TMI Blog2016 (2) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... o violation of principles of natural justice as far as the Assessee is concerned, and the uncontroverted statements of Mr. Jhunjhunwala were sufficient to substantiate the case of the Revenue against the Assessee. Penalty u/s 271(1)(c) - Held that:- Here the question is not mere making of a wrong claim but in making a claim that is demonstrably false. With the Assessee failing to establish the genuineness to the commission payments the essential conditions for attracting penalty under Section 271 (1) (c) of the Act stood fulfilled. The impugned orders of the ITAT and the CIT (A) deleting the penalty are hereby set aside. The penalty as ordered by the AO is restored. The question framed is answered in the negative, i.e., in favour of the Revenue and against the Assessee. - ITA 439/2003 And ITA 156/2014 - - - Dated:- 4-2-2016 - S.MURALIDHAR AND VIBHU BAKHRU, JJ For the Petitioner : Ms. Lakshmi Gurung along with Mr. P. Roy Choudhary, Standing counsels and Mr. Ishant Goswami and Mr. Rajesh Kumar, Advocates. For the Respondent : Mr. Ajay Vohra, Senior Advocate with Ms. Kavita Jha and Mr. Vaibhav Kulkarni, Advocates. ORDER DR. S. MURALIDHAR, J.: 1. ITA No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Casing Pipe contract for 1980 81 83-84 11,45,983 Triveni International Production (P) Ltd. ( TIP ) Bulb Type Generator from 1978 to 1982 5. According to the Assessee, the contracts in respect of which the commission was paid continued for two to five years. It was stated that there was voluminous correspondence in respect of each of the contracts. Further, documents including bank statements of the Assessee for all the three years, receipts issued by the parties, confirming the receipt of commission, which contained their permanent account numbers ( PAN ), bank statement of TIP, one of the recipient company, and day-to-day correspondence were filed with the AO. 6. In May 1987, a search was conducted on the entities to whom commission was purportedly paid by the Assessee. According to the Revenue, during the course of search, Mr. M.K. Meattle, Managing Director (MD) of the aforementioned three payee companies admitted in a statement given on 15th September 1987 that the transactions with the Assessee were hawala entries. This information was then passed on to the AO of the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheques. The cheques were drawn on the companies of which Mr. Meattle was the MD. As per the instructions of Mr. Jajodia, Mr. Jhunjhunwala handed over the cash immediately either to Mr. Jajodia or Mr. Lok Nath Saraf. 11. Aggrieved by the reassessment orders dated 29th March 1990, the Assessee filed appeals before the CIT (A). The appeals for AYs 1981-82, 1982-83 and 1983-84 were dismissed by the CIT (A) by orders dated 16th May 1991, 15th April 1991 and 27th May 1991 respectively. The CIT (A) held that adequate opportunity to cross-examine the witnesses had been provided to the Assessee. 12. Against the orders of the CIT (A), appeals were filed by the Assessee before the ITAT. These appeals were disposed of by a common order dated 24th December 1993 by the ITAT holding that the AO should have granted some more time to the Assessee to gather the materials needed for a proper cross-examination of Mr. Meattle and Mr. Jhunjhunwala and that the request made in that behalf by the Assessee was bonafide and should have been accepted. The matter was therefore, restored to the file of the AO. 13. On remand, the AO asked the Assessee to be ready for cross-examination of Mr. Meattle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) From the statements made by Mr. Meattle and Mr. Jhunjhunwala, it was clear that both of them were involved in the transactions inasmuch as whatever was stated by Mr. Meattle was confirmed by Mr. Jhunjhunwala. It could not be said that Mr. Jhunjhunwala was a stranger to the transactions. (ii) On a detailed analysis of the statements of Mr. Meattle and Mr. Jhunjhunwala, the ITAT concluded that Mr. Jhunjhunwala admitted to having been handed over by Mr. Jajodia the bearer cheques drawn on companies of Mr. Meattle and that he used to withdraw the said amount and handed it over to one Mr. Loknath who was introduced to him by Mr. Jajodia. While it could not be said that Mr. Jhunjhunwala drew support from Mr. Meattle, both had their independent roles to achieve one goal, i.e., to help the Assessee company to justify its claim before the Revenue authorities with respect to the payment of commissions which, according to Mr. Jhunjhunwala, were never paid. (iii) By refusing to cross-examine Mr. Jhunjhunwala, the Assessee should be taken to have admitted the statements made by him to be correct. The statement made by Mr. Jhunjhunwala could be accepted in its entirety against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im blank cheques. According to him, the cheques used to be handed over by Mr. Loknath Saraf of the Assessee. In reply to Question No. 23 of statement recorded on 30th November 1990, Mr. Jhunjhunwala claimed not to know the company, M/s. Bahri Co. Pvt. Ltd. However, in reply to Question No. 31 on the very date, i.e., 30th November 1990 and Question No. 2 dated 15th March 1991 Mr. Jhunjhunwala admitted that he knew Mr. Meattle. The statements of Mr. Jhunjhunwala were neither truthful nor trustworthy. The Assessee had sought to cross-examine Mr. Meattle in order to confirm the identity of the person who used to give him blank cheques. In the voluminous correspondence between Mr. Meattle and the Assessee there was no reference to Mr. Jhunjhunwala. Further Mr. Meattle stated that Mr. Jhunjhunwala had drawn the cheques. However, Mr. Jhunjhunwala on being shown the photocopies of cheques denied that they were in his handwriting. Although he claimed to know Mr. Jajodia who was related to the MD of the Assessee, and had helped the Assessee in its bogus transactions without any vested interest, Mr. Jhunjhunwala was not assigned any remunerative work/assignment. This showed that Mr. Meattle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Meattle and Mr. Jhunjhunwala. The case was adjourned to 20th October 1995. However, on that date the letter was filed by the Assessee stating that they need 15 days time since the Director who was looking after the taxation work of the Assessee was out of station. This was acceded to and the case was fixed for 8th November 1995. On that date there was no response from the Assessee. On 29th January 1996 summons were issued to both Mr. Meattle and Mr. Jhunjhunwala requiring them to attend the hearing before the AO on 19th February 1996 for the purpose of their cross-examination by the Assessee. The Dy. Director of Income Tax (Investigation) (Headquarters), Bombay requested by a letter dated 29th January 1996 to trace the witnesses and to inform the AO if there had been any change in their addresses. Mr. Jhunjhunwala sent a letter dated 7th February 1996 expressing his inability to attend the hearing on 19th February 1996 and instead opted for 27th February 1996. On the adjourned date, 27th February 1996, he attended the hearing for cross-examination. In the case of Mr. Meattle, the summons sent at the last known address returned unserved. The ADIT (Investigation) Bombay by his letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Mr. Meattle available for his cross-examination is concerned, every effort was made by the Department to locate him. It could not be said that the failure to produce Mr. Meattle for cross-examination was deliberate. That does not appear to be any wilful disobedience of the order passed by the ITAT in that regard. 29. While there may be merit in the contention of Mr. Vohra that Section 33 of IEA may not strictly apply in the facts and circumstances of the present case, nevertheless the fact remains that Mr. Jhunjhunwala was an important witness. He had made incriminating statements against the Assessee and the Assessee chose not to counter it. Despite opportunities, the Assessee declined to cross-examine Mr. Jhunjhunwala. There have to be consequences as a result of the failure by the Assessee to avail of the above opportunities. In A E G Carapiet v. A Y Derderian AIR 1961 Cal 359, it was held that wherever the opponent has declined to avail himself of the opportunity to put his essential and material case in cross-examination, it must follow that he believed that the testimony given could not be disputed at all. Here, the AO proceeded to draw an adverse inference and consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 18th December 2015: Was the ITAT correct in confirming the order of the CIT (A) deleting the penalty levied on the Respondent Assessee under Section 271 (1 ) (c) of the Act? 36. A perusal of the order of the CIT (A) reveals that one of the reasons for the deletion of penalty was only that the whole assessment, reassessment is based upon the statement of the two persons mentioned above and no opportunity was allowed in the penalty proceedings. It was held that the penalty levied without allowing opportunity to the company for cross-examination of both the persons are liable to be cancelled. It was concluded that the explanation offered by the Assessee was bonafide and the additions made just on the statements of the two persons mentioned above does not amount to concealment or filing of inaccurate particulars of income. 37. The conclusion of the CIT (A) that no opportunity was given to the Assessee to cross-examine both the persons is factually erroneous. From the above narration it is plain that despite specific opportunities having been afforded to the Assessee, it declined to cross-examine Mr. Jhunjhunwala. The very basis on which the CIT (A) proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India vs. Dharmender Textile Processors (supra). 41. The Court first notes that on merits, the finding of the ITAT that no material was placed on record by the Assessee to demonstrate the nature of service rendered by the three companies to whom the commission was paid has been concurrently upheld by this Court. The Assessee indeed failed to discharge onus on proving the genuineness of those payments. The conclusion that the payment of commission was bogus has been concurrently held by the CIT (A), by the ITAT and this Court. 42. Consequently, the essential conditions for attracting the penalty under Section 271 (1) (c) of the Act stand fulfilled in the present case. Further observed in Union of India vs. Dharmender Textile Processors (supra), the findings in the assessment (quantum) proceedings would be relevant and admissible in the penalty proceedings. The adverse inference against the Assessee for failing to cross-examine Mr. Jhunjhunwala would equally apply to the penalty proceedings. There was no necessity to again offer the Assessee a further opportunity of cross-examining Mr. Meattle and Mr. Jhunjhunwala in the penalty proceedings. 43. As already noted, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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