Deepak Jain v. Commissioner Of Income Tax, Ludhiana

ITA No. 252 of 2015 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 252 of 2015 (O&M) Date of Decision: 15.9.2015 Deepak Jain Prop. M/s Prime Commodities, Ludhiana ....Appellant. Versus Commissioner of Income Tax, Ludhiana ...Respondent. CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Divya Suri, Advocate with Mr. Sachin Bhardwaj, Advocate and Mr. Madhur Sharma, Advocate for the appellant. Mr. Sachin Bhardwaj, Advocate and Mr. Madhur Sharma, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.Delay of 88 days in refiling the appeal is condoned. 2.This appeal has been filed by the assessee under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 20.3.2014 (Annexure A-8) passed by the Income Tax AppellateTribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as“the Tribunal”) in ITA No. 506/CHD/2011 for the assessment year 2007-08, claiming the following substantial questions of law:- I.Whether under the facts and circumstances ofthe case, while arriving at the chargeableincome u/s 29 of the Act, once the claim of theappellant as 'business' of accommodationentries is accepted, then the 'charge' has to becomputed in accordance with the 'integratedthe case, while arriving at the chargeableincome u/s 29 of the Act, once the claim of theappellant as 'business' of accommodationentries is accepted, then the 'charge' has to becomputed in accordance with the 'integrated ITA No. 252 of 2015-2- scheme of taxation' of Income Tax Act, 1961? II.Whether under the facts and circumstances ofthe case, while arriving at the chargeableincome attributable to the 'accommodationentries business', can there be calculation andcomputation of income be confined to thereceipts while ignoring the payments, being anexpense for the conduct of the said business?the case, while arriving at the chargeableincome attributable to the 'accommodationentries business', can there be calculation andcomputation of income be confined to thereceipts while ignoring the payments, being anexpense for the conduct of the said business? 3.Briefly stated, the facts necessary for adjudication of thepresent appeal as narrated therein may be noticed. The assessee is asub-broker of Multi Commodities Exchange (MCX) Bombay and is doingthe business under the name of Prime Commodities. The transactionsare duly supported by the reconciliation of the cash received (AnnexureA-1) from the customers for the purchase of commodities. Theassessee filed the return of income electronically on 31.10.2007 throughacknowledgment No. 7840720311007 at an amount of ` 2,50,090/-. Thescrutiny assessment proceedings were through issuance of notice dated2.9.2008 under Section 143(2) of the Act and thereafter notice dated12.6.2009 under Section 142(1) of the Act was served upon theassessee for furnishing reply to the questionnaire. A show cause noticedated 12.11.2009 (Annexure A-2) was issued to the assessee. It wassubmitted by him that the written pleadings furnished on 20.7.2009,1.8.2009, 19.8.2009, 5.10.2009 and 4.12.2009 (Annexure A-3 Colly) betaken as the reply. The assessee had also furnished the informationrelating to the purchases of different commodities on MCX made as perorders and sold in accordance with their instructions by way of thepurchase and sale bills on 24.12.2009 (Annexure A-4). The Assessing Officer framed the assessment vide order dated 31.12.2009 (AnnexureA-5) under Section 143(3) of the Act at an amount of ` 6,02,04,380/- bymaking additions on account of unexplained income and the householdexpenses. Feeling aggrieved, the assessee filed an appeal on 25.1.2010(Annexure A-6) before the Commissioner of Income Tax (Appeals) [forbrevity “the CIT(A)”]. The CIT(A) vide order dated 4.3.2011 (AnnexureA-7) dismissed the appeal. Still dissatisfied, the assessee filed anappeal before the Tribunal who vide order dated 20.3.2014 (Annexure A-8) partly allowed the appeal. Hence, the present appeal by theassessee. 4.Learned counsel for the assessee relied upon the judgmentof the Apex Court in T.A. Quereshi (Dr.) v. Commissioner of IncomeTax, Bhopal (2007) 2 SCC 759 to submit that the appellant was entitledto deduction of the cash deposits at the behest of the beneficiaries whowere the recipients of the drafts through accommodation entries even ifthe activity carried on by the assessee was considered to be illegal.According to the learned counsel such deduction was admissible evenafter incorporation of Explanation to Section 37 of the Act. 5.After hearing learned counsel for the appellant, we do notfind any substance in the said submission. 6.This Court in ITA No. 445 of 2006 (The Commissioner of Income-tax, Jalandhar v. M/s Kap Scan & Diagnostic Centre Pvt.Ltd.) decided on 3.12.2010 while dealing with the similar legal issueafter referring to the judgment in T.A. Quereshi's case (supra) haddecided the same against the assessee with the following observations:- “12.Section 37 is a residuary provision. Anassessee is entitled to deduction of all expenditure which is wholly and exclusively laid out or expendedfor the purposes of the business which has not beenexpressly covered by any other specific provision ofthe Act. 13.In order to be eligible for an allowance underthis residuary provision, the following conditions arerequired to be fulfilled:- “(i)The expenditure must not be governedby the provisions of Sections 30 to 36.by the provisions of Sections 30 to 36. (ii)The expenditure must have been laid outwholly and exclusively for the purposes ofthe business of the assessee.wholly and exclusively for the purposes ofthe business of the assessee. (iii)The expenditure must not be personal innature.nature. (iv)The expenditure must not be capital innature.”nature.” 14.Explanation to sub-section (1) was inserted bythe Finance (No.2) Act, 1998 with retrospective effectfrom 1.4.1962, which reads thus:- “Explanation.- For the removal of doubts, it ishereby declared that any expenditure incurredby an assessee for any purpose which is anoffence or which is prohibited by law shall notbe deemed to have been incurred for thepurposes of business or profession and nodeduction or allowance shall be made inrespect of such expenditure.” -5- 15.The purpose for incorporation of thisExplanation had been explained by CBDT in circularNo. 772 dated 23.12.1998 (1999) 235 ITR (st.) 35 asunder:- “20. Disallowance of illegal expenses.- 20.1Section 37 of the Income-tax Act is amended toprovide that any expenditure incurred by anassessee for any purpose which is an offenceor which is prohibited by law shall not bedeemed to have been incurred for the purposesof business or profession and no deduction orallowance shall be made in respect of suchexpenditure. This amendment will result indisallowance of the claims made by certainassessees in respect of payments on accountof protection money, extortion, hafta, bribes,etc., as business expenditure. It is well decidedthat unlawful expenditure is not an allowablededuction in computation of income. 20.2 This amendment will take effectretrospectively from Ist April, 1962, and will,accordingly, apply in relation to the assessmentyear 1962-63 and subsequent years.” 16.It, thus, emerges that an assessee would not be 20.2 This amendment will take effectretrospectively from Ist April, 1962, and will,accordingly, apply in relation to the assessmentyear 1962-63 and subsequent years.” 16.It, thus, emerges that an assessee would not be entitled to deduction of payments made incontravention of law. Similarly, payments which areopposed to public policy being in the nature of unlawful consideration cannot equally be recognized.It cannot be held that businessmen are entitled toconduct their business even contrary to law and claimdeductions of payments as business expenditure,notwithstanding that such payments are illegal oropposed to public policy or have perniciousconsequences to the society as a whole.” 7.It was further observed in para 21 as under:- “21.The judgments relied upon by the assesseecannot be of any assistance to the assessee as theyare prior to insertion of Explanation to sub section (1)of Section 37 of the Act. Reference may also be madeto the Apex Court Judgment in Dr. T.A. Quereshi'scase (supra) on which reliance has been placed bythe learned counsel for the assessee. The Hon'bleSupreme Court in that case was seized of the matterwhere heroin forming part of the stock of theassessee's trade was confiscated by the Stateauthorities and the assessee claimed the same to bean allowable deduction. The Hon'ble Supreme Courtheld that seizure and confiscation of such stock intrade has to be allowed as a business loss andExplanation to Section 37 has nothing to do as thatwas not a case of business expenditure. Since thepresent case is not a case of business loss but ofbusiness expenditure, that judgment is distinguishableand does not help the assessee.” ITA No. 252 of 2015 -7- 8.Further, the addition of ` 5,98,82,294/- had been made tothe total income under Sections 68 and 69 of the Act as the cash wasfound credited in the books of account of the assessee and had beeninvested in the bank account of the assessee. In such circumstances,no fault can be found with the orders of the Assessing Officer, the CIT(A)and the Tribunal which may warrant interference by this Court. 9.In view of the above, no substantial question of law arises inthis appeal. Consequently, finding no merit in the instant appeal, thesame is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE September 15, 2015(RAMENDRA JAIN) gbs JUDGE