Punjab & Haryana H.C : The action of the authorities below in making addition on account of valuation of closing stock of rice superfine, on its own presumption and ignoring the appropriate evidence adduced by the appellant, is legally sustainable in the eyes of law

High Court Of Punjab & Haryana

Papneja Traders vs. CIT

Assessment Year : 1998-99

Section : 68

Adarsh Kumar Goel And Ajay Kumar Mittal, JJ.

IT Appeal Nos. 410 And 411 Of 2006

April 6, 2011

JUDGMENT

Ajay Kumar Mittal, J. – This order shall dispose of I.T.A. Nos. 410 and 411 of 2006 as according to the learned counsel both the appeals arise from the same order of the Tribunal. For brevity, the facts are being extracted from I.T.A. No. 410 of 2006.

2. This appeal has been preferred by the assessee under section 260A of the Income-tax Act, 1961 (in short “the Act”), against the order dated September 29, 2005, passed by the Income-tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “the Tribunal”) in I. T. A. No. 807/Chandi/2001 relating to the assessment year 1998-99, claiming the following substantial questions of law :

“(i) Whether, in the facts and circumstances of the present case, the action of the authorities below in making addition on account of valuation of closing stock of rice superfine, on its own presumption and ignoring the appropriate evidence adduced by the appellant, is legally sustainable in the eyes of law ?

(ii) Whether, in the facts and circumstances of the present case, the action of the authorities below in diverting from its own views without any basis or appropriate reasons for the same is legally sustainable in the eyes of law ?

(iii) Whether, in the facts and circumstances of the present case, the action of the authorities below in sustaining the addition on account of cash credit from one Sh. Harbans Lal, when the appellant had fully discharged its onus, is legally sustainable in the eyes of law ?

(iv) Whether, in the facts and circumstances of the present case, the action of the authorities below in sustaining the addition of Rs.16,676 on account of excess loss claimed in Bardana account, is legally sustainable in the eyes of law ?

(v) Whether, in the facts and circumstances of the present case, the action of the authorities below, vide annexures A-1 to A-3 on its own presumption, is legally sustainable in the eyes of law ?

(vi) Whether, in the facts and circumstances of the present 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 narrated in the appeal are that the assessee is a partnership concern and is engaged in the business of manufacturing and selling of rice. The assessee filed its return on October 8, 1998, declaring a total income of Rs. 32,820. The Assessing Officer, vide order dated March 21, 2001, assessed the income of the assessee at Rs. 44,76,640. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) (in short “the CIT(A)”) who, vide order dated June 6, 2001, partly allowed the appeal. Against the order of the Commissioner of Income-tax (Appeals), the Revenue as well as the assessee filed appeals before the Tribunal. The Tribunal, vide order dated September 27, 2005, partly allowed the appeal of the Revenue whereas the appeal filed by the assessee was dismissed. Hence, the present appeal by the assessee.

4. We have heard learned counsel for the appellant.

5. The issue for consideration in these appeals is whether the additions of cash credit of Rs. 45,000 in the name of Shri Harbans Lal and the claim of loss on account of bardana by the assessee were justified.

6. The Tribunal while adjudicating the aforesaid issue of cash credit of Rs.45,000 in the name of Shri Harbans Lal against the assessee had held that the capacity and the genuineness of the creditor had not been proved. It recorded the following finding of fact :

“25. Taking up assessee’s appeal, the first ground challenges the order of the Commissioner of Income-tax (Appeals) whereby the addition of Rs. 45,000 made by the Assessing Officer in respect of cash credit was sustained as also the interest thereon. The brief facts are that during the year the assessee had raised unsecured loan of Rs.45,000 from one Shri Harbans Lal of Gali No. 1, Jawala Nagar, Saharanpur (U. P.). During the course of assessment proceedings, the Assessing Officer got the statement of said Shri Harbans Lal recorded through his Inspector who reported that Shri Harbans Lal had admitted having advanced a sum of Rs. 30,000 but did not admit interest receipt. He also observed that the creditor was apparently not having any source of income and his sons were selling vegetables. The Assessing Officer, therefore, treated the loan as bogus and also disallowed the interest thereon. On appeal, it was submitted before the Commissioner of Income-tax (Appeals) that the loan was received through bank draft prepared out of the maturity of FDRs and hence the source stood proved. The learned Commissioner of Income-tax (Appeals) because of the discrepancy found in the statement of the creditor that he advanced Rs. 30,000 whereas the assessee had shown a sum of Rs. 45,000 in his name as also on the ground that merely because money had come through account payee draft was not sufficient as held in the cases reported as CIT v. PrecisionFinance Pvt. Ltd. [1994] 208 ITR 465 (Cal) and Nizam Wool Agency v. CIT [1992] 193 ITR 318 (All), sustained the impugned addition. The assessee is aggrieved and hence in appeal before us.

26. The learned authorised representative made the same submissions before us as were made before the authorities below that the amount of Rs. 30,000 had been received through encashment of FDRs in the name of Shri Harbans Lal and Rs. 15,000 has been separately received by draft. The learned Departmental representative, on the other hand, relied on the orders of the authorities below.

27. On hearing the rival submissions and going through the orders of the authorities below, we find that the creditor Shri Harbans Lal himself has admitted that he had advanced only Rs. 30,000 and has not received any interest on such loan and his sons are selling vegetables. In this way, the Assessing Officer was right in concluding that Shri Harbans Lal is not a man of means and the necessary three ingredients of cash credit, i.e., identity, capacity and genuineness of the transactions had not been proved by the assessee. Although the amount has been received through bank draft, yet payment by cheque or draft does not prove the genuineness of the transaction as held by the Calcutta High Court in the case of CIT v. Precision Finance Pvt. Ltd. [1994] 208 ITR 465 (Cal). Further, as held by the Calcutta High Court in the case of Shankar Industries v. CIT [1978] 114 ITR 689 (Cal), mere identity of the creditor is not enough, capacity of the creditor and genuineness of the transaction have also to be proved. In the instant case, there is nothing on record to prove the capacity of the creditor and the genuineness of the transaction. Hence, we decline to interfere with the order of the Commissioner of Income-tax (Appeals) in sustaining the impugned addition. This ground of appeal of the assessee is dismissed.”

7. While upholding the disallowance of loss on account of bardana, the Tribunal had observed as under :

“23. Ground No. 7 pertains to the disallowance of bardana loss at Rs. 1,15,490 out of Rs. 1,31,566. The facts are that the assessee claimed loss of Rs. 5,07,648 in the bardana account. The same had occurred due to transactions with M/s. Prahlad Bhagat and Co. from whom the assessee purchased rice superfine and rice basmati. The stock was valued at Rs. 10 per bag. The opening stock had also been valued at Rs. 10 per bag. The assessee had purchased 125738 bags for Rs. 2,71,859 on November 7, 1997. It had peak stock in the paddy account, i.e., 48348 quintals which was packed in old bags. Similarly, rice bran was also filled in the old bags. Rice superfine weighing 9160 quintals which required 9160 bags. The assessee purchased 4500 new bags on March 10, 1998, 3000 bags on March 19, 1998 and 2770 bags on March 30, 1998, for Rs. 21.90 each. It sold 10714 old bags for Rs. 5 each on March 31, 1998. The value of 9160 bags worked out at Rs.2,00,604. The remaining old bags were valued at Rs. 10 each for 75340 bags and thus the total worked out to Rs. 9,54,000 against Rs.8,45,000 shown and the difference of Rs. 1,09,004 was added to income. Similarly, for transaction with M/s. Prahlad Bhagat and Co. which was held to be collusive as rice was purchased at Rs. 900 per quintal from them and supply was made at Rs. 750 per quintal, the difference in value of bag at Rs. 1.50 per bag was added resulting in addition of Rs. 6,480 for 4324 bags. Similarly, for rice basmati purchased from M/s. Prahlad Bhagat and Co. at Rs. 771 for which cost of bag was charged at Rs. 22 per bag which was against the normal practice because the cost of bag is charged at the same rate at which rice is supplied. The assessee had paid Rs. 16,076 in excess. The total addition was worked out at Rs. 1,31,586. It was submitted before the Commissioner of Income-tax (Appeals) that the assessee had purchased 9279 new bags on March 10, 1998, March 19, 1998, and March 30, 1998. This bardana was not used in closing stock of rice superfine because the stock was damaged and remained in stock out of old husking and it was packed in used bags. The bardana purchased in March was used for supplies made in March itself to DFSC who do not take delivery in old bags. The said bardana was supplied at the rate at which rice was supplied except for that which was supplied by M/s. Prahlad Bhagat and Co. who charges separately for new bags. As regards collusive transaction with M/s. Prahlad Bhagat and Co. for purchase of rice at Rs. 900 and sale at Rs. 750, the reasons for such transactions, the assessee explained the reasons for the same that good quality rice had been purchased from them and poor quality supplied. The Commissioner of Income-tax (Appeals) was of the view that credit for supply made to DFSC after purchase of bags in March should have been given to the assessee. M/s. Prahlad Bhagat and Co. had supplied 1179 bags on March 30, 1993 and March 31, 1998, rest of the bags purchased in March were used by the assessee out of his own stock purchased in March at higher rate but supply was effected at lower rates. Thus, the loss was admissible. As regards the collusive transactions with M/s. Prahlad Bhagat and Co., the Commissioner of Income-tax (Appeals) held that the same remained unproved. The only addition that can be sustained in this regard was with regard to supply made by M/s. Prahlad Bhagat and Co. at Rs. 771 for which bags had been charged at Rs. 2 which is to be taken as loss of M/s. Prahlad Bhagat and Co. and not that of the assessee. The addition of Rs. 16,676 was thus sustained by the Commissioner of Income-tax (Appeals) and the balance addition deleted thereby giving the assessee a relief of Rs. 1,15,490.”

8. Learned counsel for the appellant has made strenuous efforts to persuade this court to reappreciate the evidence without pinpointing any perversity in the findings recorded by the Tribunal which is not permissible. The case credit shown in favour of Shri Harbans Lal and the loss of Bardana amounting to Rs. 16,676 have been held to be inadmissible on appreciation of evidence on record. The said finding being a finding of fact calls for no interference by this court.

9. Accordingly, there is no merit in these appeals and the same are hereby dismissed.

[Citation : 337 ITR 172]

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