2016 (8) TMI 1133 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision on Natural Justice Principles

The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessing Officer's reliance on the statement of Shri Mukesh Choksi without providing an ... Treatment of long-term capital gains as income from undisclosed sources - opportunity of cross-examination of third-party witness - use of a third-party statement recorded during investigation as sole basis for addition - principles of natural justice - judicial consistency in income-tax adjudication - scope of appellate authority to address lacunae in remand reportUse of a third-party statement recorded during investigation as sole basis for addition - opportunity of cross-examination of third-party witness - principles of natural justice - Addition treating declared long-term capital gain as income from undisclosed sources could not be sustained where it was founded primarily on a third party statement which was not furnished to the assessee and no opportunity of cross examination was afforded. - HELD THAT: - The Tribunal accepted the CIT(A)'s finding that the assessment order was largely based on the statement of a third party (Shri Mukesh Chokshi) recorded by investigation authorities, that a copy of that statement was not provided to the assessee during assessment despite requests, and that no opportunity to cross examine was granted either at assessment or during remand. The authorities made no independent verification or corroboration of the statement against documentary evidence produced by the assessee. In these circumstances reliance on the solitary third party statement without giving the assessee a chance to rebut or cross examine violated natural justice and rendered the addition unsustainable. The Tribunal further observed that prior coordinate decisions dealing with identical factual matrices supported acceptance of the genuineness of the share transactions. Applying these principles the Tribunal upheld the deletion of the addition and directed that the profit be assessed as long term capital gain as declared. [Paras 7, 11, 12]Addition deleted; profit to be taxed as long term capital gain and deduction under applicable provisions to be allowed.Scope of appellate authority to address lacunae in remand report - judicial consistency in income-tax adjudication - Whether the CIT(A) ought to have itself provided the opportunity of cross examination or whether the deletion was inappropriate because the appellate power is co terminus with the Assessing Officer's powers. - HELD THAT: - The revenue argued that the CIT(A) could have afforded the opportunity of cross examination instead of pointing out lacunae in the AO's remand report. The Tribunal noted that although powers are co terminus, the AO had been specifically directed by the CIT(A) to afford cross examination and yet failed to comply. The Tribunal recorded displeasure at the AO's non compliance and, in the factual matrix where no fresh evidence or compliance was produced and earlier coordinate bench decisions favored the assessee, held that interference with the CIT(A)'s well reasoned order was not warranted. The Tribunal therefore, applying principles of judicial consistency, declined to disturb the deletion. [Paras 8, 12]Revenue's contention rejected; no interference with CIT(A)'s deletion given AO's non compliance and existing coordinate decisions.Final Conclusion: The revenue appeal is dismissed; the Tribunal upholds the CIT(A)'s deletion of the addition and directs assessment of the impugned profit as long term capital gain for Assessment Year : 2003-04, noting the AO's failure to provide the assessee the opportunity to cross examine the third party witness and the applicability of prior coordinate decisions. Issues Involved:1. Deletion of addition of Rs. 43,52,980/- by CIT(A) based on lack of opportunity for cross-examination.2. Treatment of Rs. 43,52,980/- as income from undisclosed sources.3. Non-appreciation of findings in the Assessing Officer’s remand report.4. Discrepancies in the purchase of shares of M/s Buniyad Chemicals Ltd.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 43,52,980/- by CIT(A):The CIT(A) deleted the addition of Rs. 43,52,980/- by holding that the assessee was not granted the opportunity to cross-examine Shri Mukesh Choksi, whose statement was pivotal in the Assessing Officer's decision. The CIT(A) emphasized that the powers of CIT(A) are co-terminus with those of the Assessing Officer, and thus, the CIT(A) could have provided the opportunity for cross-examination instead of pointing out the lacuna in the remand report. The reliance on the decisions in CIT Vs Kanpur Coal Syndicate (53 ITR 225 (SC) (1964)), Jute Corpn. Of India Ltd Vs CIT (53 Taxman 85 (SC) (1990)), and CIT Vs K.S. Dattreya (197 Taxmann 151 (Kar.) (2011)) was highlighted.2. Treatment of Rs. 43,52,980/- as Income from Undisclosed Sources:The Assessing Officer treated the amount of Rs. 43,52,980/- as income from undisclosed sources, based on the statement of Shri Mukesh Choksi, who admitted to issuing bogus bills. The CIT(A) found that the assessment order was primarily based on this statement without any independent inquiry to verify its correctness in the assessee's case. The CIT(A) noted that the statement was not provided to the assessee during the assessment proceedings, and no opportunity for cross-examination was given, which violated the principles of natural justice.3. Non-appreciation of Findings in the Assessing Officer’s Remand Report:The CIT(A) considered the remand report and the rejoinder submitted by the assessee. The discrepancies and shortcomings pointed out by the Assessing Officer regarding the share transactions, especially with respect to the scrips of Buniyad Chemicals, were addressed satisfactorily by the assessee. The CIT(A) held that the reopening of the case and the assessment proceedings were legally valid, but the objections raised by the Assessing Officer in the remand report were sufficiently met by the assessee.4. Discrepancies in the Purchase of Shares of M/s Buniyad Chemicals Ltd.:The CIT(A) addressed the discrepancies pointed out by the Assessing Officer regarding the market rates of scrips bought and sold, which were different from what was shown in the bills submitted by the assessee. It was clarified that these bills related to the Assessment Year 2002-03 and not the year under consideration. The CIT(A) directed that any effect of these discrepancies should be considered in the Assessment Year 2002-03, and the Assessing Officer was free to take necessary action as per law.Conclusion:The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessing Officer's reliance on the statement of Shri Mukesh Choksi without providing an opportunity for cross-examination was against the principles of natural justice. The Tribunal also noted that the CIT(A) had given specific directions for cross-examination, which were not complied with by the Assessing Officer. The appeal filed by the revenue was dismissed, and the order pronounced on 10th August 2016 confirmed the deletion of the addition and the treatment of the profit on the sale of shares as long-term capital gains.