Shri Gopal Agrawal HUF, Betul V. Income Tax officer Ward Betul, Betul

ITA 255/JAB/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3151 (ITAT-JABALPUR)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 10-12-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SWATI AGARWAL
• Assessee Lawyers: H S MODH
• Section: 143(3)

Judgement Text

GOPAL AGRAWAL, HUF V.ITO ITA NO. 255/JAB/2018 (AY 2013-14) 1 IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH , JABALPUR (SMC) BEFORE SH. SANJAY ARORA, HON'BLE ACCOUNTANT MEMBER ITA NO.255/JAB/2018 ASSESSMENT YEAR: 2013-14 GOPAL AGRAWAL HUF, BETUL, (M.P.) [PAN: AADHG 8828B] VS. INCOME TAX OFFICER, WARD BETUL, BETUL (M.P.) (APPELLANT) (RESPONDENT) APPELLANT BY SH. H.S. MODH ADV. RESPONDENT BY SMT. SWATI AGARWAL, SR. DR DATE OF HEARING 08/10/2021 DATE OF PRONOUNCEMENT 22/10/2021 ORDER PER SANJAY ARORA, AM THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, BHOPAL (CI T(A) FOR SHORT) DATED 31.10.2018, DISMISSING THE ASSESSEES APPEAL CONTES TING ITS ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE AC T HEREINAFTER) FOR THE ASSESSMENT YEAR (AY) 2013-14 VIDE ORDER DATED 26/2/ 2016. 2.1 OPENING THE ARGUMENTS FOR AND ON BEHALF OF THE ASSESSEE, IT WAS SUBMITTED BY SHRI MODH, THE LD. COUNSEL FOR THE ASSESSEE, THA T THE ONLY ISSUE ARISING AND RAISED IN APPEAL IS THE DISALLOWANCE OF LOSS OF RS. 10,43,274 SUFFERED BY THE ASSESSEE ON ACCOUNT OF SAUDA SETTLEMENT. THE SAM E STANDS DISALLOWED FOR WANT OF SUBSTANTIATION, FOR WHICH HE WOULD TAKE THE BENCH THROUGH THE ASSESSMENT AND THE FIRST APPELLATE ORDER. THE ASSES SEE, A WHOLESALE TRADER IN FOOD GRAINS, OILSEEDS, ETC. MAKES SEVERAL BARGAINS IN TH E COURSE OF HIS BUSINESS, WHICH ARE ENTERED INTO ON ORAL BASIS. AN ORAL CONTRACT IS EQUALLY VALID IN LAW. AS THE GOPAL AGRAWAL, HUF V.ITO ITA NO. 255/JAB/2018 (AY 2013-14) 2 CONTRACT FOR SUPPLY OF WHEAT WAS, DUE TO ADVERSE PR ICE MOVEMENT, REVERSED, AGAIN ORALLY, THE RESULTING LOSS WAS CHARGED BY THE BUYER, M/S. SANWARIA AGRO OILS LTD., ITARSI (SAOL) WITH WHOM THE ASSESSEE H AS A REGULAR ACCOUNT (PB PG. 4), WHICH AGREES WITH THE ASSESSEES ACCOUNT IN ITS BOOKS (PB PG. 5), THERETO. THERE IS THEREFORE NOTHING TO MISTRUST THE ASSESSEE WHEN IT SAYS SO. THE BASIS OF THE JOURNAL ENTRY BOOKING THE SAID LOSS ON 31/03/2013 BY THE ASSESSEE, IS A DEBIT NOTE RAISED BY SAOL, A LIMITED COMPANY, ON 31/03/2013 (PB PG. 7), WHICH STANDS FURTHER CONFIRMED BY IT AS ACCOUNTED A S ITS INCOME FOR THE CURRENT YEAR (PB PG. 6). NO DEFECT HAS BEEN OTHERWISE POIN TED OUT BY THE ASSESSING AUTHORITY IN THE ASSESSEES ACCOUNTS. THE ASSESSEE HAS THUS PRODUCED ALL THE RELEVANT MATERIAL AS WELL AS THE NECESSARY EXPLANAT ION/S IN THE MATTER. THERE IS THEREFORE NO QUESTION OF HAVING NOT FURNISHED ANY B ILLS AND VOUCHERS IN RESPECT OF THE RELEVANT TRANSACTION, AS STATED BY THE REVEN UE AUTHORITIES. THERE IS FURTHER NO BASIS TO SUGGEST, AS DO BOTH BY THE ASSESSING OF FICER (AO) AND THE LD. CIT(A), OF THE ASSESSEE HAVING NOT ACCOUNTED FOR TH E SAID AMOUNT AS ITS INCOME FOR THE CURRENT OR EARLIER YEAR/S. 2.2 THE LD. SR. DR, MRS. AGARWAL, WOULD SUBMIT THAT THE ASSESSEE HAS COMPLETELY FAILED TO EXPLAIN THE NATURE OF THE TRAN SACTION/S STATED TO RESULT IN A LOSS, MUCH LESS SUBSTANTIATE IT, AND WHICH IS THE P RINCIPAL REASON FOR THE NON- ACCEPTANCE THEREOF, ADVERTING TO THE FINDINGS BY TH E REVENUE AUTHORITIES, WHOSE ORDERS, IN THE RELEVANT PARTS, STOOD ALREADY READ O UT DURING THE COURSE OF THE ASSESSEES PLEADINGS. 2.3 AT THIS STAGE, IT WAS ENQUIRED BY THE BENCH FRO M SHRI MODH ABOUT THE (AVAILABILITY OF THE) RELEVANT DETAILS OF THE TRANS ACTION/S INASMUCH AS NONE STOOD FURNISHED AT ANY STAGE. THAT IS, WHAT WAS SOLD; AT WHAT RATE; WHERE AND BY WHOM WAS THE DELIVERY TO BE MADE; THE OBTAINING MARKET R ATE/S AT THE TIME OF THE CONTRACT AS WELL AS AT THE TIME THE GOODS WERE TO B E DELIVERED, ETC., AND IF THERE WAS ANY MATERIAL, VIZ. SAUDA BOOK, CONTRACT NOTES, ETC., TO SUBSTANTIATE THE SAME. GOPAL AGRAWAL, HUF V.ITO ITA NO. 255/JAB/2018 (AY 2013-14) 3 THIS IS AS THIS ONLY WOULD GIVE SOME CLARITY ON, AS WELL AS THE BASIS OF, THE TRANSACTION, WHICH HAD NOT EVEN BEEN EXPLAINED, I.E ., AS HE SEEKS TO DO NOW BEFORE THE TRIBUNAL FOR THE FIRST TIME, ALBEIT WITH OUT ANY DETAILS WHATSOEVER, EVEN AS THE DEBIT NOTE, UNNUMBERED, RAISED BY SAOL, STATES OF DETAILS ACCOMPANYING THE SAME, WHILE NONE HAVE BEEN BROUGHT ON RECORD. HE WOULD REPLY IN THE NEGATIVE . AND, FURTHER, TAKE THE BENCH THROUGH THE LEDGER A CCOUNT OF TRANSPORT EXPENSES (PB PG. 32), IN THE ASSESSEES A CCOUNTS, REFLECTING A GROSS EXPENSE OF RS.56.25 LAC TOWARDS RAILWAY AND LOCAL F REIGHT AND RELOADING CHARGES, OF WHICH RS.34.71 LAC STANDS RECOVERED FRO M THE PARTIES TO WHOM THE GOODS HAD BEEN SUPPLIED DIRECTLY, SO THAT ONLY THE BALANCE RS.21.54 LACS STANDS CHARGED BY THE ASSESSEE TO ITS PROFIT & LOSS ACCOU NT (PB PG. 21). OF RS.34.71 LAC, RS.9.93 LAC WAS STATED TO PERTAIN TO SAOL AND, ACCORDINGLY, DEBITED BY THE ASSESSEE THERETO. THE ASSESSEE, ON BEING ASKED, WAS STATED BY HIM TO BE ENTITLED TO A COMMISSION/ BROKERAGE ON THE SAID SUPPLY. WHEN FURTHER ENQUIRED ABOUT THE ABSENCE OF SUCH INCOME IN THE ASSESSEES OPERATING STATEMENT (PB PG. 21), HE WOULD STATE THE SAME TO BE BY WAY OF A DIFFERENCE I N THE PURCHASE AND SALE RATE. BUT WAS, HOWEVER, UNABLE TO EXPLAIN THE ABSENCE OF ANY ENTRY IN ITS RESPECT IN THE LEDGER ACCOUNT OF SAOL (PB PGS. 4 & 5). RATHER, AS IT APPEARS, IN THAT CASE SAOL WOULD MAKE THE PAYMENT FOR THE PURCHASE DIRECT LY TO THE SUPPLIER IN RESPECT OF THIS SUPPLY, WHILE NONE HAS BEEN SHOWN T O BE, AND AT ANY STAGE. BESIDES, THAT WOULD ONLY MEAN THAT THE TRANSACTION/ S HAD INDEED MATURED, AND NOT REVERSED, AS STATED EARLIER IN EXPLANATION OF T HE SAUDA (BARGAIN) SETTLEMENT. HE WAS UNABLE TO EXPLAIN THE SAME DURING HEARING. 3. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD. 3.1 MY FIRST OBSERVATION IN THE MATTER IS THAT THE DISALLOWANCE BEING IN RESPECT OF A SPECIFIC LOSS OR EXPENDITURE, MADE ON THE BASI S OF NON-ACCEPTANCE OF THE ASSESSEES EXPLANATION QUA THE SAME, THE FACT OF THE ASSESSEES ACCOUNTS BEIN G AUDITED, OR ITS BOOK RESULTS HAVING BEEN, BY INFER ENCE, OTHERWISE ACCEPTED BY GOPAL AGRAWAL, HUF V.ITO ITA NO. 255/JAB/2018 (AY 2013-14) 4 THE REVENUE, IS OF NO CONSEQUENCE IN-SO-FAR AS THE SAID DISALLOWANCE IS CONCERNED, WHICH IS TO BE ADJUDGED ON ITS MERITS. 3.2 MY SECOND OBSERVATION IN THE MATTER IS THAT, MU CH LESS SUBSTANTIATED, EVEN THE NATURE OF THE TRANSACTION HAS NOT BEEN EXPLAINE D AT ANY STAGE AND, DESPITE ABUNDANT OPPORTUNITY TO DO SO. NO DOUBT ORAL CONTRA CTS ARE ENTERED INTO IN THE BUSINESS WORLD, AS OVER PHONE. HOWEVER, THESE ARE D ULY RECORDED IMMEDIATELY THEREAFTER, IF NOT ALMOST SIMULTANEOUSLY, AND, FURT HER, CONFIRMED THROUGH EXCHANGE OF NOTES, AS OVER FAX, E-MAILS, ETC. THIS IS THE REGULAR TRADE PRACTICE, ADOPTED UNIFORMLY, AS WITHOUT IT, IT WILL BE WELL N EIGH IMPOSSIBLE TO EXECUTE THE SAME; THE CONTRACTS BEING FORWARD CONTRACTS AND THE RATES VOLATILE, CHANGING EVERY DAY; RATHER, EVEN DURING THE COURSE OF THE DA Y ITSELF. THESE CANNOT BE ACTED UPON OR TRUSTED TO BE SO ON THE BASIS OF MEMORY, A FACULTY DIFFERENT FOR DIFFERENT PEOPLE AND, BESIDES, ELIMINATES ANY CONTROVERSY THA T MAY ARISE. HOW WOULD, FOR EXAMPLE, IN CASE OF ANY DIFFERENCE, THE MATTER BE R ESOLVED? REDUCING THE ORAL CONTRACT IN WRITING BY SOME COTEMPORANEOUS MATERIAL IS THUS A TRADE IMPERATIVE. THE CONCERNED BROKER OR COMMISSION AGENT/S, BEING M ORE THAN ONE WHERE THE TWO SIDES ARE REPRESENTED BY DIFFERENT ONES, DO THI S ON BEHALF OF THEIR PRINCIPALS. WHY, ONLY A COUPLE OF DECADES AGO, I.E., BEFORE THE ADVENT OF ELECTRONIC EXCHANGES, SHARE MARKETS OPERATED IN THIS MANNER, W ITH SAUDAS TRANSLATED INTO CONTRACT NOTES IMMEDIATELY THEREAFTER AND GOT CONFI RMED/COUNTERSIGNED BY THE OPPOSING BROKER ON THE TRADING FLOOR ITSELF. THE TR ANSACTION IN THE INSTANT CASE IS WITHOUT ANY RELEVANT DETAILS. IN FACT, THE QUESTION OF ADVERSE PRICE MOVEMENT WOULD NOT NORMALLY ARISE AS FORWARD CONTRACTS ARE H EDGED BY A SIMILAR FORWARD CONTRACT. A TRADER WOULD NOT LEAVE A TRADE OPEN, EX POSING HIMSELF TO MARKET RISK. IN FACT, HE CANNOT QUOTE WITHOUT OBTAINING A SIMILA R FORWARD CONTRACT. HOW WOULD A TRADER QUOTE A PRICE FOR, OR EVEN HONOR, HI S CONTRACT, I.E. WITHOUT SUCH A CONTRACT, WHICH BECOMES A NECESSITY? THIS ALSO CONT RADICTS THE PAYMENT OF FREIGHT BY SAOL, WHICH ONLY MEANS, AS ALSO OBSERVED DURING HEARING, THAT THE SUPPLY STANDS MADE THERETO. WHY ELSE, ONE MAY ASK, WOULD IT BEAR THE SAME ? GOPAL AGRAWAL, HUF V.ITO ITA NO. 255/JAB/2018 (AY 2013-14) 5 FURTHER, IF THE SUPPLY IS MADE, AS STATED, DIRECTLY BY THE ASSESSEE, IMPLYING THAT THE DELIVERY WAS EX-WORKS (GODOWN), SAOL WOULD YET BE OBLIGED TO PAY THE COST TO THE ASSESSEE, WHO IN TURN WOULD PAY ITS CO ST TO ITS SUPPLIER. WHERE THE ASSESSEE ACTED AS, AS AGAIN STATED, A BROKER, HE WO ULD BE ENTITLED TO A POSITIVE INCOME IN THE FORM OF COMMISSION/BROKERAGE FROM SAO L, THE BUYER. RATHER, THE SAME ONLY MEANS THAT THE TRANSACTION HAS BEEN, CONTRARY TO WHAT STANDS STATED, COMPLETED. THE EXPLANATION FURTHER CONTRADI CTS ITS EARLIER EXPLANATION OF THE LOSS AS ON ACCOUNT OF REVERSAL DUE TO ADVERSE M ARKET CONDITION, NOT SHOWN, WITH THE ASSESSEE BEARING THE DIFFERENCE DUE TO PRI CE INCREASE. THIS EXPLANATION THUS CONTRADICTS THE ASSESSEES EARLIER EXPLANATION OF THE IMPUGNED LOSS AS ON ACCOUNT OF REVERSAL OF A TRADE DUE TO ADVERSE MARKE T CONDITION, NOT SHOWN, WITH THE ASSESSEE BEARING THE DIFFERENCE DUE TO THE PRIC E INCREASE. IN FACT, THE CREDIT NOTES FOR FREIGHT (RS.9.93 LAC) DEBITED BY THE ASSE SSEE TO THE ACCOUNT OF SOAL, ARE BY SANWARIA FOODS LIMITED (PB PG. 34), FOR RS.8 .66 LACS, AND ONE, SURYA TRADING CORPORATION (PB PG. 33), FOR RS.1.27 LACS, AND NOT BY SAOL. WHY, THEN, HAD THE RAILWAY FREIGHT BEEN DEBITED TO SAOL ? SH. MODH WAS AT LOSS TO EXPLAIN. THE ASSESSEE, THUS, TIES ITSELF IN KNOTS I N TRYING TO EXPLAIN THE TRANSACTION/S. THERE IS ANOTHER ASPECT OF THE MATTE R, ALSO REFERRED TO IN THEIR ORDERS BY THE REVENUE AUTHORITIES. THAT IS, APART F ROM DEBITS IN RESPECT OF TWO DIFFERENT PARTIES (AT RS.9.93 LACS) TO THE ACCOUNT OF SAOL (I.E., IN THE BOOKS OF THE ASSESSEE), WHICH STANDS RESPONDED TO BY IT, THE RE ARE NO TRADE TRANSACTIONS BETWEEN THE ASSESSEE AND THE SAOL, WHICH HAS A CRED IT BALANCE OF RS.250.80 LACS AS ON 31/03/2013, THE YEAR-END. THE ENTIRE ACC OUNT COMPRISES SUMS RECEIVED FROM, AND PAID BACK TO, SAOL, SO THAT THE BALANCE REPRESENTS MONIES RECEIVED FROM IT. ON WHAT ACCOUNT, ONE MAY ASK ? TO NO ANSWER, AGAIN, BY SH. MODH. WHY WOULD ANY PERSON PAY SUCH HUGE SUMS TO A NOTHER, THE ASSESSEE IN THE INSTANT CASE, I.E. WITHOUT BUSINESS CONSIDERATI ON, WHICH IS CLEARLY MISSING, OR AT LEAST NOT APPARENT, MUCH LESS EXPLAINED. IN THE CONTEXT OF THE INSTANT CASE, THE GOPAL AGRAWAL, HUF V.ITO ITA NO. 255/JAB/2018 (AY 2013-14) 6 RELATIVE QUANTUM OF THIS SUM IS THAT IT FINANCES AL MOST THE WHOLE OF THE STOCK-IN- TRADE OF THE ASSESSEE, BEING AT RS. 268.74 LACS AS ON 31/3/2013 (PB PG. 20). 3.3 FURTHER STILL, WITHOUT PREJUDICE, EVEN IF ONE W ERE TO IGNORE ALL THIS, AND GO BY WHAT STANDS STATED BY SH. MODH EARLIER, I.E., OF IT BEING AN OPEN-ENDED TRANSACTION, WHICH WAS NOT HONORED AND, ACCORDINGLY , OBLIGATION UNDER THE CONTRACT OF SUPPLY DISCHARGED BY BEARING THE LOSS ON THE BASIS OF CURRENT MARKET RATE, THE SAME, APART FROM BEING SANS ANY DETAILS AND EVIDENCE, WOULD BE A SPECULATIVE TRANSACTION U/S. 43(5). THE ASSESSEE SHALL NOT BE, BECAUSE OF THE TRANSACTION BEING OPEN-ENDED AND, IN ANY CASE, UNSU PPORTED BY ANY MATERIALS, SAVED BY SECTION 43(5)(A). THE SAME, BEING CARRIED IN THE REGULAR COURSE OF THE ASSESSEES BUSINESS, SHALL QUALIFY FOR BEING SET OF F ONLY AGAINST THE PROFITS OF A SPECULATIVE BUSINESS WHICH, IN TERMS OF EXPLANATION 2 TO SECTION 28, IS TO BE REGARDED AS A SEPARATE AND DISTINCT BUSINESS. THERE IS, THUS, NO QUESTION OF IT BEING SET OFF AGAINST THE ASSESSEES OTHER, REGULAR BUSINESS OF TRADING IN FOOD GRAINS AND OILSEEDS OR, AS STATED BEFORE ME, OF COM MISSION AGENT/BROKER. THIS, FURTHER, WOULD ALSO RESULT IN NON-EXPLANATION OF TH E RECOVERY OF RAILWAY FREIGHT BY THE ASSESSEE THEREFROM. THIS ALSO EXPLAINS OF TH IS BEING STATED AS IN THE ALTERNATIVE, EVEN AS, AS AFORE-STATED, IT IS ALSO W ITHOUT ANY DETAILS OR MATERIAL IN SUPPORT. 3.4 AGAIN, MUCH LESS SEVERAL, AS CLAIMED, NO SIMILA R BARGAIN STANDS SHOWN AS EXECUTED DURING THE YEAR, OR EVEN IN THE PAST, EVEN AS THE SAME DOES NOT DETRACT FROM THE FACT THAT THE BARGAIN UNDER REFERENCE IS W HOLLY UNPROVED, SO THAT THE FACTUM OF OTHER BARGAINS WOULD NOT IMPACT POSITIVEL Y ON THE ALLOWANCE OF THIS TRANSACTION. SUCH TRANSACTIONS WOULD, SIMILARLY, RE SULT IN EITHER A GAIN OR A LOSS TO THE ASSESSEE, ALSO DEMONSTRATING THE MANNER IN W HICH THE SAME IS ACCOUNTED FOR. 4. THERE IS, TO SPEAK IN NUTSHELL, COMPLETE OPAQUEN ESS ABOUT THE NATURE AND TRUTH OF THE TRANSACTION/S BETWEEN THE ASSESSEE AND SAOL, INCLUDING THE GOPAL AGRAWAL, HUF V.ITO ITA NO. 255/JAB/2018 (AY 2013-14) 7 IMPUGNED CREDIT OF RS.10,43,274 THERETO ON 31/03/20 13. THE SAME THUS CANNOT BE REGARDED AS A BUSINESS LOSS AND, IN ANY CASE, IS NOT AVAILABLE FOR SET OFF AGAINST THE BUSINESS PROFIT FROM ITS WHOLESALE BUS INESS. THE SAME STANDS RIGHTLY DISALLOWED BY THE REVENUE. I DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 22, 2 021 SD /- (SANJAY ARORA) A CCOUNTANT MEMBER DATED: 22/10/2021 *SINGH COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT: GOPAL AGRAWAL (HUF), PROP.: M/S. SHR I SHYAM TRADING COMPANY, BETUL GANJ, BETUL - 460002 (M.P.) 2. THE RESPONDENT: INCOME TAX OFFICER, WARD BETUL, B ETUL - 460002 (M.P.) 3. THE PR. CIT-1, BHOPAL 4. THE CIT(APPEAL)-1, BHOPAL 5. THE SR. DR, ITAT, JABALPUR 6. GUARD FILE // TRUE COPY //