Commissioner Of Income Tax, Jaipur-Ii ,Jaipur v. M/S Riverside Farma (P) Ltd

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 476 / 2009 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus M/S RIVERSIDE FARMA (P) LTD., 4, ZILEDAR HOUSE, AMER ROAD,JAIPUR ----Respondent _____________________________________________________For Appellant(s) : Mr. R.B. Mathur withMr. K.D. Mathur For Respondent(s) : Mr. Sanjay Jhanwar _____________________________________________________HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 01/08/2017 1. By way of this appeal, the appellant has challenged thejudgment and order passed by the tribunal whereby the tribunalhas allowed the appeal preferred by the asessee modifying theorder of CIT(A) whereby the CIT(A) has partly allowed the appealof the assessee. 2.This court while admitting the appeal on 10.11.2010 hasframed following substantial questions of law which reads asunder:- (i) “Whether in the facts and circumstancesof case the ITAT was justified in law inholding the share loss claimed by theassessee as genuine in spite of the fact thatnumerous discrepancies were pointed out bythe AO and the broker itself admitted to haveprovided accommodation entries?of case the ITAT was justified in law inholding the share loss claimed by theassessee as genuine in spite of the fact thatnumerous discrepancies were pointed out bythe AO and the broker itself admitted to haveprovided accommodation entries? (ii) Whether in the facts and circumstance of case the ITAT was justified in law in notupholding the sale of 33000 share asspeculative transactions as the assesseeitself admitted that no delivery was taken forthe said transactions?” 3.On 25.04.2017, when the matter was argued, we were ofthe opinion that the issue is covered by the decision of SupremeCourt in the case of Jiyajeerao Cotton Mills. Ltd. vs.Commissioner of Income tax and Excess Profits TaxBombay (1958) 34 ITR 888 (SC) wherein it has been held as under:- 10. It was next contended that if there had beentransfer of profits by Jwaladutt Kishanprasad fromCotton Agents Ltd., to J. R. Pillani, Gwalior, that mustappear in the accounts of the latter, that thoseaccounts were with the Income-tax Commissioner andunder the control of the Department and had beenwithheld, and that the Tribunal did not advert to thiscircumstance. This argument lacks substance. Let uspresume that the entries in those accounts wouldshow that the dealings took place as contended for bythe appellant. But if the arrangement of the appellantwith Jwaladutt Kishanprasad was as deposed to by J.R. Pillani, the accounts of the Gwalior firm would havebeen maintained conformably to that arrangement. Byitself, therefore, it would mean little. In thisconnection, it should be stated according to Pillani thebranch at Gwalior was really run by the employees ofthe Birlas, a statement which was accepted by theAppellate Assistant Commissioner. 11. We have so far dealt with the criticisms leveled bythe appellant against the evidence, direct andpositive, in support of the finding of the Tribunal thatthe contracts were concluded at Bombay. But to viewthe matter in its proper perspective, we must look atthe picture at the other end, and consider theevidence adduced to prove that the agreements weremade in Gwalior. Now, the facts found by the Income-tax authorities are these : The three brokers in whosenames the contracts stood were, having regard totheir means, not likely to have been thought of forcontracts of the magnitude which we have. They hadnot done business in cotton futures prior to thepresent contracts nor subsequent thereto. They hadno bank accounts and large amounts to the tune of 11. We have so far dealt with the criticisms leveled bythe appellant against the evidence, direct andpositive, in support of the finding of the Tribunal thatthe contracts were concluded at Bombay. But to viewthe matter in its proper perspective, we must look atthe picture at the other end, and consider theevidence adduced to prove that the agreements weremade in Gwalior. Now, the facts found by the Income-tax authorities are these : The three brokers in whosenames the contracts stood were, having regard totheir means, not likely to have been thought of forcontracts of the magnitude which we have. They hadnot done business in cotton futures prior to thepresent contracts nor subsequent thereto. They hadno bank accounts and large amounts to the tune of Rs. 30 lakhs are supposed to have been paid to themin cash by J. R. Pillani, Gwalior, and turned over bythem in cash to the appellant. They produced noaccounts for their dealings and the ankdas producedby them at a late stage were found to have beenfreshly written up. When Durgaprasad Mandalia, themanager of the appellant, was asked as to whatsecurities he held as cover in respect of the hugetransactions he entered into with men of such means,he answered that they were men of character.Sagarmal Dingliwala, the manager of J. R. Pillani,Gwalior, at the relevant period, was asked the samequestion, and he replied that "this business was ofJiyajeerao Cotton Mills, Ltd." The appellant had, infact, genuine transactions with Cotton Agents Ltd.,Gwalior, on a large scale, and when DurgaprasadMandalia was asked why he did not put thesetransaction through them, he had to answer to give.And he was likewise unable to explain why he did notdirectly deal with J. R. Pillani, Gwalior. It wassuggested by the learned Solicitor-General that if theobject of the appellant in setting up contracts inGwalior was to throw a veil over its contracts withJwaladutt Kishanprasad, that could not effectively beachieved by putting them in the name of J. R. Pillani,Gwalior, which was a branch of the firm, as the veilwould have been too thin to concern the true face ofthe contracts, and that is why the brokers werethough of. We think there is considerable force in this.Then again, Durgaprasad Mandalia was asked why hedid not place the orders directly with Cotton AgentsLtd., Bombay, or J. R. Pillani, Bombay, and he saidthat the policy of the appellant was not to do anybusiness in British India. Mr. Kolah argues that thereis nothing wrong in business being done in such a wayas to escape taxation. No exception can be taken tothat statement. Every person is entitled so to arrangehis affairs as to avoid taxation but the arrangementmust be real and genuine and not a sham or make-believe, and the question now under consideration iswhether the contracts with the brokers were genuine. 12. Turning next to the accounts produced by theappellant, it is seen that the transactions of the threebrokers were entered in Kherij Khata, which is said tohave been maintained for parties for whom there aresmall dealings and whose accounts are cleared up inshort time. But then, these transactions are not smalltransactions, nor were they close in a short time.Though the dealings went on for several months andthere were several settlements, it was not until the15th March, 1943, that payments are alleged to havebeen made to them. In the absence of regular ledgersin the names of these parties and having regards to the fact that the entries in the Kherij Khatas werejournal entries, the Income-tax authorities were notprepared to attach any value to them. 12. Turning next to the accounts produced by theappellant, it is seen that the transactions of the threebrokers were entered in Kherij Khata, which is said tohave been maintained for parties for whom there aresmall dealings and whose accounts are cleared up inshort time. But then, these transactions are not smalltransactions, nor were they close in a short time.Though the dealings went on for several months andthere were several settlements, it was not until the15th March, 1943, that payments are alleged to havebeen made to them. In the absence of regular ledgersin the names of these parties and having regards to the fact that the entries in the Kherij Khatas werejournal entries, the Income-tax authorities were notprepared to attach any value to them. 13. Mr. Kolah argued that the contracts between theappellant and the three brokers expressly recite thatthey are as between principals and principals, thatthere were clauses therein providing for delivery andpayment at Gwalior and that there was no reason fornot accepting them as correct. But it is pointed out bythe Income-tax authorities that the contracts providefor the business being done in accordance with therules and bye-laws of the East India CottonAssociation, Bombay, that according to bye-law No.44-A of that Association "every contract made subjectto these bye-laws shall take effect as contract whollymade 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 theopinion that the contracts in question had been got upfor the purpose of supporting the present version ofthe appellant. 14. Mr. Kolah also contended that the evidence ofBirlas would have been material in deciding whetherthey settled the contracts at Bombay as contended forby the Department and that though the order ofremand stated that their evidence should be taken,that had not been done and that was a seriousirregularity. The portion of the order of remandrelevant for the present purpose is as follows : "The managing director of the assessee company orrather the person responsible for ordering thesetransactions on behalf of the assessee companyshould also be similarly examined." 15. Now, the obvious intention behind this order, readas a whole, was that persons connected with theseveral links in the chain of contracts and series ofpayments concerned in these transaction should beexamined with a view to elucidate the true position,and the managing director was mentioned as theperson who was likely to have entered into thesetransactions. Durgaprasad Mandalia was the managerof the appellant company, and he gave evidence thathe put the present transactions through the brokers,and that has been considered. If Birlas wantedthemselves to give evidence, there was nothing toprevent them from doing so, and indeed, no complaintwas made in the court below that their evidence hadnot been taken. There is no substance in thiscontention. However, counsel for the appellant has relied on the judgment rendered by the Delhi High Court in the case ofCommissioner of Income Tax Vs. Vipin Batra reported in(2007)293ITR 389 (Delhi) wherein the High Court has observed as under:- 10. In Raymond Woollen Mills Ltd. v. Income-taxOfficer and Ors. , the Supreme Court held that what isrequired to be seen in a case such as this is whetherprima facie there was some material before theAssessing Officer on the basis of which he couldreopen the case of the assessed. The sufficiency orcorrectness of the material is not to be consideredbecause it is open to the assessed to prove that thefacts assumed by the Assessing Officer in the noticewere erroneous. 11. Much earlier, in Phool Chand Bajrang Lal and Anr.v. Income-tax Officer and Anr. , the Supreme Courtreviewed the entire case law and concluded that: under:- 10. In Raymond Woollen Mills Ltd. v. Income-taxOfficer and Ors. , the Supreme Court held that what isrequired to be seen in a case such as this is whetherprima facie there was some material before theAssessing Officer on the basis of which he couldreopen the case of the assessed. The sufficiency orcorrectness of the material is not to be consideredbecause it is open to the assessed to prove that thefacts assumed by the Assessing Officer in the noticewere erroneous. 11. Much earlier, in Phool Chand Bajrang Lal and Anr.v. Income-tax Officer and Anr. , the Supreme Courtreviewed the entire case law and concluded that: (a)There must be some specific, reliable and relevantinformation available with the Assessing Officer. (b) The Assessing Officer must have reasons, whichhe must record, that income has escaped assessment. (c) The case should not be one of a mere change ofopinion by the Assessing Officer or the drawing of adifferent inference from the same facts but that thosereasons must be based on facts which havesubsequently come into possession of the AssessingOfficer. (d) The sufficiency of reasons for forming the belief isnot for the Court to judge although the assessed cancontend that the belief was not bona fide or wasbased on vague, irrelevant and non-specificinformation or that the material did not have anyrational connection or a live link for the formation ofthe requisite belief. This is what the Supreme Court said: From a combined review of the judgments of thisCourt, it follows that an Income-tax Officer acquiresjurisdiction to reopen an assessment under Section147(a) read with Section 148 of the Income-tax Act,1961, only if on the basis of specific, reliable andrelevant information coming to his possessionsubsequently, he has reasons, which he must record,to believe that, by reason of omission or failure on thepart of the assessed to make a true and full disclosure of all material facts necessary for his assessmentduring the concluded assessment proceedings, anypart of his income, profits or gains chargeable toincome-tax has escaped assessment. He may startreassessment proceedings either because some freshfacts had come to light which were not previouslydisclosed or some information with regard to the factspreviously disclosed comes into his possession whichtends to expose the untruthfulness of those facts. Insuch situations, it is not a case of mere change ofopinion or the drawing of a different inference fromthe same facts as were earlier available but acting onfresh information. Since the belief is that of theIncome-tax Officer, the sufficiency of reasons forforming the belief is not for the court to judge but it isopen to an assessed to establish that there in factexisted no belief or that the belief was not at all abona fide one or was based on vague, irrelevant andnon-specific information. To that limited extend, thecourt may look into the conclusion arrived at by theIncome-tax Officer and examine whether there wasany material available on the record from which therequisite belief could be formed by the Income-taxOfficer and further whether that material had anyrational connection or a live link for the formation ofthe requisite belief. 12. This Court also had occasion to deal with the issueof reopening a completed assessment in UnitedElectrical Co. P. Ltd. v. Commissioner of Income-taxand Ors. (2002) 258 ITR 317. This decision has beenrelied upon by the Tribunal but we find that it isclearly distinguishable because in that case theDivision Bench came to the conclusion that thestatement on the basis of which reopening was soughtwas 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 onrecord which could provide a foundation for theAssessing Officer's belief that the assessed'stransaction was not genuine and that this income hadescaped assessment on that account.” 6. Counsel for the respondent has relied upon the decision of Punjab and Haryana High Court in the case of Commissioner ofIncome Tax Vs. Anupam Kapoor reported in (2008) 299ITR 0179as well as the judgment of the Supreme Court confirming thedecision rendered by the Allahabad High Court in the case of Commissioner of Income Tax (Central) Kanpur Vs. Dilbagh RaiArora arising out of judgment and order dated 15.09.2010 in ITANo.125/2009. 7.In view of the above, the issue is answered in favour of theassessee and against the department. 6.The appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. JyotiItem No.35