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Commissioner of Income Tax Versus M/s Maru Securities Pvt. Ltd.

2017 (11) TMI 724 - RAJASTHAN HIGH COURT

Addition made on account of bogus loss - loss claimed on transactions not routed through stock exchange - assessee failed to discharge its onus of proving the same as genuine transactions? - Held that:- We were of the opinion that the issue is covered by the decision of Supreme Court in the case of Jiyajeerao Cotton Mills. Ltd. vs. Commissioner of Income tax and Excess Profits Tax Bombay [1958 (5) TMI 3 - SUPREME Court] as held the obvious intention behind this order, read as a whole, was that p .....

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e evidence, there was nothing to prevent them from doing so, and indeed, no complaint was made in the court below that their evidence had not been taken. There is no substance in this contention. We have considered all the contentions urged on behalf of the appellant at some length. We would like to make it clear that we are not sitting here as a court of appeal on facts. We have examined the record only with a view to see whether there is any misdirection or non-direction, such as is likely .....

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the tribunal whereby tribunal has dismissed the appeal of the department and confirmed the order of the CIT(A). 2. This court while admitting the appeal on 1.11.2010 framed following substantial question of law:- 1. Whether in the facts and circumstances of the case, the ITAT was justified in deleting the addition made on account of bogus loss claimed on transactions not routed through stock exchange in spite of the fact that the assessee failed to discharge its onus of proving the same as genui .....

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The assessee company has shown loss of ₹ 2,82,68,294/- from trading in commodities. During the course of assessment proceeding, the AO required the assessee company to submit further details of brokers through whom the trading in commodities has been done. After ascertaining the said information, the AO had issued summons u/s 131 to 3 brokers to furnish copy of account of the assessee company on the trading done through them. After receiving information, the AO had observed that as per inf .....

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erify the information furnished, the AO had issued letter to National Commodities and Derivative Exchange Ltd. Mumbai to intimate the details of transaction carried out by the assessee company through Moti Commodities Futures (P) Ltd. And through Arihant & Co. For this purpose membership I.D of both the brokers and client code of the assessee was intimated to NCDEX. In response to this query, NCDEX intimated the AO that the trading has been done in the name of assesse through broker M/s Arih .....

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xplanation furnished was reproduced by the AO in the body of the assessment order. Thereafter the AO had summarized the submission given and after considering it the AO has given a finding that the assessee company was not able to explain the basis of claim of loss at ₹ 15,26,110/- and accordingly the same was disallowed. 3.2 Further, regarding balance loss of ₹ 92,36,713/-, the AO has given a finding that it was not an issue related to one, two or ten transaction but such sale trans .....

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d by AO while disallowing such loss claim of ₹ 92,36,713/- also. 4. Counsel for the appellant has contended that AO while considering the matter, after taking into consideration the inquiry which was conducted and taking into consideration the books of accounts, has disallowed the loss and computed the income as under:- Computation of Income Income from Business (As Declared) Rs.1,01,46,322/- Add: Loss disallowed (Para A) ₹ 25,642/- Loss disallowed (Para B) Rs.15,26,110/- Loss disall .....

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r company, the assessee was not liable to discharge liability of vendor. 6. He relied on the following decisions: 6.1 In Jiyajeerao Cotton Mills Ltd. vs. Commissioner of Income Tax and Excess Profits Tax, Bombay (1958) 34 ITR 888(SC) wherein Supreme Court held as under:- 4. At the very outset, the question calls for an answer, does any question of law arise on the order of the Tirbunal ? It is only if it does, that the decision of the Tribunal will be open to consideration by the court under sec .....

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walior as contended by the appellant or at Bombay as held by the Tribunal. That would clearly be a question of fact, and the decision of the Tribunal thereon would not be liable to be challenged in these proceedings. Counsel for the appellant does not dispute this position, but he contents that a finding of the Tribunal even on a question of fact would be erroneous in law, if there is no evidence whatsoever to support it or if it is perverse. This question was quite recently considered by this c .....

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n decision as to the legal effect of that finding is a question of law which can be reviewed by the court. (3) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support or if it is perverse. (4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of facts." 16. We have considered all the contentions urged on behalf of the appellant at some leng .....

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held as under:- 3. On 25.04.2017, when the matter was argued, we were of the opinion that the issue is covered by the decision of Supreme Court in the case of Jiyajeerao Cotton Mills. Ltd. vs. Commissioner of Income tax and Excess Profits Tax Bombay (1958) 34 ITR 888 (SC) wherein it has been held as under:- 10. It was next contended that if there had been transfer of profits by Jwaladutt Kishanprasad from Cotton Agents Ltd., to J. R. Pillani, Gwalior, that must appear in the accounts of the latt .....

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ned conformably to that arrangement. By itself, therefore, it would mean little. In this connection, it should be stated according to Pillani the branch at Gwalior was really run by the employees of the Birlas, a statement which was accepted by the Appellate Assistant Commissioner. 11. We have so far dealt with the criticisms leveled by the appellant against the evidence, direct and positive, in support of the finding of the Tribunal that the contracts were concluded at Bombay. But to view the m .....

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had no bank accounts and large amounts to the tune of ₹ 30 lakhs are supposed to have been paid to them in cash by J. R. Pillani, Gwalior, and turned over by them in cash to the appellant. They produced no accounts for their dealings and the ankdas produced by them at a late stage were found to have been freshly written up. When Durgaprasad Mandalia, the manager of the appellant, was asked as to what securities he held as cover in respect of the huge transactions he entered into with men .....

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to explain why he did not directly deal with J. R. Pillani, Gwalior. It was suggested by the learned Solicitor- General that if the object of the appellant in setting up contracts in Gwalior was to throw a veil over its contracts with Jwaladutt Kishanprasad, that could not effectively be achieved by putting them in the name of J. R. Pillani, Gwalior, which was a branch of the firm, as the veil would have been too thin to concern the true face of the contracts, and that is why the brokers were t .....

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d taxation but the arrangement must be real and genuine and not a sham or makebelieve, and the question now under consideration is whether the contracts with the brokers were genuine. 12. Turning next to the accounts produced by the appellant, it is seen that the transactions of the three brokers were entered in Kherij Khata, which is said to have been maintained for parties for whom there are small dealings and whose accounts are cleared up in short time. But then, these transactions are not sm .....

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etween the appellant and the three brokers expressly recite that they are as between principals and principals, that there were clauses therein providing for delivery and payment at Gwalior and that there was no reason for not accepting them as correct. But it is pointed out by the Income-tax authorities that the contracts provide for the business being done in accordance with the rules and bye-laws of the East India Cotton Association, Bombay, that according to bye-law No. 44-A of that Associat .....

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acts at Bombay as contended for by the Department and that though the order of remand stated that their evidence should be taken, that had not been done and that was a serious irregularity. The portion of the order of remand relevant for the present purpose is as follows : "The managing director of the assessee company or rather the person responsible for ordering these transactions on behalf of the assessee company should also be similarly examined." 15. Now, the obvious intention beh .....

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idered. If Birlas wanted themselves to give evidence, there was nothing to prevent them from doing so, and indeed, no complaint was made in the court below that their evidence had not been taken. There is no substance in this contention. 5. However, counsel for the appellant has relied on the judgment rendered by the Delhi High Court in the case of Commissioner of Income Tax Vs. Vipin Batra reported in (2007)293ITR 389 (Delhi) wherein the High Court has observed as under:- 10. In Raymond Woollen .....

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l and Anr. v. Income-tax Officer and Anr. , the Supreme Court reviewed the entire case law and concluded that: (a)There must be some specific, reliable and relevant information available with the Assessing Officer. (b) The Assessing Officer must have reasons, which he must record, that income has escaped assessment. (c) The case should not be one of a mere change of opinion by the Assessing Officer or the drawing of a different inference from the same facts but that those reasons must be based o .....

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, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under Section 147(a) read with Section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessed to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment p .....

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were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessed to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extend, the court may look into the conclusion arrived at by the Income-tax Officer and examine wheth .....

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