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TMI Blog1986 (10) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... saction and has not brought out anything from which it could be concluded that the order of the ITO was erroneous causing prejudice to the revenue. 3. The assessee carries on contract business for supply of bricks to the RCP authorities. The assessee apart from this business had been dealing with other items like, dal, etc., in the earlier years and in the year dealt with the business of rice. The assessee alongwith the return of income had provided detailed particulars about the loss suffered in the purchase and sale of rice. In the earlier years also the assessee have dealt with cotton as well as gram and had suffered loss on cotton. Separate trading accounts of rice, kiln account, etc., were provided alongwith the return of income. The ITO examined the purchase and sale transactions through an agent in Bhatinda, namely. Jairam Dass Baburam Co. The required stock tally was provided to him and the details of purchases and sales were also provided on the basis of which he had accepted the loss. The order of the ITO is dated 6-9-1983. Since there was a trading addition made by the ITO, the assessee preferred appeal to the Commissioner (Appeals) who vide his order dated 18-4-1985 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that he has only gained some suspicious grounds but nothing concrete to establish that there was in fact an error committed by the ITO followed by prejudice caused to the revenue. Several legal authorities were relied upon on the issue of the order of the ITO merging with the order of the Commissioner (Appeals) thereby the Commissioner's order under section 263 being bad and also on the issue that specific finding should be given to the error followed by the prejudice. 5. For the department the argument was that the entire transaction was a fishy one which can very well be seen from the various documents. The goods were already meant for the destination during which time the agent of the assessee is shown to have bought it and then shown to have sold it to another person at the same destination. It is subsequently shown to have suffered loss due to the fact of damage caused to it or being of inferior quality. The Commissioner examined the issue of claim of loss and the disallowance under section 40A(3) is part of it and nothing extraneous to the entire proceedings. It was further argued that payment of cash for purchases whether it is made by the assessee himself or through h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s separated dealings also with the firms to whom goods were sold on behalf of Suresh Kumar, Anoopgarh. The copies of account of both these firms are attached. " Alongwith this reply a reminder dated 26-10-1981 sent to the assessee whereby the assessee was informed of an amount of Rs. 66,327 becoming due to the party in respect of transactions on rice carried on for the assessee. During the assessment proceedings the ITO called for some explanation on account of claim of loss on rice and the assessee vide letter dated 22-8-1983 filed the following reply : " My client had also done the business of purchase and sale of rice and has suffered a loss of Rs. 86,412 in it. Due to rains the rice became defective and my client had to compensate the purchaser for the sale of defective quality of rice. All the relevant documents of purchase, sale and settlement of claim are filed herewith in support of loss. " The total value of the purchases done for the assessee was Rs. 6,25,575 and the realisation on account of sale was Rs. 5,39,248.30. After adjustment of advance of Rs. 20,000 made in September 1981, a loss of Rs. 66,327 was claimed from the assessee by the agent. The various ledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 6DD of the Income-tax Rules, 1962 are satisfied. The fact that the ITO did not apply his mind to the question of allowability or satisfaction of the requirements of section 40A(3), the view taken by the Commissioner in regard to setting aside of the order is proper in view of the Delhi High Court decision in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375. 7. An important question was raised as regards the theory of merger. After the assessment was made by the ITO, the assessee preferred appeals against the additions that were made to the trading account, which were considered in appeal by the Commissioner (Appeals). The plea of the assessee was that the order under section 263 having been passed subsequent to the Commissioner (Appeals) order he could not have done so as the ITO's order had already merged with the order of the Commissioner (Appeals). 8. The Special Bench had the occasion of considering the merger theory in the cases of Shree Arbuda Mills Ltd. v. ITO [1983] 3 SOT 311 (Ahd.) and Dwarkadas Co. (P.) Ltd. v. ITO [1982] 1 ITD 303 (Bom.) (SB). In both these cases, the view taken by the learned Members was that ones the order of the ITO has been a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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