Commissioner Of Income-Tax v. Carbo Industrial Holdings Ltd.

The Judgment of the Court was delivered by

Y.R Meena, J.:— On an application under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question set out at page 2 of the statement of case for our opinion:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that loss of Rs. 1,05,489 on account of sale of shares was genuine?”

2. The assessment year is 1984-85. During the course of assessment, the Assessing Officer noticed that the assessee has claimed a loss of Rs. 1,05,489 on account of loss on sale of shares. The Assessing Officer has referred the details of purchase and sale of the shares and made annexures in the assessment order. The Assessing Officer further found that there were two sets of share brokers—one set of M.L Santhalia and Sew Karan Dhelia. The shares are of K. Synthetics Ltd., Tata Tea Ltd., Hindustan Aluminium and Gwalior Rayon Co. These shares were purchased by the assessee from M.L Santhalia and the entire lot was sold to Sew Karan Dhelia. Another set of brokers consisted of R. Rameshwarlal and J.M Choudhury. The assessee purchased shares of India Steamships Ltd., Escorts Ltd., Metal Box and Kesoram, Industries from Prahlad R. Rameshwarlal and the entire lot of shares was sold to J.M Choudhury. The assessee was directed to produce the brokers. He could not produce the brokers and requested for issue of summons under section 131 of the Income-tax Act. Dhelia and Santhalia—they did not comply with the summons. Prahlad R. Rameshwarlal appeared with books. After examination of the broker, Rameshwarlal, and in the absence of other brokers, i.e, Santhalia and Dhelia, the Assessing Officer came to the conclusion that the transaction in shares is not genuine. Therefore, he disallowed, the aforesaid loss. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) also has upheld the order of the Income-tax Officer on this account that the share loss is not genuine.

3. In appeal before the Tribunal, the Tribunal has allowed the appeal, holding that the loss is genuine. In appeal before the Tribunal, the Tribunal found that full details of the transactions of the shares are furnished. He furnished the names and addresses of the brokers. Payment is by account payee cheque. Even if some suspicion is there regarding the genuineness of the transactions, on the basis of suspicion, the claim of the assessee on account of the loss should not be denied. He considered the material in paragraph 7 of its order and allowed the appeal of the assessee.

4. Mr. Shah, learned counsel appearing for the Revenue, submits that on scrutiny, the Income-tax Officer found that some shares are purchased and sold on the same date even some sales have been shown to a third party, though he did not receive the shares on that date. It further supports the order of the Income-tax Officer.

5. Learned counsel for the assessee, Mr. Khaitan, submits that they have not taken the ground that the finding of the Tribunal is perverse. The question which is based on the finding of fact should not be answered in favour of the Revenue if that finding is not challenged on the ground of perversity. He further submits, on the merits also, that the purchase and sale is not on the same date. Details are annexed in the assessment order.

6. Though some shares were sold before the actual delivery to the assessee, but that is normal practice in the business of share transactions.

7. Heard learned counsel for the parties. It is true that no specific ground has been taken by the Revenue that the finding of the Tribunal is perverse, but once the Tribunal has referred the question on the ground of genuineness, the Tribunal accepts that finding ‘of fact by it should be considered in reference. Therefore, even if no specific ground has been taken by the Revenue in the question itself, it is implied that the finding of the Tribunal should be considered on the ground of perversity. In the absence of perversity, no question based on the finding of fact can be referred. Once a question is referred for the opinion of this court which is based on the finding of fact, the challenge on the ground of perversity is implied. Therefore, we find no force in the submission of Mr. Khaitan that this question cannot be considered, unless there is a specific challenge to the finding of fact of the Tribunal on the ground of perversity.

8. Now it brings us to consider the case on the merits, whether the conclusion of the Tribunal regarding the genuineness of loss is based on the material on record. The Income-tax Officer has annexed the details of transactions of shares which read as under:

Contract date Bill date No. of shares Amount (Rs.) Name of brokers J.K Synthetics Ltd,: 24-11-1983 24-1-1984 2,100 1,02,480 M.L Santhalia 24-1-1984 8-2-1984 2,100 91,518 Sew Karan Dhelia (-) 10,962 24-11-1983 27-12-1983 3,500 1,71,500 M.L Santhalia 12-12-1983 9-1-1984 3,500 1,58,830 Sew Karan Dhelia (-) 12,670 Tata Tea Limited: 25 11-1983 24-1-1984 1,900 70,060 M.L Santhalia ‘24-1-1984 8-2-1984 1,900 (-) 63, 612 Sew Karan Dhelia (-) 7,448 Hindustan Aluminium Ltd.: 12-12-1983 27-12-1983 1,000 49,000 M.L Santhalia 16-12-1983 9-1-1984 1,000 46,880 Sew Karan Dhelia -(-) 2,120 Gwalior Rayon Co.: 15-12-1983 27-12-1983 1,500 83,100 M.L Santhalia 19-12-1983 9-1-1984 1,500 79,695 Sew Karan Dhelia (-) 3,405 5-1-1984 24-1-1984 2,200 1,26,940 M.L Santhalia 24-1-1984 8-2-1984 2,200 1,20,076 Sew Karan Dhelia (-) 6,864 Indian Steamship Ltd. 21-12-1983 12-1-1984 1,000 10,800 Prahlad R. Rameshwarlal

11-1-1984 24-1-1984 1,000 11,750 (+) 950 J.M Choudhury Escorts Ltd.: 15-12-1983 11-1-1984 4,600 3,82,490 Prahlad R. Rameshwarlal 18-1-1984 24-1-1984 4,600 3,22,000 (−) 60,490 J.M Choudhury Metal Box: 21-12-1983 12-1-1984 1,000 13,800 Prahlad R. Rameshwarlal 13-1-1984 24-1-1984 1,000 15,000 (+) 1,200 J.M Choudhury Kesoram Industries: 2-1-1984 11-1-1984 800 49,840 Prahlad R. Rameshwarlal 18-1-1984 24-1-1984 800 46,160 (−) 3,680 J.M Choudhury”

9. The perusal of the details regarding the transaction of various shares reveals that the sale and purchase in fact were not on the same date, though on the date when the shares are received by the assessee. There are in fact four relevant dates—the date of contract, the date of receipt of the shares and payment, then a date of sale contract of those shares by the assessee and the payment received thereafter. These four stages are on different dates and not on the same date. Therefore, it cannot be accepted that the purchase and sale of the shares are on the same date.

10. We also notice a share transaction of the shares of Escorts Ltd. where the assessee claimed Rs. 60,490 loss. The relevant date of contract is December 15, 1983. The assessee received 4, 600 shares on January 11, 1984, and it sold these shares on January 18, 1984 and the assessee received the payment against that sale on January 24, 1984. Therefore, seeing these details, it cannot be said that the purchase and sale are on the same date. It is true that the transactions are with some brokers, but in the share transactions, the purchase and sale are normally through some broker. Payment by account payee cheque has not been disputed. Payment on purchase and sale and payment received by account payee cheque was on two different dates. If the share broker, even after issue of summons, does not appear, for that reason, the claim of the assessee should not be denied, specially in cases when the existence of the broker is not in dispute nor the payment is in dispute. Merely because some broker failed to appear, the assessee should not be punished for the default of a broker and we are in full agreement with the Tribunal that on mere suspicion the claim of the assessee should not be denied. In the result, we answer the question in the affirmative, i.e, in favour of the assessee and against the Revenue.

11. All parties are to act on the operative portion of this judgment on the usual undertaking.