2017 (11) TMI 724 - HC - Income Tax

Addition made on account of bogus loss - loss claimed on transactions not routed through stock exchange - assessee failed to discharge its onus of proving the same as genuine transactions? - Held that - We were of the opinion that the issue is covered by the decision of Supreme Court in the case of Jiyajeerao Cotton Mills. Ltd. vs. Commissioner of Income tax and Excess Profits Tax Bombay 1958 (5) TMI 3 - SUPREME Court as held the obvious intention behind this order, read as a whole, was that persons connected with the several links in the chain of contracts and series of payments concerned in these transactions should be examined with a view to elucidate the true position, and the managing director was mentioned as the person who was likely to have entered into these transactions. Durgaprasad Mandalia was the manager of the appellant company, and he gave evidence that he put the present transactions through the brokers, and that has been considered. If Birlas wanted themselves to give evidence, there was nothing to prevent them from doing so, and indeed, no complaint was made in the court below that their evidence had not been taken. There is no substance in this contention. We have considered all the contentions urged on behalf of the appellant at some length. We would like to make it clear that we are not sitting here as a court of appeal on facts. We have examined the record only with a view to see whether there is any misdirection or non-direction, such as is likely to have affected the result, and we have come to the conclusion that there is none, and that the finding of the Tribunal is not therefore open to attack. - Decided in favour of the assessee and against the department.

Summary

Issues Involved:
1. Whether the ITAT was justified in deleting the addition made on account of bogus loss claimed on transactions not routed through the stock exchange?
2. Whether the ITAT was justified in law in deleting the total addition of ?1,07,62,823/- without appreciating that the AO made separate additions of ?15,26,110/- and ?92,36,713/- by disallowing loss for different reasons?

Issue-wise Detailed Analysis:

1. Justification of Deleting Addition on Account of Bogus Loss:

The appellant challenged the tribunal's decision, which dismissed the department's appeal and confirmed the CIT(A)'s order. The court framed a substantial question of law to determine whether the ITAT was justified in deleting the addition made on account of bogus loss claimed on transactions not routed through the stock exchange. The assessee company showed a significant loss from trading in commodities, which the AO scrutinized by summoning brokers and verifying transactions through the National Commodities and Derivative Exchange Ltd. (NCDEX). The AO found discrepancies and disallowed a portion of the claimed loss, concluding that the assessee failed to explain the basis of the loss claim adequately. The tribunal, however, found the transactions genuine and deleted the addition, a decision the court upheld by stating that the tribunal's findings were not open to attack as they were based on factual determinations.

2. Deleting Total Addition of ?1,07,62,823/-:

The second issue was whether ITAT was justified in deleting the total addition of ?1,07,62,823/- without appreciating the AO's separate additions of ?15,26,110/- and ?92,36,713/-. The AO disallowed these losses due to lack of credible explanations and discrepancies in transaction records. The tribunal, however, accepted the assessee's explanations and deleted the additions. The court referred to precedents, including the Supreme Court's decision in Jiyajeerao Cotton Mills Ltd. vs. Commissioner of Income Tax, which emphasized that findings of fact by the tribunal are not open to challenge if they are based on evidence. The court found that the tribunal's decision was supported by evidence and dismissed the appeal, affirming that the tribunal's factual findings were final.

Conclusion:

The court dismissed the appeal, answering both issues in favor of the assessee and against the department. The tribunal's decision to delete the additions was upheld, as it was based on factual determinations supported by evidence. The court reiterated that it would not interfere with the tribunal's findings of fact unless there was a clear misdirection or lack of evidence, which was not the case here.