TMI Blog2018 (4) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to collect the statement but failed to allow cross-examination though he admitted that the same would be allowed in due course of time. On a later date, AO concludes that the letters sent under section 133(6) of the Act to the dealer were returned back. But the same cannot be reason for denying cross-examination. In the absence of allowing cross-examination of witnesses used against the assessee, where the addition was made in the hands of assessee on the basis of aforesaid statements recorded by the Sales Tax Department, we hold that no addition on account of bogus purchases can be made in the hands of assessee. The assessee had also established factum of trail of goods. Accordingly, we delete the addition made on account of bogus purchases. - Decided in favour of assessee. - ITA Nos.2622 to 2624/PUN/2016, ITA Nos.2625 to 2627/PUN/2016, ITA Nos.2628 to 2630/PUN/2016, ITA Nos.2510 to 2512/PUN/2016 - - - Dated:- 28-3-2018 - Ms. Sushma Chowla, JM And Shri D. Karunakara Rao, AM Appellant by : Shri Pramod Shingte Respondent by : Dr. Vivek Agrawal ORDER Per Sushma Chowla, JM Out of this bunch of twelve appeals, nine appeals filed by different as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation the notice u/s. 148 of the Act was issued by the AO. 4. On the basis of facts and in the circumstances of the case and as per law, the Commissioner of Income Tax, (Appeals)-1, Nashik, is not justified in confirming the disallowance to the extent of 25% i.e. ₹ 2,33,270/- of the purchases made from parties called as suspicious parties. 5. On the basis of facts and in the circumstances of the case and as per law, the Commissioner of Income Tax, (Appeals)-1, Nashik, is not justified in confirming the disallowance to the extent of 25% i.e. ₹ 2,33,270/- of the purchases made from parties called as suspicious parties by holding that the said purchases are inflated particularly when the appellant has made the said purchases at prevailing market rate only. 6. The issue raised in the present appeal is against reopening of assessment and addition on account of bogus purchases. 7. Briefly, in the facts of the case, the assessee for the year under consideration had furnished return of income declaring total income of ₹ 10,22,560/- on 29.09.2009. Subsequently, information was received from the Director General of Income Tax (Investigation), Pune regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings and issue of notice under section 148 of the Act, which were specifically redressed by the Assessing Officer. The Assessing Officer asked the assessee as to why purchases made from the alleged parties should not be added to the income of assessee. Vide para 8.1, the Assessing Officer also observes that vide office letter dated 23.12.2014, the assessee was asked to collect copies of statements recorded of hawala dealers during sales tax proceedings but the assessee failed to collect the same till date. The Assessing Officer was of the view that the assessee was not interested in collecting the said statements and then reference was made to different notices of hearing and the adjournment applications moved by the assessee. The Assessing Officer thereafter, issued notice under section 133(6) of the Act to verify the genuineness of purchases made by the assessee from the said parties. The said notices were returned unserved with postal remark Not Known / Unclaimed. Under the said circumstances, the assessee was asked to produce alleged parties for verification along with copies of original bills, transport receipts, octroi receipts, etc. Another opportunity of hearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The consumption details were held to be no testimony of the fact that the purchases were not inflated and parties were not bogus. The argument of learned Authorized Representative for the assessee on cross- examination was dismissed, in view of the ratio laid down by the Pune Bench of Tribunal in the case of Kolte Patil Developer in ITA Nos.1478 to 1483/PN/2013, relating to assessment years 2004-05 to 2009-10, order dated 20.02.2015. The relevant findings of Tribunal are reproduced under para 6.88.1. Since the assessee did not produce the parties and where the expenses were claimed by the assessee, then the duty was upon the assessee to produce the parties, such was the order of CIT(A) and it was held that it was not case of bogus purchases but case of inflated purchases and at best from bogus parties. The Assessing Officer was directed to restrict disallowance of purchases to 25% of purchases. 10. The assessee is in appeal against the order of CIT(A). 11. The learned Authorized Representative for the assessee has pointed out that re-assessment proceedings were initiated against the assessee on account of information received from the Sales Tax Department in respect of certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 262 (SC), wherein it was held that in case the assessment order has been passed without granting an opportunity to cross-examine, then the matter should be set aside to the Assessing Officer to grant the assessee an opportunity to cross-examine the witnesses. He further relied on the ratio laid down by the Hon ble Bombay High Court in M/s. R.W. Promotions P. Ltd. Vs. ACIT in Income Tax Appeal No.1489 of 2013, judgment dated 13.07.2015 and the Hon ble High Court of Delhi in CIT Vs. PC Chemicals in ITA No.281/2012 Ors., judgment dated 13.09.2012. He also placed reliance on the ratio laid down by the Hon'ble Supreme Court in M/s. Pebble Investment and Finance Ltd. Vs. ITO in Petition for Special Leave to Appeal No.11784/2017, judgment dated 05.07.2017. 13. The learned Authorized Representative for the assessee in rejoinder pointed out that the latest decision of the Hon ble Apex Court is in M/s. Andaman Timber Industries Vs. Commissioner of Central Excise (supra), which is delivered on 02.09.2015, whereas the decision in ITO Vs. M. Pirai Choodi (supra) is dated 19.11.2010 and the Hon ble Bombay High Court in M/s. R.W. Promotions P. Ltd. Vs. ACIT (supra) is dated 13.07.2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer issued letter dated 23.12.2014, wherein it was reiterated that on the basis of information received from the Sales Tax Department the Assessing Officer had applied his mind and there was belief that income chargeable to tax had escaped assessment. The other objections raised by the assessee were also point-wise dealt with by the Assessing Officer in speaking order. In respect of issue of cross-examination of the said persons, the Assessing Officer stated that assessee has taken the stand that he may allowed an opportunity to cross-examine Sales Tax Department and entry beneficiary. The Assessing Officer further goes on to say that the assessee was being informed that adequate opportunity of being heard will be given to the assessee as per provisions of the Income Tax Act, during the course of assessment proceedings. The said speaking order of Assessing Officer is placed at pages 73 to 78 of the Paper Book. 16. The grievance of assessee is that though the Assessing Officer agreed that he would give cross-examination of witnesses but where the Assessing Officer does not allow the said cross-examination, then the same is fatal to the assessment proceedings carried out against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and significance of the principles of natural justice have been discussed in extenso, with reference to earlier cases on the subject. Inter alia, observing that the principles of natural justice are those rules which have been laid down by the courts as being the minimum protection of the rights of the individual against the arbitrary procedure that may be adopted by a judicial, quasi-judicial and administrative authority while making an order affecting those rights, the court said (headnote) : Concept of natural justice has undergone a great deal of change in recent years. Rules of natural justice are not rules embodied always expressly in a statute or in rules framed thereunder. They may be implied from the nature of the duty to be performed under a statute. What particular rule of natural justice should be implied and what its context should be in a given case must depend to a great extent on the fact and circumstances of that case, the frame-work of the statute under which the enquiry is held. The old distinction between a judicial act and an administrative act has withered away. Even an administrative order which involves civil consequences must be consistent with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n considered by this court on a number of occasions. In Olga Tellis v. Bombay Municipal Corporation* while dealing with the provisions of section 314 of the Bombay Municipal Corporation Act, 1888, which confers discretion on the Commissioner to get any encroachment removed with or without notice, a Constitution Bench of this court observed as follows (page 581) : It must further be presumed that, while vesting in the Commissioner the power to act without notice, the Legislature intended that the power should be exercised sparingly and in cases of urgency which brook no delay. In all other cases, no departure from the audi alteram partem rule (' Hear the other side' ) could be presumed to have been intended. Section 314 is so designed as to exclude the principles of natural justice by way of exception and not as a general rule. There are situations which demand the exclusion of the rules of natural justice by reason of diverse factors like time, place the apprehended danger and so on. The ordinary rule which regulates all procedure is that persons who are likely to be affected by the proposed action must be afforded an opportunity of being heard as to why that action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision that when an order for purchase is made under section 269UD reasons must be recorded in writing is no substitute for a provision requiring a reasonable opportunity of being heard before such an order is made. 20. Dealing with the question whether the requirement of affording an opportunity of hearing is to be read into section 142(2A), in Rajesh Kumar* it has been held that prejudice to the assessee is apparent on the face of the said statutory provision. It has been observed that on account of the special audit, the assessee has to undergo the process of further accounting despite the fact that his accounts have been audited by a qualified auditor in terms of section 44AB of the Act. An auditor is a professional person. He has to function independently. He is not an employee of the assessee. In case of misconduct, he may become liable to be proceeded against by a statutory authority under the Chartered Accountants Act, 1949. Besides, the assessee has to pay a hefty amount as fee of the special auditor. Moreover, during the audit of the accounts again by the special auditor, he has to answer a large number of questions. Referring to the decision of this court in Binapa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to explain before the Assessing Officer. Therefore, special audit is more or less in the nature of an investigation and in some cases may even turn out to be stigmatic. We are, therefore, of the view that even after the obligation to pay auditor' s fees and incidental expenses has been taken over by the Central Government, civil consequences would still ensue on the passing of an order for special audit. 22. We shall now deal with the submission of learned counsel appearing for the Revenue that the order of special audit is only a step towards assessment and being in the nature of an inquiry before assessment, is purely an administrative act giving rise to no civil consequence and, therefore, at that stage a pre- decisional hearing is not required. In Rajesh Kumar it has been held that in view of section 136 of the Act, proceedings before an Assessing Officer are deemed to be judicial proceedings. Section 136 of the Act stipulates that any proceeding before an Income-tax authority shall be deemed to be judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860, and also for the purpose of section 196 of the Indian Penal Code and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s functionaries. 22. Now, coming to the facts of present case, the assessee had sought copy of statement and had also asked for cross-examination. Even if the copy of statement is provided to the assessee, but in case no opportunity to cross- examine the witnesses is provided, then the order passed by the Assessing Officer suffers from infirmity, in view of the dictate of the Hon'ble Supreme Court in M/s. Andaman Timber Industries Vs. Commissioner of Central Excise (supra). The learned Departmental Representative for the Revenue has relied on the ratio laid down by the Hon'ble Supreme Court in ITO Vs. M. Pirai Choodi (supra), wherein it was held that an opportunity to cross-examine the witness should be allowed and matter was set aside. The said decision of the Hon'ble Supreme Court is dated 19.11.2010 and by a later decision dated 02.09.2015, the Hon'ble Supreme Court in M/s. Andaman Timber Industries Vs. Commissioner of Central Excise (supra) has held that in the absence of allowing cross-examination, there is no merit in the exercise of jurisdiction by the Adjudicating Authority. 23. The learned Departmental Representative for the Revenue has further placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No.988 of 2014, judgment dated 17.01.2017 clearly mentions the fact that the assessee in that case had not requested for cross- examination during first round of proceedings before the Assessing Officer and hence, the statement which was recorded was acted upon. The facts of the said case are at variance and hence, not applicable. 24. In the facts before the Hon'ble Supreme Court in M/s. Andaman Timber Industries Vs. Commissioner of Central Excise (supra), the plea of appellant was that it was not allowed to cross-examine the dealers whose statements were relied upon by the Adjudicating Authority in passing the orders. The said plea of appellant was rejected by the Tribunal. The Hon ble Apex Court observed that not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis for impugned order was a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which, the assessee has adversely affected. The Hon ble Apex Court also noted that the order of Commissioner was based on the statement given by the aforesaid two wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the same assessee is also against the addition made on account of purchases made from the alleged hawala parties. 28. The learned Authorized Representative for the assessee pointed out that the copies of statement recorded were not provided to the assessee and even cross-examination of witnesses was not allowed. He also stated that the assessee was engaged in the manufacturing of furnace and had filed the evidence of trail of goods. However, the Assessing Officer had made the addition at 100% of purchase value of the said goods and the CIT(A) had restricted to 25%. The learned Authorized Representative for the assessee before us has urged that the issue of non-allowance of cross-examination and no addition being made is squarely covered by the decision of Pune Bench of Tribunal in Shri Bechan Surajbali Kumbhar Vs. ITO (supra). 29. The learned Departmental Representative for the Revenue on the other hand, pointed out that notice under section 133(6) of the Act was issued to the parties, who were not traceable and hence, no merit in the plea of assessee. 30. We have already adjudicated this issue in another bunch of appeals and the issue being same, our decision in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
