D.b. Income Tax Appeal v. M/S.kamal Trading Company, New Grain Mandi, Bundi

1 ITA No.184/2011 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANAT JAIPUR BENCH, JAIPUR D.B. Income Tax Appeal No.184/2011 Commissioner of Income Tax, Kota vs.M/s.Kamal Trading Company, New Grain Mandi, Bundi Date of Judgment: 6[th] February, 2012 HON'BLE THE CHIEF JUSTICE MR.ARUN MISHRA'HONBLE MR. JUSTICE NARENDRA KUMAR JAIN-I Mrs.Parinitoo Jain, for the appellant. Heard on the question of admission. The appeal has been preferred as against orderpassed by ITAT affirming the order passed by CIT(A). Deletion of addition of Rs.22,41,482/- has beenordered by CIT(A), which addition was made by AO on accountof unexplained sundry creditors. Disallowance was also madeon account of claim of loss of Rs.2,00,200/- in paddy account.CIT(A) has found that certain statements of certain farmerswere recorded by the Inspector of Income Tax, but it wererecorded behind the back of the assessee. Assessee was notgiven opportunity to cross-examine the witnesses.Statements were written in Hindi, whereas the farmers wereilliterate or semi literate. Affidavits were filed by assessee ofeach and every farmer, which have been relied upon by theCIT(A) and the said finding has been affirmed by the ITAT. The CIT(A) with respect to sundry creditors hasgiven the findings that on consideration of statements of 20farmers and the affidavits, merit has been found in the 2 ITA No.184/2011 contention of the assessee that the inspector of income taxwas not authorized to record or collect statements and thesaid statements were recorded behind the back of theassessee. It was further held that to expect illiterate andsemi-literate farmers to recount from memory details ofaccounts with the assessee was asking too much. They arenot expected to be familiar with concepts such as financialyear and 31[st] March. They do not understand the timingdifference. Merely by the fact that the stamp papers werepurchased from one stamp vendor, it do not lead to theinference that the contents of the affidavits were dictated bythe assessee. The AO did not bring on record any otherevidence to support such inference. Each of these farmersappeared before the assessing officer to confirm that he soldhis crops. Thus, there is no reason with the assessing officerto ignore their statements. Affidavits were enough andsufficient piece of evidence so as to accept the case of theassessee. Reasons in detail have been given by the CIT (A) in4-5 pages. The order of CIT(A) has been affirmed by the ITAT.In para No.13, ITAT has observed thus :- “After hearing the rival contentions and onperusal of the materials available on record,we noted that the AO has examined the booksof account during the course of theassessment proceedings but he did not findany mistake in the books of account. Even theAO failed to prove any transaction as non-genuine. The Inspector made enquires behindthe back of the assessee firm and withoutaffording any opportunity, the Inspectorfurnished his report to the AO. When the AOconfronted the assessee firm with the reportof the Inspector, the assessee firm contactedall the farmers and requested the AO to issuesummons u/s 131 of the Act. All the farmersappeared before the AO who examined them 3 ITA No.184/2011 “After hearing the rival contentions and onperusal of the materials available on record,we noted that the AO has examined the booksof account during the course of theassessment proceedings but he did not findany mistake in the books of account. Even theAO failed to prove any transaction as non-genuine. The Inspector made enquires behindthe back of the assessee firm and withoutaffording any opportunity, the Inspectorfurnished his report to the AO. When the AOconfronted the assessee firm with the reportof the Inspector, the assessee firm contactedall the farmers and requested the AO to issuesummons u/s 131 of the Act. All the farmersappeared before the AO who examined them 3 ITA No.184/2011 individually and all of them confirmed thatthey sold their crops to the assessee firm.They have faith in the assessee firm as it istheir permanent “Aratia” and the full amountsare paid after certain period. The amount asstated in the accounts as on 31-3-2006 wasoutstanding which was paid subsequentlywithin 2/3 months. From the above facts andalso keeping in view the materials available onrecord, the AO has not brought any evidenceon record to disprove any transactions.Therefore, in such circumstances, thedisallowance has been made on surmises andconjectures. Hence, the ld. CIT(A) has rightlydeleted the said addition. Thus Ground No.2 ofthe Revenue is dismissed”. For the reasons stated by the CIT(A) and ITAT, weare satisfied that a finding of fact has been recorded by CIT(A), which has been affirmed by ITAT, thus, no case forinterference in the appeal is made out. No substantial questionof law is involved with respect to deletion of Rs.22,41,482/-. Coming to the submission with respect todisallowance of Rs.2,00,200/- in the paddy account. CIT(A)has deleted the disallowance of Rs.2,00,200/- made by theAO. Certain paddy was purchased by the assessee from Kamaland Co. on 22.3.2006 at Rs.13,01,200/- and on the verysame day, it sold the same to Shri Vimal Kumar Jain for saleconsideration of Rs.11,01,100/- which resulted in loss ofRs.2,00,200/-. The AO required the explanation of theassessee in this regard and it was submitted by the assesseethat because there was no storage facility /godown, he soldthe same as per the prevailing rate of the market on that dayas per Vikray Parchi issued by Krishi Upam Mandi Samiti. Withrespect to deleting the disallowance of Rs.2,00,200/-, the CIT(A) has given following reasons : 4 ITA No.184/2011 “I have perused the assessment order andreports of the assessing officer received duringthe appeal proceedings and consideredsubmissions of the appellant as well asrejoinders to various reports of the assessingofficer. On 22.03.06 the appellant purchased 1001qtls. of paddy from Kamal & Co. and on thesame day sold the same to Shri Vimal KumarJain at a lower rate, thereby incurring a loss ofRs.2,00,200/-. The assessing officer disallowed this lossholding that the appellant had failed “tofurnish documentary evidence in support of hisclaim that loss in paddy account was due tomarket fluctuation”. 4 ITA No.184/2011 “I have perused the assessment order andreports of the assessing officer received duringthe appeal proceedings and consideredsubmissions of the appellant as well asrejoinders to various reports of the assessingofficer. On 22.03.06 the appellant purchased 1001qtls. of paddy from Kamal & Co. and on thesame day sold the same to Shri Vimal KumarJain at a lower rate, thereby incurring a loss ofRs.2,00,200/-. The assessing officer disallowed this lossholding that the appellant had failed “tofurnish documentary evidence in support of hisclaim that loss in paddy account was due tomarket fluctuation”. For both, the purchase and the sale, theappellant had submitted bills and necessarydocuments to the assessing officer. It ispertinent to recall that the transactions weremade through the mandi system, anindependent market mechanism to ensurethat all transactions are conducted at fairmarket prices. As a matter of fact, thedocument recording the sale, known as vikrayparachi, is issued by the mandi authorities. Insuch circumstances, there should be no doubtthat the two transactions were entered into atfair market prices. Furthermore, there is noevidence that either party was related to theappellant. In wake of an independent and fairsystem and the fact that the transactions werebetween un-related parties, in my view, thedemand of the assessing officer for evidence toshow that loss was due to fluctuation inmarket rates is redundant. Further, in a situation where the appellant haddischarged its responsibility by furnishingnecessary details and document, in myopinion, the onus was on the assessing officerto bring on record the evidence to show thatmotive behind the two transactions wasevasion of income tax. In these facts and circumstances, it is myconsidered view that the decision of theassessing officer was based on conjectures andsurmises. The disallowance of Rs.2,00,200/- isnot confirmed. Ground 1 of the appeal isaccepted. 5 ITA No.184/2011 The ITAT has affirmed the aforesaid findings. In view of above, it would not be appropriate to take adifferent view in the matter. We find no substantial questionsof law involved in this appeal. Apart from that, even appeal cannot be entertained onthe aforesaid ground as tax would be below Rs.1 lac and itwas prevailing instruction at that relevant time that the appealcould not have been preferred on the aforesaid issue in casethe tax liability is below Rs.4 lac. Due to this also, the appealcannot be entertained, hence, the appeal is dismissed. (NARENDRA KUMAR JAIN-I),J. (ARUN MISHRA),CJ. SanjayS.No 193 “All corrections made in the judgment/order have beenincorporated in the judgment/order being emailed.” Sanjay SolankiJUNIOR PERSONAL ASSISTANT.