TaxTMI 
TaxTMI 
2021 (10) TMI 1064
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....the appeals are similar therefore, for the sake of completeness, the grounds of appeal in I.T.A. No.114/Lkw/2019 are reproduced below: "1. BECAUSE the Learned CIT(A) was wrong in law & on facts in confirming the assessment order passed by AO u/s 153A of the Act as the same was not in consonance with the settled position of law vis-a-vis search cases. 2. BECAUSE the learned CIT(A) has erred in law and on facts in upholding the assessment ignoring the settled position of law that provisions of section 153A, in case where proceedings are not pending, could not be applied in absence of any incriminating material. 3. BECAUSE the reliance on 'reports of investigation wing' etc. did not constitute 'material' relevant for the purpose of assessment in this case, as the 'appellant' had never been confronted with the same in right perspective and as such the addition made on the basis of such an ex-parte information and reports etc. is wholly vitiated. 4. BECAUSE the computation of income was not even relevant for the purpose of assessment and the same is vitiated, as during the course of search (even in pursuance of joint warrant of Authorisation), no incrimin....
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....es below are distinguishable from the facts of the present case. 11. BECAUSE various adverse observations and allegations made by the lower authorities are contrary to the facts, material & evidences available on record. 12. BECAUSE in relation to the Grounds of Appeal, the appellant relies upon the averments made in the facts of the case. 13. BECAUSE the order of the CIT(A) is against the principle of natural justice erroneous and not tenable in law and on facts." 2. The brief facts, as noted in the assessment order, are that a search & seizure operation u/s 132(1) was carried out in Chaurasia Group on 27/11/2015 and the assessees of the group were required to file returns of income u/s 153A of the Act. The Assessing Officer, during the assessment proceedings, issued similar notices u/s 142(1) to the assessees wherein besides other issues he required the assessees to file satisfactory reply and explanation regarding unsecured loans taken from M/s Success Vyapar Ltd. and M/s Neil Industries Ltd. The Assessing Officer had the information on the basis of an investigation report that these two companies were providing accommodation entries to various assessees and since assesse....
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....ted parties in the cases and it does not serve any purpose of the assessees if they appear before the Assessing Officer for cross examination. The Assessing Officer held that they being part and parcel of whole racket of providing accommodation entries, they will try to protect the person, to whom they had given entries, from being exposed. However, the Assessing Officer obtained the information about the granting of unsecured loans to assessees from these two companies by issuing notices u/s 133(6) of the Act. 3. In reply to all these observations of Assessing Officer, the assessees filed relevant documentary evidences in support of their claim that assessees had obtained unsecured loans in regular course of business. It was also submitted that the loans were carrying interest and assessees had deducted TDS on such interest payments. It was also submitted to the Assessing Officer that a major part of the unsecured loans was repaid back even before the search took place. However, the Assessing Officer held that so many direct/indirect circumstantial evidences prove that the unsecured loans taken from Success Vyapar Ltd. and Neil Industries Ltd. were bogus and further held that eac....
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....unt, copy of ITR, copy of bank account and copies of audited accounts was placed. It was submitted that the assessees have obtained from Assessing Officer certified copies of replies by the loan creditors and have made part of these documents in the paper book where the Assessing Officer has certified these documents. It was further submitted that Assessing Officer has taken note of the receipt of replies from the loan creditors and in this respect our attention was invited to paper book page 451 where vide order sheet entry dated 11/12/2017 the Assessing Officer has taken on record the reply in view of notice u/s 133(6) received through Dak. Our attention was invited to similar documents placed in paper book pages 259, 340-341 and from 360 to 391 in I.T.A. No.116 and a reference of which was made in the consolidated paper book. Similar references were made from the consolidated paper book for I.T.A. Nos. 105, 106, 107, 108, 111 and 112. It was submitted that in the assessment order the Assessing Officer has not commented on all such evidences filed by assessee as well as by loan creditors directly. Learned counsel for the assessees submitted that assessees had taken the unsecured ....
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....f the Act, were issued to various persons and assessees was also directed to attend his office on 26/12/2017 whereas on going through the copy of entries in order sheet, there is no mention about the fact of having issued notice u/s 131 of the Act. It was submitted that the assessment order itself is not clear as to when summons u/s 131 of the Act were issued to the party and on which date such summons were served to the parties and it has also not been mentioned as to whether any reply has been filed by these persons in response to summons u/s 131 of the Act. Learned counsel for the assessees submitted that on the appointed date of 26/12/2017, the counsel of the assessee was present for cross examination however, nobody appeared for cross examination and Assessing Officer instead of further taking actions for making their presence has held that such persons must be receiving hundreds of notices on a daily basis and thereby he shifted the onus of providing its own witnesses to the assessees by saying that assessees can also produce such persons. In this respect Learned counsel for the assessees submitted that it is not the duty of the assessee to produce the witnesses of the Depart....
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.... that all the loans were taken through banking channels and interest was also paid after deducting TDS and a part of loans were also returned back with interest and this proves the genuineness of the transactions. Learned counsel for the assessees submitted that the assessment orders of such companies also proved the genuineness of the transactions as nothing adverse has been commented on such loans transactions in the assessment order and the interest paid by the assessees has been accepted as income of the loan creditors. Learned counsel for the assessee submitted that in a number of judgments it has been held that when the assessee had fulfilled its part of proving the three ingredients to the Assessing Officer, the addition u/s 68 of the Act cannot be made unless the submissions in this regard made by the assessee are proved wrong. Learned counsel for the assessees submitted that the only reason for making such additions was a report of the investigation wing wherein it has been held that the loan creditors were engaged in providing accommodation entries only. Learned counsel for the assessees submitted that the Assessing Officer himself did not carry out any investigation and ....
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.... Act and Assessing Officer completed the assessments u/s 153A of the Act except in the year of search where the assessment order has been passed u/s 143(3) of the Act. It is undisputed fact that additions in these cases are not based upon any incriminating material found during the search and rather have been made on the basis of transactions which were already recorded in the books of account of assessees. The facts in brief are that assessees had obtained certain unsecured loans from two loan creditors namely Success Vyapar Limited and Neil Industries Ltd. The Assessing Officer added back such unsecured loans holding them to be accommodation entries and disallowed the interest paid on these loans and also made a further addition of 5% as assumed commission on such transactions. The Assessing Officer held (on the basis of statements of Directors of such lender companies) that these lender companies were engaged in providing accommodation entries. The statements of Directors of these lender companies have been made part of the assessment order itself. The assessees had filed complete information and explanation with respect to the unsecured loans taken from these companies. The evi....
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.... a substantial part of unsecured loans was already repaid even before the date of search. This fact of having repaid a part of unsecured loans before the date of search is apparent from the yearwise copy of account of such lenders, which for the sake of completeness has been made part of this order and is reproduced below: 5.1 While making the additions on the basis of statements of such persons, the Assessing Officer also noted in the assessment order that notices u/s 131 of the Act were issued to the persons who had given the statements for cross examination by the assessees but the fact of having issued notices u/s 131 of the Act is not coming out from the copy of order sheets placed at pages 262 to 264, 260 to 262, 218 to 220, 449 to 451, 423 to 425 and 414 to 416 of the paper book and neither the assessment orders state as to when these notices were served. We further find that in reply to various notices by the Assessing Officer, the assessee has been filing replies and was also filing various evidences from time to time, the copies of various replies, filed by the assessees, have been summarized and made part of this order in the form of a chart, as reproduced below....
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.... Timber Industries are reproduced below: 2. The brief facts of the case are that a search and seizure operation under section 132(1) of the Income-tax Act, 1961 was carried out at the residential and business premises of Dolphin Developers/Anand/Rotomac Group of cases on 25/6/2014 at Kanpur. Simultaneously, a survey under section 133A of the Act was also conducted at the registered office and the office of M/s Morning Glory Infra Ltd., situated at plot No.2, Block-I, Gotaiya Scheme No.VII, 7/102, Swaroop Nagar, Kanpur and 17/K/13, Sarvodaya Nagar, Kanpur. Shri Anoop Asthana, Prop. M/s Anoop Asthana Properties, main broker for Anand/Dolphin Group and Morning glory Infra Ltd. was also covered under section 133A of the Act. During the course of survey operation at the premises of M/s Anoop Asthana Properties, situated at Ratan Bhawan, 7/108, Swaroop Nagar, Kanpur, a diary was found and impounded as Annexure A-14 Page No.163 to 165, which, as per the authorities below, contained the details related to Emerald Garden Project being carried out by M/s Morning Glory Infra Ltd. The Assessing Officer completed the assessment by making the addition of Rs. 64,00,00,000/- on account of unacco....
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.... Ashthana, and his ex-parte statement recorded during the course of survey at his premises. Re: diary impounded from premises of Mr. Anoop Asthana It is respectfully submitted that the contents of the aforesaid diary found during survey in the case of Mr. Anoop Asthana marked as Annexure A-14, pages 163-165 whereof have been relied upon by the Assessing Officer, could not have been the basis for making such huge addition in the hands of the appellant for the following reasons: ............................................................................................. ............. (f) Pertinently, even the names of the individual parties appearing in the diary alongside the amounts, are completely alien to the appellant. The appellant had not sold any flat in the Emerald Garden project to the persons named in the sold diary. Therefore, the very contents of the diary are matter of great suspect and are totally unreliable/unauthentic. (g) No adverse inference can be drawn from certain payment receipts (3 in number) in respect of flats in Emerald Garden project found from the premises of Mr. Anoop Asthana, particularly when nothing adverse has been stated by Mr. Asthana in t....
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....rded. For answer to question No.22, in the statement recorded on 25/6/2014 Shri Anoop Asthana has categorically stated that page 163 of the annexure A4 are the entries relating to Emerald Garden and the amount of white and black represents the amount of cheque and cash. It is also stated that the black amount which is invariably in cash is directly paid to the appellant company by the investor to the Director of the appellant company. Shri Anoop Asthana also states that he only gets the commission income at the time of registration of the property. He is continuing to state in the same answer that this process has been followed in minimum 12 flats of the Emerald Garden which is booked through him. Thus, it is crystal clear that the appellant company is receiving 25% consideration in cash which is not reflecting in the regular books of account. 5.7 During the post survey proceedings the incriminating document mentioned here-in-above and the statement of Shri Anoop Asthana was specifically confronted to the Managing Director of the appellant company Shri Sanjeev Kumar Jhunjhunwala (SKJ) on 27/6/2014 which is reproduced at page 6 and 9 of the assessment order by the Assessing Office....
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.... to the Managing Director of the appellant company Shri Sanjeev Kumar Jhunjhunwala on 27/1/2014. This statement is part and parcel fo the assessment order page 6 to 9, therefore, the plethora of the case laws cited by the ld. AR of the appellant does not apply to the facts and circumstances of the present case." 9. Thus, the assessee specifically contended before the ld. CIT(A), that any cross-examination of Shri Anoop Asthana was not allowed to it. The ld. CIT(A) has held that the statement of Shri Anoop Asthana was specifically confronted to the Managing Director of the assessee company. However, he does not deny that the assessee was not allowed to cross-examine Shri Anoop Asthana, whose statement was used by the Assessing Officer against the assessee, though the said statement was recorded at the back of the assessee. He merely states that during survey proceedings the statement of Shri Anoop Asthana proprietor of AAP was recorded; that in answer to question No.22, in the statement recorded on 25/6/2014, Shri Anoop Asthana has categorically stated that page 163 of the annexure A-4 are the entries relating to Emerald Garden and the amount of white and black represents the amou....
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....unknown, more particularly, only on the statement of Shri Anoop Asthana about the contents of the diary written by someone else. Since the diary was undisputedly found from the possession of Shri Anoop Asthana and not from the appellant, the contents of the said diary, simplicitor, without any corroborative material/evidence could not have been, in the absence of any corroborative material / evidence, made the basis of drawing any adverse inference against the appellant, much less making any addition in the case of the appellant. In the diary, name of the project 'Emerald Garden Project' being constructed by the appellant along with certain names of individuals and amounts was stated to be mentioned. As to why and for what purpose the author had made such noting is not known, nor brought on record. The appellant has, all through, denied any knowledge of the contents of the diary. It also could not be expected to be aware of the contents recorded in the diary found at the time of survey at the premises of Shri Anoop Asthana, a third party. It is undisputed that the contents of the diary had no signature and/or any other authentication on behalf of the appellant. This being so, the d....
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....ed unilateral statement of Shri Anoop Asthana, qua which, no opportunity of crossexamination of the deponent, Shri Anoop Asthana, was afforded to the assessee at any stage whatsoever. It is not sufficient to observe, as has been done by the ld. CIT(A), that ".........the incriminating document found and impounded in the business premises of Shri Anoop Asthana and the incriminating statements of Shri Anoop Asthana was specifically confronted to the Managing Director of the appellant company Shri Sanjeev Kumar Jhunjhunwala on 27/1/2014........". It is trite law that merely confronting the statement recorded at the back of the assessee, to the assessee, in the absence of providing a crossexamination of the maker of the statement, is in complete violation of the natural justice principle of audi alteram partem. The following judgments, inter alia, are eloquent in this regard:- 1. Kishinchand Chellaram vs. CIT, 125 ITR 713 (SC). 2. Saraswati Industrial Syndicate Ltd. vs. CIT, 237 ITR 1 (SC). 3. State of Punjab vs. Bhagat Ram, AIR 1974 SC 2335. 4. Kalra Glue Factory vs. Sales Tax Tribunal, 167 ITR 498 (SC). 5. CIT vs. Pradeep Kumar Gupta, 207 CTR 115 (Del). 6. Sona Electric C....
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....ioner of Central Excise', 281 CTR 241(SC), it has been held that "the assessee was manufacturing ply-woods and related products in its factory. Some of those products were sold from factory premises only to certain buyers. However, major portion of products manufactured were sold to other dealers from their numerous depots situated at different places in country. Assessee filed its declaration u/s. 173C of Central Excise Rules showing price of goods at which they were sold ex-factory and delivery basis. Revenue found that there was lot of price difference between goods sold at ex-factory and delivery basis in comparison with goods which were sold to buyers from depots. Investigation was carried out and statements of two buyers were recorded, on basis of which Show Cause Notice was served upon Assessee. Adjudicating Authority passed order confirming demand in Show Cause Notice on ground that price at which goods were sold to customers from depots may not be basis for determining value for purpose of excise duty-Adjudicating Authority also took into consideration price list of Assessee maintained at its depots that was treated as price for purposes of levying excise duty. Assessee fi....
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....ated in his reply that he was not concerned with the 'incoming' and 'out-going' 'len-den' payments. Page Nos. 164 and 165: These were dated 18.01.2014 and 13.01.2013, falling in the assessment years 2014-15 & 2013-14 respectively, i.e., the earlier two years. No such addition had been made m the A.Y. 2013-14 & A.Y. 2014-15, from which it follows that all such enquiries, as were called for, had duly been made by the Assessing Officer and nothing contrary to the appellant was found, although assessments for the assessment years 2013-14 & 2014-15 were made under section 153C on the same date, as on which the assessment for A.Y. 2015-16 was made, i.e., on 9.12.2016. Strikingly, the material forming the basis of the addition presently under consideration is the very same as that on which the completed assessments under section 153C for those earlier years were reopened, but no addition was made. 15. As regards receipts bearing no.1030 dated 31.05.2013, no.1396 dated 05.04.2014 and No.1418 dated 28.04.2014, the same had been found from the possession of Shri Anoop Asthana, the broker. So far as regards the two receipts dated 05.04.2014 and 28.04.2014, the related ....
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....s been made the sole basis of the addition, thereby violating the principles of natural justice; and (ii) the other material, i.e., three pages of the diary found in the search do not establish any case for addition in the hands of the assessee in the year under consideration, as none of these documents relate to the year under consideration, one of them does not contain any date/year and the other two pertain to earlier years, in which, no addition based on these documents was made. 18. Therefore, the grievance sought to be raised by the assessee is justified. It is accepted as such. Accordingly, the addition made is deleted. Nothing further survives for adjudication, nor was anything else argued. 19. In the result, the appeal is allowed. 5.5 In the above noted case, decided by Lucknow Bench of the Tribunal, the Bench has taken into account all the relevant case laws and has decided the issue in favour of the assessee. 6. In the present cases also the opportunity to cross examination has not been given to the assessees. The Assessing Officer, at the fag end of time barring dates, had issued the alleged notices u/s 131 of the Act, the fact of which is also not coming out fr....
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....s there was a credit entry of Rs. 10,000 in the name of one Banarasidas, the brother-in-law of Premchand, who is the son of Nathu Ram, the karta of the Hindu undivided family. The Income-tax Officer treated this sum of Rs. 10,000 as income from other sources on the alleged ground that neither Banarasidas had been produced before him nor had the assessee offered an explanation with regard to this matter. The appeal of the assessee before the Appellate Assistant Commissioner challenging the inclusion of this sum of Rs. 10,000 was dismissed, so was his second appeal to the Tribunal. The assessee then made an application under section 66(1) of the Income-tax Act of 1922, inter alia, on the ground that no summons were issued for the appearance of Banarasidas. In the manner prescribed by Order XVI of the Civil Procedure Code and that the statement of Banarasidas was recorded behind the back of the assessee who had no opportunity of testing his veracity by cross-examining him and in any case, the material brought on the record by the statement of Banarasidas was never put to the assessee who did not know till long after the conclusion of the proceedings before the Income-tax Officer that ....
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....er on oath, or cause him to be so examined by another court, touching the service or non-service of the summons. (2) Where the court sees reason to believe that such evidence or production is material, and that such person has. without lawful excuse, failed to attend or to produce the document in compliance with such summons or has intentionally avoided service, it may issue a proclamation requiring him to attend to give evidence or to produce the document at a time and place to be named therein; and a copy of such proclamation shall be affixed on the outer door or other conspicuous part of the house in which he ordinarily resides. (3) In lieu of or at the time of issuing such proclamation, or at any time afterwards, the court may, in its discretion, issue a warrant, either with or without bail, for the arrest of such person, and may make an order for the attachment of his property lo such amount as it thinks fit, not exceeding the amount of the costs of attachment and of any fine which may be imposed under rule 12: Provided that no Court of Small Causes shall make an order for the attachment of immovable property." Admittedly, no such steps as are provided for by thi....
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.... statement of Pradeep Dey, we find that in the questions put to him, he has not mentioned anything about Success Vyapar Ltd. or Niel Industries Ltd. and neither any question has been put to him regarding any loans by these companies to the assessee companies and therefore, his statement also cannot be said to be against the assessee companies and hence Department cannot rely on this statement also for making additions. 9. As regards statement of Shri Anil Khemka and Raj Kumar Tharod, placed at pages 30 and 41 of the paper book in I.T.A. No.110, we find that nowhere they have mentioned that they had lent the money to these assessees through any of their group companies, what to talk of accommodation entries they have not even talked about any loan entry. In the statements, though they have admitted that these companies are controlled by them, neither any question was asked to them specifically regarding loans to these companies nor any thing has been said by them regarding such loans to these assessees. The statements are too general to be used against the assessees. 10. In view of these facts and circumstances, these statements can not be relied against the assessees specifically....
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....oceeding. In view of nation-wide known scam by the accommodation entry providers of Kolkata and elsewhere burst by the Income Tax Department, there was no need to provide opportunity for crossexamination of same accommodation entry providers. Any way in the rejoinder submission to remand report the appellant is absolutely silent on cross-examination and by such conduct he has forgone his right to cross-examine. Therefore, the principles of natural justice have been followed. As discussed in preceding paras, under the facts and circumstance of the case, it could not be said that AO did not followed the binding decision of the Hon'ble Supreme Court and the Hon'ble jurisdiction Court. Therefore, in view of above facts discussed in Para 4.1 & 4.4.7, 5.1 to 5.3 and legal position apprised in Para 5.5 to 5.11 above, it is held that the addition made by the AO on account of unsecured loans amounting to Rs. 12,36,49,999/- from M/s Jalsagar Commerce Pvt. Ltd. sustainable and the same is confirmed." Thus the addition was confirmed based on the report of the DDIT (Inv.) Kolkata. We find that the report of the DDIT (Inv.) Kolkata is also based on the statements of various persons recorded dur....
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....hed the link, if any, in providing the accommodation entry from one entity to another and finally to the assessee. However, no such link was found in the documents and financial statements of these companies, rather in the bank account statement of loan creditor M/s. Jalsagar Commerce Pvt. Ltd. there was no suspicious transaction of receiving any entry or any deposit of an equal amount prior to giving the loan to the assessee. The assessee has paid interest to the creditor, which was duly accepted by the AO as business expenditure. Undisputedly, the assessee has produced the income-tax record of the loan creditor, bank statement, financial statements including Balance Sheet, copy of ROC master data showing the status of loan creditor company as "active", confirmation of loan given to the assessee. Further, the AO issued summons and also got the summons served through DDIT Kolkata under section 131 of the IT Act which were duly responded by the loan creditor. Except the statement of Shri Anand Sharma and the report of the Investigation Wing Kolkata, the AO has not brought on record any other material to controvert or disprove the documentary evidence produced by the assessee. It is ....
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....hese financial statements or in the bank account statement to reflect that the transactions in question are nothing but bogus accommodation entries, the addition made by the AO is not sustainable as it is merely on the basis of surmises and conjectures and not on any tangible material disclosing the non-genuineness of the transactions. The AO has not disputed the transactions routed through banking channel having sufficient funds which is also supported by the financial statements and further the assessments of the loan creditor were completed under section 143(3). The details of loans taken from M/s. Jalsagar Commerce Pvt. Ltd., interests credited/paid and repayment of loan amount as well as closing balance are as under : All these details were before the AO as all these assessment years were passed by the AO pursuant to the search and seizure action under section 132 of the IT Act. Thus it is clear that for the assessment year 2015-16 there was Nil balance on account of loan taken from M/s. Jalsagar Commerce Pvt. Ltd. and the entire loan was already repaid by the assessee. We further note that it is not the case of repayment of loan after the search action on 2nd July, 2015 but....
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.... the only reason for denial of cross examination by the ld.CIT(A) is that the statements are so vocal and undeniable that cross examination of such accommodation entry provided by thousands of beneficiaries across India is neither practicable nor viable and therefore uncalled for. We find that the assessee has demanded the cross examination only in respect of the alleged transactions of loans and not for the entire business of the entry providers providing the bogus entries. Undisputedly, the statement of Shri Anand Sharma was recorded by the Investigation Wing Kolkata at the back of the assessee, even the proceedings by the Investigation were conducted at the back of the assessee, therefore, the said statement of Shri Anand Sharma cannot be the sole basis of assessment without giving an opportunity of cross examination to the assessee. The Hon'ble Supreme Court in the case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue of violation of principles of natural justice for not providing the opportunity of cross examination of the witnesses whose statements were relied on by the AO has held in para 6 to 9 as under :- 6. "According to us, not allowing the ass....
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....al on merits giving its reasons for accepting or rejecting the submissions. 8. In view of the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show-cause notice. 9. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal. No costs." Once the assessee has disputed the correctness of the statement and wanted to cross examine the witness which was not given by the AO as well as ld. CIT (A), then the orders passed based on such statement are not sustainable in law. The Hon'ble Delhi High Court in case of CIT vs. Ashwani Gupta, 322 ITR 396 (Delhi) while dealing with the issue of not providing the opportunity to cross examine the witnesses has held in para 5 to 7 as under :- "5. Secondly, in fact, a rectification application being MA 264/Delhi/2008 under section 254(2) of the Income-tax Act, 1961 had been filed by the revenue before the said Tribunal. In that also, in paragraph (g) of the Miscellaneous Application, the revenue had submit....
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.... pressed into service inter alia the decision of the Calcutta High Court in Mather & Platt (India) Ltd.(supra) and submitted that merely because a person is not found at an address after several years it cannot be held that he is non existent and that the assessee had discharged his primary onus by identifying the source of the amount paid. The Court observed that once the primary onus is discharged, the onus shifted to the revenue to verify genuineness of the transaction. In the present case no such effort was made by the revenue. We find that in S. Hastimal (supra) the Madras High Court observed that after a lapse of several years the assessee should not be placed upon the rack and called upon to explain not only merely, the origin and source of his capital contribution but the origin of origin and the source of source as well. In yet another case of Bahri Brothers (P) Ltd. (supra) the Division Bench of Patna High Court observed that where the assessee upon whom the initial burden lies, produces bank certificate to establish that the transaction was carried out through account payee cheques thus disclosing the identity of the creditors as also the source of income, the burden shi....
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.... In the instant case although the appellant assessee has called upon us to draw an inference that the burden shifted to the revenue in the present case once it was established that the payments were made and repaid by cheque we need not hasten and adopt that view after having given our thought to various issues raised and the decisions cited by Mr.Tralshawalla and finding that on a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conclude that the loan was a bogus transaction. 17. In our view in the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessm....
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....rtment as per which the transaction under consideration is a bogus loan transaction. The said information received from the investigation wing thus overweighed the mind of the Assessing officer. The Assessing officer stated that the primary onus is on the assessee to establish the genuineness of the transaction claimed by it and if the investigation done by the department leads to doubt regarding the genuineness of the transactions, it is incumbent on the assessee to produce the parties alongwith necessary documents to establish the genuineness of the transaction. In response, the assessee submitted that Shri Bhanwarlal Jain is not known to him and regarding various incriminating documentary evidences seized during the course of search and statements recorded of Shri Bhanwarlal Jain and other persons, he specifically requested the AO to provide copies of such incriminating documents and statement of all various persons recorded in this regard and provide an opportunity to the assessee to cross examine such persons. However, the AO didn't provide to the assessee copies of such incriminating documents and statements of various persons recorded and allow the crossexamination of any of....
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....f the department in respect of investigation carried out at a third party, can the said information be used against the assessee without sharing such information with the assessee and allowing an opportunity to the assessee to examine such information and explain its position especially when the assessee has requested the same to the Assessing officer. 2.10 In this regard, the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) (Copy at Case Law PB 812-818) has held that "The rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Sinqh where it was stated that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to find that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so propo....
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....atement of the case was called for by this Court by its order, dated 16-8-1979 that, according to the ITO, this letter was traced by him and even then it was not shown by him to the assessee but it was forwarded to the Tribunal and it was for the first time at the hearing before the Tribunal in regard to the preparation of the supplemental statement of the case that this letter was shown to the assessee. It will, therefore, be seen that, even if we assume that this letter was in fact addressed by the manager of the bank to the ITO, no reliance could be placed upon it, since it was not shown to the assessee until at the stage of preparation of the supplemental statement of the case and no opportunity to cross examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that....
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.... natural justice. Thus the additions made by the AO on the basis of such statement without any tangible material is not sustainable in law and liable to be deleted. Accordingly the addition made by the AO is also deleted on merits apart from the legal issue decided in favour of the assessee." 12. In the above noted case law, the additions were made on the basis of statements of witnesses, recorded by Investigation Wing, and the witnesses were not cross examined by assessee. In the cases before us also, the additions have been made on the basis of statements of witness and the witnesses have not been cross examined by assessees. The Assessing Officer though in the assessment order has noted that summons u/s 131 of the Act were issued to the witnesses but no steps, as required by law, have been taken by the Assessing Officer as the witnesses did not appear and the Assessing Officer did not enforce their presence by taking further steps. Merely writing in the assessment order that notices u/s 131 has been issued, without recording any order in the order sheet regarding this fact nor having any evidence of service of such notices, does not serve the purpose of giving opportunity to th....
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....on is concerned. As would be seen when we discuss the facts of this case, the share applicants are all companies incorporated under the Indian Companies Act, either public limited or private limited companies. Since these companies are incorporated under the provisions of Indian Companies Act, their identity, at least on papers, is established. Here, they are assessed to income tax as well. These companies have PAN numbers and are filing regular income tax returns. The assessee companies which have received share applicant money from such applicants have produced documents in the form of PAN, income tax returns, copies of the bank accounts through which the funds were transferred by way of credit entries, deposits in the accounts of such applicants, etc. by furnishing such kinds of proofs/documents, the assessees have been able to discharge their initial burden. Notwithstanding the same, as per the AO(s), the applicants were bogus companies which were only paper companies and there is no real existence. In certain cases, it was also found that just before issuing the cheques by the applicants towards share applicant money, cash was deposited in their bank accounts. Except in ITA No....
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.... basis. 7. The assessee company is not accountable for the share applicants depositing cash in their accounts before investing by cheques. 8. AOs remarks "not a genuine tax payer" is the Department and the share applicant in which the assessee has not role to play. 9. The assessee has not means to produce the shareholders physically. 10. The postal remarks on the communications to the share applicants were not made available to the assessee company. 11. The report of the Directorate is one sided. 12. The proposal of the AO to treat the credits received as share application money runs contrary in law to the judgment of the Hon'ble Supreme Court in the case of M/s. Steller Investments Ltd. (115 Taxman Page 99)." 9. The AO was not convinced with this explanation. He was of the view that though contentions appeared good theoretically, but the assessee had miserably failed to discharge burden, in the background of the facts on record, in totality. He maintained that the companies were bogus, as they were not found at the existing address and the cash was also deposited by these companies just before issuing the cheques. The fact that the assessee had showed its inability....
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....sons. The order of the Tribunal is very brief and appeal was allowed following the judgment of the Apex Court in the case of Commissioner of Income Tax Vs. Lovely Exports (P) Ltd. [216 CTR 195 (SC)] and Commissioner of Income Tax Vs. Divine Leasing and Finance Ltd. [299 ITR 268] of this Court. The entire discussion can be traced in para 3 of the impugned order: "3. We have considered the rival submission. A perusal of the order of the Hon'ble Supreme Court in the case of Divine Leasing and Finance Ltd. referred to supra is in regard to SLP filed by the Revenue against the order of Hon'ble Jurisdictional High Court and the Hon'ble Supreme Court has specifically with a speaking order dismissed the SLP. The Hon'ble Supreme Court in the various decisions referred to by the Ld. AR has categorically held that the addition in regard to the share capital cannot be treated as the undisclosed income of the assessee if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO. Further, the Hon'ble Supreme Court has categorically held that the Revenue is free to proceed to re-open the individual assessm....
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....sis of these facts, could it be said that it is the assessee which has not been able to explain the source and receipt of money. According to the assessee, he had given the required information to explain the source and was not obligated to prove source of the money. It is the submission of the assessee that even in case there is some doubt about the source of money in giving into coffers of the share applicants which they invested with the assessee, it would not automatically follow that the said money belongs to the assessee and becomes unaccounted money. According to us, the assessee appears to be correct on this aspect. We feel that something more which was necessary and required to be done by the Assessing Officer was not done. The AO failed to carry his suspicious to logical conclusion by further investigation. After the registered letters sent to the investing company had been received back undelivered, the AO presumed that these companies did not exist at the given address. No doubt, if the companies are not existing, i.e., they have only paper existence, one can draw the conclusion that the assessee had not been able to disclose the source of amount received and presumptio....
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..../share applicants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. Once must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the "source of source". 16. We are conscious of the malice of such kind of pernicious practice which is prevalent. In Divine Leasing and Finance Ltd. (supra), this Court had eloquently highlighted the same in the following manner: "There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenues insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and made available ....
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....ena of judgments in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. That was precisely the observation of the Supreme Court in Lovely Export (supra) which holds the fields and is binding. 19. In conclusion, we are of the opinion that once adequate evidence/material is given, as stated by us above, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with such a liability under Section 68 and 69 of the Act. 20. During the arguments, we had posed these queries. Learned counsel appearing for the Revenue understood the limitation of their case. For this reason, a fervent plea was made that this case be remitted back to the AOs to enable him to make further investigation. 21. However, in the facts and c....