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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER PER RAVISH SOOD, JM:
The present appeal filed by the department is directed against the order passed by the CIT (Appeals)-1, Raipur, dated 09.08.2016, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 29.03.2015 for assessment year 2012-13. Also, the assessee is before us as a cross- objector. The department has assailed the impugned order on the following grounds of appeal before us:
“1. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.2,35,09,276/- being loss from commodity trading when the assessee failed to bring any supporting evidence on record. 2. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.65,16,985/- being addition made to partners capital account when the assesee could not give satisfactory explanation on the same before the AO and could not bring any supporting evidence on record. 3. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.5,25,000/- being credit made to partners capital account when the assesee could not give satisfactory explanation on the same before the AO and could not bring any supporting evidence on record. 4. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in accepting the fresh evidence produced by the assessee without allowing AO, proper opportunity to examine the same, thereby violating the provision on law under Rule 46 of I.T Rules.
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Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred by giving a finding which is contrary to the evidence on record, as the Ld. CIT(A) has accepted the submission of the assessee which is factually incorrect, thereby rendering the decision which is perverse? 6. The order of Ld. CIT(A) is erroneous both in law and on facts. 7. Any other ground that may be adduced at the time of hearing.”
On the other hand the assessee as a cross-objector has supported the impugned order on the following grounds: “1.That the learned CIT(Appeals) has passed the order by evaluating the evidences produced and after allowing opportunity to the learned Assessing Officer. Prayed that the ld. CIT(A) rightly allowed the relief. 2. That the learned CIT(Appeals) allowed proper opportunity to the A.O to examine the fresh evidences filed which the learned Assessing Officer availed and fixed the case for hearing and the ld. AO examined all the supporting filed as per Application under Rule 46A.”
Succinctly stated, the assessee firm which is engaged in the business of trading of share/securities and commodities had filed its return of income for the assessment year 2012-13, declaring an income of Rs.Nil. Subsequently, the case of the assesee was selected for scrutiny assessment u/s.143(2) of the Act.
During the course of the assessment proceedings, the A.O initially observed in her order that after verifying the books of account which were produced before her and considering all the documents etc., the returned income of the assessee was being accepted as such. Strangely, the A.O, thereafter, in contradiction of her aforesaid observations proceeded with
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the assessment and concluded, viz. (i). that the assesee had failed to substantiate its claim of loss on commodity trading of (-) Rs.2,35,09,276.90/-; and (ii). that the assessee had failed to substantiate on the basis of supporting documentary evidence the nature and source of the additions of Rs.5.25 lacs (approx.) and Rs.65.16 lacs (approx.) in the respective capital account of its partners, viz. Shri Kshitij Agrawal and M/s. Stock Mandi Pvt. Ltd. Accordingly, the A.O on the basis of her aforesaid conflicting observations finally framed the assessment vide her order passed u/s.143(3) of the Act dated 29.03.2015, determining the income of the assessee at Rs.1,51,12,548/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). It was, inter alia, the claim of the assessee before the CIT(Appeals) that though the A.O had initially as stated by her in the body of the assessment order accepted the assessee’s returned income, but thereafter, had on the basis of incorrect observations drawn adverse inferences and assessed its income at Rs.1.51 crore (approx.). It was submitted by the assessee that though the assessee in the course of the assessment proceedings had duly substantiated its claim of loss in commodity trading of (-)Rs.2,35,09,276.90/- on the basis of supporting documentary evidences, viz. (i) contract notes issued by M/s. Commodity Mandi Pvt. Ltd. (on sample basis); (ii) copy of account of the assessee with
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M/s Commodity Mandi Pvt. Ltd; (iii). the details of daily transaction etc. before the A.O, however, the latter had most arbitrarily and in fact, in contradiction of her own observations drawn adverse inferences and concluded that as the assessee had failed to substantiate its claim of loss on the basis of supporting documentary evidence, therefore, the same was not to be accepted. The assessee in order to buttress its aforesaid claim had filed before the CIT(Appeals) contract note (sample copies) for 1stApril 2011, and also submitted that all its sales and purchase transaction were available online and could be verified. It was further stated by the assessee that the commodities purchased during a day were sold and if not sold it would be marked to market by applying the rate at the end of the day with the corresponding difference either being debited or credited. It was, thus, the claim of the assessee that the A.O without giving any reason or placing on record any such material which would prove to the contrary, had disallowed its claim of loss from commodity trading of (-) Rs.2,35,09,276/-. Also, the assessee had assailed the treating of the respective additions in the capital account of the partners, viz. Shri Kshitij Agrawal of Rs.5.25 lacs (approx.) and M/s. Commodity Mandi Pvt. Ltd. of Rs.65.16 lacs (approx.) as the unexplained investment of the assessee firm by the A.O. It was the claim of the assessee that though the copy of the capital accounts of both the partners were available with the A.O and also had been filed with her separately, however, she had at point of time in the course of the
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assessment proceedings called upon the assessee to explain the credits/additions made in the said respective capital accounts. It was the claim of the assessee that as the aforesaid additions in the respective capital accounts of the partners were made out of their duly explained sources, thus, no adverse inferences were liable to be drawn as regards the same in its hand. In support of its aforesaid contentions the assessee had before the CIT(Appeals) duly substantiated their respective source as regards the additions in their capital accounts.
The CIT(Appeals) after considering the documentary evidences which were filed by the assessee in respect of both of the aforesaid issues, viz. (i) disallowance by the A.O of the assessee’s claim of loss on commodity trading; and (ii) treating the addition in the capital accounts of the partners as the unexplained investments of the assessee firm, therein called for a remand report from the A.O. In reply, the A.O stated in her remand report that the assesee in the course of the original assessment proceedings had failed to substantiate its claim of loss from commodity trading. It was further stated by her that it was incorrect on the part of the assessee to have claimed that in the course of the original assessment proceedings no opportunity was afforded to it to substantiate its aforesaid claim of loss on the basis of supporting documentary evidence. It was further stated by the A.O that as the assessee in the course of the original
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assessment proceedings had failed to come forth with documentary evidences to substantiate its claim of loss from commodity trading, therefore, the same should not be admitted as additional evidences u/Rule 46A of the Income-Tax Rules, 1962.
As regards the treating of the addition made in the capital account of the partners during the year under consideration, it was submitted by the A.O that as the assessee had failed to come forth with any satisfactory reply on the said issue, therefore, she was constrained to make addition of the respective amounts by treating the same as undisclosed investments in the hands of the assessee firm.
The assesee in its rejoinder to the aforesaid “remand report” refuted the observation of the A.O that it had even in the course of the remand proceeding failed to produce on record any documentary evidence to substantiate its claim of loss from commodity trading. On the contrary, it was the claim of the assessee that the A.O in the order sheet entry dated 12.07.2016 had categorically stated that the assessee had produced contract notes a/w. compact disk (CD) containing the complete details of commodity purchases/sales transaction that were carried out over the year. It was, thus, the claim of the assessee that the A.O despite verifying the authenticity of the assessee’s claim of having suffered loss from commodity trading during the year, had however, failed to make a mention
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of the same in her remand report. Our attention was drawn by the Ld. AR to the relevant extract of the order sheet entry dated 12.07.2016 of the A.O (in the course of the remand proceeding). It was, thus, the claim of the ld. A.R that as the assessee had duly substantiated its claim of loss suffered from commodity trading during the year, therefore, there was no justification on the part of the A.O in not accepting the same. As regards the treating of the addition made in the partners capital account as undisclosed investment by the A.O, it was submitted by the assessee in its rejoinder that as the A.O in the course of the assessment proceeding had not raised any query on the said issue, therefore, it had remained under a bonafide belief that the A.O was satisfied as regards the respective credits/additions in the capital accounts of the partners. It was further stated by the assessee that the A.O in the course of the remand proceedings had verified the documents which were filed by the assessee to support the source of the additions that were made in the respective capital accounts of the partners and had not drawn any adverse inferences as regards the same in her remand report.
The CIT(Appeals) after considering the facts involved in the case in the backdrop of the “remand report” that was filed by the A.O and the rejoinder of the assessee, therein, found favour with the assessee’s contention that now when it had in the course of the remand proceedings
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substantiated its claim of loss suffered from commodity trading on the basis of supporting documentary evidence i.e. sample of contract notes issued by M/s. Commodity Mandi Pvt. Ltd. (on sample basis); CD containing complete details of purchase/sales transaction; (ii) copy of account of the assessee with M/s Commodity Mandi Pvt. Ltd etc. which had not been rebutted by her, therefore, there was no justification for disallowing of its said claim of loss in question. Also, the CIT(Appeals) concurred with the claim of the assessee that as the source of the respective additions in the capital account of the partners was proved beyond doubt to have been made from their respective duly explained sources, therefore, the onus that was cast upon the assessee was duly discharged. Apart from that the CIT(Appeals) was of the view that if there was any doubt about the explanation filed by the assessee as regards the addition/credits in the respective capital account of the partners then, action was to be taken in the case of the partners and not in the hands of the assessee firm. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations allowed the appeal of the assessee.
The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on
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record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR in support of his aforesaid contentions.
We may at the outset observe that the basis and the manner in which the present assessment had been framed is beyond our comprehension. On a perusal of the assessment order, it transpires that while for, at Para 2 of the order, the A.O had categorically observed that after considering all the documents and books of accounts etc. which were produced during the course of the assessment proceeding the declared income of the assessee at Rs. Nil was accepted, but after so concluding, she had in all her wisdom proceeded with and assessed the income of the assessee at Rs.1.51 crore (approx.). For the sake of clarity the relevant observation of the A.O as found at Para 2 of her order is culled out as under: “2. During the course of assessment proceeding, it was submitted that the assessee firm has maintained all books of accounts for its business and the same were audited u/s.44AB of the Income Tax Act, 1961. All books of accounts were produced for examination. During the course of assessment proceedings, it was submitted that the assessee driving income from trading of shares/securities and commodities etc. these trading is online and all details in respect of purchase and sales are available on net. All the details have been produced and examined during the assessment proceeding. After considering all the documents and books of accounts etc. produced during the course of assessment proceeding the declared income Nil is accepted.” Although, the aforesaid observation of the A.O that she had after considering all the documents and books of accounts etc. accepted the returned income of the assessee at Rs. Nil would have sufficed for us to
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conclude that she after so observing could not have thereafter, drawn adverse inferences and made additions/disallowance in the hands of the assessee, but then in all fairness we herein proceed with and test the sustainability of the view taken by the CIT(Appeals).
As regards the assessee’s claim of having suffered loss from commodity trading of Rs.2.35 crore (approx.), it transpires that the assessee during the year had claimed to have earned income from share derivatives of Rs.88.15 lacs (approx.) and suffered loss of commodity trading of (-) Rs.2.35 crore (approx.), as a result whereof, there was a net loss of (-) Rs.1.53 crore (approx.). On a perusal of the records, we find that the assessee had in the course of the assessment proceedings submitted that all the transactions were carried out online and the details of purchase/sales of commodities were available on net. Also, copy of contract receipts issued by M/s. Commodity Mandi Pvt. Ltd. (MCX member) with whom major transactions were carried out by the assessee a/w. copy of its account in the books of the aforementioned company and the details of the purchase/sales transaction were produced before the A.O. Although, the A.O as observed by us hereinabove had initially categorically stated in the body of the assessment order that the returned income of the assessee was being accepted by her after examining the details in respect of purchase/sales of share/securities and commodities,
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documents and books of accounts etc. as were produced by the assessee before her, but thereafter she had in absolute contradiction of her aforesaid observation concluded, that as the assesee could not furnish all the relevant bills and vouchers in support of its aforesaid transactions, therefore, its unsubstantiated claim of loss from commodity trading could not be accepted and was liable to be disallowed.
As the aforesaid adverse inferences drawn by the A.O are seriously self-contradictory, and thus, do not inspire any confidence, therefore, we refrain from drawing any inferences on the basis of the same. The CIT(Appeals) on being confronted with the aforesaid peculiar or in fact incomprehensible observations of the A.O, had after considering the documentary evidences which were filed by the assesee before him in support of its claim of loss of commodity trading i.e as additional evidence u/s.46A of the Income Tax Rules, 1962, had forwarded the same to the A.O and called for a remand report from her. Again, we find that the A.O despite specifically mentioning in her order sheet entry, dated 12.07.2016 (recorded in the course of remand proceeding) that the assessee had produced contract notes, CD containing the details of purchase and sale transactions of commodity trading etc., which were examined by her, had however in her “remand report” except for objecting to the admission of the
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documents as additional evidence did not comment on the merits of the assessee’s claim of loss from commodity trading.
Be that as it may, we find from a perusal of the order of the CIT (Appeals) and the records available before us that the assessee on the basis of supporting documentary evidences, viz. contract notes/bills (on sample basis) of M/s. Commodity Mandi Pvt. Ltd. (MCX Members); details of profit/loss on commodity trading; and copy of its account as appearing in the books of account of M/s. Commodity Mandi Pvt. Ltd. had duly substantiated its claim of having suffered commodity trading loss of Rs.2.35 crore (approx.), which neither in the course of the original assessment or in the remand proceedings had been rebutted by the A.O. The CIT(Appeals) after considering the facts of the case in light of the aforesaid document which were produced before him by the assessee firm had accepted its claim of loss by observing as under: “2.3 As per the above facts, the AO has disallowed loss of Rs.2,35,09,276/- because as mentioned at para 3 of the assessment order the assessee did not furnish relevant bills and vouchers in support of transaction in order to substantiate the loss. From the facts reproduced above from the assessment order and from assessee’s submission, I find that the conclusions drawn by the A.O are not based on the record of assessment proceedings evidenced by order sheet. The AO at para-2 accepted the declare income and noted that "after consideration of the documents and books of account etc. produced during the course of assessment proceedings the declared income NIL is accepted." The appellant has furnished books of account and supporting documents before the AO. This fact has also been mentioned in the assessment order. It has also been acknowledged that -all transaction in the commodity trade are done on-line, details are available on Net. If this being so, the AO has erred in disallowing the loss when the books of accounts were produced. A report was called from the AO. In the remand report the AO stated that assessee was asked to explain the loss on 11/02/2014 (this date
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should be 11/02/2015) but assessee did not furnish any evidence. The appellant has stated that no such query was raised. Ongoing through the order sheet dt 11/02/2015 it is seen that the AO has recorded, Jh vkj- ds- iz/kku c] lquokb Zgsr qmifLFkr gq,A izdj.k ij ppkZ dh xbZ] “ks’k submission izLrqr fd;k x;kA csru ds okmplZ dh tkap dh xbZA rFkk ystj ls tkapdj fjdkWMZ ij j[kk x;kA Thus, the order does not show that assessee was asked to explain the loss. Still the assessee has furnished statement of loss/profit, statement of accounts and contract note during appeal. Statement of loss/profit contains the figure of net result of daily transaction. As per this statement on certain dates there are loss and on other dates there are profits. For example, on 1.4.2011 assessee had booked loss of Rs.4,23,601.44 and Rs.1946.71. It incurred losses upto 3.4.2011. Then on 4.4.2011 it had earned profits of15,30,736.70 and 30,925.76 in two transactions and loss of Rs 6742.82 in one transaction. Thereafter similarly it had booked profits and losses both on various dates. Final figure as on 31/03/2012 is loss of Rs. 2,35,09,276/-. The daily figure in the statement of profit/loss tallies with the statement of account on a particular day and is supported by contract note of other particular contract number. Thus the loss claimed is supported by books of accounts and hence the same is to be allowed. In the remand report the AO has not made any comment on the merit or genuineness of the loss incurred by the assessee. Her ground is "the loss was disallowed be se assessee did furnish any evidence." At the appellate stage since the assessee has furnished the statements supported by contract notes as additional evidence which was admitted, and the A.O was given an opportunity to examine, there is no reason to sustain the disallowance of loss. The same is therefore allowed.
We have given a thoughtful consideration to the aforesaid observation of the CIT(Appeals) and except for the fact, that the CIT(Appeals) though inadvertently had referred the date of the “remand report”, dated 13.07.2016 of the A.O as 11.02.2015, had however, rightly concluded that there was no justification on the part of the A.O to have declined the assessee’s claim of loss of Rs.2.35 crore (approx.) from commodity trading. We, thus, finding no infirmity in the view taken by the CIT(Appeals), uphold his order to the said extent. Thus, the Ground of appeal No.1 and Grounds of appeal No.(s) 4 & 5 (to the extent relevant
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to the issue) raised by the revenue are dismissed in terms of our aforesaid observation.
We shall now deal with the grievance of the revenue that the CIT(Appeals) had erred in vacating the treating by the A.O of the respective additions/credits in the partners capital account as the undisclosed investment of the assessee firm. On a perusal of the records, it transpires that the assessee on the basis of fresh documentary evidences which were filed U/rule.46A of the Income Tax Rules, 1962 with the CIT(Appeals), had thereafter in the course of remand proceedings duly substantiated the respective sources of additions which were made by the partners to their respective capital accounts during the year under consideration. As the A.O in the course of the original assessment proceedings had not raised any query as regards the additions/credits in the respective capital accounts of the partners, therefore, as stated by the Ld. AR and, rightly so, the assessee remained under a bona-fide belief that no doubts were there in the mind of the A.O in respect of the same. We, thus, finding no infirmity in admission of the aforesaid documentary evidence as additional evidence U/rule 46A of the Income Tax Rules, 1962 by the CIT(Appeals), uphold his action to the said extent.
As regards the merits of the aforesaid addition in hand which had been vacated by the CIT(Appeals), we find that the assessee had duly
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substantiated the respective sources from where both the partners had made addition/credits in their respective capital accounts. As regards the addition made in the capital account of Shri Kshitij Agrawal of Rs.5.25 lacs (approx.), it transpires that the assesee in the course of the remand proceedings had placed on record confirmation of the partners a/w. copy of his bank statement evidencing the source out of which the said addition/credits was made by him. Coming to the addition made in the capital account of the other partner, viz. M/s Stock Mandi Pvt. Ltd. of Rs. 65,16,985/- during the year under consideration, it transpires that the said partner had also placed on record its confirmation a/w. copy of its bank statement which duly substantiated the source of the aforesaid addition of Rs.65.16 lacs in its capital account. On the basis of the aforesaid facts, we are of the considered view that no adverse inferences at all were liable to be drawn as regards the aforementioned additions that were made in the capital accounts of the partners of the assessee firm. We further concur with the view taken by the CIT(Appeals) that even if the A.O had any doubts as regards the additions/credits in the capital account of the partners, then, the action was called for in the hands of the partners and not in the case of the assessee firm. Our aforesaid view is duly supported by the judgment of the Hon’ble High Court of Gujarat in the case of Pr. CIT-4 Vs. Vaishnodevi Refoils and Solvex, Tax Appeal No.846 of 2017 dated 28.11.2017 [SLP of the revenue in the aforesaid case had been
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dismissed by the Hon’ble Apex Court vide its order passed in SLP (Civil) Diary No(s). 22842/2018 dated 09.07.2018]. Also, a similar view had been taken by the Hon’ble High Court of Madhya Pradesh in the case of CIT Vs. Metachem Industries (2000) 245 ITR 160 (MP).
On the basis of the aforesaid facts, we not only principally concur with the view taken by the CIT(Appeals) that no adverse inferences as regards the additions/credits in the capital account of the partners was liable to be drawn in the hands of the assessee firm, but also even otherwise, are of a strong conviction that as the source of the respective addition/credits had duly been confirmed by the respective partners out of their duly explained sources, therefore, on the said count also, no addition was called for in its hand. On the basis of our aforesaid observation, we uphold the order of the CIT(Appeals) who had rightly vacated the respective additions of Rs.65.16 lacs (approx.) and Rs.5.25 lacs (approx.) that was made by the A.O as regards the additions/credits in the partners capital accounts. Thus, the Grounds of appeal No.(s) 2 & 3 and Grounds of appeal No.(s) 4 and 5 (to the extent relevant) raised by the revenue are dismissed in terms of our aforesaid observations.
Grounds of appeal Nos. 6 & 7 being general in nature are 19. dismissed as not pressed.
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In the result, appeal of the revenue is dismissed in terms of our aforesaid observations.
CO. No.01/RPR/2017 A.Y. 2012-13
As the cross-objection filed by the assessee is merely supportive of the order of the CIT(Appeals), therefore, the same having been rendered as infructuous is dismissed accordingly.
In the result, cross objection filed by the assessee is dismissed in terms of our aforesaid observation.
In the combined result, both the appeal of the revenue and cross objection filed by the assessee are dismissed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board.
Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 17th October, 2022 ***SB
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आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.