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Commissioner Of Income-Tax v. Korlay Trading Co. Ltd.
Factual and Procedural Background
The assessee, Korley Trading Co. Ltd., claimed a loss of Rs. 1,50,520 on the purchase and sale of 4,000 shares of D.C. Mills for the assessment year 1984-85. Both transactions were conducted through a broker, Dayco, who failed to produce its books of account despite being summoned. Consequently, the claim of loss was disallowed by the Income-tax Officer and this decision was confirmed by the Commissioner of Income-tax (Appeals). On appeal before the Tribunal, the assessee furnished detailed particulars of the transactions including company name, number of shares, dates, and amounts involved. The Tribunal allowed the claim, holding that the assessee had discharged its initial burden and that the failure of the broker to produce books could not cast doubt on the genuineness of the transactions.
Separately, during assessment, the Income-tax Officer found a cash credit entry of Rs. 21,800 in the name of Smt. Kausalya Devi Gupta with interest payable of Rs. 1,800. The assessee failed to provide confirmation from the creditor, leading to the amount being treated as income from undisclosed sources. This view was upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal allowed the claim based on the provision of the creditor’s income-tax file number at the appellate stage. The correctness and genuineness of this cash credit became a matter of dispute in the present reference.
Legal Issues Presented
- Whether the finding of the Tribunal that the transactions relating to the assessee's share loss of Rs. 1,50,520 were proved and whether such finding is based on any relevant material or perverse?
- Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the identity of the person, her creditworthiness and genuineness of the transaction in respect of cash credit in the name of Smt. Kausalya Devi Gupta have been proved by the assessee is based on any relevant material or perverse?
Arguments of the Parties
Assessee's Arguments
- The assessee claimed the share loss based on detailed transaction particulars including company name, number of shares, dates of purchase and sale, and amounts involved.
- The broker’s failure to produce books should not negate the genuineness of the transactions as the assessee had discharged its initial burden of proof.
- Regarding the cash credit, the assessee submitted the creditor’s income-tax file number and confirmation before the Commissioner of Income-tax (Appeals) to prove genuineness.
- The assessee relied on the precedent set by the Supreme Court in Commissioner Of Income Tax, Orissa v. Orissa Corporation (P) Ltd. to argue that the Revenue must investigate the creditworthiness of creditors once their identities are disclosed.
Revenue's Arguments
- The Revenue disputed the genuineness of the share transactions due to the broker’s failure to maintain or produce books of account.
- The Revenue challenged the genuineness of the cash credit entry, emphasizing the absence of creditor confirmation and affidavit, and argued that merely providing the income-tax file number was insufficient.
- The Revenue contended that the Tribunal’s findings on both issues lacked relevant material and were perverse.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner Of Income Tax, Orissa v. Orissa Corporation (P) Ltd., [1986] 159 ITR 78 | Once the assessee discloses the names and addresses of alleged creditors, the Revenue is obliged to investigate their creditworthiness and genuineness of transactions; failure to do so supports acceptance of the assessee's claim. | The Court relied on this precedent to hold that the assessee had discharged its initial burden in respect of the share transactions and that the Revenue's failure to properly investigate meant the Tribunal's acceptance of the transactions was reasonable and not perverse. |
Court's Reasoning and Analysis
The Court analyzed the evidence and procedural history concerning both issues. For the share transactions, the Court noted that the assessee provided comprehensive details about the purchase and sale of shares and that the broker’s failure to produce books was not attributable to the assessee. The Court emphasized that the Revenue did not undertake adequate investigation to disprove the transactions. Applying the principle from the cited Supreme Court precedent, the Court found the Tribunal’s acceptance of the share loss claim to be supported by relevant material and not perverse.
Regarding the cash credit in the name of Smt. Kausalya Devi Gupta, the Court observed that the assessee failed to produce adequate evidence such as creditor confirmation or affidavits to establish identity, creditworthiness, and genuineness of the transaction. The mere submission of the creditor’s income-tax file number was deemed insufficient. Consequently, the Court found the Tribunal’s favorable finding on this issue to be perverse and unsupported by relevant material.
Holding and Implications
Holding:
- The Tribunal’s finding that the share loss transactions were proved is upheld in favor of the assessee and against the Revenue.
- The Tribunal’s finding that the cash credit transaction was proved is reversed as perverse, favoring the Revenue and against the assessee.
Implications: The decision confirms that an assessee who furnishes sufficient transactional details and discharges the initial burden is entitled to have such transactions accepted unless the Revenue adduces contrary material through proper investigation. However, mere provision of a creditor’s income-tax file number without further corroboration is inadequate to establish the genuineness of cash credit entries. This ruling directly affects the parties’ respective claims but does not establish a new precedent beyond the application of existing principles.
Y.R Meena, J.:— By this reference application, the following questions are referred for our opinion:
“1. Whether the finding of the Tribunal that the transactions relating to the assessee's share loss of Rs. 1,50,520 were proved and whether such finding is based on any relevant material or perverse?
2. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the identity of the person, her creditworthiness and genuineness of the transaction in respect of cash credit in the name of Smt. Kausalya Devi Gupta have been proved by the assessee is based on any relevant material or perverse?”
2. The assessee is Korley Trading Co. Ltd. and the assessment year involved is 1984-85. The assessee claimed loss of Rs. 1,50,520 on the purchase and sale of 4,000 shares of D.C Mills. Both the purchase and sale were made through a broker, Dayco. The broker was summoned to produce its books of account.
3. The broker wanted time and ultimately it failed to submit the account books. When the books of account were not produced, the claim of loss was not allowed on the ground that the assessee failed to prove that it suffered loss in share transactions.
4. In appeal, the view taken by the Income-tax Officer was confirmed by the Commissioner of Income-tax (Appeals). In the second appeal before the Tribunal, same facts were put forth before the Tribunal. Even the specific amount of sale price and purchase price was also brought on record. The assessee has furnished the name of the company, number of shares purchased, date of sale, amount of purchase money amount of sale money, etc. Thus the assessee has discharged its initial burden. If the broker does not maintain the accounts, the transactions could not be doubted for no fault of the assessee. Considering these facts the claim of the assessee was allowed by the Tribunal.
5. In reference before us, the aforesaid facts are not in dispute. Sri Khaitan learned counsel for the assessee, brought to our notice the decision of the apex court in Commissioner Of Income Tax, Orissa v. Orissa Corporation (P) Ltd.., [1986] 159 ITR 78, wherein their Lordships have, taken the view that when the respondent has given the names and addresses of the alleged creditors it was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were on the file of the Revenue. But the Revenue did not examine the source of income of such alleged creditors to find out whether they were creditworthy. There were no efforts made to pursue the so-called alleged creditors. In such circumstances, the respondent could not do anything further. The Tribunal has come to the conclusion that the respondent has discharged its burden that lay on it and therefore it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. In the case in hand, the assessee has given the name of the company, who issued the concerned shares, number of shares purchased, when purchased, for how much amount the same was purchased, when it was sold, for how much amount it was sold and through whom it was sold. Even the broker appeared before the Income-tax Officer and prayed for time to produce his proper books. It is not the case, of the Revenue that the assessee has not maintained the books. The case of the Revenue is that as the broker did not maintain the books and has failed to produce the books, the transaction is not genuine.
6. We are unable to accept this proposition put forward by counsel for the Revenue. Once the assessee has discharged its initial burden, no proper steps have been taken by the Income-tax Officer to bring on record, the materials to controvert the claim of the assessee. The claim of the assessee cannot be denied only on the ground that the broker through whom the transaction was made has failed to produce the proper books. Therefore, the transaction could not but be said to be genuine.
7. Considering the facts of the case, we are of the view that the assessee has discharged its initial burden. No proper investigation was made by the Income-tax Officer. No material has been brought to disbelieve such transaction. In view of the above, it cannot be said that the finding of the Tribunal is perverse. When the finding is not perverse, no interference is called for. Accordingly, we answer question No. 1 so far as it relates to whether the assessee has proved the transaction, we answer it in the affirmative, that is, in favour of the assessee and against the Revenue. So far as it relates to the finding as to perversity, we answer it in the negative, that is, in favour of the assessee and against the Revenue.
8. During the assessment, the Income-tax Officer found that the books of account of the assessee showed introduction of bash credit of Rs. 21,800 (rupees twenty-one thousand eight hundred) in the name of Kausalya Devi Gupta and interest payable is Rs. 1,800. The assessee failed to furnish even the confirmation of the creditor before the Income-tax Officer. Accordingly, the amount was treated as the assessee's income from undisclosed sources. The view taken by the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals). In the second appeal before the Tribunal, the Tribunal has allowed the claim of the assessee on the ground that initially no confirmation was filed before the Income-tax Officer but, subsequently, at the appellate stage, the income-tax file number was given. Shri Khaitan, learned counsel appearing for the assessee, submits that even confirmation by the creditors has been filed before the Commissioner of Income-tax (Appeals). On a perusal of the orders of the Income-tax Officer, the Commissioner of Income-tax (Appeals) and the Tribunal, there is no reference to confirmation. In the Tribunal's order there is only reference to the income-tax file number but it is not known when it was given and mere filing of the income-tax file number of the creditors is not enough to prove the genuineness of the cash credit. The creditor should be identified. There should be creditworthiness. There should be a genuine transaction. The income-tax file number has been given but that is not enough to prove the genuineness of the cash credit. Admittedly, there is no affidavit to this effect, by the creditor, on record. Considering these facts, we find that the finding of the Tribunal in this regard is perverse. The assessee has failed to prove the genuineness of the cash credit. Accordingly, we answer question No. 2 so far as it relates to whether the cash credit has been proved, in the negative, that is, in favour of the Revenue and against the assessee and in so far as it relates to whether the finding of the Tribunal is perverse or not, we answer it in the affirmative, i.e, in favour of the Revenue and against the assessee.
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