Court/Forum: ITAT
Bench: Shri Vijay Pal Rao, JM & Shri D. Karunakara Rao, AM
Order Date: 2013-09-06
Year: 2013
Outcome: Assessee
Sections: Section 68, Section 143(3), Section 148, Section 271(1)(c)
The statement of a third party cannot be used against the assessee without providing an opportunity for cross-examination.
The ITAT allowed the appeal of the assessee for statistical purposes, setting aside the addition made by the Assessing Officer under Section 68 for unexplained cash credits. The Tribunal directed the AO to verify the claim of repayment of loans made by the assessee.
Assessee
The central legal question was whether the Assessing Officer's addition of unexplained cash credits was justified without allowing the assessee to cross-examine the witness whose statement was relied upon.
The assessee was assessed for AY 1997-98, with additions made for unexplained cash credits based on loans claimed from various parties. The AO relied on statements from a third party who was not available for cross-examination.
The assessee argued that the AO failed to follow the Tribunal's previous directions and that the loans had been repaid, thus no addition should be made under Section 68.
The Revenue contended that the claim of repayment required verification and that the additions were justified based on the available evidence.
Section 68 pertains to unexplained cash credits, Section 143(3) relates to the original assessment, Section 148 deals with reassessment, and Section 271(1)(c) concerns penalty for concealment.
The Tribunal held that the addition made based on the statement of Mr. Surendra Khandhar was improper as the assessee was not given a chance to confront the witness. The matter was remanded for verification of the repayment of loans.
Practitioners should ensure that their clients are given a fair opportunity to cross-examine witnesses whose statements may adversely affect their tax assessments.
आयकर आयकरआयकर आयकर अपील य अपील यअपील य अपील य अ धकरण अ धकरणअ धकरण अ धकरण, मंबई मंबईमंबई मंबई ु ुु ु यायपीठ यायपीठयायपीठ यायपीठ
‘डी डीडी डी’ मंबई मंबईमंबई मंबई ु ुु ु । ।। ।
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL
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सवी सवीसवी सवी वजयपाल वजयपालवजयपाल वजयपाल राव रावराव राव, या याया या.
स सस स एवं एवंएवं एवं ,
डी डीडी डी. क णाकर क णाकरक णाकर क णाकर राव रावराव राव,
लेखा लेखालेखा लेखा सद#य सद#यसद#य सद#य ।
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आयकर अपील सं./I.T.A. No.5849/Mum/2011 I.T.A. No.5849/Mum/2011I.T.A. No.5849/Mum/2011 I.T.A. No.5849/Mum/2011
($नधारण $नधारण$नधारण $नधारण वष वषवष वष / Assessment Year :1997-98)
M/s Dilsa Distributers Comines
Naaz Bulg, 1 st Floor, Lamington Road, Mumbai-400004 बनाम बनामबनाम बनाम/ Vs.
Mumbai #थायी लेखा सं./जीआइआर सं./PAN/GIR No. :AAAFD3288K (अपीलाथ)
/App AppApp Appellant ellantellant ellant) .. (*+यथ) / Respondent RespondentRespondent Respondent)
अपीलाथ) अपीलाथ)अपीलाथ) अपीलाथ) ओर ओरओर ओर से सेसे से / Appellant by : Shri Deepak Tralshawala *+यथ) *+यथ)*+यथ) *+यथ) क- क-क- क- ओर ओरओर ओर से सेसे से/Respondent by : Shri Dipak Ripote सनवाई सनवाईसनवाई सनवाई ु ुु ु क- क-क- क- तार ख तार खतार ख तार ख / Date of Hearing : 21 st August 2013 घोषणा घोषणाघोषणा घोषणा क- क-क- क-तार ख तार खतार ख तार ख/Date Of Pronouncement: 6 th September 2013
This appeal by the assessee is directed against the order dated 30.6.2011 of Commissioner of Income Tax(Appeals) for the assessment year 1997-98.
2. The assessee has filed the concise grounds as under: “On the facts and circumstances of the case and in law the Learned Commissioner of Commissioner of Income Tax(Appeals) – 3, Mumbai, erred in i. Confirming the addition of ` 30,00,000/- as unexplained cash credits u/s 68, ignoring the specific directions of the Hon’ble ITAT in ITA No. 6270-6272 dated 11 th
September 2009.
ITA No. 5849/M/2011 Dilsa Distributers Combines
2 ii. Confirming the addition of ` 31,250/- as interest on the so-called bogus loans/unexplained cash credits.”
3. The original assessment was completed u/s 143(3) on 24.1.2000 at the total assessed income of ` 2,35,505/-. Subsequently the assessment was reopened by issuing a notice u/s 148 dated 31.3.2004 on the reason that undisclosed income of ` 30,00,000/- shown as loan and interest claimed on the alleged loan escaped assessment. In fact intimation was received by the AO from DDIT investigation Unit-(viii)(4), Mumbai after completion of the original assessment. In the said intimation the DDIT investigation (inv.) has intimated that Mr. Surendra Khandhar was indulged in giving bogus hawala entires/accommodation entries to various persons for which he floated 35 concerns. The AO found that the assessee has shown the loan taken from the concerns of Mr. Surendra Khandhar. The Assessing Officer has relied upon the statement of Mr. Surendra Khandhar recorded by the investigation unit during the search and seizure action and proposed the addition of loan amount along with interest there upon. The assessee has claimed to have taken loans from five concerns details of which are as under: Sl. No. Name Date Amount 1. Harmesh Trading 17.2.1997 10,00,000 2. Raj Electricals 18.3.1997 5,00,000 3. Aarkay Incorporated 18.3.1997 5,00,000 4. Raj Electricals 21.3.1997 5,00,000 5. HPS International 21.3.1997 5,00,000 Total 30,00,000
ITA No. 5849/M/2011 Dilsa Distributers Combines
3 The AO issued summons u/s 131 to all the five parties but the summons were not served to the parties and received back with the postal remarks “left and not known” as the address is not traceable. The AO has also issued summons to Mr. Surendra Khandhar but the same could not be served on the address given as he was not available there and left the place 3-4 years back.
4. Since Mr. Surendra Khandhar was not traceable and could not be made available during the assessment proceedings therefore the AO completed the reassessment by making the addition of ` 30,00,000/- as hawala loan and interest on the same. The assessee challenged the action of the AO and brought the matter before this Tribunal. The assessee contended that the AO has made the addition without giving an opportunity to the assessee to cross-examine of Mr. Surendra Khandhar. This Tribunal directed the AO to decide the issue afresh after providing opportunity of cross-examination. Thereafter the assessment in this case was made afresh. The AO tried to locate Mr. Surendra Khandhar however, he failed to serve notice on him or to trace him out for allowing cross- examination to the assessee. The Assessing Officer repeated all the additions made originally. The assessee again challenged the action of the AO and brought the matter before this Tribunal in the second round of litigation. The Tribunal vide order dated 11.9.2009 in ITA No. 6272/M/2008 has again set aside the orders of the authorities below and restored the matter to the file of the AO with the direction to pass afresh order on merits by ignoring the statement of Mr. Surendra Khandhar. The Assessing
ITA No. 5849/M/2011 Dilsa Distributers Combines
4 Officer consequently pass the assessment order dated 31.12.2010 and again made the addition as in the earlier assessment orders. The assessee has again carried the matter before this Tribunal in the third round of litigation.
5. Before us the Ld. AR of the assessee has submitted that the Assessing Officer has not passed the order as per the directions of this Tribunal vide order dated 11.9.2009. He has referred the assessment order and submitted that the AO has repeated the addition on the basis of the statement of Mr. Surendra Khandhar and has not decided the issue on merits by ignoring the said statement. On query from the Bench regarding the repayment of the loans in question the assessee filed the documents showing the repayment of loans in question and submitted that the assessee has already discharge the loans and therefore no addition can be made u/s 68. Though the Ld. AR has also argued at length against the sustainability of the addition made by the AO however, when the assessee has claimed that the loans in question have been repaid then we propose to dispose of the appeal on the short point of repayment of loan. The Ld. DR has submitted that the claim of repayment of loans requires verification and if the assessee establishes that the loan in question have been repaid then the issue may be decided accordingly.
6. We have considered the rival submissions and carefully perused the relevant material on record. In the earlier round of litigation this Tribunal has remanded the matter to the record of the Assessing Officer vide order dated 11.9.2009 in para 5 and 5.1 as under:
ITA No. 5849/M/2011 Dilsa Distributers Combines
5 “5. We have heard the rival submissions and considered them carefully. As mentioned above, the assessments were completed originally which were set aside by the Tribunal with a direction to allow cross examination of one Shri Khandhar on whose statement basis, the additions were made in the hands of the assessee. Shir Khandhar could not be traced out in spite of best efforts made by the AO; therefore, cross examination could not be allowed. It is well settled law that without confronting the statement of witness or allowing cross examination, no adverse inference can be made against a person, against which statement of a third party is used. Since cross examination could not be allowed; therefore, we hold that the statement of Shir Khandhar cannot be used against the assessee. 5.1 However, on merit, we are of the considered view that the matter needs re-verification at the end of the AO as the case has not been examined properly on merit. If the statement of a third party ignored then in that case, onus lay upon the assessee to prove the transaction by adducing necessary confirmation and evidences. No such efforts were made by the assessee to obtain the confirmation from the respective parties. Neither the department has tried to verify from the Income Tax department, in spite of furnishing PAN etc., of the respective parties, as stated by the ld. Counsel of the assessee. Therefore, we are of the considered view that to meet the end of justice, the matter should go back to the file of the AO in respect to all these appeals to examine the issue afresh on merit and after affording reasonable opportunity to the assessee to file necessary details in respect of respective loans taken by the assessee. Accordingly, we set aside the orders of the lower authorities and restore the matter to the file of the AO to pass a fresh order as per out above observations.”
7. It is clear from the order of this Tribunal that the addition made on the basis of the statement of Mr. Surendra Khandhar without giving an opportunity of cross-examination was held to be not proper and accordingly it was observed that the statement of Mr. Surendra Khandhar cannot be used against the assessee. The AO was directed to decide the issue on merits after affording an opportunity to the assessee to file necessary details in respect of respective loans taken by the assessee. We
ITA No. 5849/M/2011 Dilsa Distributers Combines
6 note that in the assessment order passed in pursuant to the directions of this Tribunal, the AO has repeated the addition in para 10-12 as under: “10. In view of the above, it can be seen that there is no change in the facts and circumstances of the case. Under the circumstances, there is no alternative than to pass the order with the materials available on record. The details and facts of the case are elaborately discussed in the original order passed on 31.3.2005 by the erstwhile Assessing Officer. Hence they are not repeated here again.
11. I do not find that the submission made by the authorised representative has any materials to serve his purpose. Considering the statement on oath provided by the lender of the loan, there is no iota of doubt that the assessee has introduced his undisclosed cash under the garb of accommodation loan. In the circumstances, the loan so received are unexplained cash credit u/s 68 of the I.T. Act, 1961 and same are brought to tax. Accordingly, a sum of ` 55,25,000/- is assessed as undisclosed income of the assessee for the year. Penalty proceedings u/s 271(1)(c) of the I.T. Act, 1961 are initiated separately.” 12. Subject to the above remarks, the total income of the assessee is computed as under: Business Income
Income as per order dtd. 31.3.2005 ` 2,35,505 Add: Disallowance of loan as per order ` 30,00,000 Dtd. 31.3.2005 Interest on loan ` 25,25,000
Total Income ` 57,60,505 ____________ Rounded off ` 57,60,510 ____________
8. It is clear that the AO has not taken pain to examine the issue on merits on the basis of the details to be filed by the assessee as directed by the Tribunal. Now before us the assessee has claimed that the loans have been repaid therefore, the claim of the assessee based on the record showing the repayment of loan is required to be verified. If the claim of the assessee that loans have already been repaid is found correct then
ITA No. 5849/M/2011 Dilsa Distributers Combines
7 the addition u/s 68 is not sustainable and liable to be deleted. Therefore in the interest of justice we set aside this issue for limited purpose of verification of the fact and the record filed by the assessee to show that the loans in question have been repaid by the assessee. The AO to decide the issue in terms of our observation.
9. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on this 6 th day of September 2013 Sd/- Sd/- (डी. क णाकर राव) लेखा सद#य
Accountant Member (वजयपाल राव) या$यक सद#य
Judicial Member
Place: Mumbai : Dated: 6 th September 2013 Subodh Copy forwarded to: 1 Appellant 2 Respondent
5 DR
Dy /AR, ITAT, Mumbai