015.07.31 10:29 I attest to the accuracy and authenticity of this document chandigarh

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