TaxTMI 
TaxTMI 
2016 (2) TMI 899
X X X X Extracts X X X X
X X X X Extracts X X X X
....passed by the Assessing Officer ('AO') under Section 148 of the Act for the said AYs. 3. The background to the appeal is that the Assessee company claimed to represent customers for supply of equipments required by various governments and semi-government departments/undertakings. According to the Assessee, it engages sub-agents to render the services of bringing proposals for prospective tenders/contracts; ensuring follow up with the customers and concerned departments; forwarding necessary marketing and business information; procuring necessary business information in connection with the items supplied; assisting the principals with the submission of competitive offers; assisting the principals and guiding the Assessee on necessary infrastructure transportation, clearing and handling of goods whenever required depending on the nature of the contract. According to the Assessee, if the business materialised, the sub-agents received the agreed commission out of the commission received by the Assessee. 4. While completing the assessments for AYs 1981-82, 1982-83 and 1983-84 by the orders dated 29th October 1982, 28th September 1983 and 24th May 1983 respectively under Section 14....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sactions of Rs. 1 crore. According to Mr. Meattle, the receipt of commission was neither accounted for in the books of account of the companies nor declared to income tax authorities. 8. On 8th March 1990 the AO forwarded to the Assessee a copy of Mr. Meattle's statement. The Assessee was offered an opportunity to cross-examine Mr. Meattle on 13th March 1990. By letter dated 13th March 1990 addressed to the AO, the Assessee expressed its inability to cross-examine Mr. Meattle at a short notice of two working days since the records pertaining to the previous eight years required to be examined. 9. Since the time period for completing the reassessments was about to expire, by three separate orders dated 29th March 1990, the AO completed the reassessment for the three AYs in question and added back the amounts representing the commission purportedly paid by the Assessee. 10. Meanwhile, subsequent to the reassessment proceedings and during the pendency of the penalty and appellate proceedings, on 13th November 1990 the statement of Mr. Jhunjhunwala was recorded under Section 132 (4) of the Act by the Assistant Director of Income Tax (Investigation) ['ADIT (Investigation)'], Bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... would be served in cross-examining Mr. Jhunjhunwala. Accordingly, the Assessee declined to cross-examine Mr. Jhunjhunwala. Mr. Meattle did not turn up till 4 pm. Before the AO, counsel for the Assessee stated that they cannot wait for long for Mr. Meattle to appear and left the office of the AO at 4.05 pm. 14. The ITAT has in the impugned order noted that from the orders passed by the AO it transpired that the summons sent to Mr. Meattle at his last known address was received back unserved. The AO then requested the Deputy Director of Income Tax (Investigations), Bombay to trace Mr. Meattle asking him to attend the hearing before the AO for the propose of cross-examination. By a letter dated 12th February 1996, the ADIT (Investigation) informed the AO that Mr. Meattle could not be found. Another letter dated 19th February 1996 sent by the AO to the ADIT (Investigation) asking Mr. Meattle to attend the hearing before the AO on 27th February 1996 was replied back stating that Mr. Meattle could not be traced. Despite efforts by the AO, Mr. Meattle could not be traced and produced for his cross-examination. Accordingly, the AO then came to the conclusion that the Assessee was not i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Tax Appellate Tribunal was correct in law in placing reliance on Section 33 of the Indian Evidence Act while denying an opportunity to the Assessee to cross-examine Mr. Meattle?" 17. The Court has heard the submissions of Mr. Ajay Vohra, learned Senior counsel for the Assessee and Ms. Lakshmi Gurung and Mr. P. Roy Choudhary, Standing counsel for the Revenue. 18. Mr. Vohra submitted that the Assessee was justified in declining to cross-examine Mr. Jhunjhunwala since in the absence of Mr. Meattle, there would be no point in cross-examining Mr. Jhunjhunwala. No adverse inference could be drawn against the Assessee on that score. 19. Mr. Vohra submitted that the ITAT erred in applying Section 33 of the IEA in the facts of the present case. According to him, one of the conditions for applicability of Section 33 of the IEA, viz., an opportunity to cross-examine Mr. Meattle, was not fulfilled. The ITAT itself had by the earlier order dated 24th December 1993 held that only one opportunity had been granted to the Assessee to cross-examine Mr. Meattle on 13th March 1990 and was, therefore, inadequate. 20. Mr. Vohra submitted that even otherwise there were inconsistencies and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced on the decision of the Supreme Court in Kishanchand Chellaram v. CIT (1980) 125 ITR 713 (SC). 22. Ms. Gurung, learned counsel for the Revenue, on the other hand pointed out that sufficient opportunities had been granted to the Assessee for cross-examination of the witnesses whose statements were recorded in the assessment proceedings. The Assessee chose not to cross-examine Mr. Jhunjhunwala despite sufficient opportunities. In the circumstances, there was no question of any violation of the principles of natural justice. 23. As already noticed, this was second round of litigation before the ITAT. By an earlier order dated 24th December 1993, the ITAT had opined that the AO "should have granted some more time to Assessee to gather material needed for proper cross-examination of Shri Meattle." The matter was restored to the AO to enable him to offer reasonable opportunity to the Assessee "to cross-examine the above two persons in accordance with law and then re-consider the claim of payment of commission." It was to the above extent the impugned order was set aside and the matter was restored to the file of the AO for all the three AYs. It was made clear that other grounds ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jhunjhunwala filed a letter confirming his statements dated 30th November 1990 and 15th March 1991. When asked to cross-examine Mr. Jhunjhunwala, Mr. Jajodia stated that Mr. Jhunjhunwala was a stranger to the transactions involving Mr. Meattle and that without cross-examining Mr. Meattle there was no use in cross-examining Mr. Jhunjhunwala. When till 4 pm Mr. Meattle did not turn up, the AR of the Assessee stated that they could not wait longer and that they reserved their right to cross-examine Mr. Meattle and all of them left the office of the AO at 4.05 pm. The AO noted that the Assessee submitted another letter dated 8th March 1996 and 12th March 1996 again stating that the proposed disallowance of commission payment should be dropped in view of the non-furnishing of the financial statement, income tax return etc. of the three payee companies by the Department and also because Mr. Meattle did not attend the hearing. Meanwhile ADIT (Investigation) (Hqrs) by his letter dated 18th March 1996 again stated that Mr. Meattle could not be found at the address indicated by him to the ACIT by his letter dated 21st August 1995. 26. The AO realized that the proceedings would be barred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en Mr. Jhunjhunwala's statements can be examined for their intrinsic worth. The Assessee took a calculated risk in declining to cross-examine Mr. Jhunjhunwala on the understanding that it had to be preceded by the cross-examination of Mr. Meattle. 31. Two conclusions that could be drawn from the above narration are that there is no violation of principles of natural justice as far as the Assessee is concerned, and the uncontroverted statements of Mr. Jhunjhunwala were sufficient to substantiate the case of the Revenue against the Assessee. 32. Consequently, the Court is unable to find any error having been committed by the ITAT in upholding the concurrent findings of the AO and the CIT (A) regarding disallowance of the commission payments claimed by the Assessee. 33. In sum, as far as ITA No. 439 of 2003 is concerned, Question (2) is answered in the negative i.e., in favour of the Assessee and against the Revenue. However, Question (1) is answered in the affirmative i.e. in favour of the Revenue and against the Assessee. The net result is that the conclusion reached the impugned order of the ITAT is affirmed and ITA No. 439 of 2003 is dismissed. ITA No. 156 of 2014 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Meattle and Mr. Jhunjhunwala. If the statement of Mr. Meattle is kept set aside, then the matter would have to be remanded to the AO for him to record his satisfaction de novo regarding initiation of the penalty proceedings only on the basis of the statement of Mr. Jhunjhunwala. He submitted that in the penalty proceedings a standard of proof higher than preponderance of probabilities was called for. Therefore, even if it were to be held that Mr. Jhunjhunwala's statement could form the basis of the disallowance of the commission paid by the Assessee, it might not be sufficient to initiate penalty proceedings. Mr. Vohra submitted that the Assessee had disclosed all facts. There was a distinction to be drawn between making a 'wrong' claim and a 'false' claim and in the present case the Revenue had been unable to show that a false claim was made. Reliance was placed on the decisions in CIT v. Somnath Oil Mills (1995) 214 ITR 32 (Guj), MAK Data P. Ltd. v. CIT (2013) 358 ITR 593 (SC), Anantharam Veerasinghaiah v. CIT (1980) 123 ITR 457 (SC), Union of India v. Dharmender Textile Processors (2008) 306 ITR 277 (SC). 40. In reply, it is submitted by Ms. Gurung, learned coun....