Calcutta High Court
Commissioner Of Income-Tax vs Bansidhar Jalan And Sons. on 12 September, 1988
Equivalent citations: [1990]184ITR264(CAL)
JUDGMENT A.K. Sengupta, J.
1. At the instance of the Commissioner, West Bengal-IX, Calcutta, the following question of law has been referred to this court under Section 256(2) of the Income-tax Act, 1961 ("the Act"), for the assessment year 1972-73 :
"Whether, on the facts and in the circumstances of the case, the Tribunal had relied on irrelevant or partly irrelevant materials in holding that the assessee had during the relevant year entered into genuine speculative transactions and suffered a loss amounting to Rs. 1,25,515 in such transactions and/or whether such findings were unreasonable or perverse ?"
2. The facts briefly stated are that the Income-tax Officer, while completing the assessment of the assessee for the assessment year 1972-73, rejected the claim of the assessee for loss of Rs. 1,25,515 in share speculation transaction.
3. The matter went before the Tribunal. The findings given by the Appellate Assistant Commissioner were assailed by counsel for the assessee. The Tribunal, after hearing the parties, set aside the findings of the Appellate Assistant Commissioner and held that the claim of speculation loss of Rs. 1,25,515 should have been allowed.
4. At the hearing before us, no one appeared for the assessee. Mr. A. C. Moitra, the learned advocate appearing for the Commissioner, has assailed the order of the Tribunal on the ground that the findings of the Tribunal are perverse inasmuch as the findings were arrived at by ignoring relevant material.
5. The facts of the case would demonstrate that the Tribunal did not consider the relevant materials and had also ignored several relevant materials in arriving at the findings :
"The assessee has claimed loss of Rs. 1,25,515 in share speculation through Z. Dhyawala and Co. of 65, Cotton Street, Calcutta. From the details filed, it was noticed that, in all the transactions, the assessee has claimed to have suffered loss. It was noticed that the payments were alleged to have been made, all by cash as follows :
Rs.
31-1-1971 15,000 25-2-1971 25,000 29-3-1971 10,000 31-3-1971 25,000 29-6-1971 50,000 31-7-1971 515 1,25,515 Although the assessee was to make the payment by crossed cheque, in accordance with the provisions of Section 40A(3) of the Income-tax Act, 1961, and Rule 6DD of the 1962 Rules, the assessee had preferred to make the payment by cash in spite of the fact that it had sufficient credit in the bank account to make payment by cheque, for reasons best known to it. It was further noticed that one Shri Kailash Prasad received the payment for Dhyawala and Co. but the receipts given were not duly stamped. In order to verify the genuineness of the transactions, Dhyawala and Co. was summoned under Section 131 to give evidence in support of the transactions. The summons could not be served by the notice server as the party was not found traceable at the recorded address. An attempt was again made to serve the summons with the help of the employee of the assessee, Shri R. K. Bararia. This time also notice could not be served as the party was not traceable at the address. This fact was brought to the notice of the assessee by this office letter dated March 3, 1975 requiring the assessee to produce the party with necessary evidence on March 10, 1975. A fresh summons was also sent to Dhyawala and Co. by registered post fixing hearing on March 10, 1975. The letter was issued on March 3, 1975 as per postal receipt placed in file. In response to this letter dated March 3, 1975, one of the partners by his letter dated March 10, 1975, requested to depute a notice server or inspector again to serve the summons with Shri R. K. Bararia. It has already been mentioned that an attempt was previously made by the notice server with Shri R] K. Bararia to get the summons served but to no effect. No compliance was also made by the broker in response to the summons issued by registered post.
In the circumstances, as the broker was not found traceable at the recorded address, and the assessee as well was unable to produce the party, neither could the genuineness of the transactions be verified nor could the receipts of the payments by the broker, Dhyawala and Co., be examined :
In view of the facts stated above, I am convinced that there were no genuine speculative transactions in shares as alleged. I, therefore, reject-the assessee's claim for loss of Rs. 1,25,515 in share speculation'."
6. It is not in dispute that, all the transactions, in this case, were made through one broker, viz., B. L. Dhyawala, sole proprietor of Dhyawala and Co. The Income-tax Officer, in his assessment order, had noted the different dates on which the transactions took place. One of the transactions allegedly took place on March 31, 1971. But March 31, 1971, as it appears from the calendar is "Sunday" and accordingly no transaction could have been made on that particular day. Since the transactions were made through one broker, the Income-tax Officer, in order to find out the genuineness of such transactions, tried to serve a summons on Dhyawala and Co. but the notice server could not find out the concerned Dhyawala at the address given by the assessee. The Income-tax Officer again tried to serve the summons and he requested an employee of the assessee, viz., Shri R. K. Bararia, to help in this regard. But again the said Dhyawala could not be found out at his address. The Income-tax Officer again requested the said Shri R. K. Bararia on February 25, 1975, to produce the said Dhyawala before him on February 27, 1975. But, on February 27, 1975, the said Shri Bararia appeared and said that it was not possible for him to produce Mr. Dhyawala before the Income-tax Officer. The Income-tax Officer then issued a letter dated March 3, 1975, to the assessee requesting the assessee to produce Mr. Dhyawala on March 10, 1975, before him but the assessee could not produce the said Dhyawala before the Income-tax Officer either on March 10, 1975 or even later. Finally, the Income-tax Officer issued a summons under Section 131 of the Act on March 1, 1975, to the said Dhyawala directing him to appear on March 10, 1975. This summons was not returned unserved. The presumption was that it was served on the said Dhyawala. But he did not care to appear before the Income-tax Officer on March 10, 1975 or even thereafter. In the circumstances, the Income-tax Officer held that there was doubt about the identity of Shri B. L. Dhyawala and the transactions, according to him, were spurious. The Income-tax Officer, as it appears to us, took all steps and afforded reasonable opportunity to the assessee to prove the genuineness of the transactions. But the assessee failed. The Appellate Assistant Commissioner also examined the books of account of the assessee with regard to the speculative transaction. He also issued summons under Section 131 of the Act on November 5, 1975 to Dhyawala and directed him to, appear before the Appellate Assistant Commissioner on November 21, 1975. But one Ramesh Kumar Miranka, a relative of Shri B. L. Dhyawala, appeared before the Appellate Assistant Commissioner and made a sworn statement on November 21, 1975. After considering the facts and circumstances of the case, the Appellate Assistant Commissioner upheld the order of the Income-tax Officer. In arriving at the findings, the Appellate Assistant Commissioner, in our view, rightly took into account the following facts :
"(i) In the first place, the assessee was required to make payments by crossed cheques or by crossed bank drafts when each payment exceeded Rs. 2,500. The assessee could not satisfactorily explain why he did not make the payments by cheques. The only explanation offered by the assessee was that there was not enough time to put cash in the bank accounts and draw a cheque in favour of Dhyawala and Co. This is a lame excuse since the assessee could make payments within 90 days of the clearing date and also the assessee had enough balance in its bank accounts. The assessee maintained four bank accounts, two at Central Bank of India, one at United Bank and one with Bank of Tokyo. All the banks are situated very near the business premises of the assessee and there would have been no difficulty in depositing cash in the bank and drawing cheques, if necessary.
Shri Ramesh Kumar Miranka, appearing on behalf of Shri Dhyawala, stated in his sworn statement dated November 21, 1975, that Dhyawala and Co. sometimes received payment by cheques and made payments by cheques. Even Shri Miranka could not satisfactorily explain why all payments were made by cash only by the assessee.
(ii) A curious feature is that Shri B. L. Dhyawala, the alleged sole proprietor of Dhyawala and Co. has never made his appearance before the Income-tax Officer or before me. It is not known why he could never be traced at No. 65, Cotton Street, Calcutta, where he is supposed to carry on his business of stock broking. Before the Appellate Assistant Commissioner, Shri Dhyawala did not appear but some relation of his, namely, Shri. R. K. Miranka, appeared bringing the summons form which the Appellate Assistant Commissioner sent and bringing the account books of Dhyawala and Co. and Shri Miranka stated in his sworn statement "I cannot say why Shri Dhyawala did not comply with the summons dated March 1, 1975, on the hearing date, namely, March 10, 1975".
Even the signature of Shri B. L. Dhyawala does not appear in any of the documents connected with the transactions of the assessee.
(iii) The assessee's ledger account of Dhyawala and Co. shows only the cash payments or "differences" made by the assessee. The assessee has not entered the individual purchases and sales made by it from the broker, The following is the ledger of Dhyawala and Co. in the books of the asses see in L. F. 28 :
Cr.
Dr. Rs.
(No date) 31-1-1971 15,000 25-2-1971 25,000 1,25,515 29-3-1971 10,000 31-3-1971 25,000 29-6-1971 50,000 31-7-1971 515 1,25,515 1,25,515 These are all payments of lump sums.
The first difference that became payable by the assessee was, for instance, Rs. 15,625. The assessee made sales of 4,000 shares in Indian Cables on January 8, 1971 and sales of 5,300 shares in G. K. W. on January 9, 1971. The assessee purchased the Indian Cables shares on January 19, 1975 and G. K. W. shares on January 19, 1975. In these transactions, the assessee incurred a loss of Rs. 15,625 which became payable on January 10, 1975. Similar differences arose in other transactions. However, in the ledger of the assessee, sales and purchases were not at all entered on the relevant dates. Even the individual differences were not entered. Only the lump sum payments made by the assessee were entered as shown above. It is also strange that the assessee first debited the account of Dhyawala and Co. whereas, in reality, the assessee should have credited the account of Dhyawala and Co. first and then squared it up by making cash payments. The assessee followed the opposite procedure. The assessee first debited the account of Dhyawala and Co. with Rs. 1,25,515 on six different dates and finally squared up this account with a single credit entry of Rs. 1,25,515 which bears no date.
The assessee, no doubt, noted the individual differences payable in the journal. For example, the assessee entered the first difference of Rs. 15,625 in the journal but the journal entries do not bear any date. Moreover, even in the journal, the assessee did not enter the individual sales and purchases of shares.
(iv) The conclusion that the accounts were not reliable is fortified by the following facts :
According to the ledger of the assessee, the assessee paid cash of Rs. 15,000 to Dhyawala and Co. on January 31, 1971. The assessee also produced an unstamped receipt issued by one Shri Kailash Prasad said to be the son of Shri Dhyawala. However, in the account books of Dhyawala and Co. the receipt of money from the assessee was entered on March 31, 1971. Shri Miranka stated in his sworn statement that in fact the assessee paid the money only on March 31, 1971, and, in fact, March 31, 1971, was Sunday and the assessee could not have paid money on a Sunday.
(v) The 'contract notes' prepared and signed by Dhyawala and Co. to its clients, do not bear printed serial numbers. The numbers are written in pencil by the broker. The contract forms were all signed either by Shri Ramesh K. Miranka or Shri Kailash Prasad. They are not signed by Shri B. L. Dhyawala.
In his sworn statement, Shri Miranka, at first, stated as follows :
'No signatures were obtained on contract forms from B. D. Jalan in token of their confirmation. They signed on different slips. The confirmation slip is a perforated slip and is part of the main contract note. The carbon papers are retained when the client signs the confirmation slip. I cannot say why such a procedure is followed.' After some time, Shri Miranka has stated 'I wish to clarify that the tear-off slip is sent along with the original contract note to the client and the client's signature will not appear in the office copy of the contract note. The tear-off slips I have not brought here now'.
However, after he made his sworn statement, Shri Miranka produced two tear-off slips bearing the signatures of Shri R. K. Bararia, the accountant of the assessee.
However, these confirmation slips do not bear serial numbers and, therefore, it is impossible to say whether these slips were attached to the original notes or not. The whole procedure is very unusual in this line of business.
(vi) There is another defect found by the Appellate Assistant Commissioner in the receipts issued by the broker to the assessee. Shri Miranka made contradictory statements in his sworn statement. He stated at first:
'I cannot say whether we issued receipts when we got cash from B. D. Jalan. Sometimes, we might have signed on the reverse of the statements of "differences" we sent. If and when we signed on the reverse of the statements we always signed on revenue stamps'. But, in fact, the broker never signed on the reverse of the statements showing differences were signed by Shri Kailash Prasad, son of Shri Dhyawala, and sent to the assessee.'These statements now bear revenue stamps which were crossed. Later, when the assessee made payments to broker, the assessee obtained receipts signed by Shri Kailash Prasad on the letter-head of the broker. But these letterhead receipts are not stamped at all. When this information was brought to the notice of Shri Miranka, he changed his version. He stated : 'We affix the stamp even when we send the statements and even when we receive money. Afterwards, when we actually receive money we issue a receipt on our letter-pad, without stamps. Of course, it may be risky to issue a pre-receipted bill. I have now seen in the file of B. D. Jalan that all the letterhead receipts were signed only by 'Kailash Prasad' and all were unstamped. I cannot say why no receipt was signed by the proprietor, Shri Bhawan Lal Dhyawala'.
(vii) Another curious feature is that Shri Kailash Prasad, supposed to be son of Shri Dhyawala, does not call himself 'Kailash Prasad Dhyawala'. He is only known as 'Kailash Prasad' and moreover, he always signs as 'Kailash Prasad'.
(viii) In fact, the above discussion will show that the signatures of the key parties, the partners of the assessee-firm and Shri B. L. Dhyawala never showed up in any of the documents produced before the Department. All the transactions were carried out by Shri R. K. Bararia on behalf of the firm and Shri Kailash Prasad and Shri Miranka on behalf of Shri Dhyawala. It is not clear why only proxies acted throughout.
(ix) Each single transaction in this case resulted only in a net loss to the assessee and the assessee could not reap net profit on any transaction with this broker. This shows that the assessee tried very hard to incur a net loss by artificial means."
7. When the matter came before the Appellate Assistant Commissioner, he also came to the conclusion that the claim of speculation was spurious. To summarise, the Appellate Assistant Commissioner gave the following reasons :
"(i) All the payments were made in cash and not by crossed cheque or crossed draft;
(ii) B. L. Dhyawala, the sole proprietor of Dhyawala and Co., never appeared before the Income-tax Officer or before the Appellate Assistant Commissioner. He was not traced at 65, Cotton Street, Calcutta, where he was supposed to carry on his business. He also found that the signature of B. L. Dhyawala did not appear in any of the documents connected with the transaction ;
(iii) The assessee had not entered the individual purchases and sales made from the broker in his books and the payments of losses were all in lump sums ;
(iv) The payment of Rs. 16,000 was shown as on January 31, 1971, though the receipt of money was entered in the books on March 31, 1971;
(v) The contract notes do not bear the printed serial numbers and they were not signed by B. L. Dhyawala. The confirmation slips also do not bear any serial number and it was not possible to say whether the slips were attached to the original contract note ;
(vi) There was contradiction in the statement of Shri Miranka before the Appellate Assistant Commissioner ;
(vii) Each single trasaction resulted in a net loss and there was no profit in any transaction."
8. The Tribunal, however, held as follows :
"We have gone through the sworn statement dated November 21, 1975, of Shri Ramesh Kumar Miranka, relative of Shri B. L. Dhyawala, proprietor of Dhyawala and Company, stock and share dealers, brokers and members of the Calcutta Stock Exchange Association Ltd. After giving careful consideration to the rival submissions, we are of the opinion that the authorities below were wrong in their decision that the assessee's claim of speculation was a spurious claim. The reasoning obtained with the Appellate Assistant Commissioner in so concluding the issue was clearly based on suspicion and surmises. It was not the case of the Department that the payments which had been made out of the coffers of the assessee's firm had been returned to it subsequently. Nor was it its case that payments were never made. Violation of Section 40A(3) had nothing to do with the genuineness of the transactions. Learned counsel has rightly pointed out that if the Appellate Assistant Commissioner so desired, he could have enforced the attendance of Shri Dhyawala for complying with the summons under Section 131 of the Act. When such a step was not chosen, it did not behove the Appellate Assistant Commissioner to blame the assessee or to stamp the transactions as spurious transactions. We fail to comprehend as to how the results arising out of commercial transactions and mode of payments determined the nature of transactions. The assessee might not have entered the details of the transactions in its books of account as and when those were entered with the broker. Such a lapse would not make the transactions illegal or spurious. At best, the assessee's books of account were not complete so far as the recording of such transactions was concerned ; that would not however determine the nature of transaction.
The Appellate Assistant Commissioner had been, in our opinion, wrong in disputing the method adopted by the broker in respect of the transaction and the procedure in acknowledging payment. The broker's contract forms with perforated slips attached thereto were genuine documents and it was not the case of the Department that the transactions entered into by the broker with the assessee-firm only were recorded in such contract forms. It was also not the case of the Department that the transactions were made at prices not prevailing on the dates of transactions. The Appellate Assistant Commissioner had gone that far to support his conclusion with reference to Shri Kailash Prasad's way of writing his name. It is common knowledge that now a days many persons do not write their surname beside their names. Such a voluntary omission would not make any commercial transaction sham or illegal."
9. The Tribunal did not consider the facts and circumstances of the case which were noted by the Appellate Assistant Commissioner in his order which we have referred to earlier. The Income-tax Officer made all attempts to enforce the attendance of Shri Dhyawala, He also did not appear before the Appellate Assistant Commissioner inspite of the summons served. On the contrary, another person, Ramesh Kumar Miranka, on his behalf made a sworn statement. In our view, having regard to the facts and circumstances of this case, the Tribunal was not justified in holding that the transactions in question were genuine.
10. For the reasons aforesaid, the question referred to this court is answered in the affirmative and in favour of the Revenue. There will be no order as to costs.
K.M. Yusuf , J.
11. I agree.