Commissioner Of Income Tax, Jaipur-Ii ,Jaipur v. M/S Maru Securities Pvt. Ltd

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 276 / 2010 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus M/S MARU SECURITIES PVT. LTD., 335, MAHAVEER NAGAR, TONK ROAD, JAIPUR ----Respondent_____________________________________________________ For Appellant(s) : Mr. R.B. MathurFor Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE INDERJEET SINGHJudgment 05/09/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal of the department and confirmed the order of theCIT(A). 2.This court while admitting the appeal on 1.11.2010 framedfollowing substantial question of law:- “1. Whether in the facts andcircumstances of the case, the ITAT wasjustified in deleting the addition made onaccount of bogus loss claimed ontransactions not routed through stockexchange in spite of the fact that theassessee failed to discharge its onus ofprovingthesameasgenuinetransactions? 2. Whether in the facts and circumstancesof the case, the ITAT was justified in lawin deleting the total addition of Rs.1,07,62,823/- without appreciatingthat the AO made separate addition ofRs.15,26,110/- and of Rs.92,36,713/- bydisallowing loss for different reasons?” 3.The brief facts of the case are that the assessee companyhas shown profits from trading in the figures and options (F&O)and derivatives and also from dealing in shares and securities. Theassessee company has shown loss of Rs.2,82,68,294/- fromtrading in commodities. During the course of assessmentproceeding, the AO required the assessee company to submitfurther details of brokers through whom the trading incommodities has been done. After ascertaining the saidinformation, the AO had issued summons u/s 131 to 3 brokers tofurnish copy of account of the assessee company on the tradingdone through them. After receiving information, the AO hadobserved that as per information furnished by the brokers thetotal 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 saiddifference of Rs.25,642/- which has excessive loss claim has beenbrought to the notice of assessee company and it ws required toexplain the same but considering no explanation it was disallowed. 3.1Thereafter, AO has discussed the modalities of transactionfor the broker and for the client. Thereafter, on order to verify theinformation furnished, the AO had issued letter to NationalCommodities and Derivative Exchange Ltd. Mumbai to intimate thedetails of transaction carried out by the assessee companythrough Moti Commodities Futures (P) Ltd. And through Arihant & Co. For this purpose membership I.D of both the brokers andclient code of the assessee was intimated to NCDEX. In responseto this query, NCDEX intimated the AO that the trading has beendone in the name of assesse through broker M/s Arihant & Co. Butregarding trading through Moti commodities futures (P) Ltd. Videtheir letter dated 3.10.2008, it has informed that there was noclient in the name of M/s Maru Securities (P) Ltd. (client codeNS02) dealing through the member M/s Moti Commodities Futures(P) Ltd (TMID00036). After receiving the said information, the AOrequired the explanation from the assessee and a show cause wasgiven to the assessee that why this loss should not be treated asgenuine loss. Thereafter, the explanation furnished wasreproduced by the AO in the body of the assessment order.Thereafter the AO had summarized the submission given and afterconsidering it the AO has given a finding that the assesseecompany was not able to explain the basis of claim of loss atRs.15,26,110/- and accordingly the same was disallowed. 3.2Further, regarding balance loss of Rs.92,36,713/-, the AOhas given a finding that it was not an issue related to one, two orten transaction but such sale transaction run into 517 crores andpurchase transaction run into Rs.518 crores and taking togethertransactions worth more than Rs.1000 crore have beenundertaken and therefore, the argument given by assesseecompany that it was because of punching error cannot beaccepted. The contract note issued by Moti Commodities Futures(P) Ltd. Shows 40 to 50 transaction a day and even more and therefore, the contention that all this was done due to punchingerrors is not credible and hence, rejected by AO while disallowingsuch loss claim of Rs.92,36,713/- also. 4.Counsel for the appellant has contended that AO whileconsidering the matter, after taking into consideration the inquirywhich was conducted and taking into consideration the books ofaccounts, has disallowed the loss and computed the income asunder:- Computation of Income Income from Business Rs.1,01,46,322/-(As Declared) Add: 4.1He contended that CIT(A) & Tribunal have wrongly allowedthe expenses. He further contended that view taken by the boththe authorities is contrary to law and the view taken by the AO isrequired to be accepted. 5.Counsel for the respondent contended that all thetransactions are routed through the stock exchange and in thatevent for the genuine loss incurred because of the transaction which is done in the name of other company, the assessee was notliable to discharge liability of vendor. 6.He relied on the following decisions: 6.1 In Jiyajeerao Cotton Mills Ltd. vs. Commissioner of IncomeTax and Excess Profits Tax, Bombay (1958) 34 ITR 888(SC)wherein Supreme Court held as under:- “4. At the very outset, the question calls foran answer, does any question of law arise onthe order of the Tirbunal ? It is only if itdoes, that the decision of the Tribunal will beopen to consideration by the courtunder section 66 of the Act. Stating thesame proposition in a different form, if thatdecision is one of fact turning on theappreciation of evidence, this court wouldnot interfere with it in appeal under article136 of the Constitution. Now, the point indispute in these proceedings is whether thesum of Rs. 27,30,094 received by theappellant as profits in 1942-1943 is taxableunder the Act, and that, in turn, depends onwhether the forward contracts whichresulted in these profits were made atGwalior as contended by the appellant or atBombay as held by the Tribunal. That wouldclearly be a question of fact, and thedecision of the Tribunal thereon would notbe liable to be challenged in theseproceedings. Counsel for the appellant doesnot dispute this position, but he contentsthat a finding of the Tribunal even on aquestion of fact would be erroneous in law, ifthere is no evidence whatsoever to supportit or if it is perverse. This question was quiterecently considered by this courtin Meenakshi Mills v. Commissioner ofIncome-tax, and the law was thus stated : "The position that emerges on theauthorities may thus be summed up : (1) When the point for determination is apure question of law such as construction ofa statute or document of title, the decision of the Tribunal is open to reference to thecourt under section 66(1). (2) When the point for determination is amixed question of law and fact, while thefinding of the Tribunal on the facts found isfinal in decision as to the legal effect of thatfinding is a question of law which can bereviewed by the court. (3) A finding on a question of fact is open toattack under section 66(1) as erroneous inlaw when there is no evidence to support orif it is perverse. (4) When the finding is one of fact, the factthat it is itself an inference from other basicfacts will not alter its character as one offacts." "The position that emerges on theauthorities may thus be summed up : (1) When the point for determination is apure question of law such as construction ofa statute or document of title, the decision of the Tribunal is open to reference to thecourt under section 66(1). (2) When the point for determination is amixed question of law and fact, while thefinding of the Tribunal on the facts found isfinal in decision as to the legal effect of thatfinding is a question of law which can bereviewed by the court. (3) A finding on a question of fact is open toattack under section 66(1) as erroneous inlaw when there is no evidence to support orif it is perverse. (4) When the finding is one of fact, the factthat it is itself an inference from other basicfacts will not alter its character as one offacts." 16. We have considered all the contentionsurged on behalf of the appellant at somelength. We would like to make it clear thatwe are not sitting here as a court of appealon facts. We have examined the record onlywith a view to see whether there is anymisdirection or non-direction, such as islikely to have affected the result, and wehave come to the conclusion that there isnone, and that the finding of the Tribunal isnot therefore open to attack. 6.2 In Commissioner of Income Tax Jaipur vs. M/s. RiversideFarma 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 wasargued, we were of the opinion that theissue is covered by the decision of SupremeCourt in the case of Jiyajeerao Cotton Mills.Ltd. vs. Commissioner of Income tax andExcess Profits Tax Bombay (1958) 34 ITR888 (SC) wherein it has been held asunder:- 10. It was next contended that if there hadbeen transfer of profits by JwaladuttKishanprasad from Cotton Agents Ltd., to J.R. Pillani, Gwalior, that must appear in theaccounts of the latter, that those accounts were with the Income-tax Commissionerand under the control of the Departmentand had been withheld, and that theTribunal did not advert to this circumstance.This argument lacks substance. Let uspresume that the entries in those accountswould show that the dealings took place ascontended for by the appellant. But if thearrangement of the appellant with JwaladuttKishanprasad was as deposed to by J. R.Pillani, the accounts of the Gwalior firmwould have been maintained conformablyto that arrangement. By itself, therefore, itwould mean little. In this connection, itshould be stated according to Pillani thebranch at Gwalior was really run by theemployees of the Birlas, a statement whichwas accepted by the Appellate AssistantCommissioner. 11. We have so far dealt with the criticismsleveled by the appellant against theevidence, direct and positive, in support ofthe finding of the Tribunal that the contractswere concluded at Bombay. But to view thematter in its proper perspective, we mustlook at the picture at the other end, andconsider the evidence adduced to provethat the agreements were made in Gwalior.Now, the facts found by the Incometaxauthorities are these : The three brokers in whose names thecontracts stood were, having regard to theirmeans, not likely to have been thought offor contracts of the magnitude which wehave. They had not done business in cottonfutures prior to the present contracts norsubsequent thereto. They had no bankaccounts and large amounts to the tune ofRs. 30 lakhs are supposed to have beenpaid to them in cash by J. R. Pillani,Gwalior, and turned over by them in cash tothe appellant. They produced no accountsfor their dealings and the ankdas producedby them at a late stage were found to havebeen freshly written up. When DurgaprasadMandalia, the manager of the appellant,was asked as to what securities he held ascover in respect of the huge transactions heentered into with men of such means, heanswered that they were men of character.Sagarmal Dingliwala, the manager of J. R. Pillani, Gwalior, at the relevant period, wasasked the same question, and he repliedthat "this business was of Jiyajeerao CottonMills, Ltd." The appellant had, in fact,genuine transactions with Cotton AgentsLtd., Gwalior, on a large scale, and whenDurgaprasad Mandalia was asked why hedid not put these transaction through them,he had to answer to give. And he waslikewise unable to explain why he did notdirectly deal with J. R. Pillani, Gwalior. Itwas suggested by the learned Solicitor-General that if the object of the appellant insetting up contracts in Gwalior was to throwa veil over its contracts with JwaladuttKishanprasad, that could not effectively beachieved by putting them in the name of J.R. Pillani, Gwalior, which was a branch ofthe firm, as the veil would have been toothin to concern the true face of thecontracts, and that is why the brokers werethough of. We think there is considerableforce in this. Then again, DurgaprasadMandalia was asked why he did not placethe orders directly with Cotton Agents Ltd.,Bombay, or J. R. Pillani, Bombay, and hesaid that the policy of the appellant was notto do any business in British India. Mr.Kolah argues that there is nothing wrong inbusiness being done in such a way as toescape taxation. No exception can be takento that statement. Every person is entitledso to arrange his affairs as to avoid taxationbut the arrangement must be real andgenuine and not a sham or makebelieve,and the question now under consideration iswhether the contracts with the brokerswere genuine. 12. Turning next to the accounts producedby the appellant, it is seen that thetransactions of the three brokers wereentered in Kherij Khata, which is said tohave been maintained for parties for whomthere are small dealings and whoseaccounts are cleared up in short time. Butthen, these transactions are not smalltransactions, nor were they close in a shorttime. Though the dealings went on forseveral months and there were severalsettlements, it was not until the 15thMarch, 1943, that payments are alleged to have been made to them. In the absence ofregular ledgers in the names of theseparties and having regards to the fact thatthe entries in the Kherij Khatas werejournal entries, the Income-tax authoritieswere not prepared to attach any value tothem. 13. Mr. Kolah argued that the contractsbetween the appellant and the threebrokers expressly recite that they are asbetween principals and principals, thatthere were clauses therein providing fordelivery and payment at Gwalior and thatthere was no reason for not accepting themas correct. But it is pointed out by theIncome-tax authorities that the contractsprovide for the business being done inaccordance with the rules and bye-laws ofthe East India Cotton Association, Bombay,that according to bye-law No. 44-A of thatAssociation "every contract made subject tothese bye-laws shall take effect as contractwholly made in Bombay", and that furtherunder the rules, the delivery of the goodsmust take place in Bombay. In view of this,the Income-tax Officer was of the opinionthat the contracts in question had been gotup for the purpose of supporting thepresent version of the appellant. 14. Mr. Kolah also contended that theevidence of Birlas would have been materialin deciding whether they settled thecontracts at Bombay as contended for bythe Department and that though the orderof remand stated that their evidence shouldbe taken, that had not been done and thatwas a serious irregularity. The portion ofthe order of remand relevant for thepresent purpose is as follows : "Themanaging director of the assessee companyor rather the person responsible forordering these transactions on behalf of theassessee company should also be similarlyexamined." 14. Mr. Kolah also contended that theevidence of Birlas would have been materialin deciding whether they settled thecontracts at Bombay as contended for bythe Department and that though the orderof remand stated that their evidence shouldbe taken, that had not been done and thatwas a serious irregularity. The portion ofthe order of remand relevant for thepresent purpose is as follows : "Themanaging director of the assessee companyor rather the person responsible forordering these transactions on behalf of theassessee company should also be similarlyexamined." 15. Now, the obvious intention behind thisorder, read as a whole, was that personsconnected with the several links in thechain of contracts and series of paymentsconcerned in these transaction should beexamined with a view to elucidate the true position, and the managing director wasmentioned as the person who was likely tohave entered into these transactions.Durgaprasad Mandalia was the manager ofthe appellant company, and he gaveevidence that he put the presenttransactions through the brokers, and thathas been considered. If Birlas wantedthemselves to give evidence, there wasnothing to prevent them from doing so, andindeed, no complaint was made in the courtbelow that their evidence had not beentaken. There is no substance in thiscontention. 5. However, counsel for the appellant hasrelied on the judgment rendered by theDelhi High Court in the case ofCommissioner of Income Tax Vs. Vipin Batrareported in (2007)293ITR 389 (Delhi)wherein the High Court has observed asunder:- 10. In Raymond Woollen Mills Ltd. v.Income-tax Officer and Ors. , the SupremeCourt held that what is required to be seenin a case such as this is whether prima faciethere was some material before theAssessing Officer on the basis of which hecould reopen the case of the assessed. Thesufficiency or correctness of the material isnot to be considered because it is open tothe assessed to prove that the factsassumed by the Assessing Officer in thenotice were erroneous. 11. Much earlier, in Phool Chand Bajrang Laland Anr. v. Income-tax Officer and Anr. ,the Supreme Court reviewed the entire caselaw and concluded that: (a)There must besome specific, reliable and relevantinformation available with the AssessingOfficer. (b) The Assessing Officer must havereasons, which he must record, that incomehas escaped assessment. (c) The caseshould not be one of a mere change ofopinion by the Assessing Officer or thedrawing of a different inference from thesame facts but that those reasons must bebased on facts which have subsequentlycome into possession of the AssessingOfficer. (d) The sufficiency of reasons forforming the belief is not for the Court to 11. Much earlier, in Phool Chand Bajrang Laland Anr. v. Income-tax Officer and Anr. ,the Supreme Court reviewed the entire caselaw and concluded that: (a)There must besome specific, reliable and relevantinformation available with the AssessingOfficer. (b) The Assessing Officer must havereasons, which he must record, that incomehas escaped assessment. (c) The caseshould not be one of a mere change ofopinion by the Assessing Officer or thedrawing of a different inference from thesame facts but that those reasons must bebased on facts which have subsequentlycome into possession of the AssessingOfficer. (d) The sufficiency of reasons forforming the belief is not for the Court to judge although the assessed can contendthat the belief was not bona fide or wasbased on vague, irrelevant and non-specificinformation or that the material did nothave any rational connection or a live linkfor the formation of the requisite belief. Thisis what the Supreme Court said: From acombined review of the judgments of thisCourt, it follows that an Income-tax Officeracquires jurisdiction to reopen anassessment under Section 147(a) read withSection 148 of the Income-tax Act, 1961,only if on the basis of specific, reliable andrelevant information coming to hispossession subsequently, he has reasons,which he must record, to believe that, byreason of omission or failure on the part ofthe assessed to make a true and fulldisclosure of all material facts necessary forhis assessment during the concludedassessment proceedings, any part of hisincome, profits or gains chargeable toincome-tax has escaped assessment. Hemay start reassessment proceedings eitherbecause some fresh facts had come to lightwhich were not previously disclosed orsome information with regard to the factspreviously disclosed comes into hispossession which tends to expose theuntruthfulness of those facts. In suchsituations, it is not a case of mere changeof opinion or the drawing of a differentinference from the same facts as wereearlier available but acting on freshinformation. Since the belief is that of theIncome-tax Officer, the sufficiency ofreasons for forming the belief is not for thecourt to judge but it is open to an assessedto establish that there in fact existed nobelief or that the belief was not at all abona fide one or was based on vague,irrelevant and non-specific information. Tothat limited extend, the court may look intothe conclusion arrived at by the Income-taxOfficer and examine whether there was anymaterial available on the record from whichthe requisite belief could be formed by theIncome-tax Officer and further whether thatmaterial had any rational connection or alive link for the formation of the requisitebelief. 12. This Court also had occasion to dealwith the issue of reopening a completedassessment in United Electrical Co. P. Ltd. v.Commissioner of Income-tax and Ors.(2002) 258 ITR 317. This decision has beenrelied upon by the Tribunal but we find thatit is clearly distinguishable because in thatcase the Division Bench came to theconclusion that the statement on the basisof which reopening was sought was toogeneral and it did not mention any name,much less the name of the assessed. Itwas, therefore, held that there was noinformation on record which could provide afoundation for the Assessing Officer's beliefthat the assessed's transaction was notgenuine and that this income had escapedassessment on that account.” 12. This Court also had occasion to dealwith the issue of reopening a completedassessment in United Electrical Co. P. Ltd. v.Commissioner of Income-tax and Ors.(2002) 258 ITR 317. This decision has beenrelied upon by the Tribunal but we find thatit is clearly distinguishable because in thatcase the Division Bench came to theconclusion that the statement on the basisof which reopening was sought was toogeneral and it did not mention any name,much less the name of the assessed. Itwas, therefore, held that there was noinformation on record which could provide afoundation for the Assessing Officer's beliefthat the assessed's transaction was notgenuine and that this income had escapedassessment on that account.” 6. Counsel for the respondent has reliedupon the decision of Punjab and HaryanaHigh Court in the case of Commissioner ofIncome Tax Vs. Anupam Kapoor reported in(2008) 299ITR 0179 as well as thejudgment of the Supreme Court confirmingthe decision rendered by the Allahabad HighCourt in the case of Commissioner ofIncome Tax (Central) Kanpur Vs. DilbaghRai Arora arising out of judgment and orderdated 15.09.2010 in ITA No.125/2009.” 6.3In that view of the matter, both the issues are answered in favour of the assessee and against the department. The appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh 35.