Sh. Ashok Kumar, Bathinda V. The income Tax Officer, Bathinda

ITA 274/ASR/2014

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6517 (ITAT-AMRITSAR)
• Duration Of Justice: 4 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-12-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 01-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Opportunity of being heard; Competent authority; Onus to prove; Set aside
• Section: 143(3); 191; 264; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 274/ASR/2014 ASS ESSMENT YEAR: 2009-10 ASHOK KUMAR, 1908/C, PHASE 3, VISHAL NAGAR, BATHINDA [PAN: AKBPK 9379D] VS. INCOME TAX OFFICER, WARD-1(1), BATHINDA (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ASHWANI KALIA (C. A.) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 11.12.2018 DATE OF PRONOUNCEMENT: 22.02.201 9 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX (APPEALS), BATHINDA (CITA) FOR SHOR T) DATED 03.02.2014, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING HIS ASSES SMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DA TED 21.12.2011 FOR ASSESSMENT YEAR (A.Y.) 2009-10. 2. THE ASSESSEE HAS, IN CONTESTING HIS ASSESSMENT, AS CONFIRMED BY THE LD. CIT(A), RAISED A LEGAL GROUND, BY WAY OF AN ADDITIO NAL GROUND, AS UNDER, WHICH IS PRAYED FOR BEING ADMITTED AND ADJUDICATED FIRST, AS , WHERE ACCEPTED, IT MAY NOT BE NECESSARY FOR US TO ADJUDICATE ON THE OTHER GROUNDS OF APPEAL: ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 2 THAT THE ORDER PASSED BY THE AO & CONFIRMED BY CIT (A) IS VOID AB INITIO SINCE THE AO FRAMED THE ASSESSMENT IN ACCORDANCE WITH THE DIRECT IONS U/S. 144A GIVEN BY THE JT. COMMISSIONER OF INCOME TAX, RANGE 1, BATHINDA WHO H AD ISSUED THE DIRECTIONS TO THE AO WITHOUT AFFORDING ANY OPPORTUNITY TO THE ASSESSEE, WHICH IS IN TOTAL VIOLATION OF THE PROVISIONS OF THE ACT AND AGAINST THE PRINCIPLES OF NATURAL JU STICE. THE BASIS OF THE SAME IS THE OFFICE NOTE, AT THE FO OT NOTE TO THE ASSESSMENT ORDER, WHICH READS AS UNDER: (I) THE DIRECTIONS U/S. 144A OF THE INCOME TAX, 19 61 BY THE JOINT COMMISSIONER OF INCOME TAX RANGE-1, BATHINDA HAVE DULY BEEN COMPLIE D WITH AND HE HAS CONVEYED HIS APPROVAL VIDE LETTER NO. 1409 DATED 20.12.2011. THE JOINT/ADDL. CIT, IT WAS SUBMITTED BY THE LD. CO UNSEL FOR THE ASSESSEE, SH. KALIA, HAD NOT BEEN MOVED BY THE ASSESSEE U/S. 144A . THE DIRECTIONS ISSUED BY HIM THERE-UNDER ARE AT THE INSTANCE OF, OR ON BEING APP ROACHED BY THE ASSESSING OFFICER (AO). THE LAW IS CLEAR THAT NO SUCH DIRECTION PREJU DICIAL TO THE ASSESSEE COULD BE PASSED BY HIM WITHOUT AFFORDING THE ASSESSEE AN OPP ORTUNITY OF BEING HEARD. THIS IS PARTICULARLY SO AS THESE DIRECTIONS ARE BINDING ON THE AO. THERE IS, THUS, DENIAL OF THE PRINCIPLE OF NATURE JUSTICE, VITIATING THE ASSE SSMENT PROCEEDINGS, RENDERING THEM AS VOID AB INITIO . THE ENSUING ASSESSMENT IS, IN CONSEQUENCE, A NULL ITY. RELIANCE IS PLACED ON THE DECISIONS IN CIT V. PARAMJIT SINGH [2015] 231 TAXMAN 450 (P&H) AND RAMLAL KEWALCHAND V. ITO [1993] 46 ITD 291 (JP), BOTH RENDERED IN THE CONTEXT OF SECTION 144A. FURTHER, IN SIR SHADI LAL ENTERPRISES LTD. V. CIT (ADDL.) [2003] 264 ITR 403 (ALL), IT STANDS HELD THAT ANY O RDER WHICH HAS A CIVIL CONSEQUENCE WOULD BE INVALID IF IT WAS PASSED WITHO UT GIVING AN OPPORTUNITY OF HEARING. THE HONBLE COURT RELIED ON THE DECISION B Y THE APEX COURT IN STATE OF ORISSA V. BINAPANI DE [1967] SCR(2) 625 [1967 AIR (SC) 1269], PLACING A COPY OF THE LATTER DECISION ON RECORD. ON BEING QUERIED BY THE BENCH AS TO HOW COULD, IN THE ABSENCE OF THOSE DIRECTIONS, BEING NOT ON RECOR D, IT BE SAID THAT THE SAME ARE PREJUDICIAL TO THE ASSESSEE, SH. KALIA WOULD STATE THAT THE VERY FACT WITH THE ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 3 ADDITION/DISALLOWANCE/S, AND WHICH ARE ON MORE THAN ONE ACCOUNT, HAVE BEEN EFFECTED IN ASSESSMENT, IS PROOF ENOUGH OF THE STAT ED DIRECTIONS, IN COMPLIANCE OF WHICH THE ASSESSMENT HAS BEEN ADMITTEDLY MADE (I.E. , AS PER THE FOOT NOTE), ARE PREJUDICIAL TO THE ASSESSEE. HIS ATTENTION WAS THEN DRAWN TO THE DECISION IN GUDUTHUR BROS. V. ITO [1960] 40 ITR 298 (SC), WHEREIN IT STANDS CLARIFIE D THAT WHERE THE JURISDICTION TO THE PROCEEDINGS, AS TO FR AME ASSESSMENT IN THE INSTANT CASE, HAS BEEN VALIDLY ASSUMED, AN ABSENCE OR LACK OF PROPER OPPORTUNITY OF BEING HEARD WOULD AMOUNT TO AN IRREGULARITY, A CURABLE DE FECT, RATHER THAN A NULLITY, WARRANTING A SET ASIDE BACK TO THE STAGE WHERE THE IRREGULARITY HAD OCCURRED OR SET IN. HE WOULD, IN RESPONSE, SUBMIT THAT WHILE THAT M AY WELL BE TRUE OR VALID UNDER ORDINARY CIRCUMSTANCES, IT CANNOT BE SAID TO BE SO WHERE THE STATUTE SPECIFICALLY MANDATES FOR PROVISION OF OPPORTUNITY OF BEING HEAR D PRIOR TO THE ISSUE OF THE DIRECTION/S BY THE COMPETENT AUTHORITY. THE SAID DE CISION, HE WOULD ARGUE, WOULD THEREFORE NOT APPLY TO THE DIRECTIONS ISSUED BY THE JT.CIT WITHOUT FOLLOWING THE MANDATORY PROCEDURE IN ITS RESPECT. THE LD. DEPART MENTAL REPRESENTATIVE (DR) WOULD OBJECT, BOTH TO THE ADMISSION OF THE SAID ADD ITIONAL GROUND, AS WELL AS ON ITS MERITS. THE SAID DIRECTIONS ARE NOT ON RECORD FOR T HE ASSESSEE TO CONTEND THAT THE SAME ARE PREJUDICIAL TO HIM, OR THAT DIRECTIONS PRE JUDICIAL TO THE ASSESSEE HAD INDEED BEEN ISSUED, ATTRACTING THE PROVISO TO SECTION 144A, BEING SOUGHT TO BE INVOKED THROUGH THE ADDITIONAL GROUND SUPRA. ADVERTING TO L ETTER NO. 1409 DATED 20.12.2011 (COPY ON RECORD), REFERRED TO IN THE OFFICE NOTE, H E WOULD CONTINUE, THAT THE SAME ONLY STATES THAT THE ASSESSMENT BE COMPLETED AS PER THE PROVISIONS OF LAW, ENSURING THAT THE ISSUES MENTIONED IN THE DIRECTIONS ISSUED FROM TIME TO TIME HAVE BEEN PROPERLY EXAMINED. NOTHING LESS, AND NOTHING MORE. HOW COULD THIS BE SAID TO BE PREJUDICIAL TO THE ASSESSEE, WHICH CONTENTION IS PU RELY A SURMISE ? THIS IN FACT STANDS AGAIN CONFIRMED BY THE JT. CIT, UPON A PERUS AL OF HIS RECORD, VIDE HIS LETTER DATED 22.03.2018 (COPY ON RECORD). THE ASSESSEES G ROUND, TAKEN BEFORE THE ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 4 TRIBUNAL FOR THE FIRST TIME, IS CLEARLY AN AFTERTHO UGHT, EVEN OTHERWISE NOT ADMISSIBLE, AS EXPLAINED BY THE HONBLE APEX COURT IN SANGHVI RECONDITIONERS PVT. LTD. V UNION OF INDIA (IN CIVIL APPEAL NO. 1435 OF 2003, DATED 05.02.201 0), BESIDES OTHER DECISIONS, AS UNDER: 1. MANJI DANA VS. CIT [1966] 60 ITR 582 (SC) 2 . ULTRATECH CEMENT LTD. VS. ADDL. CIT (IN ITA NO. 1 060/2014, DATED 18/04/2017)(BOM) 3. MUKTI PROPERTIES (P.) LTD . V. CIT [2012] 344 ITR 177 (CAL) [50 DTR 273] 4. GOODFAITH CONSTRUCTION (P) LTD. VS. ACIT [2013] (AMRITSAR ITAT). , PLACING COPIES OF THE DECISIONS BY THE APEX COURT AND THE HONBLE BOMBAY HIGH COURT ON RECORD. IN ANY CASE, THE DIRECTIONS, AS AP PARENT FROM THE LETTERS DATED 20/12/2011 AND 22/03/2018, BEING ONLY IN RESPECT OF THE LINES OF INVESTIGATION WHICH THE ASSESSING AUTHORITY IS TO FOLLOW, IS IN A NY CASE COVERED BY EXPLANATION TO SECTION 144A, READING AS UNDER, CLARIFYING THE SAME AS NOT TO BE CONSIDERED AS PREJUDICIAL TO THE ASSESSEE, SO AS TO COVERED BY TH E PROVISO TO SECTION 144A: EXPLANATION. FOR THE PURPOSES OF THIS SECTION, NO DIRECTION AS T O THE LINES ON WHICH AN INVESTIGATION CONNECTED WITH THE ASSESSMENT SHOULD BE MADE, SHALL BE DEEMED TO BE A DIRECTION PREJUDICIAL TO THE ASSESSEE. THE LD. COUNSEL, SH. KALIA, WOULD OBJECT. THE VERY FACT THAT THE TRIBUNAL HAD, ON AN EARLIER OCCASION, REQUIRED THE PARTIES TO GATHER TH E FACTS IN RELATION TO THE IMPUGNED DIRECTION/S, IMPLIES AN ADMISSION OF THE ADDITIONAL GROUND IN-AS-MUCH AS IT INDICATES A PRIMA FACIE SATISFACTION OF A CASE BEING MADE OUT AND A NEED T O HAVE A CLOSER LOOK AT THE FACTS. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. IN OUR CONSIDERED VIEW, THE ASSESSEES PLEA FAILS O N BOTH COUNTS, I.E., THE ADMISSION OF THE ADDITIONAL GROUND, RAISING A LEGAL ISSUE, AS WELL AS ON ITS MERITS. A LEGAL ISSUE, IT IS WELL SETTLED, CAN BE RAISED AT ANY STAGE OF ASSESSMENT THE APPELLATE PROCEEDINGS BEING ONLY A CONTINUATION OF THE ASSESSMENT PROCEEDINGS, ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 5 PROVIDED THE FACTS NECESSARY FOR THE PURPOSE OF ITS ADJUDICATION ARE ADMITTED OR OTHERWISE NOT DISPUTED, AS WHERE THEY ARE BORNE OUT BY THE RECORD ( NTPC LTD. V. CIT [1998] 229 ITR 383 (SC)). IN THE INSTANT CASE, IT IS UNDISPUTED THAT THE DIRECTIONS U/S. 144A STOOD ISSUED BY THE JT. CIT, T HE COMPETENT AUTHORITY, TO THE AO FROM TIME TO TIME DURING THE COURSE OF ASSESSMEN T, WHICH WAS COMPLETED FOLLOWING THEM. THE SAID DIRECTIONS, HOWEVER, ARE NOT ON RECORD . IT IS ONLY ON THEIR BASIS THAT IT COULD BE DETERMINED IF THESE ARE IN T HE NATURE OF REGULAR INSTRUCTIONS TO THE AO AS TO (AS CONTENDED BY THE REVENUE BEFORE US ) THE LINES ON WHICH AN INVESTIGATION QUA AN ISSUE/S BEING EXAMINED, OR FOR THAT MATTER EVEN FOR EXAMINING AN ISSUE/S, IN WHICH CASE THESE CANNOT BE REGARDED BY LAW AS PREJUDICIAL TO THE ASSESSEE, ATTRACTING THE PROVISO TO S. 144A REQUIRING PRIOR HEARING OF THE ASSESSEE THEREON. THE REASON IS SIMPLE. WHERE SO, THE SAME A RE ONLY IN THE NATURE OF A SUPERVISORY SUPPORT OR ADVISORY TO THE ASSESSING OF FICER TO PURSUE OR ADOPT A PARTICULAR LINE OF INVESTIGATION IN VERIFYING THE F ACTS OR THE ASSESSEES CASE, OR AN ISSUE THAT MAY NEED TO BE EXAMINED IN ASSESSING THE ASSESSEES CORRECT TOTAL INCOME UNDER THE ACT. THE SAME BY ITSELF CANNOT PREJUDICE THE ASSESSEE WHO IN FACT CANNOT POSSIBLY BE HEARD THEREON. IT IS ONLY WHERE AN INVE STIGATION IS CARRIED ON, OR SOME FACT OR MATERIAL OR A PARTICULAR LEGAL POSITION, UP ON SUCH INVESTIGATION OR EXAMINATION, IS TO BE CONFRONTED TO THE ASSESSEE, S EEKING HIS EXPLANATION/S THEREON, THAT THE ASSESSEE NEEDS TO BE HEARD IN THE MATTER. ALL THAT THE LETTER NO. 1409 DATED 20.12.2011, REFERRED TO IN THE OFFICE NOTE (TO THE ASSESSMENT ORDER), STATES IS FOR THE COMPLETION OF THE ASSESSMENT IN ACCORDANCE WITH LAW AFTER PROPERLY EXAMINING THE ISSUES MENTIONED IN THE DIRECTIONS ISSUED FROM TIME TO TIME. HOW, PRAY, COULD THAT BE REGARDED AS PREJUDICIAL TO THE ASSESSEE, OR AS N OT COVERED BY THE EXPLANATION TO SECTION 144A, SO AS TO PRECLUDE APPLICATION OF PROVISO THERETO WHICH MAKES IT INCUMBENT ON THE COMPETENT AUTHORITY TO, PRIOR TO T HE ISSUE OF SUCH DIRECTIONS, HEAR THE ASSESSEE THEREON, ABSENCE OF WHICH, VITIATING T HE SAID PROCEEDINGS, IS THE ISSUE ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 6 RAISED PER THE ADDITIONAL GROUND. THERE IS, THEREFO RE, NO BASIS OR MATERIAL ON RECORD FOR THE ASSESSEE TO RAISE A GRIEVANCE AS PROJECTED PER HIS ADDITIONAL GROUND. THE SAME IS, THEREFORE, BOTH ON ACCOUNT OF BEING AN AFT ERTHOUGHT HAVING NOT BEEN RAISED AT ANY TIME EARLIER, INCLUDING BEFORE THE TR IBUNAL PER THE MEMORANDUM OF APPEAL, AS WELL AS RAISING A LEGAL CLAIM WHICH DOES NOT ARISE ON THE BASIS OF THE ADMITTED/UNDISPUTED FACTS ON RECORD, UNTENABLE. THE RELIANCE BY THE REVENUE ON THE DECISIONS CITED SUPRA BY THE HONBLE APEX COURT AND THE BOMBAY HIGH COURT IN THIS REGARD IS APPOSITE. TO CONTEND A PREJUDICE, IN VIEW OF THE ADJUSTMENTS MADE TO THE RETURNED INCOME IN ASSESSMENT, ON ACCOUNT OF TH ESE DIRECTIONS, IS BOTH PRESUMPTUOUS AND MISCONCEIVED. FINALLY, THE TRIBUNA L HAD AT NO STAGE, I.E., PRIOR TO THE DATE OF HEARING, INDICATED THAT THE ADDITIONAL GROUND WAS OR EVEN WOULD BE ADMITTED. IT ONLY, UPON PRELIMINARILY HEARING THE P ARTIES IN THE MATTER, REQUIRED THEM TO BRING ALL THE RELEVANT FACTS ON RECORD, CON SCIOUS THAT THE SAME ALSO IMPINGE ON THE ADMISSIBILITY OF THE LEGAL PLEA BEING RAISED . WITHOUT PREJUDICE, EVEN GRANTING ADMISSIBILITY, I .E., FOR THE SAKE OF ARGUMENT, THE ASSESSEE HAS NOT BROUGHT ON RECORD AN Y MATERIAL REBUTTING WHAT STANDS STATED IN LETTER NO. 1409 DATED 20.12.2011 R EFERRED TO IN THE OFFICE NOTE. THE MINIMUM THAT THE ASSESSEE OUGHT TO HAVE DONE IS TO BRING THOSE DIRECTIONS ON RECORD, MAKING OUT OF A PRIMA FACIE CASE OF THE SAME BEING NOT, AS STATED, COVERED BY THE AMBIT OF EXPLANATION TO SECTION 144A. THAT IS, IT IS ONLY ON THE BASIS OF THE DIRECTIONS ISSUED U/S. 144A, CLAIMED AS PREJUDICIAL TO THE ASSESSEE, THAT HE COULD POSSIBLY MAKE OUT A CASE BOTH WITH REGARD TO THE AD MISSIBILITY OF HIS LEGAL PLEA AS WELL AS, RESULTANTLY, ON THE MERITS THEREOF. IN FAC T, ON THE CONTRARY, THE LETTER DATED 22.03.2018 (SUPRA) BY THE JT. CIT, RANGE-1, BATHIND A, ISSUED ON A PERUSAL OF THE RECORD, CONFIRMS WHAT STANDS STATED PER LETTER NO. 1409, FORMING PART OF THE OFFICE NOTE WHICH, RATHER, SUPPORTS THE CASE OF THE REVENU E. THE LD. COUNSEL, SH. KALIA, COULD NOT BEFORE US, IN ANY MANNER, EXHIBIT THAT WH AT STANDS STATED PER THE TWO ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 7 LETTERS IS INCORRECT. THE SAME, IN FACT, COULD ONLY BE ON THE BASIS OF THOSE DIRECTIONS. THE ASSESSEES LEGAL PLEA IS WITHOUT ANY FACTUAL BA SIS AND, THUS, NOT MAINTAINABLE. FURTHER STILL, NO ENQUIRY AT THE BACK OF THE ASSESS EE, OR ONE WHICH IS NOT CONSONANT WITH THE CONCEPT OF JUSTICE HAS BEEN SHOWN, WHICH I S THE PREMISE OF THE DECISIONS CITED BY SH. KALIA. THE DECISIONS IN THE CASE OF PARAMJIT SINGH (SUPRA) OR, AS THE CASE MAY BE, BINAPNI DE (SUPRA), SHALL THEREFORE NOT APPLY. NEXT, THOUGH NOT REQUIRED TO IN VIEW OF OUR FOREGOI NG OPINION, WE CONSIDER THE LEGAL IMPACT OF THE DIRECTIONS U/S. 144A, PREJU DICIAL TO THE ASSESSEE, HAVING BEEN ISSUED, ASSUMING SO, WITHOUT HEARING THE ASSES SEE, I.E., WHETHER WOULD BE FATAL TO THE ASSESSMENT OR RENDER IT AS DEFECTIVE WARRANT ING A RESTORATION BACK TO THE FILE OF THE COMPETENT AUTHORITY FOR HEARING THE ASSESSEE IN THE MATTER. A DECISION IN ITS RESPECT, IN OUR VIEW, SHALL HAVE TO BE WITH REGARD TO THE BASIC POSTULATE GOVERNING THE SAME, I.E., LACK OF OPPORTUNITY TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE LAW IN THE MATTER IS WELL-SETTLED. IN GUDUTHUR BROS . (SUPRA), A DECISION BY ITS LARGER BENCH, THE APEX COURT EXPLA INED THAT THE PROCEEDINGS SHALL GO BACK TO THE STAGE WHERE THE IRREGULARITY HAD SET IN. REFERENCE IN THIS REGARD BE ALSO MADE TO SUPDT., CENTRAL EXCISE V. PRATAP RAI [1978] 114 ITR 231 (SC), ALSO PER A LARGER CONSTITUTION OF THE APEX COURT. THE PR OCEEDINGS FOR ASSESSMENT UNDER A FISCAL STATUTE, IT MAY BE APPRECIATED, ARE NOT IN THE NATURE OF JUDICIAL PROCEEDINGS, OR EVEN A LIS , SO THAT A PROCEDURAL ERROR OR THE EXERCISE OF JUR ISDICTION IN A WRONGFUL MANNER DOES NOT RESULT IN A NULLITY, THOUGH CAUSES AN IRREGULARITY, NECESSITATING A REMISSION BACK TO THE STAGE WHERE THE SAME HAS SET IN (ALSO REFER DEEPAK AGRO FOODS V. STATE OF RAJASTHAN , IN CA NOS. 4327-29 OF 2008, DATED 11/7/2008). SPEAKING IN THE CONTEXT OF THE NOTICE OF HEARING, I T WAS EXPLAINED IN STATE OF LATE RANGALAL JAJODIA V. CIT [1971] 79 ITR 505 (SC), THAT LACK OF NOTICE DOES N OT AMOUNT TO A REVENUE AUTHORITY HAVING NO JURISDICTIO N TO ASSESS, BUT THAT THE ASSESSMENT WAS DEFECTIVE FOR THAT REASON. IT DID NO T CEASE TO BE PROCEEDINGS UNDER ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 8 THE ACT, THOUGH WAS LIABLE TO BE CORRECTED ON CHALL ENGE. THE SAID DECISION, AMONG OTHERS, DELVING ON THIS ASPECT IN DIFFERENT FACT-SI TUATIONS, STANDS FOLLOWED IN CIT V. JAI PRAKASH SINGH [1996] 219 ITR 737 (SC). THE MATTER THEREFORE, WHE RE THE ASSESSEES CLAIM IS ADMITTED, SHALL ACCORDINGLY HAV E GO BACK TO THE STAGE OF PROVIDING IT OPPORTUNITY BEFORE THE COMPETENT AUTHO RITY. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISION IN BHAGWAT PRASAD V. CIT [1988] 232 ITR 480 (ALL). 4. WE, NEXT, PROCEED TO DECIDE THE OTHER GROUNDS, I .E., THE REGULAR GROUNDS RAISED IN APPEAL. THE FACTS IN RELATION TO GROUND 1 ARE THAT THE ASSESSEE, A TRADER IN COTTON, COTTON SEED, COTTON SEED OIL, ETC. WAS OBSE RVED IN THE ASSESSMENT PROCEEDINGS TO HAVE INCURRED A GROSS LOSS OF RS.7,0 8,823/- ON TRADING IN NARMA (RAW COTTON). IT WAS OBSERVED THAT WHILE THE PURCHA SES WERE AT DIFFERENT, CONSTANTLY INCREASING RATES, FROM RS.2850 TO RS.3404 PER QUINT AL, THE SALE, WHICH WAS TO THREE PARTIES, AS UNDER, WAS AT A FIXED RATE OF RS.2700/2 750 PER QUINTAL. THE ASSESSEE EXPLAINED IT TO BE SO IN VIEW OF A FORWARD CONTRACT ENTERED INTO BY HIM WITH EACH OF THE THREE PARTIES FOR A TOTAL OF 2750 QUINTALS OF N ARMA (PB PGS. 9-11), AS UNDER: (I) MAHADEV AGRO INDUSTRIES, JAGRAON: 500 QUINTALS (AT RS.2700 PER QTL.) (II) SHAM COTTON & GENERAL MILLS, KOTKAPURA:1250 Q UINTALS (AT RS.2750 PER QTL.) (III) VENUS COTTON TRADERS, BATHINDA: 1000 QUINTALS (AT RS. 2700 PER QTL.) THE WRITTEN AGREEMENT/S BEING NOT ON A STAMP PAPER/ S, THE ASSESSEE WAS ASKED TO PRODUCE THE THREE PARTIES TO VERIFY THE GENUINENESS OF THE SAID AGREEMENT/S. THE ASSESSEE FAILING TO DO SO, SUMMONS U/S. 131 OF THE ACT WERE ISSUED THERETO, CALLING FOR PRODUCTION OF THE BOOKS OF ACCOUNT AND COPY OF THE AGREEMENT. ONLY SHAM COTTON & GENERAL MILLS ATTENDED THE PROCEEDINGS, ST ATING THAT THERE WAS NO SUCH WRITTEN AGREEMENT. THE OTHER TWO PARTIES THOUGH DID NOT ATTEND, SENT THE DOCUMENTS PER POST, I.E., SANS THE COPY OF THE AGREEMENT, IMPLYING, AS PER THE AO , ABSENCE OF SUCH AN AGREEMENT. THE ASSESSEE WAS ACCORDINGLY CONFRONTED ON 05.12.20 11, TO, ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 9 HOWEVER, NO REPLY/EXPLANATION . THE AGREEMENTS FURNISHED BY THE ASSESSEE WERE ACCORDINGLY REGARDED BY THE AO AS FAKE AND NOT GENU INE, ENTERED INTO ONLY THE REDUCE THE INCIDENCE OF TAX. AND THE LOSS CLAIMED, RESULTANTLY, DISALLOWED. THE ASSESSEE FAILING TO IMPROVE HIS CASE IN APPEAL, THE SAME STOOD CONFIRMED, SO THAT, AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 THE ASSESSEES CASE IS THAT EACH OF THE THREE P ARTIES HAD FURNISHED A COPY OF THE ASSESSEES ACCOUNT IN THEIR BOOKS OF ACCOUNT, N O DISCREPANCY IN WHICH HAS BEEN POINTED OUT BY THE AO, SO THAT HIS ACTION OF DISALL OWANCE IS BASED ONLY ON A DOUBT, ITSELF WITHOUT BASIS. THE PAYMENTS HAVE IN FACT BEE N RECEIVED THROUGH THE BANKING CHANNEL. COULD THE AO, IT WAS ARGUED BEFORE US, POS SIBLY SIT IN JUDGMENT AS TO THE RATE/S AT WHICH THE ASSESSEE SHOULD BUY OR SELL HIS GOODS, WITH FORWARD CONTRACT BEING IN FACT A NORM IN THE TRADE. THE AO, IF IN DO UBT OF THE GENUINENESS OF THE AGREEMENT/S, OUGHT TO HAVE QUESTIONED THE PARTIES B Y PUTTING ACROSS TO THEM THE CONTRACT/S AS FURNISHED BY THE ASSESSEE, WHICH HE H AS NOT. THE REVENUES CASE, ON THE OTHER HAND, IS THE ABSENCE OF THE CONFIRMATION OF THE AGREEMENT/S BY EACH OF THE THREE PARTIES, WITH ONE OF THEM CATEGORICALLY DENYING THE SAME . THE QUESTION IS OF THE GENUINENESS OF THE CONTRACT-AGREEMENT OR OTHERW ISE, SO THAT THE MATCHING OF THE ACCOUNTS, BEING REGARDED AS PAPER TRANSACTIONS BY T HE REVENUE, IS OF LITTLE CONSEQUENCE. WHY SHOULD ANYONE CONTINUE TO SUPPLY G OODS AT A LOWER RATE/S DESPITE CONSTANTLY INCREASING PRICE IN THE MARKET, I.E., AT A LOSS, WHICH NEEDS TO BE SATISFACTORILY EXPLAINED, AND HAS NOT BEEN. NONE OF THE PARTIES HAVE CONFIRMED THE CONTRACT/S, FURTHER CAUSING A SERIOUS DOUBT ON ITS GENUINENESS. 5.2 OUR FIRST OBSERVATION IN THE MATTER IS THAT THE QUESTION AS TO WHETHER THE LOSS CLAIMED BY THE ASSESSEE IS GENUINE OR NOT IS PRINCI PALLY AND ESSENTIALLY A QUESTION ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 10 OF FACT, WHICH WOULD INCLUDE INFERENCE/S DRAWN FROM THE FACT/S PROVED/FOUND. AS REGARDS THE LAW IN THE MATTER, LOSS IN ONLY NEGATIV E INCOME. JUST AS TRADING OPERATIONS COULD RESULT IN PROFIT, AS IS USUALLY TH E CASE, IT COULD AS WELL IN LOSS, AS IN SITUATIONS OF ADVERSE MOVEMENT IN THE MARKET PRICE/ S, ETC. AS SUCH, WHERE INCURRED IN THE ORDINARY COURSE OF BUSINESS, I.E., SHOWN TO BE SO, THE SAME HAS TO BE ALLOWED. OUR PURVIEW AS AN APPELLATE AUTHORITY, THEREFORE, I S TO EXAMINE IF THE ASSESSEE, ON WHOM THE PRIMARY BURDEN TO PROVE HIS RETURN AND THE CLAIMS PREFERRED THEREBY, LIES, HAS INDEED SHOWN IT TO BE SO, OR NOT ? REFERENCE IN THIS REGARD BE MADE TO THE DECISIONS IN CIT V. CALCUTTA AGENCY LTD . [1951] 19 ITR 191 (SC); CIT V. R. VENKATASWAMY NAIDU [1956] 29 ITR 529 (SC). THE ASSESSEE CLAIMS OF ENT ERING INTO FORWARD CONTRACTS, ON THE BASIS OF WHICH LOSS STANDS SUFFERED BY HIM IN THE INSTANT CASE, TO BE A TRADE NORM, A REGULAR FEATURE OF HIS TRADE. NO SUCH CLAIM, HOWEVER, STANDS MADE BEFORE THE REVENUE AUTHORITIES , WHICH, WERE IT SO, WOULD BE THE FIRST THING AN ASSESSEE WOULD CLAIM AND, RATHER , EXHIBIT, TOGETHER WITH THE TRADE RESULTS, POSITIVE OR NEGATIVE, OF SUCH FORWARD CONT RACTS, PROFIT (OR HEDGING AGAINST LOSS) BEING THE DRIVING FORCE OF ANY BUSINESS/BUSIN ESS TRANSACTION; THE ASSESSEE, RATHER, FURNISHING NO EXPLANATION BEFORE THE AO ON BEING CONFRONTED IN THE MATTER. THERE WOULD BE INSTANCES APLENTY, IF IT IS INDEED A TRADE NORM, OF THE ASSESSEE HAVING ENTERED INTO SUCH CONTRACTS IN THE PAST. NONE SUCH STANDS BROUGHT EVEN TO OUR NOTICE . WHY, EVEN IN THE CURRENT YEAR, THE ASSESSEE HAS N EITHER CLAIMED NOR SHOWN THAT SUCH FORWARD CONTRACTS WERE ENTERED INTO FOR THE OTHER ITEMS TRADED, I.E., QUA THE BALANCE TURNOVER OF RS.1555.61 LACS, I.E., EXC LUDING NARMA SALE OF RS.74.50 LACS. OUR SECOND OBSERVATION IN THE MATTER, IMPINGING DI RECTLY ON THE GENUINENESS OF THE AGREEMENT/CONTRACT/S, IS THAT THE SAME DO NO T STIPULATE THE QUANTITY TO BE SUPPLIED OVER THE FOUR (4) MONTH (SEASON) PERIOD, I .E., FROM AUGUST 16, 2008 TO DECEMBER 15, 2008, THE DELIVERY PERIOD UNDER THE CO NTRACT/S. THAT IS, HOW MUCH IS TO BE SUPPLIED DURING EACH MONTH OF THE SAID PERIOD . RATHER, A REGULAR BUSINESS ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 11 CONTRACT WOULD BREAK THIS DOWN INTO EVEN SMALLER IN TERVALS OF TIME, AS ON WEEKLY OR FORTNIGHTLY BASIS. THE REASON IS SIMPLE. THE BUYERS ARE THE COTTON MILLS (OR SUPPLIERS THERETO), WHICH THEREFORE REQUIRE A REGUL AR SUPPLY OF NARMA FOR THEIR COTTON PRODUCTION. THAT THE SUPPLY IS AT A FIXED, P RE-DETERMINED PRICE FURTHER ENABLES THEM TO CONTROL AND PRE-DETERMINE THE COST OF THEIR PRODUCTION, WHICH COULD, IN TURN, BE SOLD FORWARD OR, IN THE VERY LEA ST, ENABLE BETTER SALE MANAGEMENT THEREOF. THIS, HOWEVER, COULD ONLY BE WHERE THE RAW MATERIAL SUPPLIED IS REGULAR OR AS PER SCHEDULE, I.E., MATCHING THE PLANNED PRODUCT ION SCHEDULE. THE SUPPLY OF NARMA COULD NOT THEREFORE POSSIBLY BE UNDEFINED, AS WE FIND IT TO BE, LEAVING IT TO THE WHIMS AND FANCY OF THE ASSESSEE-SUPPLIER, IN WH ICH CASE, ON THE CONTRARY, THERE COULD BE NO PRODUCTION MANAGEMENT. THIS IS FURTHER FRAUGHT WITH ANOTHER HAZARD. THE ASSESSEE, CONSIDERING THE CONSTANT INCREASE IN PRICES, MAY, IN A BID TO CONTROL OR MINIMIZE HIS LOSS, MAKE A HIGHER (DISPROPORTIONA TE) SUPPLY IN THE INITIAL MONTH/S. THE BUYER, WHOSE CAPACITY MAY NOT BE ELAST IC, BEING UNABLE TO PAY, FOR WHICH IN FACT, AND AGAIN SURPRISINGLY, TIME IS NOT PROVIDED, WOULD RESULT IN BLOCKING OF THE ASSESSEES WORKING CAPITAL, IMPAIRING HIS CA PACITY TO MAKE FURTHER SUPPLIES UNDER THE CONTRACT. ON THE OTHER HAND, IF THE ASSES SEE PERCEIVES THE MARKET RATE TO DECLINE IN TIME, I.E., WITH THE PROGRESS OF THE SEA SON, HE MAY, TO CURTAIL HIS LOSS OR MAXIMIZE HIS PROFIT, DEFER THE SUPPLY TO AS LATE AS POSSIBLE, THROWING TOPSY TURVY THE BUYERS PRODUCTION SCHEDULE. IN SHORT, THE NON- SPECIFICATION OF THE SUPPLY SCHEDULE (OVER THE CONTRACT PERIOD) IS NOT CONSISTE NT WITH THE BUSINESS REALITY AND, IN FACT, CARRIES OMINOUS CONSEQUENCES FOR BOTH THE SIDES. THIRDLY, AS AFORE-NOTED, NO PAYMENT SCHEDULE (CREDIT PERIOD) IS SPECIFIED. HOW COULD THE PAYMENT BE OPEN ENDED ? FOURTHLY, THE DELIVERY RECEIPTS ARE CONSPICUOUS B Y THEIR ABSENCE; NONE BEING PRODUCED AT ANY STAGE. THE SAME ONLY WOULD ES TABLISH DELIVERY OF THE GOODS BILLED, SATISFYING THE OBLIGATION ON THE ASSESSEE U NDER THE RELEVANT CONTRACT TO THAT EXTENT. WHAT, IN THEIR ABSENCE, ONE MAY ASK, IS THE RE TO SHOW THAT GOODS TO THAT ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 12 EXTENT, OF ACCEPTABLE QUALITY, HAVE INDEED BEEN DEL IVERED TO THE BUYER OR HIS AGENT (WHICH COULD ALSO INCLUDE A TRANSPORTER/ CARRIER AS SPECIFIED BY THE BUYER), IN WHICH CASE THE ASSESSEE-SUPPLIER WOULD ALSO RETAIN, IN EV IDENCE, THE CONSIGNOR COPY OF THE GR NOTE ISSUED BY THE FREIGHT CARRIER, I.E., IN ADD ITION TO THE DELIVERY NOTE (AND THE WEIGHMENT SLIP) OF THE CONSIGNMENT, I.E., EVEN IF T HE FREIGHT IS AT THE COST AND RISK OF THE BUYER. RATHER, WE OBSERVE THE ASSESSEE TO HA VE CLAIMED BEFORE THE LD. CIT(A) THAT IT HAD PAID FREIGHT ON THE SUPPLIES, WH ICH HAD IN FACT BEEN ALLOWED BY THE AO, THUS CONTRADICTING HIS OWN STAND OF NO SUPP LIES (AT THE STATED RATES) HAVING BEEN MADE (PARA 2.2 OF THE ASSESSMENT ORDER). IT IS IN FACT NOT THE AO BUT THE ASSESSEE WHO CONTRADICTS HIMSELF WHEN HE MAKES THE CLAIM OF FREIGHT ON THESE CONSIGNMENTS, NO EVIDENCE QUA WHICH THOUGH HAS BEEN LED AT ANY STAGE, INCLUDING BEFORE US. THIS IS AS THE CONTRACT/S CLEARLY STIPUL ATE ALL THE SUPPLIES TO BE MADE EX- FACTORY , SO THAT THERE IS NO QUESTION OF THE ASSESSEE HAVI NG INCURRED ANY FREIGHT EXPENDITURE ON THESE CONSIGNMENTS. IN OTHER WORDS, THE DELIVERY OF THE RELEVANT GOODS IS COMPLETELY UNEVIDENCED, LENDING CREDENCE T O THE REVENUES CLAIM OF THE ENTRIES RECORDING THE SALE TRANSACTIONS TO THESE PA RTIES AS BEING MERELY PAPER ENTRIES, WHICH CHARGE REMAINS, IN ANY CASE, UNREBUT TED BY ANY POSITIVE EVIDENCE. AT THIS STAGE IT MAY BE RELEVANT TO CLARIFY THAT EVEN IF THE ASSESSEE WERE TO DEMONSTRATE PHYSICAL SUPPLY OF GOODS WHICH IT HAS NOT, BY PRO DUCING ANY CONTEMPORANEOUS MATERIALS, VIZ. DELIVERY RECEIPTS, WEIGHMENT SLIPS, GR NOTE/FREIGHT RECEIPT ETC., THE SAME, THOUGH ADDING STRENGTH TO THE ASSESSEES CASE , WOULD NOT BY ITSELF AUTOMATICALLY PROVE THE ASSESSEES CASE OF HAVING S USTAINED LOSS IN THE REGULAR COURSE OF HIS BUSINESS. THIS IS AS EQUALLY RELEVANT AND VITAL TO THE CLAIM (OF LOSS) IS OF HAVING MADE THE SUPPLIES AT A FIXED, PREDETERMIN ED PRICE IN THE FACE OF CONSTANTLY INCREASING (OR VOLATILE) MARKET, WHICH H AS RESULTED IN THE LOSS. THAT IS, IT IS NOT THE SUPPLY PER SE , BUT THE RATE/S AT WHICH IT IS MADE THAT WOULD PRO VE THE ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 13 ASSESSEES CASE. THAT HE HAS BEEN UNABLE TO ESTABLI SH THE DELIVERY OF THE GOODS MAKES HIS CASE THAT WAS WEAKER; IN FACT, A NON-STAR TER. 5.3 AS REGARDS THE RATE OF SUPPLY, I.E., ASSUMING IT (SUPPLY) DESPITE BEING NOT ESTABLISHED AS A FACT, THE PRINCIPAL ISSUE, AS AFOR E-STATED, IS THE PURPOSE OR THE ECONOMIC LOGIC OR REASON GUIDING OR MOTIVATING THE CONTRACT, WHICH HAS NOWHERE BEEN STATED OR EXPLAINED. WHERE THE SAME IS TO OPTI MIZE THE PROFIT OR, IN ANY CASE, SAFEGUARD AGAINST LOSS THAT MAY ARISE, IT CAN SAFEL Y BE SAID TO HAVE BEEN INCURRED IN THE REGULAR COURSE OF BUSINESS AND, THUS, ALLOWABLE IN COMPUTING BUSINESS INCOME. NO SUCH BUSINESS PURPOSE OR ECONOMIC REASON HAS BEE N SHOWN TO HAVE GUIDED THE BUSINESS DECISION IN ASSUMING SUCH DISPROPORTIONATE RISK BY BEARING MARKET VOLATILITY OVER THE NEXT FEW MONTHS COMPRISING THE SEASON. WHY? ONE COULD ALSO UNDERSTAND WHERE SUCH SIMILAR LONG POSITION IN THE PAST HAD RESULTED IN GAIN. IT HAS NOT EVEN BEEN SHOWN THAT THE BUYERS INSISTED ON THE SELLER ASSURING THE SEASONS SUPPLY AT A FIXED RATE/S, IN WHICH CASE THIS WOULD BE A REGULAR FEATURE OF THE TRADE, I.E., OF THE OTHER SUPPLIERS IN THE TRADE, AS WELL AS OF THE ASSESSEE HIMSELF IN THE PAST. RATHER, SUCH INSISTENCE WOULD PROMPT THE SUPPLIERS, AS THE ASSESSEE, TO SIMILARLY ENTER INTO SEASONS PURCHASE CONTRACT/S, HEDGING HI S PRICE RISK. AGAIN, THE ASSESSEES ACTION IS UNDERSTANDABLE ON THE BASIS OF PAST DATA, AS WHERE, FOR INSTANCE, THE MARKET HAD EXHIBITED DOWNWARD TREND AFTER THE O PENING OF THE SEASON IN AUGUST, OR AT LEAST A LOWER AVERAGE PRICE (FOR THE SEASON) WITH REFERENCE TO THE OPENING PRICE, IMPELLING ONE TO ASSUME A LONG POSIT IONS AND BOOK A RATE WITH REFERENCE TO THE SAID OPENING OR AVERAGE RATE, YIEL DING, THUS, A BETTER MARGIN THAN MAY OTHERWISE OBTAIN. THAT THE SAME THOUGH DID NOT MATERIALIZE FOR THE CURRENT YEAR IS A DIFFERENT MATTER, AND IN FACT PRECISELY T HE REASON WHY THE LOSS CAME TO BE SUFFERED. NO SUCH CASE STANDS MADE OUT AT ANY STAGE, INCLUDIN G BEFORE US. SUCH AN EXERCISE WOULD RATHER BE ONE OF RISK MANAGEMENT, I. E., AN ATTEMPT TO MINIMIZE RISK, EVEN IF AT A LOWER, ASSURED PROFIT. IN FACT, IN THE INSTANT CASE, THE SALE RATE/S DOES ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 14 NOT, AS IT APPEARS, CORRESPOND EVEN WITH THE OPENIN G RATE; THE LOWEST RATE FOR THE SEASON, AS STATED AND NOT CONTRADICTED, BEING RS. 2850 PER QUINTAL, AS AGAINST THE SALE RATE OF RS.2700/2750 PER QUINTAL, WITH THE AVE RAGE BEING AT RS.2987 PER QUINTAL (RS. 81,58,993/2731.49 QTLS.). ADD TO THIS THE FACT THAT THE SAID CONTRACTS HAVE BEEN FOUND WANTING ON SEVERAL BASIC ASPECTS BY US. FURTHER, THERE ARE NO PENAL/COMPENSATORY CLAUSES, AS WHERE THE TERMS OF T HE CONTRACT ARE NOT ADHERED TO. WE HAVE ALREADY NOTED THE ABSENCE OF ANY STIPULATIO N AS TO PAYMENT, I.E., WHETHER IT WOULD STAND TO BE RECEIVED IN ADVANCE, IN WHICH CAS E THE OBLIGATION TO SUPPLY WOULD BE WITHIN A FIXED PERIOD THEREOF, OR THE CRED IT PERIOD AFTER WHICH THE CONSIDERATION SHALL FALL DUE FOR PAYMENT. WHY, IN O NE OF THE CASES, M/S. VENUS COTTON TRADERS, BATHINDA, TO WHOM THE ASSESSEE IS CONTRACTED TO SUPPLY 1000 QUINTALS OF NARMA, HE HAS INSTEAD ADVANCED RS.11 LA CS ON INTEREST-FREE BASIS. THIS IS QUIZZICAL, PARTICULARLY WHEN JUXTAPOSED WITH THE FA CT OF SALE OF NARMA FOR RS.26.42 LACS THERETO DURING THE YEAR, ALMOST THE WHOLE OF W HICH, I.E., RS.22.39 LACS, REMAINS UNPAID AS AT THE YEAR-END. LIKEWISE, IS THE CASE FO R MAHADEV AGRO INDUSTRIES, THE OUTSTANDING IN WHOSE ACCOUNT AS ON 31.03.2009 IS AT RS.39.66 LACS, WHILE THE NARMA SUPPLIED TO WHOM UNDER THE CONTRACT IS FOR RS. 13.5 0 LACS. EVEN ASSUMING THE ENTIRE OF IT, AS STATED, A TRADE DEBT, THERE HAS BEEN NO O R LITTLE RECOVERY. CLEARLY, THERE IS MORE TO THE TRANSACTIONS THAN MEETS THE EYE. 5.4 THOUGH THERE IS NO CLEAR FINDING BY THE AO/LD. CIT(A) ON THIS, IT APPEARS THAT THERE IS NO MISMATCH IN THE ACCOUNTS OF THE AS SESSEE WITH THE TRADE DEBTORS IN- AS-MUCH AS THEIR ORDERS ARE SILENT ON THIS. THE ENT RIES IN THE BOOKS OF ACCOUNT ARE, HOWEVER, NOT CONCLUSIVE WHERE THE GENUINENESS OF TH E ARRANGEMENT, PURPORTEDLY ENTERED INTO BETWEEN THEM, IS IN DOUBT, AS IN THE P RESENT CASE. IF THE AGREEMENT IS A MAKE-BELIEVE OR COLLUSIVE, WHAT VALUE THE ENTRIES I N THE BOOKS OF ACCOUNT RECORDING THE TRANSACTION/S ENTERED IN PURSUANCE THEREOF? THA T NONE OF THE PARTIES CONFIRMED ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 15 THE AGREEMENT IS IN FACT SURPRISING; AND WE AGREE W ITH THE LD. CIT(A) THAT THE ONUS TO CROSS-EXAMINE THEM, BEING ONLY HIS WITNESSES, WA S ON THE ASSESSEE. EVEN OTHERWISE, LACK OF OPPORTUNITY TO CROSS EXAMINE, I. E., ASSUMING SO, WOULD ONLY WARRANT A SET ASIDE BACK FOR THE PURPOSE OF THE SAI D CROSS EXAMINATION ( ITO V. M. PIRAI CHOODI [2011] 334 ITR 262 (SC)). 5.5 IN SUM THE GENUINENESS OF THE TRANSACTIONS, ON THE CONSPE CTUS OF THE CASE, IS COMPLETELY UNPROVED. TO BEGIN WITH, THE ASSESSEE DI D NOT RAISE ANY OBJECTION OR FURNISH ANY EXPLANATION WHEN CONFRONTED BY THE AO. THAT THE CONTRACTS STAND ENTERED INTO IN THE REGULAR COURSE OF TRADE, OR AS A NORMAL INCIDENT THEREOF, IS NOT SHOWN, AND WHICH COULD, WHERE SO, EASILY BE. NO SUC H INSTANCES IN THE PAST, ON EVEN FOR THE RELEVANT YEAR, FOR ANY OF THE OTHER CO MMODITIES DEALT IN, HAS BEEN CITED. THE BUSINESS PURPOSE OR ECONOMIC RATIONALE T HAT INFORMS THE AGREEMENT IS CONSPICUOUS BY ITS ABSENCE. IS THE ASSESSEE ACTING ON THE BASIS OF THE SOME PAS T EXPERIENCE OR DEMONSTRATED PRICE BEHAVIOR ? WHAT IS THE INFORMATION OR THE DATA, ACTING ON THE BASIS OF WHICH THE ASSESSEE, AS A BUS INESS MAN, WITH A BUSINESS PURPOSE AND, RATHER, IN THE INTEREST OF HIS BUSINES S, ENTERS INTO THESE CONTRACTS COVERING THE ENTIRE SALE OF NARMA FOR THE SEASON 20 08-09. IT IS THIS BASIS, BASED ON OBJECTIVE MATERIAL, THAT SHALL PROVIDE THE ECONOMIC JUSTIFICATION FOR ENTERING INTO THE AGREEMENT/S. IT IS THIS, AND THIS ALONE, THAT W OULD JUSTIFY THE GENUINENESS THEREOF. WE SAY SO AS THE ABSENCE OF ANY SUCH BASIS IMPLIES SELF-INFLICTION OF LOSS, WHICH CANNOT BE REGARDED AS INCURRED IN THE NORMAL COURSE OF BUSINESS. FURTHER, THAT THE ARRANGEMENT FINALLY RESULTS IN A LOSS IS T HOUGH A MATTER SUBSEQUENT. RATHER, THE NORMAL COURSE FOR A BUSINESS MAN, IN THE ABSENC E OF ANY SUCH BASIS, WOULD BE TO ENTER INTO, SIMILARLY, FORWARD CONTRACTS FOR PURCHA SE, HEDGING HIS BUSINESS (PRICE) RISK. SUCH AN ARRANGEMENT IS MISSING FOR COTTON, SO LD TEN TIMES IN QUANTITY, WHOSE ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 16 PRICE WOULD AGAIN MOVE IN SYMPATHY WITH NARMA. WE S AY SO AS THE ASSESSEE, MUCH MORE ACTIVE IN THE COTTON TRADE, I.E., IN COMPARISO N WITH NARMA, WOULD ORDINARILY HAD, GIVEN SUCH AN INFORMED BASIS, ENTER INTO SIMIL AR ARRANGEMENT/S FOR THE SALE OF COTTON. THE CONTRACTS, FURTHER, ON EXAMINATION ARE FOUND TO BE INCONSISTENT WITH THE BASIC BUSINESS REALITIES. THERE IS NO SUPPLY SCHEDU LE, ONLY WHICH WOULD MAKE IT OPERATIONAL, AND WITHOUT WHICH NEITHER CAN THE ASSE SSEE PLAN HIS PURCHASES NOR THE BUYER HIS PURCHASE/PROCUREMENT OR PRODUCTION. THAT IS, IS SANS ANY BUSINESS SENSE. NO CREDIT PERIOD IS SPECIFIED, SO THAT THE SUPPLIES , MADE LATEST BY 15.12.2008, CONTINUE, AS IT APPEARS, TO OUTSTAND FOR PAYMENT EV EN UP TO 31.03.2009, WITH IN FACT THE ASSESSEE EVEN FINANCING ONE OF THE BUYERS , SO THAT THE PAYMENT RECEIVED, WHICH IS FROM ONE OF THEM, AGAIN, DOES NOT FORM PART OF T HE ASSESSEES WORKING CAPITAL (SYSTEM) AND, RATHER, GETS DEPLOYED FOR THE BENEFIT OF THE SAID BUYER! NOW, COULD IT BE THAT WHILE THE ASSESSEE IS UNDER THE CONTRACT OB LIGED TO, EVEN IF AT A LOSS, SUPPLY THE GOODS, THE SAME DOES NOT CARRY ANY CORRESPONDIN G OBLIGATION AS TO PAYMENT, MAKING THE BUYER LIABLE FOR PENAL CONSEQUENCES FOR NON-PAYMENT WITHIN THE STIPULATED CREDIT PERIOD? THE NON-PAYMENT, THEN, IS ITSELF A GROUND ENOUGH FOR THE ASSESSEE TO RESCIND THE AGREEMENT, WHICH IS CLEARLY A MAKE-BELIEVE, BEING WITHOUT ANY SENSE OF (BUSINESS) PURPOSE OR PROPORTIONALITY. IN FACT, EVEN THE DELIVERY IS NOT PROVED, WHICH THOUGH IMPORTANT IN-AS-MUCH AS IT ONL Y WILL PROVE (NARMA) SALE, IS IN THE FINAL ANALYSIS NOT DETERMINATIVE OF THE MATTER. WE, FOR THE REASONS AFORE-STATED, FIND NO INFIRMITY IN THE DISALLOWANCE OF THE ASSESS EES CLAIM OF BUSINESS LOSS ON THE SALE OF NARMA (RS.7.08 LACS) BY THE REVENUE. WE DEC IDE ACCORDINGLY. 6. THE SECOND GROUND RELATES TO THE DISALLOWANCE OF INTEREST ON BORROWED CAPITAL TO THE EXTENT OF RS.54,750/- U/S. 36(1)(III ). THE DISALLOWANCE WAS EFFECTED IN THE ABSENCE OF THE ASSESSEE FURNISHING ANY BUSINESS PURPOSE OF AN ADVANCE OF RS.16.50 LACS DURING THE RELEVANT PERIOD ON INTERES T-FREE BASIS, INCLUDING RS.11 LACS ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 17 TO M/S. VEENUS COTTON TRADERS, A CUSTOMER AND TRADE DEBTOR OWING MONIES AGAINST SALES TO IT DURING THE YEAR, CONTINUING UP TO THE Y EAR-END. THE SAME WAS CONFIRMED ON THE SAME BASIS. BEFORE US, THE ASSESSEES CASE W AS THE EXISTENCE OF SUFFICIENT CAPITAL, TOWARD WHICH THERE BEING NO MATERIAL ON RE CORD, THE ASSESSEE WAS REQUIRED TO FURNISH HIS BALANCE-SHEET AS AT THE YEAR-END (31 .3.2009), WHICH HE DID ON 20.12.2018 VIDE HIS LETTER DATED 18.12.2018. THE SA ME REFLECTS A CAPITAL OF RS.7.07 LACS AS ON 31.03.2009, INCLUDING THUS THE PROFIT (O F RS.2.73 LACS) FOR THE YEAR, AS THE SAME STANDS CREDITED ONLY AT THE YEAR-END, EVEN AS THE IMPUGNED ADVANCES STAND MADE DURING THE YEAR. EVEN SO, THE CAPITAL IS AT A MERE RS.7.07 LACS. THE FIXED ASSETS ARE AT RS.28.14 LACS. DEDUCTING FROM THIS FI GURE RS.22.75 LACS, I.E., THE TERM LOANS AS ON 31.03.2009, LEAVES A BALANCE OF RS.5.39 LACS WHICH (ALONG WITH THE NON-CURRENT ASSETS IN THE FORM OF ELECTRIC SECURITY AT RS.0.85 LACS), IS THUS FINANCED FROM OWN CAPITAL, LEAVING THUS THE PALTRY BALANCE O F RS.0.83 LACS (RS.7.07 RS.5.39 RS.0.85) LACS TOWARD WORKING CAPITAL. THE ASSESSEES ENTIRE CURRENT ASSETS (RS.240.78 LACS) AS WELL AS THE ADVANCE (RS.16.50 L ACS) ARE THUS, SAVE TO THE EXTENT OF RS.0.83 LACS, FINANCED FROM BORROWED CAPITAL AND TRADE LIABILITIES, OUTSTANDING AT RS.13.22 LACS AND RS.243.23 LACS RESPECTIVELY AS AT THE YEAR-END. IN THE WORKING CAPITAL CYCLE (CASH TO CASH), THE STOCK, WHICH CARR IES WITH IT A SPONTANEOUS CREDIT ON PURCHASES, GETS CONVERTED ON SALE INTO A TRADE DEBT BEFORE BEING CONVERTED INTO CASH ON REALIZATION, WHICH IS UTILIZED FOR DISCHARGING T HE TRADE LIABILITY. AS THE TRADE LIABILITY EXCEEDS THE CURRENT ASSETS, THE LOANS & A DVANCES PORTFOLIO (RS.16.50 LACS) IS ACCORDINGLY FUNDED AS UNDER (AS ON 31.03.2009): TRADE LIABILITIES : RS. 2.45 LACS (RS.243.23 LA CS - RS.240.78 LACS) BORROWED CAPITAL : RS.13.22 LACS OWN CAPITAL : RS. 0.83 LACS : RS.16.50 LACS ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 18 THE IMPUGNED ADVANCE THUS STANDS ADVANCED TO THE EX TENT OF 80.12% BY BORROWED CAPITAL. THE INTEREST DISALLOWED IS ON PROPORTIONAT E BASIS, I.E., IN PROPORTION TO THE PERIOD EACH AMOUNT COMPRISING RS.16.50 LACS OUTSTAN DS DURING THE YEAR. THE ASSESSEE SHALL GET FURTHER RELIEF, I.E., TO THE EXT ENT OF 19.88% THEREOF ON ACCOUNT OF BEING FINANCED BY TRADE LIABILITIES AND OWN CAPITAL , BOTH BEING NON-INTEREST BEARING. THIS IN FACT TAKES A LIBERAL VIEW OF THE MATTER INA SMUCH AS CREDIT FOR THE ENTIRE PROFIT FOR THE YEAR ARISING DURING THE YEAR; IN F ACT, DURING THE SEASON WHICH FALLS IN THE LATTER PART OF THE YEAR, STANDS ALLOWED. WE DEC IDE ACCORDINGLY. 7. GROUNDS 3 AND 4 RELATE TO THE DISALLOWANCE OF GI NNING CHARGES AND DEPRECIATION, CLAIMED AT RS.2,40,072/- AND RS.2,37, 262 RESPECTIVELY. THE SAME BEING INTER-RELATED ARE TAKEN-UP TOGETHER. THE ASSE SSEE HAVING TRADED IN NARMA AND COTTON, I.E., AS SUCH, THE AO FOUND NO BASIS FOR TH E CLAIM OF GINNING CHARGES. IN OTHER WORDS, THE ASSESSEE BEING A TRADER, WHAT HAD THE GINNING CHARGES BEEN PAID FOR REMAINED UNANSWERED. THE ASSESSEE, IN APPEAL, E XPLAINED TO HAVE GOT 3000 QUINTALS OF THE 20,972 QUINTALS OF COTTON WASTE GIN NED AND PRESSED FROM OUTSIDE, AS HE DID NOT HAVE ANY PRESSING MACHINERY IN HIS OWN F ACTORY. THIS, HOWEVER, CONTRADICTED THE ASSESSEES CLAIM FOR DEPRECIATION ON MACHINERY, IN SUPPORT OF WHICH THE GINNING AND PRESSING WAS STATED TO HAVE B EEN DONE ON OWN MACHINERY. CONSEQUENTLY, BOTH THE CLAIM FOR GINNING CHARGES AND DEPRECIATION, WERE DISALLOWED, FURTHER ADDING THAT NO ELECTRICITY EXPE NDITURE HAD BEEN SHOWN AS INCURRED FOR RUNNING THE MACHINERY. BEFORE US, IT W AS EXPLAINED BY THE LD. COUNSEL, SH. KALIA, THAT LOOSE COTTON OF DIFFERENT GRADES AN D QUALITIES, INCLUDING WASTE COTTON, IS PURCHASED. GINNING WAS DONE TO CONVERT I T INTO ONE STANDARD QUALITY. THIS WAS DONE UP TO AUGUST, 2008 ON OWN GINNING MACHINES , INCURRING ELECTRICITY EXPENDITURE AT RS.4,19,740/-, BESIDES WAGES AND MAC HINERY REPAIR EXPENSES. AS THE POWER CONNECTION BECAME INOPERATIONAL AFTER AUGUST, 2008, GINNING TO THE EXTENT ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 19 OF 3,000 QUINTALS WAS GOT DONE FROM M/S. SHREE KRIS HNA & CO. AT A COST OF RS.2,40,072, ALSO DEDUCTING TAX AT SOURCE THEREON. THE SAME WOULD ALSO JUSTIFY THE CLAIM OF DEPRECIATION ON MACHINERY, BROUGHT FORWARD FROM THE EARLIER PERIODS. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. AS IT APPEARS TO US, IT IS THE LACK OF PROPER ARTIC ULATION OF HIS CASE, SUBSTANTIATING HIS CLAIMS BY THE ASSESSEE, THAT HAS LED TO THE IMPUGNED DISALLOWANCE. WHY DID, FOR INSTANCE, THE ASSESSEE P REPARE A TRADING ACCOUNT OF COTTON, SUGGESTING IT OF BEING SOLD AS IT IS, WHEN, AS CLAIMED BEFORE US, GINNING WAS DONE TO CONVERT COTTON AND COTTON WASTE INTO STANDA RD QUALITY, ALSO INCURRING EXPENDITURE ON POWER AND LABOUR. THE ASSESSEE SHOUL D HAVE, ACCORDINGLY, PREPARED A MANUFACTURING ACCOUNT, DEBITING THE GINNING AND P RESSING CHARGES, BESIDES THE SAID TWO EXPENSES TO THIS ACCOUNT. EVEN AS THE SAME IS A MATTER OF PRESENTATION, BY ITSELF NOT DECISIVE, IT DOES RAISE A QUESTION WHICH , GIVEN HIS OWN ACCOUNTS, DULY AUDITED, REQUIRES EXPLANATION. FURTHER, WHY, ONE WO NDERS, THE EXPLANATION/FACTS BEING NOW STATED WERE NOT FURNISHED BEFORE THE REVE NUE AUTHORITIES? THE ELECTRICITY CHARGES, DEBITED IN ACCOUNTS, AS WE OBS ERVE, ARE FOR RS.3.74 LACS AND NOT FOR, AS STATED, RS.4.20 LACS AND, BESIDES, THERE AR E PRESSING CHARGES (RS.67,808/-) AS WELL. THOUGH THE MATTER, STRICTLY SPEAKING, SHOULD BE SET ASIDE FOR VERIFICATION OF THESE CLAIMS, WE DO NOT THINK, GIVEN THE TIME THAT HAS LAPSED SINCE, THAT ANY PROPER PURPOSE WOULD BE SERVED BY DOING SO. WE ALSO CANNOT BE OBLIVIOUS TO THE BURDEN, BOTH ON THE ASSESSEE AND THE ADMINISTRATIVE MACHINE RY, THAT ACCOMPANIES SUCH A RESTORATION, PARTICULARLY AS THE SAME INCLUDES THIR D PARTY CONFIRMATION/EVIDENCES. THE ASSESSEES CASE SEEMS PRIMA FACIE ACCEPTABLE, IN VIEW OF WHICH, AS WELL AS TO GIVE A QUIETUS TO THE MATTER, WE DIRECT THE ALLOWAN CE OF THE IMPUGNED CLAIMS. WE DECIDE ACCORDINGLY. ITA NO. 274/ASR/2014 (AY 2009-10) ASHOK KUMAR V. ITO 20 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 22, 2019 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 22.02.2019 /GP/SR PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: ASHOK KUMAR, 1908/C, PHASE 3 , VISHAL NAGAR, BATHINDA (2) THE RESPONDENT: INCOME TAX OFFICER, WARD 1( 1), BATHINDA (3) THE CIT(APPEALS), BATHINDA (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T. TRUE COPY BY ORDER