TMI Blog2009 (5) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... ipts were declared as income for the two years under consideration - CIT(A) upheld the validity of the reopening of assessment - also upheld the addition to the income of the assessee and treatment of the loss as speculation loss. HELD THAT:- Not allowing cross examination is a defect of procedural in nature. It is to be allowed in order to make the assessment by using the principal statement, the examination in chief tested on cross examination. It is only a procedural requirement to be complied with before making the assessment under the Act in view of the decisions in the cases of Pooran Mall Sons [ 1974 (9) TMI 1 - SUPREME COURT] . Not following the procedural provisions like allowing cross examination will not make an assessment null and void. At best it could be an irregularity liable to be cured and in such a case the assessments could be set aside, to be redone. An addition made does not cease to be an addition merely by reasons of want of cross examination. It will be a proceeding liable to be challenged and corrected. The statements of Shri H.S. Maheshwari, Shri Parveen Mittal, Shri Sanjay Hasija Shri Rajinder Gulati was used by the AO in initiating proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment and direct ITO to comply with requirements while making de novo assessment. In 1960 the Supreme Court in Guduthur Bros.' case [ 1960 (7) TMI 5 - SUPREME COURT] almost in the same factual background, held that the ITO had jurisdiction to continue the proceedings from the stage at which the illegality had occurred. speculation loss - AO has computed the loss by excluding the receipts shown by the assessee from the profit of shares in the computation of income and that has resulted into a loss and since the loss has arisen to the assessee on account of purchase and sale of shares of another company, the same has to be treated as speculation loss in view of the clear provisions of Explanation to Section 73. No interference on this count is called for. The ground is accordingly rejected. The appeal of the assessee is allowed only for statistical purposes - VIMAL GANDHI, PRESIDENT AND R.P. GARG, SR. VICE PRESIDENT ORDER R.P. GARG, SR. VICE PRESIDENT 1. This is an appeal filed by the assessee against the order of the CIT(A) for AY 1999-2000 upholding the order of the Assessing Officer. 2. The assessee is an investment company claimed to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was one of them who has received the aforesaid sum of Rs. 12,41,298. The ITO issued a show-cause notice to the assessee informing him that various cheques were received by the assessee showing R.K. Aggarwal Co. as broker with whom he had financial transactions for sale and purchase of shares; that notice Under Section 131 of the Act sent to the concerned broker returned back unnerved with the remarks No such firm in this address , which raises serious doubts about the identity of the party; that in a statement of Shri Satish Chand Goel recorded on oath during the course of proceedings Under Section 131 on 5.5.06 before the Addl. CIT(Inv.), New Delhi, it is stated by Satish Chand Goel that he is a CA by profession since 1989 and he also acted as accommodation entry provider in earlier years to various beneficiaries in the form of long term and short term capital gains, gifts, capital contribution in various companies etc. and he used R.K. Aggarwal Co. for providing such accommodation entries; that Shri Satish Chand Goel in his statement recorded on 23.3.04 before the ITO, Ward (33), New Delhi stated that he had done the accommodation entry business through the account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the income by way of profit from sale of shares by the assessee was also liable to be reduced since there was no actual income. 6. Another statement of Shri Satish Chand Goel was recorded on 21.12.06 in which he reiterated the earlier statement taken before the Investigation Wing to the fact that he was engaged in providing accommodation entries to it. The statement was made available to the Ld. Counsel of the assessee to read and for which a copy was asked to be given. The AO however, noted that since the statement has already been shown to the Ld. AR of the assessee who has carefully gone through the statement and for the reasons that similar types of statements have already been supplied to the assessee, the onus thus lies on the assessee to prove genuineness of the transactions. The AO considered the contention of the assessee and he found them not tenable for the various reasons: 1. The assessee has shown the receipt of the cheques totaling to Rs. 12,41,298 from M/s R.K. Agarwal Co. as sale proceeds of shares but the genuineness of the brokers is under doubt, because Shri Satish Chand Goel on different occasions has reiterated that M/s R.K. Aggarwal Co. is a bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the assessee that he had already shown such credits as receipts on sale and purchase of shares in P L A/c and offered the resultant profit was not acceptable as the receipts were arranged through sham transition and can only be held as income from other sources. He also observed that all the cheques of Rs. 12,41,298 were received during the year under consideration and the addition Under Section 68 has to be made in this year. He, however computed speculation loss of Rs. 4,11,514 by reducing the cheque amounts received from R.K. Aggarwal Co., amounting to Rs. 5,38,386 from the income from business declared in the return by observing that assessee being accompany, the provisions of Explanation to Section 73 were applicable and, therefore, the said amount would be speculative loss. In other words, the credit of Rs. 5,38,386 which was in the P L A/c of share trading being not related to said transaction was excluded from the profit and the resultant loss was treated as speculation loss. 8. The CIT(A) upheld the validity of the reopening of assessment. He also upheld the addition of Rs. 12,41,298 to the income of the assessee and treatment of the loss as speculatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the exceptions contained in Explanation to Section 73 of the I.T. Act as its main source of income was under the head other sources on account of addition of Rs. 12,41,298 as made Under Section 68 being income from other sources. In this regard, I do not find any substance as the appellant's business is not loan and advancing and addition Under Section 68 is not exterminating factor for the principal business. VII. I further find that the principal source of income cannot be determined on the basis of one year income but it is required to be examined in the light of past so many years source of income. Considering the fact of the case, I hold that the AO was justified to determining the specua5ve loss of Rs. 04,11,514. Hence, the same is upheld. VIII. In respect of arguments for double taxation for the same income, I find substance in it as once the receipt of Rs. 12,58,298 is treated as unexplained cash credit, the same cannot be taxed by way of share profit. Since, the appellant itself has shown such unexplained receipts of Rs. 12,41,298 giving the colour of share profit, it can not invalidate the addition made Under Section 68 of the I.T. Act. Thus, as to avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is challenged for not allowing cross-examination and in ground Nos. 3 and 4 the additions based on the statements and affidavit without test of cross examination are challenged on merits. These grounds are interconnected and are therefore considered together. The ld. Counsel for the assessee submitted that the statements were recorded at the back of the assessee and the assessee was not allowed cross-examination of the statement vis- -vis, the statement recorded and the affidavits filed by Satish Chand Goel, and, therefore, the said statement and the affidavits have no value in the eyes of law and no addition on the basis thereof can be made. In this connection, he referred to the four decisions of Delhi High Court in CIT v. Dharam Pal [2007] 295 ITR 105, Prem Chand Ltd. CIT v. Pradeep Kumar Gupta 203 TR 95 (Del.); CIT v. SMC Brokers Ltd. 288 ITR 345(Del) and CIT v. Rajesh Kumar, 218 CTR (Del.) 691. He also submitted that a sum of Rs. 7,02,912.90 has been offered as sale consideration in the AY 1998-99 and the balance Rs. 5,38,386 has been offered in the year under consideration and, therefore, the entire amount of Rs. 12,41,298.90 has been the subject matter of assessment by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the parties. It is a matter of record that the assessee had not been allowed the cross examination of the party whose statement has been used against him in making the assessment, the addition is thus in violation of principles of natural justice. Not allowing cross examination is a defect of procedural in nature. It is to be allowed in order to make the assessment by using the principal statement, the examination in chief tested on cross examination. It is only a procedural requirement to be complied with before making the assessment under the Act in view of the decisions in the cases of Pooran Mall Sons [1974] 96 ITR 390 (SC). Not following the procedural provisions like allowing cross examination will not make an assessment null and void. At best it could be an irregularity liable to be cured and in such a case the assessments could be set aside, to be redone. An addition made does not cease to be an addition merely by reasons of want of cross examination. It will be a proceeding liable to be challenged and corrected. 14. The order of the AO though was vitiated by an illegality which supervened, not at the initial stage of the proceedings, but during the course of it and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified in remanding the matter for further enquiry. The Supreme Court following the decision in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 upheld the validity of initiation of proceedings. As regards remanding back, it held that it was not a question of law which merits consideration by it. The High Court in this case in Assam Forest Products (P.) Ltd. v. CIT [1977] 110 ITR 558 (Gauhati) stated that the Tribunal had held that the alleged statement of Bidyananda Surekha made before the Income-tax authorities at Calcutta admitting that he had let his name to various parties to enable to bring in their concealed income in the form of rent, were not placed before the assessee and this is in complete violation of provisions of Sub-section (3) of Section 142 of the Act and that it was also not known whether this alleged statement of Bidyananda Surekha referred to the name of the assessee. In these circumstances, the Tribunal was held right in setting aside the assessment order of the CIT in relation to cash credit and remanding the matter for further enquiry by the A AC. 16. Again in the case of Tin Box Co. [2001] 249 ITR 216 before the Supreme Court, the Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide paragraphs of the order which reads as under: We do not find any error I the view taken by the CIT(A) or by the Income-tax Appellate Tribunal in setting aside the assessment order on the ground that he principles of natural justice were not complied with by the AO who did not permit the assessee to cross-examine the analyst on the basis of whose report the assessment order was passed against he assessee. 19. The Delhi High Court in the case of Pradeep Kumar Gupta (supra) though observed that it was mandatory to the revenue to produce 'A' to cross examine by the assessee was specific demand and once Section 147 or 148 was resorted to, the AO may first discharge the burden of showing that income was escaped assessment, it was only thereafter the assessee had to provide all the answers. The court itself observed that facts on which the decision was invoked Under Section 147/148 is predicated and may in some cases be sufficient both for decision to carry out a re-assessment as well as to justify or sustain the fresh assessment. 20. Similarly, in the case of CIT v. SMC Share brokers Ltd. (supra) relied upon by the assessee, the High Court held that statement of M h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The assessee must be allowed for cross examination of the said person and thereafter to decide the matter afresh on the basis of the result in the cross-examination. We find support for this proposition from the recent decision in case of Punjab Haryana High Court in the case of CIT v. Sanjeev Kumar Jain [2009] 310 ITR 178 in this case also the assessment was based on the statement of four individuals, but the assessee was not given opportunity to cross-examine them. The CIT(A) set aside the assessment order and that was upheld by the Tribunal. In appeal, the High Court felt no hesitation whatsoever to uphold the determination rendered by the CIT(Appeals) as well as the order passed by the Appellate Tribunal. Accepting the contention of the revenue that even if some procedural defect had been found by the CIT(A) as well as by the Appellate Tribunal, rather than negating the action taken by the revenue, the appellate authorities should have annulled the procedural defect and remanded the matter for re determination from the stage when the defect made the subsequent determination unacceptable in law, the court held as under: We find merit in the aforesaid submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an addition liable to be challenged and corrected. An omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging sections). Any such omission or defect may render the order made irregular depending upon the nature of the provision not complied with but certainly not void or illegal. At the worst, they are defective proceedings or irregular proceedings liable to be cured. An addition made on the basis of a statement not tested by cross examination is invalid and it is vitiated, but the invalidity is not, however, of such a nature, which goes to the root of the proceedings. It could be set aside for being re-done de novo. The CIT(A) should not have upheld the addition on the basis of such a statement. 25. The omission to allow cross examination merely prevents the ITO from making an addition and can be corrected by allowing the cross examination and the AO can be directed to proceed further to the examine the matter afresh on the basis of cross examined statement The power of setting aside the order of assessment, where it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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