RAJ PESTICIDES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee vide this petition under Section 256(2) of the Income-tax Act, 1961 (for short "the Act"), seeks a direction to the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (for short "the Tribunal"), to draw up a statement of the case and refer the following questions of law for the opinion of this court:

(2.) FOR the assessment year 1986-87, the assessee a partnership firm, had filed its return of income on July 10,1986, declaring an income of Rs. 55,356. During the course of assessment proceedings, the Income-tax Officer noticed that a sum of Rs. 70,075 had been debited to the profit and loss account on account of the loss suffered from purchase and sale of shares. It was claimed by the assessee that it had purchased 1,250 shares of Orkay Silk Mills Ltd., for Rs. 2,13,200 at Rs. 170.56 per share on October 25, 1985. These shares were sold on November 11, 1985, for Rs. 1,43,125. Thus the assessee suffered a loss of Rs. 70,075 in this transaction. It was further claimed that both, the purchase as well as the sale had been effected through the broker--Bharat Bhushan and Company, New Delhi, who operates from the Delhi Stock Exchange. Since the assessee had advanced a sum of Rs. 8,000 on October 17,1985, to the broker, a balance of Rs. 62,075 (Rs. 70,075-8,000) was sent to him through a bank draft. The assessee was called upon by the Assessing Officer to supply the details of the purchase and sale of shares and mode of placing orders for these transactions. The assessee was further required to prove that actual delivery of the shares was taken at the time of purchase. No such details were furnished by the assessee except copies of purchase and sale bills which were unnumbered and prepared on loose sheets. The Income-tax Officer, therefore, made inquiries from the broker, Bharat Bhushan and Co., who also failed to supply the names of the parties from whom the shares were purchased and to whom the shares were sold nor could it furnish the mode of placing the orders by the assessee. It also could not specify whether actual delivery was taken at the time of purchase or not. Not making a headway, the Income-tax Officer issued a letter to the Stock Exchange, New Delhi, calling for further information as to whether the transactions of sale and purchase of the shares had been registered there or not. He also made enquiries from Orkay Silk Mills Limited as to whether they had any information about the sale and purchase of shares in the name of the assessee. The transactions had neither been registered in the Stock Exchange nor in the books of the company. The Income-tax Officer was, therefore, of the opinion that no genuine transaction for sale and purchase of shares had been made and only accommodation bills had been got issued from the broker so as to reduce the income by making a claim of bogus loss of Rs. 70,075. The Income-tax Officer further observed that it was not possible to believe that a share broker delivered shares worth Rs. 2,13,000 to a stranger without receiving the consideration especially when the seller and purchaser were not even known to each other. He, therefore, disallowed the loss.

(3.) AGGRIEVED by the order of the Income-tax Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Bathinda, which was dismissed on March 13, 1991. On further appeal by the assessee, the Tribunal upheld the findings of the Commissioner of Income-tax (Appeals) by observing as under :