M/s. Rajdeep Marketing Pvt. Ltd., Pune V. Income-tax Officer,

ITA 2140/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84844 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 09-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P S SHINDE
• Assessee Lawyers: S C TIWARI; RAJ R DESAI
• Keywords: Principle of natural justice; Speculation loss
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.2140/PN/2013 (A.Y: 2010-11) M/S. RAJDEEP MARKETING PVT. LTD., 201, THE ANCHORAGE, BOAT CLUB ROAD, PUNE 411001 PAN: AACCR5970K APPELLANT VS. ITO, WARD-1(3), PUNE RESPONDENT APPELLANT BY : S/SHRI S.C. TIWARI AND RAJ R. DESAI RESPONDENT BY : SHRI P.S. SHINDE DATE OF HEARING: 19.08.2014 DATE OF ORDER : 19.08.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-I, PUNE, DAT ED 24.09.2013 FOR A.Y. 2010-11 ON THE FOLLOWING GROUND S. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE OF THE APPELLANT AND IN LAW ID. CIT(A) HAS ERRED IN HOLDING THAT THE ENTIRE TRADING ACTIVITY IN RICE CL AIMED TO HAVE BEEN CARRIED ON BY THE APPELLANT DURING THE YEAR IS 'SHAM' AND EVIDENCE FURNISHED THEREOF IS FABRICATED, SELF-SERVING AND THE LOSS CLAIMED FROM ALLEGED TRADING ACTIVITY IS FICTITIOUS LOSS WITH A VIEW TO SET-OFF THE SAME AGAINST POSITIVE INCOME EARNED BY THE APPELLANT FROM OTHER ACTIVITIES SO AS TO DEFRAUD TH E REVENUE AND ON THIS BASIS UPHOLDING THE REJECTION O F THE APPELLANT'S CLAIM OF SET OFF OF TRADING LOSS OF RS.20,886,417/- AGAINST OTHER INCOMES OF THE APPELLANT DURING THE YEAR. 2 ITA NO.2140 OF 13 M/S. RAJDEEP MARKETING PVT. LTD. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE OF THE APPELLANT AND IN LAW ID. CIT(A) HAS ERRED IN HOLDING THAT EVEN PRESUMING FOR A WHILE THAT THE LO SS CLAIMED IS GENUINE, THE SAME IS SPECULATION LOSS AN D CAN NOT BE SET-OFF AGAINST THE OTHER PROFITS OF THE APPELLANT AS LAID DOWN U/S. 73 OF THE ACT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE OF THE APPELLANT AND IN LAW, ID. CIT (A) HAS ERRED IN REPEATING VERBATIM HIS ORDER FOR ASSESSMENT YEAR 2009-10 WITHOUT APPLICATION OF MIND TO THE MATERIAL ON RECORD AND THE RESULT OF ENQUIRIES MADE BY THE ASSESSING OFFICER IN RELATION TO ASSESSMENT YEAR 20 10- 11. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE OF THE APPELLANT AND IN LAW, ID. CIT (A) HAS ERRED IN HOLDING THAT IT WAS NOT NECESSARY TO HEAR THE SENIO R COUNSEL OF THE APPELLANT BECAUSE WRITTEN SUBMISSION S HAD BEEN FILED ON 23 RD SEPTEMBER, 2013. 5. THAT THE IMPUGNED ORDER BEING CONTRARY TO LAW, EVIDENCE AND FACTS OF CASE MAY KINDLY BE SET ASIDE, AMENDED AND MODIFIED IN THE LIGHT OF THE GROUNDS OF APPEAL ENUMERATED ABOVE AND THE APPELLANT BE GRANTE D SUCH RELIEF AS IS CALLED FOR ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE OF THE APPELLANT AND IN L AW. 6. THAT EACH OF THE GROUNDS OF APPEAL ENUMERATED AB OVE IS WITHOUT PREJUDICE TO AND INDEPENDENT OF ONE ANOTHER. 7. THAT THE APPELLANT CRAVES LEAVE TO RESERVE TO HI MSELF THE RIGHT TO ADD, TO ALTER OR AMEND ANY OF THE GROU NDS OF APPEAL BEFORE OR AT THE END OF THE HEARING AND T O PRODUCE SUCH FURTHER EVIDENCE, DOCUMENTS AND PAPERS AS MAY BE NECESSARY. 2. AT THE OUTSET OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT HE IS NOT PRESS ING THE GROUND NOS.3 TO 6, SO THEY ARE DISMISSED AS NOT PRE SSED. REGARDING THE CLAIM OF THE ASSESSEE OF SET OFF OF T RADING LOSS OF RS.20,886,417/-, THE LEARNED AUTHORIZED REPRESENTAT IVE HAS POINTED OUT THAT A SIMILAR ISSUE HAS BEEN DECIDED B Y ITAT, PUNE IN HIS OWN CASE FOR A.Y. 2009-10 VIDE ITA NO.256/PN /2013, DATED 05.05.2014, WHEREIN IT WAS OBSERVED AS UNDER: 3 ITA NO.2140 OF 13 M/S. RAJDEEP MARKETING PVT. LTD. 5. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS H ELD THAT THE PARTIES FROM WHOM THE ASSESSEE PURCHASED RICE A ND PARTIES TO WHOM THE ASSESSEE SOLD THE RICE DID NOT EXISTS, THEREFORE, BOTH PURCHASES AND SALES ARE BOGUS. THE ASSESSING OFFICER HAS BASED HIS FINDING ON ASSERTIO N THAT NOTICES ISSUED BY HIM IN RESPECT OF 6 OUT OF 11 PAR TIES WERE RETURNED UNDELIVERED BY POSTAL AUTHORITIES AND SIMI LARLY, THE NOTICES COULD NOT BE SERVED ON THOSE 6 PARTIES BY T HE CONCERNED ITO, NEW DELHI AS WELL. THE ASSESSING OF FICER OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE DELHI BUSINESSMEN FOR EXAMINATION BY THE ASSESSING OFFICE R AT SOLAPUR. THE STAND OF THE ASSESSEE HAS BEEN THAT T HESE FINDINGS OF ASSESSING OFFICER WERE NOT JUSTIFIED TH AT THE REASON OF THE ASSESSING OFFICER WAS NOT JUSTIFIED I N ITS FINDING IN RELATION TO 5 PARTIES ON WHOM THE NOTICE S WERE SERVED ON BOTH OCCASIONS. THE STAND OF THE ASSESSE E HAS BEEN THAT IN SPITE OF WRITTEN REQUESTS DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DID N OT FURNISH THE ASSESSEE ANY SO CALLED MATERIAL OF NON- SERVICE OF 6 PARTIES. AS REGARDS NON-PRODUCTION OF THE PARTIE S BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, NO ADVERSE I NFERENCE COULD BE DRAWN THAT THE PARTIES DO NOT EXIST BECAUS E (I) THE ASSESSING OFFICER EXCEEDED HIS POWERS IN CALLING UPON THE ASSESSEE TO DO SO IN VIOLATION OF PROVISIONS OF SECTION 131 OF THE ACT AND (II) THE ASSESSING OFFICER MUST HAVE APPRECIATED THAT THOSE DELHI PARTIES WOULD NOT ATTEND AT SOLAPUR MERELY AT THE REQUEST OF THE ASSESSEE BECAUSE THEY WERE UNDER NO OBLIGATION TO DO SO. THE CIT(A) AT PAGE 24 OF ITS ORDER HAD APPRECIATED THAT THERE WAS NO ADVERSE INFERENCE AGAINST THE ASSESSEE FOR N ON- SERVICE OF NOTICE ON 6 PARTIES. THE STAND OF THE A SSESSEE HAS BEEN THAT THE OBSERVATION OF LOWER AUTHORITIES WAS NOT JUSTIFIED WITH REGARD TO NON-EXISTENCE OF PARTIES B ECAUSE (I) TRANSACTIONS OF ASSESSEE ARE FROM BANK ACCOUNT TO BANK THROUGH RTGS TRANSFER. THERE WERE 11 BANK ACCOUNTS OF PARTIES AT DELHI DULY REFLECTED IN BANK STATEMENTS OF ASSESSEE, (II) THE BILLS ISSUED BY THE ASSESSEE PARTIES MENTIONED THEIR TELEPHONE NUMBERS IN MOST CASES MOBILE NUMBERS ALSO, (III) TIN NUMBERS ARE MENTIONED IN EVERY BILL AND (IV) EACH OF THE PARTIES IS ASSESSED TO INCOME-TAX AND HAVE PERMANENT ACCOUNT NUMBERS WHICH HAVE 4 ITA NO.2140 OF 13 M/S. RAJDEEP MARKETING PVT. LTD. BEEN FURNISHED TO THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS. 5.1 ACCORDING TO THE LEARNED AUTHORIZED REPRESENTAT IVE THAT THE OBSERVATIONS MADE BY THE ASSESSING OFFICER ON SUSPICION, CONJECTURES AND SURMISES. THERE IS NO CONSIDERATION OF VITAL AND CLINCHING EVIDENCES FILE D BY THE ASSESSEE. IN THE ENTIRE ASSESSMENT ORDER THERE IS NOT EVEN A WORD ABOUT THE FACT THAT THE ASSESSEES TRANSACTION S ARE FROM HIS BANK ACCOUNT TO 11 BANK ACCOUNTS OF DIFFER ENT TRADERS SITUATED IN DELHI. THERE IS NO FOLLOW UP T O THE INFORMATION ABOUT PAN AND TIN OF THE PARTIES, WHICH IS NOT JUSTIFIED. 5.2 APART FROM THE ALLEGED NON-SERVICE OF NOTICES O N SOME OF THE PARTIES AS A RESULT OF SOME EXERCISE STATED TO HAVE BEEN CARRIED OUT BEHIND THE BACK OF THE ASSESSEE AN D THE SAME COULD NOT BE USED AGAINST THE ASSESSEE WHILE T HE SAME HAS NOT BEEN CORROBORATED BY CLINCHING EVIDENCE. B OTH THE AUTHORITIES BELOW HAVE RAISED DOUBT ABOUT THE TRANS ACTIONS WHICH THEY DID NOT PUT TO THE ASSESSEE OR PARTIES W ITH WHOM THE ASSESSEE HAS TRANSACTED. THE VARIOUS QUESTIONS WHICH ARE BASIS FOR ORDER BY AUTHORITIES BELOW HAVE NOT B EEN CONFRONTED TO THE ASSESSEE. FOR EXAMPLE :- A) IN ABSENCE OF ANY CONTRACT IN WRITING, THE ASSESSE E COMPANY WAS NOT UNDER OBLIGATION TO HONOUR THE CONTRACTS AN D MAKE LOSSES. THIS SHOWS THAT THE ASSESSING OFFICER HAS S CANT KNOWLEDGE OF COMMERCIAL PRACTICE. B) FOR ANY TRANSACTION TO BE HELD ON 'DELIVERY BASIS' THERE HAS TO BE QUANTITY INWARD PHYSICALLY TO ITS STORAGE, ITS T RANSPORTATION THROUGH LORRIES, MAINTAINING DELIVERY DETAILS, FREI GHT BILLS, DELIVERY CHALLANS, DISPATCH NOTES. THESE ARGUMENTS HAVE BEEN RAISED WHILE THE ASSESSING OFFICER KNEW ALL THE TIME THAT THE DELIVERY WAS GIVEN BY THE APPELLANT'S SUPPLIERS ON THE INST RUCTIONS OF THE APPELLANT TO THE APPELLANT'S BUYERS ALL SITUATED AT NAYA BAZAR, DELHI. C) THE APPELLANT FAILED TO PRODUCE ANY AGREEMENTS IN A BSENCE OF WHICH THERE CANNOT BE INFERRED PRE-AGREED RATES. HO W COULD ANY AGREEMENT BE PRODUCED WHEN THE AGREEMENTS WERE ORAL , IN ACCORDANCE WITH MARKET PRACTICE? D) A LETTER FROM SUSHILKUMAR & SONS, DELHI AND FROM MANISHKUMAR SUSHILKUMAR & SONS, DELHI WERE POSTED FROM SOLAPUR. THESE STATEMENTS NEED FACTUAL VERIFI CATION IN LIGHT OF MERIT OF CASE. 5 ITA NO.2140 OF 13 M/S. RAJDEEP MARKETING PVT. LTD. E) CONFIRMATION LETTER OF ARIHANT SALES CORPORATION, N AYA BAZAR, NEW DELHI STATED THAT THE APPELLANT PURCHASED RICE FROM HIM WHEREAS AS PER THE APPELLANT RICE WAS SOLD TO AND N OT PURCHASED FROM ARIHANT SALES CORPORATION. WITHOUT SEEKING ANY CLARIFICATION FROM ARIHANT SALES CORPORATION THE ASSESSING OFFICE R CANNOT DRAW ADVERSE INFERENCE AGAINST THE APPELLANT FROM W HAT SEEMS TO BE MERELY AN INADVERTENT ERROR. F) ON PERUSAL OF CONFIRMATION LETTERS OF ARIHANT SALE S CORPORATION, PREMCHAND DEEPAKKUMAR AND SAINATH AGRO INDIA IT APPEARED THAT THESE CONFIRMATIONS WERE COMMONLY DRAFTED AND PRINTED. THESE OBSERVATIONS OF ID. ASSESSING OFFICER AND CIT(A) ARE ON THEIR OWN WITHOUT SEEKING ANY EXPLANATION FROM THE PARTIES CO NCERNED AND IGNORING THAT THESE WERE DIRECT CORRESPONDENCE BETW EEN ASSESSING OFFICER AND PARTIES WITHOUT APPELLANT BEI NG TOLD ABOUT IT. G) THE LETTERS RECEIVED FROM THE PARTIES DO NOT GIVE P URCHASE RATE, QUANTITY AND QUALITY AGREED, DELIVERY SCHEDULE ETC. HOW THIS CAN BE HELD OUT AGAINST THE APPELLANT? H) THE PURCHASE BILLS SHOWED THAT PURCHASES HAVE BEEN MADE JUST ONE OR TWO DAYS BEFORE THOSE WERE SOLD AND NOT WELL IN ADVANCE AS EXPLAINED BY THE APPELLANT. THIS WAS EXP LAINED TIME AND AGAIN. THE FACT OF THE MATTER IS THAT PURCHASE BILLS WERE ISSUED NOT ON THE DATE OF CONTRACT BUT ON THE DATE OF DELIVERY. THE APPELLANT IMMEDIATELY SOLD GOODS WHEN THE APPOINTED DATE OF DELIVERY ARRIVED BECAUSE THE MARKET HAD HEAVILY COM E DOWN. THE CHART OF DATES OF PURCHASE AND DATES OF SALE GIVEN BY THE ASSESSING OFFICER AT PAGES 17 TO 20 OF THE ASSESSME NT ORDER PROVE THE APPELLANT'S CASE; OTHERWISE THERE IS NO WHICH W AY THAT SUCH HUGE DIFFERENCE WOULD ARISE. I) AS MENTIONED IN PARA 3 THE AUDITOR OF THE ASSESSEE COMPANY HAS ALSO AGREED THAT THE COMPANY NEVER INVOLVED IN ANY TRADING ACTIVITIES LIKE TRADING IN RICE. THIS IS PATENTLY P ERVERSE STATEMENT. IN THE SAME PARA 3 THE ASSESSING OFFICER HIMSELF OB SERVES THAT SALE BILLS, PURCHASE BILLS OF RICE WERE FURNISHED. THE AUDITORS HAVE SIGNED THE BALANCE SHEET AND PROFIT AND LOSS ACCOUN T WHICH ARE BASED ON THE APPELLANT'S TRANSACTIONS IN RICE DURIN G THE YEAR. J) THE BILLS OF SALES AND PURCHASE NOWHERE MENTION THE QUALITY OR SPECIE OF RICE. BILLS OR INVOICES WITHOUT QUALITY O R TYPE ARE ACTUALLY NO BILLS. ASSESSING OFFICER OR CIT(A) DO NOT RELY O N ANY MATERIAL TO INDICATE THAT IT WAS MANDATORY TO MENTION QUALITY O F RICE IN THE BILLS. THE APPELLANT STATED AND SUBMITTED THAT THES E BILLS ARE ISSUED IN ORDINARY COURSE AS PER THE MARKET PRACTIC E AT NAYA BAZAR, DELHI AT THE RELEVANT TIME. 6 ITA NO.2140 OF 13 M/S. RAJDEEP MARKETING PVT. LTD. K) NOT A SINGLE PARTY WAS PRODUCED IN-SPITE OF REQUISI TION. THE ASSESSING OFFICER'S REQUISITION IS ILLEGAL. U/S 131 THE PERSONAL ATTENDANCE OF A PERSON HAS TO BE ENFORCED BY THE AS SESSING OFFICER HIMSELF AND NO ADVERSE INFERENCE CAN BE DRA WN IF THE ASSESSEE DOES NOT PRODUCE ANY PARTY FOR EXAMINATION BY HIM. L) THE APPELLANT MODIFIED ITS STAND AS TO WHETHER SALE S WERE CONTRACTED IN ADVANCE OR PURCHASES WERE CONTRACTED IN ADVANCE. THERE WAS AN ERROR ONLY ONCE IN THE LETTER OF CA TH AT WAS PROMPTLY CORRECTED. OTHERWISE THERE HAS BEEN THE CO NSISTENT STAND OF THE APPELLANT THAT IT HAD CONTRACTED PURCH ASES WELL IN ADVANCE AND LATER ON THE GOODS THUS PURCHASED WERE SOLD AT LOSS. 5.3 FROM THE ABOVE, IT MAY BE INFERRED THAT EVEN TH E AUTHORITIES BELOW HAVE NOT BEEN CONFRONTED, THE MAT ERIAL RELIED BY THEM FOR REJECTING THE CLAIM OF THE ASSES SEE WHICH IS NOT JUSTIFIED. IT AMOUNTS IN VIOLATION OF PRINC IPLES OF NATURAL JUSTICE. WE FIND THAT THE ASSESSING OFFICE R HAS POWER U/S.131 OF THE ACT FOR ENFORCING THE ATTENDAN CE OF THE PERSON WHO COULD NOT BE PRODUCED BEFORE THE ASSESSI NG OFFICER ON BEHALF OF ASSESSEE. IN SUCH A SITUATION , NO ADVERSE INFERENCE SHOULD BE DRAWN IF THE ASSESSEE D OES NOT PRODUCE ANY PARTY FOR EXAMINATION. THE ASSESSING O FFICER HAS MAINLY BASED HIS FINDING ON ASSERTION THAT THE NOTICES WERE ISSUED BY HIM IN RESPECT OF 6 OUT OF 11 PARTIE S WERE RETURN UN-DELIVERED BY POSTAL AUTHORITIES. SIMILAR LY, NOTICES COULD NOT BE SERVED ON 6 PARTIES BY THE CONCERNED I TO, NEW DELHI AS WELL. AS STATED ABOVE, THE STAND OF THE A SSESSEE HAS BEEN THAT IN SPITE OF WRITTEN REQUESTS DURING T HE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DID N OT FURNISH THE ASSESSEE ANY MATERIAL OF NON-SERVICE OF 6 PARTIES. IN SUCH SITUATION, NO ADVERSE INFERENCE C OULD BE DRAWN THAT PARTIES IN QUESTION DO NOT EXISTS BECAUS E THE ASSESSING OFFICER HAS OPTION FOR CALLING THE ATTEND ANCE OF PARTIES UNDER THE PROVISIONS OF SECTION 131 OF THE ACT. THE OBSERVATION OF AUTHORITIES BELOW WAS PREMATURE WITH REGARD TO THEIR FINDING OF NON-EXISTENCE OF THE ABOVE PART IES BECAUSE THE TRANSACTION OF ASSESSEE WAS THROUGH BAN KING CHANNEL. THE DETAILS OF ALL PARTIES INCLUDING TELE PHONE, PAN, TIN NUMBER WERE AVAILABLE ON RECORD. IN VIEW OF AB OVE AND IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AS PER FACT AND LAW AFTER PROVI DING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. SINCE WE A RE RESTORING THE MATTER ON BROAD PROPOSITION OF VIOLAT ION OF PRINCIPLES OF NATURAL JUSTICE, WE ARE REFRAINING FR OM COMMENTING ON THE MERIT OF THE ISSUE AT HAND. AS A RESULT, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PU RPOSE. 7 ITA NO.2140 OF 13 M/S. RAJDEEP MARKETING PVT. LTD. 2.1 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLE DGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, SO FOL LOWING THE SAME REASONING, WE SET ASIDE THE ORDER OF CIT(A) AND RES TORE THE MATTER TO THE ASSESSING OFFICER WITH A SIMILAR DIRECTION I .E. TO DECIDE THE ISSUE AS PER FACT AND LAW AFTER PROVIDING DUE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. SINCE WE ARE RESTORING THE MATTER ON BROAD PROPOSITION OF VIOLATION OF PRINCIPLES OF NAT URAL JUSTICE, WE ARE REFRAINING FROM COMMENTING ON THE MERIT OF THE ISSUE AT HAND. AS A RESULT, THIS GROUND OF APPEAL IS ALLOWE D FOR STATISTICAL PURPOSE. 3. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 19 TH DAY OF AUGUST, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 19 TH AUGUST, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-I, PUNE 4) THE CIT-I, PUNE 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE