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2015 (5) TMI 820

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..... d out for TDS purposes even prior to introduction of sub-section (2A) to section 133A and Hon’ble Supreme Court has also taken cognizance of the same. We, accordingly, hold that the survey could be conducted even prior to insertion of subsection (2A) of section 133A. Authorization to DDIT, Chennai for conducting the survey - Held that:- There is no requirement under this section read with rules for issuing of authorisation. As per proviso to section 133A, the survey can be carried out by the authorities mentioned in the section itself and only if the survey is carried out by an Asstt. Director or a Dy. Director or AO, or tax recovery officer or Inspector of Income-tax, then the approval of the Joint Director or the Joint Commissioner, as the case may be, is required. In the present case, the DDIT Chennai was authorized by the Addl. Director of Income-tax (Inv.), which was in accordance with the CBDT Notification no. S.O. 1189(E) dated 3-12-2001. Thus it cannot be said that DDIT, Chennai was not duly authorized to carry out the survey. A bare reading of section 133A(1) makes it clear that survey can be carried out at the place where business or profession is carried on irrespecti .....

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..... hich are harbinger of justice cannot be used for dragging the justice in the labyrinth. We have already indicated that adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature. Having regard to the facts and circumstances of the case, we are of the opinion that there was no denial of the principles of natural justice. The employees, whose statements were relied by AO, were highly technical persons, controlling the entire manufacturing operations and, therefore, it cannot be accepted that they were not aware of various technicalities of the entire manufacturing process. The replies given by them have not been disputed/ controverted by assessee in any manner. The submission is that questions put during recording of statements were not taken to its logical end. Therefore, taking an holistic view of the entire gamut of proceedings, we are of the opinion that no irregularity has crept in during course of proceedings before AO/ CIT(A) and, therefore, the orders of both the lower authorities are not required to be set aside, as the matte .....

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..... t of operation at its manufacturing facility in Chennai i.e. FY 2006-07 to 2011-12, NIPL had been making payments for software to Nokia Corporation to the tune of US $ 3,36,26,31,484/- for use in its manufacturing operations as detailed hereunder: S. No. F.Y. Amount in USD 1 2006-07 3,29,384,588 2 2007-08 780,931,513 3 2008-09 529,643,621 4 2009-10 584,174,808 5 2010-10 808,576,221 6 2011-12 329,920,733 Total 3,362,631,484 2.3. He observed that these payments were made without deduction of tax at source. The AO examined the details with respect to commercial agreements submitted by the deductor and on the basis of these agreements and invoices impounded, concluded that payments were made for software downloads made by NIPL under the agreement fo .....

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..... on the preliminary issue concerning the legality of survey proceedings; reliance to be placed on the evidence collected during survey proceedings and observance of principle of natural justice while framing the order u/s 201/201(1A). The appeal was, therefore, heard apropos the grounds concerning these issues. 5. Ld. Sr. Counsel, Shri Porus Kaka submitted that survey could not be made for TDS proceedings. He pointed out that section 133A(2A) has been newly introduced by the Finance (No. 2) Act, 2014 w.e.f. 1-10-2014, which only entitles the income-tax authorities to conduct survey in regard to TDS proceedings. In this regard ld. Sr. Counsel referred to proviso to sub-section (3), which restricts the impounding of books or other documents and also to take inventory of cash, stock or other valuable articles or thing. He submitted that the authorities impounded lap tops, mobile phones allotted to Mr. Prakash Katama and Mr. Rahul Sood without authority. Moreover, the statements of employees present at the time of survey could not be recorded on oath. Income-tax authorities had no power to enter the premises. Thus, the survey carried out prior to 1-10-2014 in regard to TDS proceedin .....

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..... to the summons cannot be used against assessee in any legal proceedings. 5.7. Ld. Sr. Counsel further submitted that since the assessee filed its returns at New Delhi and is being assessed to tax under Circle 13(1), New Delhi, any proceeding under the Act pertaining to NIPL could be taken by the appropriate jurisdictional officer having territorial jurisdiction over NIPL. He referred to page 1 of PB Vol. I, wherein the summons u/s 131 dated 11-1-2013 addressed to Shri Arja Bjorklund, Chief Financial Officer, M/s Nokia India Sales Pvt. Ltd. from S. Senthil Kumaran, DDIT(Inv.), Unit1(1), Chennai, is contained and submitted that S. Senthi Kumaran was neither the AO of assessee nor having territorial jurisdiction over the assessee and, therefore, summons could not be issued. He referred to page 3 of vol. I, wherein the assessee requested for dropping the summon proceedings u/s 131 initiated against certain employees as well as exemployees of assessee enumerating various reasons. 5.8. Ld. Sr. Counsel further submitted that the entry of Director of Income-tax (Investigation), along with 10-12 Income-tax department s officials as well as Mr. Sastry K. Pendyala, from CFSL into the fa .....

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..... o such argument was advanced before the Hon ble Supreme Court on this basis. Ld. counsel relied on the decision in the case of Distt. Registrar and Collector, Hyderabad Vs. Canara Bank AIR 2005 SC 186 and also the decision in the case of R.M. Malkani Vs. State of Maharastra AIR 1973 SC 157. Ld. counsel pointed out that the Hon ble Supreme Court, inter alia, in para 31, observed as under: 31. Article 21 was invoked by submitting that the privacy of the appellant s conversation was invaded. Article 21 contemplates procedure established by law with regard to deprivation of life or personal liberty. The telephonic conversation of an innocent citizen will be protected by Courts against wrongful or high handed interference by tapping the conversation. The protection is not for the guilty citizen against the efforts of the police to vindicate the law and prevent corruption of public servants. It must not be understood that the Courts will tolerate safeguards for the protection of the citizen to be imperiled by permitting the police to proceed by unlawful or irregular methods. In the present case there is no unlawful or irregular method in obtaining the tape recording of the conversa .....

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..... ord and all relevant documents before he is called upon to lead evidence in rebuttal. This right has not been taken away by any express provision of the Income Tax Act. This principle has also been re-emphasized by the Hon'ble Supreme Court in Dhakeshwari Cotton Mills v. Commissioner of Income Tax [1954] 26 ITR 775 and C.B. Gautam v. Union of India: (1993) 199 ITR 530 (SC). The right to a fair hearing requires that the assessee be given an opportunity to effectively rebut the evidence sought to be relied upon by the revenue against the assessee. An effective right to cross-examine witnesses whose statements are sought to be used against the assessee is a sine qua non of such a right. The Hon'ble Allahabad High Court had occasion to deal with this issue in Gargi Din Jwala Prasad v. CIT: 96 ITR 97 (All). In this case, the assessing officer had purportedly obtained information and recorded statements of certain persons which were used against the assessee during the assessment proceedings. The assessee opposed this and asked for an opportunity to cross-examine the witnesses whose statements the assessing officer was relying on. The assessing officer agreed to issue commission .....

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..... r and they are recorded in an illegal survey action. In the present case, the Revenue's entire case is based on statements of witnesses. As a necessary concomitant of the audi alteram partem the assessee has to be afforded the opportunity to cross-examine the witnesses, in the interest of the principles of natural justice. Ld. Sr. Counsel relied on following decisions :- - New India Assurance Company Ltd. v. Nusli Neville Wadia: (2008) 3 SCC 279. - State of Kerala v. K.T. Shaduli Grocery Dealer Etc: (1977) 2 SCC 777 - Tribunal (TM) in Sunil Agarwal v. ACIT: (2002) 76 TTJ (Del) 748 - CIT v. Virgin Securities Credits: 332 ITR 396 (Del) and - CIT v. SMC Share Brokers Ltd: 288 ITR 345(Del) - Vasantlal (C.) and Co. v. Commissioner of Income-tax 45 ITR 206(SC), - Commissioner of Income-tax v. Eastern Commercial Enterprises 210 ITR 103(Cal). 5.18. Ld. Sr. Counsel submitted that Revenue has made a claim that the assessee does not have a right to cross-examine its own employees. Ld. Sr. Counsel submitted that this is factually incorrect. Major reliance was placed by the AO/CIT(A) and the department on the statements of Mr Jitendra Grover who was not an employee .....

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..... sailed before Tribunal by way of appeal. He pointed out that none of the action taken by DDIT has been enumerated in section 253 and, therefore, Tribunal cannot examine the validity of survey. 6.2. Shri Dave further submitted that assessee has not taken any ground in form no. 36 challenging the validity/ legality of survey. In this regard he submitted as under: In ground No.1, the allegation is against the DDIT (International Taxation) of having not followed principles of natural justice in the course of proceedings under section 201/201(A). In ground No.2, non-cooperation on the part of the employees as alleged by the Officers conducting survey is denied. In ground No.3, it is stated that learned CIT (A) erred in law by holding that the learned DDIT, Chennai had territorial jurisdiction over the appellant under section 131 of the Act. In ground No.4, it is appealed that learned CIT(A) erred in holding that the statements of employees recorded under section 133A as well of employees, ex-employees and auditors recorded under section 131had evidentiary value. In no other ground there is any challenge to the conduct of survey under section 133A of the Act. The appellant has als .....

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..... t be assailed because for the purposes of section 133A, the DDIT(Inv.), Chennai was only an authorized person. 6.6. Without prejudice to aforementioned arguments ld. Special Counsel submitted that survey u/s 133A of the Act at Chennai and Gurgaon were authorized by the Addl. Director of Investigation, Chennai and Addl. Director of Income-tax (International Taxation), New Delhi separately. He filed before us authorization issued by these authorities. Ld. Spl. Counsel also filed notification issued by the CBDT notifying the territorial jurisdiction of the Director of Income-tax (Inv.), Chennai to demonstrate that the DIT(Inv.) Chennai s territorial jurisdiction extended to Tamil Nadu and Pondicherry except Mahe and Yenam. He, therefore, submitted that the officers entering the premises were not unauthorised officers in any manner. 6.7. As regards the assessee s plea that survey could not be conducted for verifying the compliance of TDS provisions, particularly because the provisions of section 133A(2A) were inserted by Finance (no.2) Act, 2014, authorizing the survey for ensuring compliance of TDS provision, Ld. Spl. Counsel submitted that sub-section (2A) does not curtail the pow .....

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..... inter alia, observed as under: The requirement of recording a statement on oath is found in section 132 of the Act, i.e. during search and seizure proceeding and such a requirement is not found in section 133A of the Act. Nevertheless a statement under section 133A of the Act does not lose its evidentiary value merely because it is made on oath. Besides the statement in this case is one of the evidences being relied upon and not the sole evidence. The Tribunal in the impugned order has recorded that the addition of income is based not only on the statement of the appellant-assessee but also based on page 17 . The case law relied upon by the appellant in the matter of CIT v. S. Khader Khan Son [2013] 352 ITR 480 (sq arising from the decision of the Madras High Court in CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad) proceeded on the fact that the authorities did not accept the retraction made by a deponent of a statement made on oath during the survey proceedings under section 133A of the Act. This was on the ground that the statement was made on oath. Besides the sole evidence against the assessee in that case was the statement made on oath during the survey proceedings .....

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..... ese documents required inquiries in view of the attendant circumstances in which these were produced and documented, the DDIT (Inv.), Chennai made enquiries by recording the statements of all the seven technical personnel responsible for downloading of the software on 7-2- 2013. He submitted that in any proceedings the statements recorded are need based and sometimes for further enquiries or confirmation. 6.14. Ld. Spl. Counsel in sum and substance submitted that under the provisions of section 131(1A), the DDIT (Inv.) Chennai was fully authorized to record the statements. 6.15. Ld. Spl. Counsel vehemently submitted that revenue has serious objections to the raising of such contentions in the course of reply by the revenue when ld. sr. counsel had fully argued his appeal for many days on all issues including merits and had completed his arguments without raising any such plea in the course of his arguments. Ld. Special Counsel extensively referred to the submissions of assessee on various dates and pointed out that assessee at no ~stage asked for cross-examination of the employees or ex-employees who in fact left service around the same time but were associated with the trans .....

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..... ut that it will be in a position to take this call only after cross-examining Mr. Sastry. He submitted that on 20.05.2013, Mr Sastry was examined and on 21.05.2013, he was re-examined. After the cross-examination of Mr Sastry, the assessee-company filed letters to the CIT(Appeals) on 23.05.2013, 24.05.2013 27.05.2013. In none of these letters, the Company sought to cross-examine any person other than Mr Sastry. Ld. Special Counsel pointed out that before CIT(A) assessee had, inter-alia, submitted as under ; appellant may not have the need of cross-examination any other witnesses once the appellant cross-examines Mr. Sastry, In any case, the appellant will be in a position to take this call only after cross-examining Mr. Sastry .After examination of Mr. Sastry, no request for cross-examination was made. 6.16. Ld. Special Counsel further submitted that it is now being argued that in its letter dated 17.05.2013 assessee repeated its request to allow crossexamination of the persons whose statements were recorded. However, such an argument is misplaced inasmuch as the letter dated 03.05.2013 very clearly indicates that after cross-examination of Mr. Sastry, the appellant- Comp .....

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..... to corroborate certain aspects such as the manufacturing process, the software downloads, the manual preparation of invoices, basis of preparation and that there was no material change in the whole process of doing so since inception. The AO at page (22) of his order has held that the contention of the assessee was not acceptable for reasons as under: 1. The individuals in whose case statements have been recorded are responsible and accountable employees of the company, who have recorded without any fear, coercion and influence; 2. The statements have been corroborated with the other enquiries and business activities of the enterprise before deriving any conclusions; 3. The statements are not made under any misconception of facts but to explain the facts; and 4. Statements are one of the best forms of evidence that an opposing party can rely upon and though not conclusive are decisive unless successfully withdrawn or proved erroneous. Reliance ws be placed on Narayan Bhagwantrao Gosavi Batajiwale vs Gopal AIR 1960 SC 100 and Pranav Construction Co vs ACIT (ITAT, Mum) 61 TTJ 145. 6.19. Ld. Special Counsel further submitted that the conclusions drawn by the AO are qui .....

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..... umstances of each situation, no breach of natural justice can be complained of. This was so held by Hon'ble Apex Court on the issue of natural justice in the case of Chairman, Board of Mining vs Ramjee reported in AIR 1977 SC 965. 6.22. Ld. Special Counsel further submitted that it seems quite interesting that in the VTT report furnished before CIT (Appeals) as additional evidence by the assessee-Company at Page (31), the VTT researchers have obtained inputs beside a few other individuals on need basis at Chennai, from two lead presenters, namely, (1) Shri E. Umashankar and (2) Shri Nikhil Gopalakrishnan, who also explained the process of download of software to the officers of the Department in the course of survey. There is no reference to the process explained by these two persons as to whether their explanation to the officers of the Department were incorrect or suffered with any error, nor any rebuttal by the appellant-Company on the correctness of their version. Whether they made different presentations to VTT team or their presentations were same as were explained to survey team but the VTT team understood it differently. 6.23. Ld. Special Counsel relied on followi .....

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..... before the AO or before CIT(A) as to how the statements made by the persons adversely affected it; that something has been said which does not borne out from the factual situation. 6.27. The assessee has not taken any ground to this effect in form no. 36. At no stag of proceedings the assessee was able to spell out as to in what way it feared that the statement given by its employees or ex-employees did not provide true and correct state of affairs though these were made available to the assessee well in time with show cause notice. 6.28. At the stage of appeal proceedings before ld. CIT(A) despite his instructions, the assessee never came forward to indicate names of persons whose cross-examination would be required for reasons to be given. In course of hearing, ld. Standing Counsel produced before us the noting made by ld. CIT(A) in course of hearing wherein he required the assessee to specify the persons to whom it wanted to cross-examine. This fact has not been denied by assessee but the only allegation of the assessee is that ld. CIT(A) did not give in writing. He submitted that this kind of approach adopted by assessee is wholly uncalled for and, therefore, the assesse .....

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..... appeals which have been provided u/s 253 of the I.T. Act. 7.4. Ld. Spl. Counsel has drawn the analogy on this aspect from the decision of various courts in holding that while hearing an appeal against an order of assessment, Tribunal cannot go into the question or otherwise of any administrative decision for conducting the search as same may be subject matter of challenge in independent proceedings where question of validity or otherwise of administrative order could be gone into. Ld. Spl. Counsel has placed reliance on the decision of Hon ble Punjab Haryana High court in the case of Paras Rice Mills (supra). 7.5. We are not inclined to accept the proposition advanced by ld. Spl. Counsel because Tribunal u/s 253(1)(a) entertains the appeals filed against order of CIT(A). U/s 246(1)(i). The appealable orders before CIT(A) include an order passed u/s 201. When an order u/s 201 has been passed solely on the basis of survey being carried out, therefore, it cannot be held that Tribunal is not entitled to examine the validity of actions taken during the course of survey, which ultimately culminated in the passing of the order u/s 201. In our opinion, all the incidental actions t .....

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..... ication purpose of cash, stock, documents, books of a/c etc. 7.6. Therefore, it is evident that survey is part and parcel of proceedings which include assessment proceedings as well as the action taken u/s 201/201(1A). We, accordingly, are not in agreement with ld. Special counsel that the validity of survey action cannot be examined while deciding the correctness of the order passed u/s 201. Therefore, Tribunal is well within its powers to examine the challenge to validity of survey. We, therefore, proceed to examine the same. 7.7. The first objection of assessee regarding validity of survey is that under the Income-tax Act, there was no power conferred on Income-tax authorities for conducting survey to verify whether the tax has been deducted or collected at source in accordance with the provisions under subheading B of chapter XVII or under sub-heading BB of Chapter XVII, as the case may be. The submission is that this power has been conferred on income-tax authorities by the Finance (No. 2) Act, 2014 w.e.f. 1-10-2014 by inserting section 133A(2A), which reads as under: [Power of survey. 133A. . . [(2A) Without prejudice to the provisions of sub-section (1), .....

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..... has been defined as under: (b) proceeding means any proceeding under this Act in respect of any year which may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year. 7.11. On examination of the entire scheme of the Act, we are of the considered opinion that the plea advanced by ld. counsel for the assessee deserves to be rejected for the simple reason that the term proceeding , defined u/s 133A, includes the TDS proceedings also. The survey, thus, could be conducted for obtaining information in regard to TDS proceedings also as mandated u/s 133A sub-section (1) clause (iii). We are in agreement with the submission of ld. Spl. counsel that this amendment has been inserted by way of abundant precaution so as to ensure that while carrying out the survey proceedings, for ensuring compliance with TDS provisions, cash and stock is not examined. Further, we find from the case laws relied by ld. Special Counsel that survey was carried out for TDS purposes even prior to introduction of sub-sect .....

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..... rformance of the functions by all or any of the Income-tax authorities who are subordinate to them in respect of such territorial areas as :nay be specified io in such orders. 2. This notification shall come into force on the date of publication in the Official Gazette. SCHEDULE Sl. Nos. Designation of Directors of Income-tax (Inv.) Territorial Area 1. 2. 3. 5. Director of Income-tax (Inv.), Chennai Tamil Nadu and Pondicherry except Mahe and Yenam. 7.13. Therefore, it cannot be said that DDIT, Chennai was not duly authorized to carry out the survey. A bare reading of section 133A(1) makes it clear that survey can be carried out at the place where business or profession is carried on irrespective of the fact whether the place of business or profession is separate from its registered office. The object of survey is to gather information in regard to the proceedings under the Act which is enumerated in clauses (i),(ii) (iii) to section 133A(1), as reproduced above and, therefore the powers .....

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..... maintained in the SAP system. iii. When it was requested to show the computerized accounts in the SAP system, the next excuse was that none of them had access to the books of account in the system as per the protocol. iv. When questioned about the agreements entered in to regarding supply of software and other intangibles, everyone feigned ignorance and no such agreements were produced. v. When all the Executives present were requested to explain and show the basis for software pricing along with relevant documentation, all of them evaded to explain and show such basis on one pretext or the other. 2. As a result of such non co-operation, the books of account could not be seen and the survey team could not carry their duties as mentioned under section 133A(3) of the Act. In view of the above, summons under section 131 of Income tax Act, 1961 were issued to the employees and their statements were recorded. Subsequently, some other employees were summoned and examined in the office of the undersigned. Even during these enquiry proceedings, non cooperation continued and the crucial information required or various proceedings under the Act, -as mentioned below, have been wi .....

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..... eads as under: (1A) If the Director General or Director of Joint Director or Assistant Director or Deputy Director, or the authorized officer referred to in sub-section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purposes of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that subsection, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority. 7.17. These powers are given to specific authorities for making any inquiry or investigation relating to income concealed. In the present case main thrust of entire enquiry was to find out true import of payments made by assessee to Nokia Corporation and, accordingly to find out the tax deductible at source. 7.18. The assessee has also submitted that the statement of ex-employee Mr. Jintendra Agarwal, auditor, b .....

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..... ere mainly of technical persons who explained the manufacturing process, but submission of revenue is that assessee never objected or pointed out any error in the statements of these employees and there is no need for any crossexamination of the technical persons, who were primarily incharge of the operations. The revenue has strongly objected to the time of raising the plea regarding cross-examination being not provided to employees before Tribunal. 11.1. In sum and substance the submission of revenue is that statements had only corroborative value and the conclusion was not drawn solely relying upon the said statements and, therefore, there is no need for cross examination of employees. 12. Before we embark upon to examine the contentions of both the parties on this count, it would be useful to discuss the scope of principles of natural justice. Rules of natural justice traditionally comprised of the rules audi alterm partem and nemo judex in causa sea. Rule of audi alterm partem requires the maker of a judicial or quasi judicial decision to give prior notice of the decisions to persons affected by it and an opportunity for those persons to make representations. No man is t .....

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..... to take into consideration, whether such 'evidence' be proffered by another person represented at the hearing, or is discovered by the deputy commissioner as a result of his own investigations; (c) to allow each person represented to comment upon any such 'evidence and, where the 'evidence' is given orally by witnesses, to put questions to those witnesses; and (d) to allow each person represented to address argument to him on the whole of the case. This in the context of the Act and the regulations fulfils the requirement of the second rule of natural justice to listen fairly to all sides. 12.2. Whether, the decision be based on evidence of some probative value, he further held: [The] technical rules of evidence, however, form no part of the rules of natural justice. The requirement that a person exercising quasi judicial functions must base his decision on evidence means no more than it must be based upon material which tends logically to show the existence or non-existence of facts relevant to the issue to be determined, or to show the likelihood or unlikelihood of the occurrence of some future event the occurrence of which would be relevant. It mean .....

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..... atutory powers under the taxation laws of the State. 87. Shri Desai in this connection invited our attention on the ratio of T.Devasahaya Nadar v. CIT [1964] 51 ITR 20 (Mad.), wherein it was held : It cannot be laid down as a general proposition of law that the Incometax Department cannot rely upon any evidence which has not been subjected to cross-examination. An ITO occupies the position of a quasi-judicial Tribunal and is not bound by the rules of the Evidence Act, but he must act in consonance with natural justice, and one such rule is that he should not use any material against an assessee without giving the assessee an opportunity to meet it. He is not bound to divulge the source of his information. There is no denial of natural justice if the ITO refuses to produce an informant for cross-examination though if a witness is examined in the presence of the assessee, the assessee must be allowed to cross-examine him. The range of natural justice is wide and whether or not there has been violation of natural justice would depend on the facts and circumstances of the case. 88. In the case of State of Punjab v. Bhagat Ram [1975] 1 SCC 155 (SC), therespondent was dismiss .....

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..... h sides should be heard fairly and reasonably. A part of this principle is that if any reliance is- record must be placed on evidence or record against a person then that evidence or record must be placed before him for his information, comment and criticism. That is all that is meant by the doctrine of, audi alteram partem. That no party should be condemned unheard. No natural justice requires that there should be a kind of a formal crossexamination. Formal cross-examination is procedural justice. It is governed by rules of evidence. It is the creation of Courts and not a part of natural justice but of legal and statutory justice.Natural justice certainly includes that any statement of a person before it is accepted against somebody else, that somebody else should have an opportunity of meeting it wheather it (sic), by way of interrogation or by way of comment does not matter. So long as the party charged has a fair and reasonable opportunity to see, comment and criticise the evidence, statement, or record on which the charge is being made against him, the demands and the test of natural justice are satisfied. Cross- examination in that sense is not the technical cross-examination .....

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..... ortunity to be heard before an order is passed would obstruct the taking of prompt action, such a right can be excluded. This right can also be excluded where the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provisions warrant its exclusion; nor can the audi alteram partem rule be invoked if importing it would have the effect of paralysing the administrative process or where the need for promptitude or the urgency of taking action so demands. 94. DCW Ltd. s case (supra), para 11 of the said decision (p. 237) is reproduced here as under : The Supreme Court had an occasion to consider the applicability of the principles of natural justice in a recent case in R.S. Dass v. Union of IndiaAIR 1967 SC 593. The Supreme Court in Chairman, Board of Mining Examination v. Ramjee AIR 1977 SC 965 held as follows : Natural justice is no unruly horse, no lurking land mine, nor a judicial cure all. If fairness is shown by the decision maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditional by the facts and circumstances of such situation, no breach of natural .....

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..... ssing Officer in the assessment order to reach the conclusions and findings which are adverse to the assessee should be disclosed to the appellant and the witnesses should be offered for cross-examination. Supreme Court in the case of Suraj Mall Mohta Co. (supra) laid down : the assessee ordinarily has the fullest right to inspect the records and all documents and materials that are to be used against him. Under the provisions of section 37 of the Indian Income-tax Act the proceedings before the Income-tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before the result is arrived at. In other words, the assessee would have a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal. 97. In the case of K.T. Shaduli Grocery Dealer (supra), it was held (at p.1631) : . . . the usual mode recognized by law for proving fact is by production of evidence and evidence includes oral evidence of witnesses. The opportunity to prove the correctness of completeness of the return would, therefore, necessarily carry with it the right to examine witnesses and that would include .....

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..... ty. The Apex Court has stated the rule with sufficient elasticity and amplitude as to make the right depend on the terms of the statute, the nature of the proceedings or of the function exercised, the conduct of the party and the circumstances of the case. 99. Whether in a particular case the particular party should have the right to cross-examine or not depends upon the facts and circumstances of a particular case. This is so, because the right to cross-examine is not necessarily a part of reasonable opportunity. This view was taken by the Calcutta High Court in the case of Manindra Nath Chatterjee (supra). Thus in a given case the rule of audi alteram partem may impost a requirement that witnesses whose statements are sought to be relied upon by the authority holding the enquiry should be permitted to be cross-examined by the party affected while in some other case it may not. 100. In the case of Kishanchand Chellaram (supra), the Apex Court was concerned with the evidence which was to be used against the assessee. This was in the form of letter from the Manger of a Bank through which money was remitted. This letter was not shown to the assessee. Therefore, evidence was h .....

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..... tion of disputes with utmost promptitude. The question whether or not any rules of natural justice had been contravened, should be decided not under any preconceived notions but in the light of the statutory rules and provisions. The violation or otherwise of any rule of natural justice must be a matter of substance not of mere form. It is important to keep inmind the caveat issued by the Apex Court AIR 1977 SC 965 that unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. 105. In our opinion right to cross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, audi alteram partem . The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence, and is the creation of Court. It is part of legal and statutory justice, and not a part of natural justice, therefore, it cannot be laid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination. However, if a w .....

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..... re encashed either through bank account standing in the same name as that of the payees or else were discounted. (ii) The advertisement expenses of the assessee-company were incurred through these secret bank accounts. (iii) Assessee-company donated the funds out of these secret bank accounts, viz., donation to Methodist Church out of transfer of funds from the a/c. of H.K. Patel (in assessment year 1984-85) and donation to the Festival of India Committee out of transfer of funds from the a/c. of Shree Associated [current A/c. No. 1724 in Indian Overseas Bank, Bandra West]. This amount was given at the behest of Sri Sanjay Dalmia, President-cum-Director-General of the Company. (iv) One of such bank a/c. was in the name of Moonlight Finance. This was with the Punjab Sind Bank, Scindia House Branch, New Delhi. The account holder given the following address : B-72, Himalaya House (7th Floor) 23-Kasturba Gandhi Marg, New Delhi. [Current A/c. No. 787] This was also the office address of Mr. Umesh Khaitan, Sitting Director of the assessee-company. (v) Amounts in the shape of commissions, profits on sale of goods other than cigarettes, technical and supervision char .....

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..... s commission and trading income said to have been reintroduced in the books of the assessee. These aspects are only secondary, subordinate and were used to buttress the main matter connected with the amount of addition. The violation or otherwise of any rule of natural justice must be a matter of substance not of mere form. Natural justice should always be used for the furtherance of the cause of justice. The palladium of justice requires, that law suits be not protracted, otherwise treat oppression might be done under the colour and pretence of law [interest republica ut sit finis litum]. These loafty principles which are harbinger of justice cannot be used for dragging the justice in the labyrinth. We have already indicated that adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature. Having regard to the facts and circumstances of the case, we are of the opinion that there was no denial of the principles of natural justice. 12.4. In the backdrop of above legal proposition now we proceed to examine the facts of the present case .....

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..... . Nos. 8 10 which are as under: 8. All the E-mails of Ms. Arja Bjorklund with Anssi found at the time of survey and emails of other employees. 10. Software Delivery Procedures which is part of the Agreement dated Ist January,2006. As far as other three documents i.e. at sl. 7, 9 11are concerned, Ld. Special Counsel stated that the same may be ignored. Ld. Sr. Counsel further submitted that the assessee be provided cross-examination of the employees, whose statements were recorded during the course of survey and relied upon by AO. Ld. Special Counsel submitted that since the statements are of assessee s employees only, who were associated with the actual operations of the assessee s business, therefore, no cross-examination needs to be provided. Ld. Senior Counsel, in reply, submitted that the employees were not knowing as to what were the settings in SAP, how the software product was manufactured and sealed in binary coding, which was not capable of tempering with and other aspects. After hearing both the parties, the Bench directed the assessee s representative to file a detailed note on his preliminary objections, with a copy to ld. Special Counsel for .....

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..... t the accounts of assessee were maintained in the SAP erp system. The main server and the administrative rights of this system were located at Finland. The employees of NIPL were given user right of need base. In course of survey the reports were generated from the system at Chennai in regard to the payments made by NIPL to Nokia Corporation. These reports were cross checked and verified by the employees of NIPL in course of survey. The invoices were also impounded which were raised by Nokia Corporation of software payments at Chennai Factory. These invoices were raised at Chennai factory. The AO examined the various details with respect to commercial agreement submitted by the assessee. All these preliminary details led to the AO s belief that payments were made for down loads made by NIPL under the agreement for use in manufacture of mobile phones. He, therefore, examined the TP documentation software supply agreement dated 1-1-2006 and R D sub-contract agreement between M/s Nokia Corporation Finland and NIPL to find out the true nature of payment made by assessee to M/s Nokia Corporation. He also noticed one important aspect that he invoices were prepared manually by employees o .....

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..... in which the statement of Ms. Acha Bjorklund CFO is to be considered. Therefore, AO s findings are primarily based on agreement and not on CFO s statement which was used only to corroborate his findings. 14.1. As noted earlier, the invoices raised by Nokia Corporation were impounded during the course of survey on 8-1-2013 at Nokia factory Chennai. The invoices were submitted before the SEZ Customs authorities along with bill of entry. These invoices specified the details for software payments made by NIPL. This was also used by AO to arrive at his conclusions. 14.2. As noted earlier, the main issue was to find out the nature of transaction and, therefore, it was necessary to find out the manufacturing process at the factory premises. In this regard AO relied upon the statements of technical experts, the extracts from which are reproduced hereunder to demonstrate that there was no contradiction between statements of various top ranking technical experts of asessee-company. 14.3. In this regard the first statement of factory head and director operation Prakash Katama was recorded. This statement is contained at pages 602 to 604 of the PB. The question no. 1, 3,4,5,6,9 and 10 .....

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..... e of any document pertaining to M/s.Nokia OYJ are maintained at Nokia India Private Limited, Chennai. 14.3. On 18-1-2013 contained at page 693-697 of PB- again statement of Shri Prakash Katama has been recorded on oath. 15.The next statement relevant in the present context is of Ms. Arja Bjorklund in course of survey on 8 9 and subsequently on 24-1-2013 and 31-1-2013 . The statement is contained at pages 565 to 569 and at pages 605 to 632 of the PB. Relevant questions and answers thereof are reproduced hereunder: Q.1: Please furnish details of your association with Nokia group of companies. Ans: I am associated with Nokia Group of companies since Nov. 20004. I was working with Nokia Corporation, Finland from 2004 to 2010, stationed at Finland. From April, 2010 to April, 2012, I was working with Nokia India Pvt. Ltd. In April, 2012, I became CFO of Nokia India Pvt. Ltd. Sine 1st January, 2013, I m posted as CFO of Nokia India Sales Pvt. Ltd. Q.2: What is your present role in the affairs of Nokia India Pvt. Ltd? Ans: In Nokia Sales India Pvt. Ltd., presently I m supporting the whole India support in compliance matters when needed, for example in training, compli .....

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..... NIPL might be knowing about any such agreement? Was there any other form of understanding between Nokia Corp. and NIPL? Ans: It is not in my knowledge. Q.18: Please state what are the agreements that have been made between Nokia Corp. and NIPL. Pl. produce copies of all such agreements. Ans: There are usually four agreements, one should be regarding Contract Manufacturing agreement , second should be on sales and distribution agreement, third should be on R D and services and fourth should, be service agreements. I shall produce copies of those agreements we have in place in India. 15.1. Next statement of Jitendra Grover recorded by the DDIT, Chennai u/s 131(1A) of the Act on 4-2-2013 and 5-2-2013, is contained at pages 665 to 680 of the PB. Relevant questions and answers thereto are reproduced below: Q.2: Kindly tell me about yourself? Ans: I am Chartered Accountant by profession. I completed my CA. in Jan. 98. I first worked with Siemens telecom for two years, then two years with KPMG. In 2003 I moved to Ariba India Pvt. Ltd. In 2005, I was with Ericsson. In May 2008, I joined NIPL and was with NIPL up to 10th Sept., 2012. Now I am working with Aricent Technol .....

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..... n of profit as per the global Transfer Pricing policy of Nokia OYJ? Ans. The software in discussion is Nokia Proprietary software. So what I was informed is that there is no way to appropriately value a proprietary software as there are no valuation methods or bench marks. In such a scenario, since 2006 the method followed was to value every item around excluding the software and in accordance with global transfer pricing policy, Nokia gave cost Plus margin to India factory. The balance part of cost was billed in the form of software. Software pricing therefore is based on variable costing and India manufacturing was functioning as low entity. The answer to the question above is yes. Q.18. Please explain whether there was any agreement for the purpose of limited risk contract manufacturing by M/s NIPL with Nokia OYJ? Ans. The risk profile of Nokia India manufacturing can be understood on the Global Transfer Pricing Policy. It is clearly stated in the policy that manufacturing functions will be compensated on cost plus basis and all the risks in business are being assumed by Nokia Corporation. To the best of my understanding and memory, I have not seen any contract betwee .....

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..... tware is concerned to make it ready to be used in the Chennai factory production. Once this is over, the software is ready for flashing into the handsets by the production team. 5. Please explain the manufacturing/assembling process of the mobile phones manufactured in the Chennai plant of M/s Nokia India Private limited (NIPL)? Ans: The manufacturing process consists of the following steps, 1. First of all, the printed circuit boards are imported from china/taiwan. 2. These are loaded to magazine, that is, screen impression for soldering purposes. 3. Then it will go through the process of SMT (surface mount technology) wherein, the capacitors, ICs, resistors, shield, light protective caps etc are placed. 4. After this process, the component is placed at automated 'optic inspection for position and quality testing. 5. After this process, they same will be passed through final heat shield connection and protective cap through reflow oven/heater. 6. After above process is over, on the said component, the dome sheet is placed 7. Next, ACF-(assembling the LCD to the board) is done. Up to this, the process is called as Module. After the module, in the proc .....

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..... rious R D Sites of Nokia Corporation. Then, these softwares are stored at the global server of Nokia Corporation located in Finland. As explained earlier, for each model, the software is downloaded from the global server to the local server located in the Chennai factory and stored therein. In turn, each time a mobile handset is being manufactured; the software is being incorporated into each mobile handset. With regard to the payment for the software, I don't know the basis, quantum and nature of these payments. 15.3. Next statement of V. Sembian recorded by the DDIT, Chennai u/s 131 on 7-2-2013, is contained at pages 702-708 of the PB. Relevant questions and answers thereto are reproduced below: 2. Please identify yourself Ans: I am V. Sembian 5/0. M. Venkatesan residing at CF1, Casa XS Apartrnent, Manapakkam Road, Manapakkam. I am the Product and process engineering manager of Chennai plant of M/s Nokia India Private Limited. I am working in NIPL since-August 2005 . 3. Product and process engineering Manager, Chennai plant of M/s Nokia India Private Limited (NIPL), what are the various activities that you look after? Ans: My role is ensuring the overall engin .....

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..... the local server in the Chennai factory. Each time a mobile phone is being manufactured; the software is flashed and tested in the handset at four different stages during the Manufacturing Process, pulling the software from the local server located in the Chennai factory. 1. The first phase of software is the Panel Flash, where the core software is downloaded from the local server located in the factory into the chip. The product Serial number is generated at this stage. 2. The Second stage is the alignment testing stage where the software aligns the radio frequency of the mobile handsets. 3. The Third Phase is called as the final user interface wherein, the software checks the functionality of the mobile handsets. 4. The fourth and final Phase is called the Labeling of the Mobile Handsets, wherein, the customer settings are downloaded in the Mobile Handsets and the IMEI number is also generated. 6. Please explain, where from these softwares, which are used in, the Mobile handsets are obtained and how are they stored and finally into the Mobile Handsets? And also, explain how are they paid for? Ans: These software are designed and developed at various R D Sites .....

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..... ng steps, 1. First of all, the printed circuit boards are imported from china/taiwan. 2. These are loaded to magazine, that is, screen impression for soldering purposes. 3. Then it will go through the process of SMT (surface mount technology) wherein, the capacitors, ICs, resistors, shield, light protective caps etc are placed. 4. After this process, the component is placed at automated 'optic inspection for position and quality testing. 5. After this process, they same will be passed through final heat shield connection and protective cap through reflow oven/heater. 6. After above process is over, on the said component, the dome sheet is placed 7. Next, ACF-(assembling the LCD to the board) is done. Up to this, the process is called as Module. After the module, in the process of Panel Flash, the core software is downloaded from the server, located in the factory, to the Chip. This panel flash is the heart of the Mobile Phone. The Product Serial Number .(PSN) is assigned during the Panel Flash. 8. Subsequently, light guide, protective shield, D-Cover, Connector, Mic, Speaker are placed. 9. Then, Final User Interface tests are carried out. At this Stag .....

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..... each mobile handset. With regard to the payment for the software, I don't know the basis, quantum and nature of these payments. 15.5. Next statement of Subbaiah Chokalingam recorded by the DDIT, Chennai u/s 131 of the Act on 7-2-2013, is contained at pages 709-710 of the PB. Relevant questions and answers thereto are reproduced below: 2. Please identify yourself Ans: I am Subbaiah Chokkalingam, sto Shri M. Chokkalingam, aged 41 residing at C-1S, Shanti Niketan, West Woods, Kuntrathur Road, Mathanandapuram, Porur. I am, the supply operations manager of Chennai plant of fv1/s Nokia India Private Limited, I am working since March 2011. 3. As supply operation Manager, Chennai plant of M/s Nokia India Private Limited (NIPL), what are the various activities that you look after? Ans: I am responsible for producing phones as per order book and production plan. 4. Explain about the process of getting order book and how do you plan your production? Ans: Order book is a consolidation of need, from customers and channel partners (distributors). Based on the order book, the production plan is prepared. 5. Please explain the manufacturing/assembling process of the mo .....

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..... local server located in the Chennai factory. 1. The first phase of software is the Panel Flash, where the core software is downloaded from the local server located in the factory into the chip. The product Serial number is generated at this stage. 2. The Second stage is the alignment testing stage where the software aligns the radio frequency of the mobile handsets. 3. The Third Phase is called as the final user interface wherein, the software checks the functionality of the mobile handsets. 4. The fourth and final Phase is called the Labeling of the Mobile Handsets, wherein, the customer settings are downloaded in the Mobile Handsets and the IMEI number is also generated. 7. Please explain, where from these softwares, which are used in, the Mobile handsets are obtained and how are they stored and finally into the Mobile Handsets? And also, explain how are they paid for? Ans: These software are designed and developed at various R D Sites of Nokia Corporation. Then, these softwares are stored at the global server of Nokia Corporation located in Finland. As explained earlier, for each model, the software is downloaded from the global server to the local server loc .....

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..... he Chennai plant of M/s Nokia India Private limited (NIPL)? 1. First of all, the printed circuit boards are imported from china/taiwan. 2. These are loaded to magazine, that is, screen impression for soldering purposes. 3. Then it will go through the process of SMT (surface mount technology) wherein, the capacitors, ICs, resistors, shield, light protective caps etc are placed. 4. After this process, the component is placed at automated 'optic inspection for position and quality testing. 5. After this process, they same will be passed through final heat shield connection and protective cap through reflow oven/heater. 6. After above process is over, on the said component, the dome sheet is placed 7. Next, ACF-(assembling the LCD to the board) is done. Up to this, the process is called as Module. After the module, in the process of Panel Flash, the core software is downloaded from the server, located in the factory, to the Chip. This panel flash is the heart of the Mobile Phone. The Product Serial Number .(PSN) is assigned during the Panel Flash. 8. Subsequently, light guide, protective shield, D-Cover, Connector, Mic, Speaker are placed. 9. Then, Final .....

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..... ufactured; the software is being incorporated into each mobile handset. With regard to the payment for the software, I don't know the basis, quantum and nature of these payments. 15.7. Next statement of Lasitha P. Ashokan recorded by the DDIT, Chennai u/s 131 of the Act on 7-2-2013, is contained at pages 686-687 of the PB. Relevant questions and answers thereto are reproduced below: 2. Please identify yourself Ans: I am Lasitha P Ashokan, wlo Sarath Mohan, aged 38 residing at D- - Southern shelters, 2/137, Mount Poonamallee Road, kattupakkam, Chennai-56 . I am the availability head' electro mechanics, in the team of mechanics solutions sourcing availability management in Chennai plant of M/s Nokia India Private Limited. I am working in NIPL since May 2006. 2. As availability head electro mechanics in Chennai plant of M/s Nokia India Private Limited (NIPL), what are the various activities that you look after? Ans: My role is to ensure availability of electro mechanics commodity used in the mobile handsets produced at Nokia factories all over the world, namely Chennai, Beijing in China, Dongguan in China, Masan in Korea and Manaus in Brazil. 15.8. Next sta .....

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..... sion on the basis of agreements, E-mails, invoices, technical expert s report etc. . It is well settled law that before the plea of cross examination is advanced, it has to be shown that the party seeking cross examination is an adversely affected party by the evidence (in present case statements of employees) placed on record. In the present case the contents of statements have not at all been disputed by assessee and, therefore, it cannot be said that assessee is an adversely affected party by these statements. 17. Now coming to the issue regarding timing for raising the plea regarding cross-examination by assessee. In this regard we find that all the statements were duly provided to assessee and during the proceedings before the AO, the assessee never asked for cross-examination. 17.1. It was only after filing of appeal that the assessee in detailed submissions dated 2-5-2013 before CIT(A)-29, contained at pages 221 to 260 of the PB, in para 2.1, requested for cross-examination. Thereafter vide letter dated 3-5-2013, the assessee again requested for cross-examination of such individuals, as was necessary. The assessee further stated as under: It is, therefore, imperati .....

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..... ee. On 21-5-2013 again Mr. Shastri was re-examined by the assessee. On 23-5-2013 the assessee made interim submissions before ld. CIT(A) and again filed detailed reply, inter alia, submitting that final response could be submitted after cross-examining Mr. Shastri. However, it is to be noted that as per the notings made by ld. CIT(A) in his order, Mr. Shastri was cross-examioned on 20 21-5-2013. Thereafter, assessee filed a detailed reply on 24-5-2013 in response to queries raised by ld. CIT(A) and further submissions based on cross-examination and re-examination of Mr. Shastri and also response to the supplementary replies filed by the DDIT, Internatiional Taxation, Circle 2(1) dated 23-5-2013. It is pertinent to note at this juncture that assessee did not ask for cross-examination of other employees in this letter and, therefore, did not pursue its claim regarding cross-examination of other employees. Further, the department has filed before us, copy of letter dated 2-5-2013, obtained from the file of ld. CIT(A) and pointed out that in para 2.1 ld. CIT(A) by his hand has written as under: Please specify ? 17.6. However, the assessee did not point out as to which emplo .....

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..... l has further filed the statements of the following persons with the intention of relying upon them: 11. P. Ravindran 12. Santosh Kulkarni 13. Gerald Lawrence 14. N. Ganesh 15. Usha Rajeev 16. Anupam Dhawan 17. Avijit Mukerji 18. Tarun Arora 19.D. Indragiri Raj Kumar 20. Rahul Sood 21.P. Balaji 22. R. Ramachandran While the Respondent has maintained that all statements have been relied upon, we wish to limit our cross-examination to such witnesses whose statements have been specifically relied upon or will be relied upon. In this regard, we would request the Bench to grant us an opportunity to cross-examine any or all of the aforementioned 22 persons. We would like to submit that the appellant has always maintained that it be allowed to cross- examine such persons whose statements the income tax authorities are relying upon and hence, the present request is in consonance with our earlier requests. We would further humbly request the Bench to direct the Respondent to not rely on statements of any other witnesses (other than the 22 persons mentioned above) without first affording the appellant an opportunity to cross- examine them. 17 .....

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..... llant's case. It is submitted that Ld. DDIT, Chennai grilled the witnesses on the same set of questions and got pre meditated answers. The questions were one-sided and leading, and were designed to prove non-existence only of software keys in the phone. Therefore, he submitted that complete facts like the ones mentioned above have not been brought out by the statements recorded by Ld. DDIT, Chennai and they can only be brought out by cross-examining the witnesses. As far as submissions with reference to CFSL report are concerned, Mr. Shastri was cross examined by assessee before ld. CIT(A) and, therefore, the objections qua CFSL report cannot be sustained. However, a close examination of ld. Sr. Counsel s submission makes it very clear that primarily assessee s endeavour is to seek certain clarifications from employees on technical aspects. The employees, whose statements were relied by AO, were highly technical persons, controlling the entire manufacturing operations and, therefore, it cannot be accepted that they were not aware of various technicalities of the entire manufacturing process. The replies given by them have not been disputed/ controverted by assessee in any manne .....

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