2015 (9) TMI 1185 - HC - Income Tax

Estimation of income - genuineness of fall in price / loss - AO relied upon various surrounding circumstances such as sales made by a sister concern of the Respondent-Assessee Canon Steels Pvt. Ltd. to conclude that there was no crash in the market, warranting a loss - Breach of the natural justice - Whether the Tribunal after upholding the contention of the Appellant that the orders of the Assessing Officer & Commissioner of Income Tax (Appeals) were passed in breach of the natural justice in the absence of the cross examination, is correct in sustaining the orders on the basis of other circumstances? Held that -Tribunal by the impugned order accepted the Respondent s appeal before it to the extent the order of the Assessing Officer and the CIT(A) placed reliance upon the statements of the three persons made to the Commissionerate at Ludhiana without being available for cross examination. This was not permissible as being in breach of natural justice. However, after holding the above, the impugned order proceeds to consider the other evidence on record to examine whether or not the disallowance of loss by the lower authority could be sustained even after ignoring the statements of persons who were not offered for the cross examination. The impugned order found that both the Assessing Officer and the CIT(A) had on the basis of other evidences and surrounding circumstances as set out above, concluded that loss claimed, was not genuine. The impugned order also relied upon the dictum set out by the Apex Court in CIT v/s. Durga Prasad More 1971 (8) TMI 17 - SUPREME Court and Sumati Dayal v/s. CIT 1995 (3) TMI 3 - SUPREME Court that taxing authorities are entitled to look at the surrounding circumstances to find out the reality of the affairs on the test of human probabilities (de hors the evidence recorded on commission). This is so, as observed by the Apex Court apparent being not real. In the circumstances, it concluded that the loss was not genuine. The finding of fact recorded by the impugned order is not shown to be perverse and/or arbitrary. It is a possible view in the context of facts arising in this case for consideration. Thus, the question as proposed for our consideration does not give rise to any substantial question of law. Accordingly, we see no reason to entertain the present Appeal.

Summary

Issues:
Challenge to Tribunal's order under Section 260A of the Income Tax Act, 1961 for Assessment Year 1996-97.

Analysis:
The case involved a partnership firm engaged in trading in raw wool, synthetic waste, and acrylic fiber. The Assessing Officer observed a claimed loss of &8377; 43.45 lakhs on goods purchased for &8377; 2.02 Crores. The firm explained the loss due to a crash in raw wool prices, but the Assessing Officer found discrepancies. He issued a commission to verify the price crash, which revealed no fall in prices during the relevant period. Additionally, most sales were in cash, hindering further investigation. The Assessing Officer also doubted the firm's explanation of purchasing raw wool at prefixed prices. The firm's claim of being in the retail business was also questioned due to lack of evidence of salary payments to workers. Consequently, the Assessing Officer concluded that the claimed loss was not genuine.

Upon appeal, the CIT(A) upheld the Assessing Officer's decision based on various circumstances: absence of agreements with suppliers, consistent losses without normal business conduct, cash sales without proper documentation, and lack of proof of purchase prices. The CIT(A) disallowed the loss claim.

The Tribunal accepted the appeal to the extent that reliance on statements not available for cross-examination was a breach of natural justice. However, it upheld the disallowance of the loss based on other evidence and surrounding circumstances. Citing legal precedents, the Tribunal emphasized that taxing authorities can consider surrounding circumstances to determine the reality of affairs. The Tribunal found the loss claim to be not genuine based on these considerations.

The High Court dismissed the appeal, stating that the Tribunal's finding was a possible view considering the facts of the case. The Court found no substantial question of law to entertain the appeal, thus upholding the Tribunal's decision to disallow the loss claim.