Late Shri Gyan Chand Jain v. The Commissioner Income Tax-I

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR.ORDER. DB Income Tax Appeal No.568/2011 Late Shri Gyan Chand Jain vs. The Commissioner Income Tax-I. Date of order :- 24[th] January,2013. PRESENT HON'BLE THE CHIEF JUSTICE MR. AMITAVA ROYHON'BLE MR. JUSTICE JAINENDRA KUMAR RANKA Mr. Mahendra Gargieya, for the appellant. By the Court:-(Per Hon'ble Ranka),J. This instant appeal under Section 260-Aof the Income Tax Act,for the assessment year1998-1999 has been preferred by the appellantherein assailing the order dated 20.05.2011,passed by the learned Income Tax AppellateTribunal, Jaipur Bench,'B', Jaipur, (in shortITAT) sustaining the dis-allowance to the extentof Rs. 19,93,474/- which was the amount claimedas commission paid/ payable to the Sub-brokers bythe appellant. The brief facts of the case are summarised herein below: The appellant-assessee was a delcredereselling Agent of M/s. Hind Spinners and M/s. HindSyntex Ltd., Dewas, pursuant to the agreementsfor selling of the yarn manufactured by theseCompanies in the territory of District of Bhilwara, Rajasthan, the appellant receivedcommission to the extent of Rs. 45,81,710/- and asum of Rs. 19,93,474/- was claimed as brokeragepayable on the sale effected through sub-brokers.The appellant accordingly claimed the said amountof Rs. 19,93,474/- as had been paid/payable tovarious Sub-brokers, who acted as Sub-brokers,the appellant claimed that they in fact, providedservices and were paid accordingly. The learned Deputy Commissioner of Income Tax, Circle, Bhilwara, called for therelevant details from the appellant-assessee andvide order dated 30.03.2001 dis-allowed thecommission/brokerage claimed by the appellant.The learned Assessing Officer, during the courseof hearing however required the appellant to:- (i) Furnish the details of saleseffected through Sub-brokers;(ii) Lead evidence to the fact thatthe sales were made through Sub-brokers;(iii) Details of outstanding from theparties to whom sales of yarn weremade through Sub-brokers; and (iv) To provide Sub-brokers withtheir books of accounts and record toverify the genuineness of thebrokerage paid to the Sub-brokers. It is stated by the learned Assessing Officer, in the order that neither the appellant-assessee produced the account books of Sub-brokers till the conclusion of proceedings norany evidence had been led to show that any sales were made through the said Sub-brokers. Thelearned Assessing Officer, further observed thatnot a single penny was paid to the Brokers asbrokerage and the amount was simply credited intheir respective accounts. In fact, he observedthat not even amount of this year but evencommission of earlier years was not paid to thesaid Sub-brokers and for years together. It wasfurther observed by him that how the small timeSub-brokers would work for the appellant-assesseewithout even receiving any amount towards theservices they claimed to have rendered andaccordingly came to the conclusion that theappellant-assessee did not incur the saidexpenditure,it was merely claimed but no serviceswere rendered by the said Sub-brokers. Aggrieved by the order passed by thelearned Assessing Officer, the appellant-assessee, preferred an appeal before the learnedCommissioner of Income Tax (Appeals) (in short'CIT(A)', who considered the matter at length andinitially, remanded the matter back to thelearned Assessing Officer to verify the veracityof the details submitted by the appellant-assessee before the learned CIT(A) as well asaffidavits filed before him (CIT A). The learnedAssessing Officer in remand proceedings conducteddetailed inquiry as was directed by the learned Aggrieved by the order passed by thelearned Assessing Officer, the appellant-assessee, preferred an appeal before the learnedCommissioner of Income Tax (Appeals) (in short'CIT(A)', who considered the matter at length andinitially, remanded the matter back to thelearned Assessing Officer to verify the veracityof the details submitted by the appellant-assessee before the learned CIT(A) as well asaffidavits filed before him (CIT A). The learnedAssessing Officer in remand proceedings conducteddetailed inquiry as was directed by the learned CIT(A) and after detailed remand report furnishedto the CIT(A), came to the conclusion that evensignatures on the affidavits so filed weredifferent then the one on summons u/S 131 of theIT Act. Even one of the Sub-broker namely; ShriShivraj Jain, gave a statement under Section 131of the IT Act in his assessment proceedings forthe Assessment Year 1998-1999, as to having notgiven an affidavit and did not confirm thecommission paid by the appellant-assessee to him.He further stated that he did not even work asSub-broker for the appellant-assessee. It may beobserved that the appellant furnished affidavitsof the said Sub-brokers before the learned CIT(A).After considering the issue at lengthand the remand report of the Assessing Officer,the learned CIT(A) confirmed the dis-allowanceholding that (i) the appellant had failedmiserably to prove the genuineness of payment ofso called brokerage to the Sub-brokers; (ii)certain glaring irregularities have been found inthe affidavits filed on behalf of the Sub-brokers; (iii)the genuineness of the affidavitsare questionable;(iv) there was no provision inthe Sales Agency Agreement with the PrincipalCompany, wherein the Agent (Appellant) has beenauthorized to engage Sub-brokers; (v) the fact was, that not a single penny out of commissionearned was paid to the brokers in the form ofbrokerage which resulted in several lacs ofrupees; and lastly it was observed by the CIT(A)that payment was not made even in the subsequentyears. Thus, the learned CIT(A),ultimately camecame to the conclusion that the Sub-brokers didnot render any service and not a single penny outof substantial commission due to them was paidand it does not accord with the humanprobabilities, thus sustained the disallowance. Aggrieved by the said Appellate order,the appellant preferred an appeal before thelearned Income Tax Appellate Tribunal, JaipurBench, Jaipur (in short the ITAT). The learnedITAT vide its order dated 20.5.2011 upheld thedis-allowance made by the learned AssessingOfficer as well as confirmed by the learned CIT(A), by re-iterating the facts stated by thelearned CIT(A). It was further observed thatunder similar circumstances, the learned ITAT forthe immediate past Assessment Year i.e. 1997-1998confirmed the dis-allowance to the extent of Rs.9,78,461/- and that the issue became final sofar as the assessment year 1997-1998, isconcerned, as it was not challenged in further 6 appeal before this Hon'ble Court. Whileconfirming the dis-allowance, the learned ITATeven held that some of the Sub-brokers are notassessed to income tax though they have heavycredit balances. It was further observed that insome of the cases, since the recipients did notcome forward or since the amount was notremitted/paid, the amount was written off in thebooks of appellant meaning thereby that theamount was not to be remitted as no serviceswere rendered and no amount was payable. Thelearned ITAT considered the affidavits as well asthe submissions of the appellant in detail, andobserved as under:- 6 appeal before this Hon'ble Court. Whileconfirming the dis-allowance, the learned ITATeven held that some of the Sub-brokers are notassessed to income tax though they have heavycredit balances. It was further observed that insome of the cases, since the recipients did notcome forward or since the amount was notremitted/paid, the amount was written off in thebooks of appellant meaning thereby that theamount was not to be remitted as no serviceswere rendered and no amount was payable. Thelearned ITAT considered the affidavits as well asthe submissions of the appellant in detail, andobserved as under:- “It is true that sub-brokers are having substantialcredit balances M/s. Shivam Agencyis having a credit balance ofRs.2,78,878/-and its income isbelow Rs.40,000/- and therefore noreturn of income was filed. Theclosing balance in respect of M/s.Nakoda Yarn as on 31.3.2008 isRs.13,24,400/- and its income wasbelow Rs.40,000/- and therefore noreturn of income was filed. Thecredit balance in respect of M/s.Shivam Agency as well as M/s.Nakoda Yarn remained the same till31.3.2003. A sum of Rs.2,24,553/-has been written off in theaccount of M/s. Nakoda Yarn.Similarly, Lodha Yarn Suppliers ishaving credit balance of Rs.13,29,643/- as on 31.3.1998 andthe same continued till 31.03.2004as per the details filed on29.03.2002 . This party has alsostated in the affidavit that it has not filed income tax returnbecauseincomeisbelowRs.40,000/-. In the Case of M/s.Surekha Synthetics, the creditbalance as on 31.03.1998 isRs.8,01,382/- and its income wasbelow taxable limit. In the caseof M/s. CMD Yarn Suppliers thecredit balance is Rs.13,67,436/-and the same continued upto31.03.2004.” It further observed that: “The other details filed inthe paper book clearly show thatcommission so debited in theaccount of sub-brokers is notgenuine. In the Case of M/s. DynaCollections, the closing creditbalance is Rs.14,13,555/- and thesame continued upto 31.03.07. Asum of Rs. 1,84,276/- has beenwritten off during the financialyear 2003-2004. In the affidavit,the proprietor of M/s. DynaCollections stated that he is anincome tax assessee. However, hehas not shown about the extent ofincome disclosed. No prudentbusinessman having an income ofless than Rs.40,000/- will bekeeping the amount outstanding. Itis noticed that in most of thecases of the sub-brokers, thecredit balance remained the samefor the last so many year.” The learned ITAT further referred to the Judgments of the Hon'ble Apex Court, in the Caseof Commissioner of Income Tax,West Bengal-II Vs. Durga Prasad More (1971)82 ITR 540 (SC) and ofSumati Dayal Vs.CIT (1995)214 ITR 801 (SC). Thus,all the three lower Authorities came to theconclusion that no services were rendered by theSub-brokers, there was no necessity to engage services of Brokers/Sub-brokers in the light ofthe agreement with the Principal Company, andfurther not a single penny was paid to the Sub-brokers for years together. One is required toarrive at the conclusion on the basis of humanprobability. Human probability cannot be ignoredfor persons like Sub-brokers or men of no meanswho render services to some but do not receiveany amount for years together. None would leavehard earned money, for their day to day needs ifactual services have been rendered by the saidpersons. It was upon the appellant to dischargethe onus which heavily lay on him and hemiserably failed for the reasons stated hereinbefore. The Hon'ble Apex Court,in the Case of CITVs.Durga Prasad More (Supra), has observed asunder:- services of Brokers/Sub-brokers in the light ofthe agreement with the Principal Company, andfurther not a single penny was paid to the Sub-brokers for years together. One is required toarrive at the conclusion on the basis of humanprobability. Human probability cannot be ignoredfor persons like Sub-brokers or men of no meanswho render services to some but do not receiveany amount for years together. None would leavehard earned money, for their day to day needs ifactual services have been rendered by the saidpersons. It was upon the appellant to dischargethe onus which heavily lay on him and hemiserably failed for the reasons stated hereinbefore. The Hon'ble Apex Court,in the Case of CITVs.Durga Prasad More (Supra), has observed asunder:- “Now coming to the question ofonus,the law does not prescribeany quantitative test to findout whether the onus on aparticularcasehasbeendischarged or not. It alldepends on the facts andcircumstances of each case. Insome cases, the onus may beheavy whereas, in others, it maybe nominal. There is nothingrigid about it. Herein theassessee was receiving someincome. He says that it is nothis income but his wife'sincome. His wife is supposed tohave had two lakhs of rupeesneither deposited in banks noradvanced to others but safelykept in her father's safe.Assessee is unable to say from 9 what source she built up thatamount. It was said that thesaid amount was just left in thehands of the father in law ofthe assessee. The Tribunaldisbelieved the story, which isprima-facie a fantastic story.It is story that does not accordwith human probabilities.” “Sciencehasnotyetinvested any instrument to testthe reliability of the evidenceplaced before a Court orTribunal. Therefore, the Courtsand Tribunals have to judge theevidencebeforethembyapplying the test of humanprobabilities. Human minds maydiffer as to the reliability ofa piece or evidence.” The Hon'ble Supreme Court in yet another case, of Sumati Dayal Vs. Commissioner of Income Tax (Supra) has observed as under:- “ In our opinion themajorityopinionafterconsideringthesurroundingcircumstances and applying thetest of human probabilities hasrightly concluded that the claimabout the amount being winningsfrom races is not genuine. Itcannot be said that explanationoffered by the assessee inrespect of the said amount hasbeen rejected unreasonably andthat finding that the saidamounts are income of theassessee from other sources isnot based on evidence.” assessee Mr. Gargeiya took us through the variousorders and submitted that substantial questionsof law arise out of the order of the learned ITAT and that the order passed by the learned ITAT isperverse and that the learned ITAT has recordedfinding which is perverse in nature to arrive atthe findings and contrary to the facts on record.We have considered the submissions of the learnedcounsel for the appellant and have perused theorder of the learned ITAT and are not persuadedto agree with the learned Counsel as he hasfailed to point out the perversity in the saidorder. It is essentially a finding of fact notonly recorded by the Tribunal but by the learnedAssessing Officer as well as by the FirstAppellate Authority that no services wererendered by the Sub-brokers, and no amount waspaid to them either during the year or evenlater. It being essentially a finding of fact,the appeal is liable to be dismissed as nosubstantial question of law arise out of theorder passed by the learned Income Tax AppellateTribunal. The appeal, therefore, fails and isdismissed. (J.K. Ranka),J. (Amitava Roy),CJ. All Corrections made in the Judgment/Order have been incorporated in the Judgmentand Order being emailed. and Order being emailed.