M/S Papneja Traders v. Commissioner Of Income Tax And Another

ITA No. 410 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH M/s Papneja Traders Versus Commissioner of Income Tax and another ITA No. 410 of 2006 Date of Decision: 6.4.2011 ....Appellant. ...Respondents. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Varun Gupta, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITA Nos. 410 and 411 of 2006as according to the learned counsel both the appeal arise from thesame order of the Tribunal. For brevity, the facts are being extractedfrom ITA No. 410 of 2006. 2.This appeal has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 29.9.2005 passed by the Income Tax AppellateTribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as“the Tribunal”) in ITA No. 807/Chandi/2001 relating to the assessmentyear 1998-99, claiming the following substantial questions of law:- “i)Whether in the facts and circumstances of thepresent case, the action of the authorities below inpresent case, the action of the authorities below in ii) iii) iv) v) vi) making addition on account of valuation of closingstock of rice superfine, on its own presumption andignoring the appropriate evidence adduced by theappellant, is legally sustainable in the eyes of law? Whether in the facts and circumstances of thepresent case, the action of the authorities below indiverting from its own views without any basis orappropriate reasons for the same is legallysustainable in the eyes of law? Whether in the facts and circumstances of thepresent case, the action of the authorities below insustaining the addition on account of cash credit fromone Sh. Harbans Lal, when the appellant had fullydischarged its onus, is legally sustainable in the eyesof law? Whether in the facts and circumstances of thepresent case, the action of the authorities below insustaining the addition of Rs.16,676/- on account ofexcess loss claimed in Bardana account, is legallysustainable in the eyes of law? Whether in the facts and circumstances of thepresent case, the action of the authorities below videAnnexures A-1 to A-3 on its own presumption, islegally sustainable in the eyes of law? Whether in the facts and circumstances of thepresent case, the impugned orders Annexures A-1 to A-3 are legally sustainable in the eyes of law?” 3.Briefly stated, the facts necessary for disposal as narratedin the appeal are that the assessee is a partnership concern and isengaged in the business of manufacturing and selling of rice. Theassessee filed its return on 8.10.1998 declaring a total income ofRs.32,820/-. The Assessing Officer vide order dated 21.3.2001assessed the income of the assessee at Rs.44,76,640/-. Feelingaggrieved, the assessee filed an appeal before the Commissioner ofIncome-Tax (Appeals) [in short “the CIT(A)”] who vide order dated6.6.2001 partly allowed the appeal. Against the order of the CIT(A), therevenue as well as the assessee filed appeals before the Tribunal. TheTribunal vide order dated 27.9.2005 partly allowed the appeal of therevenue whereas the appeal filed by the assessee was dismissed.Hence, the present appeal by the assessee. 3.We have heard learned counsel for the appellant. 4.The issue for consideration in these appeals is whether thecash credit of Rs.45,000/- in the name of Shri Harbans Lal and claim ofloss on account of Bardana by the assessee was justified. 5.The Tribunal while adjudicating the aforesaid issue of cashcredit of Rs.45,000/- in the name of Shri Harbans Lal against theassessee had held that the capacity and genuineness of the creditorhad not been proved. It recorded the following finding of fact:- 3.We have heard learned counsel for the appellant. 4.The issue for consideration in these appeals is whether thecash credit of Rs.45,000/- in the name of Shri Harbans Lal and claim ofloss on account of Bardana by the assessee was justified. 5.The Tribunal while adjudicating the aforesaid issue of cashcredit of Rs.45,000/- in the name of Shri Harbans Lal against theassessee had held that the capacity and genuineness of the creditorhad not been proved. It recorded the following finding of fact:- “25.Taking up assessee's appeal, the first groundchallenges the order of the CIT(A) whereby additionof Rs.45,000/- made by the AO in respect of cashcredit was sustained as also the interest thereon. Brief facts are that during the year the assessee hadraised unsecured loan of Rs.45,000/- from one ShriHarbans Lal of Gali No.1, Jawala Nagar, Saharanpur(UP). During the course of assessment proceedings,the Assessing Officer got the statement of said ShriHarbans Lal recorded through his Inspector whoreported that Shri Harbans Lal had admitted havingadvanced a sum of Rs.30,000/- but did not admitinterest receipt. He also observed that the creditorwas apparently not having any source of income andhis sons were selling vegetable. The AO, therefore,treated the loan as bogus and also disallowedinterest thereon. On appeal, it was submitted beforethe CIT(A) that the loan was received through bankdraft prepared out of the maturity of FDRs and hencethe source stood proved. The ld. CIT(A) because ofthe discrepancy found in the statement of the creditorthat he advanced Rs.30,000/- whereas the assesseehad shown a sum of Rs.45,000/- in his name as alsoon the ground that merely because money had comethrough account payee draft was not sufficient asheld in the cases reported as 208 ITR 465 (Cal.) and193 ITR 318 (All.), sustained the impugned addition.Assessee is aggrieved and hence in appeal beforeus. 26.The ld. A.R. made the same submissions before us as were made before the authorities belowthat the amount of Rs.30,000/- had been receivedthrough encashment of FDRs in the name of ShriHarbans Lal and Rs.15,000/- has been separatelyreceived by draft. The ld. D.R., on the other hand,relied on the orders of authorities below. 27.On hearing the rival submissions and goingthrough the orders of the authorities below, we findthat creditor Shri Harbans Lal himself has admittedthat he had advanced only Rs.30,000/- and has notreceived any interest on such loan and his sons areselling vegetables. In this way, the AO was right inconcluding that Shri Harbans Lal is not a man ofmeans and the necessary three ingredients of cashcredit i.e. identity, capacity and genuineness of thetransactions had not been proved by the assessee.Although amount has been received through bankdraft, yet payment by cheque or draft does not provethe genuineness of the transaction as held byCalcutta High Court in the case of CIT v. PrecisionFinance Pvt. Ltd., 208 ITR 465. Further, as held bythe Calcutta High Court in the case of ShankarIndustries v. CIT, 114 ITR 689, mere identity of thecreditor is not enough, capacity of the creditor andgenuineness of the transaction have also to beproved. In the instant case, there is nothing on record to prove the capacity of the creditor andgenuineness of the transaction. Hence, we declineto interfere with the order of the CIT(A) in sustainingthe impugned addition. This ground of appeal of theassessee is dismissed.” 6.While upholding the disallowance of loss on account ofBardana, the Tribunal had observed as under:- record to prove the capacity of the creditor andgenuineness of the transaction. Hence, we declineto interfere with the order of the CIT(A) in sustainingthe impugned addition. This ground of appeal of theassessee is dismissed.” 6.While upholding the disallowance of loss on account ofBardana, the Tribunal had observed as under:- “23.Ground No. 7 pertains to disallowance ofbardana loss at Rs.1,15,490/- out of Rs.1,31,566/-.The facts are that the assessee claimed loss ofRs.5,07,648/- in bardana account. The same hadoccurred due to transactions with M/s. PrahladBhagat & Co. from whom the assessee purchasedrice superfine and rice basmati. The stock wasvalued at Rs.10/- per bag. The opening stock hadalso been valued at Rs.10/- per bag. The assesseehad purchased 125738 bags for Rs.2,71,859/- on7.11.1997. It had peak stock in the paddy accounti.e. 48348 qtls. which was packed in old bags.Similarly, rice bran was also filled in old bags. Ricesuperfine weighing 9160 qtls which required 9160bags. The assessee purchased 4500 new bags on10.3.98, 3000 bags on 19.3.98 and 2770 bags on30.3.98 for Rs.21.90 each. It sold 10714 old bags forRs.5 each on 31.3.98. The value of 9160 bagsworked out at Rs.200604. Remaining old bags were valued at Rs.10 each for 75340 bags and thus thetotal worked out to Rs.9,54,000/- againstRs.8,45,000/- shown and the difference ofRs.1,09,004/- was added to income. Similarly, fortransaction with M/s Prahlad Bhagat & Co. which washeld to be collusive as rice was purchased atRs.900/- per qtl. from them and supply was made atRs.750/- per qtl., the difference in value of bag atRs.1.50 per bag was added resulting in addition ofRs.6480/- for 4324 bags. Similarly, for rice basmatipurchased from M/s. Prahlad Bhagat & Co. @Rs.771/- for which cost of bag was charged at Rs.22per bag which was against the normal practicebecause cost of bag is charged at the same rate atwhich rice is supplied. The assessee had paidRs.16,076/- in excess. The total addition was workedout at Rs.1,31,586/-. It was submitted before the CIT(A) that the assessee had purchased 9279 new bagson 10.3.98, 19.3.98 and 30.3.98. This bardana wasnot used in closing stock of rice superfine becausethe stock was damaged and remained in stock out ofold husking and it was packed in used bags. Thebardana purchased in March was used for suppliesmade in March itself to DFSC who do not takedelivery in old bags. The said bardana was suppliedat the rate at which rice was supplied except for that which was supplied by M/s Prahlad Bhagat & Co.who charges separately for new bags. As regardscollusive transaction with M/s Prahlad Bhagat & Co.for purchase of rice @ Rs.900/- and sale @ Rs.750/-,the reasons for such transactions, the assesseeexplained the reasons for the same that good qualityrice had been purchased from them and poor qualitysupplied. The CIT(A) was of the view that credit forsupply made to DFSC after purchase of bags inMarch should have been given to the assessee. M/sPrahlad Bhagat & Co. had supplied 1179 bags on30.3.93 and 31.3.98 rest of the bags purchased inMarch were used by the assessee out of his ownstock purchased in March at higher rate but supplywas effected at lower rates. Thus the loss wasadmissible. As regards collusive transactions withM/s Prahlad Bhagat & Co., the CIT(A) held that thesame remained unproved. The only addition that canbe sustained in this regard was with regard to supplymade by M/s Prahlad Bhagat & Co. at Rs.771/- forwhich bags had been charged at Rs.2/- which is tobe taken as loss of M/s Prahlad Bhagat & Co. andnot that of the assessee. The addition of Rs.16,676/-was thus sustained by the CIT(A) and balanceaddition deleted thereby giving the assessee a reliefof Rs.1,15,490/-.” ITA No. 410 of 2006 ITA No. 410 of 2006 7.Learned counsel for the appellant has made strenuousefforts to persuade this Court to reappreciate the evidence without pin-pointing any perversity in the findings recorded by the Tribunal which isnot permissible. The case credit shown in favour of Shri Harbans Laland the loss of Bardana amounting to Rs.16,676/- have been held to beinadmissible on appreciation of evidence on record. The said findingbeing a finding of fact calls for no interference by this Court. 8.Accordingly, there is no merit in these appeals and thesame are hereby dismissed. (AJAY KUMAR MITTAL) JUDGE April 6, 2011gbs (ADARSH KUMAR GOEL)JUDGE ITA No. 410 of 2006 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH M/s Papneja Traders Versus Commissioner of Income Tax and another ITA No. 411 of 2006 Date of Decision: 6.4.2011 ....Appellant. ...Respondents. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Varun Gupta, Advocate for the appellant. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 410 of 2006 (M/s Papneja Traders v. Commissioner ofIncome Tax and another). (AJAY KUMAR MITTAL) JUDGE April 6, 2011gbs (ADARSH KUMAR GOEL) JUDGE