Civil Appeal No. 582 of 2008

January 22, 2008

Section 131 of the Income-tax Act, 1961 - Discovery, production of evidence power regarding - Assessment year 1984-85 - Assessee firm was carrying on business as commission agent in raw hides and skins - Said goods were brought to market by traders and were sold through commission agents by paying certain specified commission - Assessee filed its return declaring certain amount as its total income as commission agent - Assessing Officer issued summons to ten tenders under section 131(1) - In response to same, five tenders appeared and gave evidence in favour of assessee that transactions with them were conducted by assessee on commission basis - However, remaining five traders did not appear because they could not be served with summons as they were residing outside State - Consequently, Assessing Officer assessed total income treating transaction with absentee traders as having been done by assessee in capacity of ‘trader’ and not as ‘commission agent’ - Whether assessee could not be treated unequally between those traders who had appeared before Assessing Authority and supported claim of assessee that assessee was commission agent and on contrary drawing adverse inference against assessee for non-appearance of other five traders to whom summons under section 131(1) could not be served - Held, yes

FACTS

The assessee-firm was carrying on business as commission agent in raw hides and skins. The said goods were brought in the market by traders through trucks. Commission agents used to open an account of each trader in his ledger book where number of different types of pieces of raw hides were entered into without entering the money value thereof. When goods were sold, the sale price minus commission and other charges were credited in the account of the traders and commission charges or other charges receivable were credited in the relevant accounts and full sale price of the goods was debited to the account of the purchaser. The traders were paid the balance amount generally in cash, in instalments or full after receipt of the amounts from the customers. The rate of commission on different types of hides and skins was settled by the association and no commission agent could charge anything more on that account. The assessee filed its return for the assessment year 1984-85 declaring certain amount as income as commission agent. However, the ITO had treated the assessee as a trader and not as a commission agent and assessed its income accordingly. On appeal, the Commissioner (Appeals) partly allowed appeal of the assessee. On cross appeal, the Tribunal remanded the matter to the Assessing Officer. On remand the Assessing Officer issued summons to ten traders under section 131(1). In response to summons, five traders appeared and gave evidence in favour of assessee. The remaining five traders did not appear because they could not be served with the summons as they were residing outside the State of U.P. The Assessing Officer had drawn adverse inference against claim of assessee and assessed income for relevant assessment year treating transaction with absentee traders as having been done by assessee in capacity of trader and not as ‘commission agent’. On appeal, the Commissioner (Appeals) set aside said order of the Assessing Officer, treating assessee as a commission agent. On revenue appeal, the Tribunal held that the assessee had failed to produce any evidence that the transactions, in question, were not conducted by the assessee as ‘trader’ but the transactions were conducted on commission basis. On further appeal by the assessee, the High Court concurred with the findings of the Assessing Officer as confirmed by the Tribunal and dismissed the appeal in limine.

On appeal to the Supreme Court:

HELD

The record revealed that for the year 1983-84, the Assessing Authority had accepted the claim of the assessee dealing in the business of hides and skins as a ‘commission agent’. The assessee filed a chart of payments made to the purchasers by the traders through the assessee acting as ‘commission agent’. The five traders, who appeared before the Assessing Authority, had supported the claim of the assessee to be a commission agent and not ‘a trader’ and the Assessing Authority had accepted their evidence holding the assessee as a commission agent in respect of the transactions conducted with them by the traders. The assessee could not be held responsible for non-appearance of those five traders to whom the summons were issued by the Assessing Authority, they were residing outside the State. For non-appearance of those traders, no adverse inference ought to have been drawn by the authorities below and the assessee had led satisfactory evidence that its business was only that of the commission agent and not ‘a trader’ dealing in the goods. Now, the subject-matter of assessment for the year 1984-85 had been opened by the Revenue after a lapse of about 10-11 years holding the assessee as ‘trader’ in respect of dealers who were now living outside the State. The assessee could not be treated unequally between those traders who had appeared before Assessing Authority and supported claim of the assessee and on contrary drawing adverse inference against assessee for non-appearance of other five traders to whom summons of the Assessing Authority could not be served. On that ground itself, the order of the Assessing Authority could not be found reasonable, tenable and justified. The Assessing Authority for the assessment year 1983-84 had accepted the claim of the assessee having acted as commission agent in respect of the same articles which were brought by the sellers to the commission agents in the mandi for sale. [Para 12]

In this view of the matter, the Commissioner was right in holding the assessee as an commission agent for the assessment year 1984-85 and not as ‘trader’ as held by the Assessing Authority and accepted by the Tribunal as well as by the High Court. [Para 13]

In the result, for the foregoing reasons, instant appeal was to be allowed and the order of the High Court upholding the order of the Tribunal for the assessment year 1984-85 and the original order of the Assessing Officer holding the assessee as ‘trader’ and not ‘commission agent’ were to be quashed and set aside and as a result thereof, the order recorded by the Commissioner (Appeals) should be restored.