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Anubhav Jain v. Ito

Income Tax Appellate Tribunal

Nov 26, 2018

Judgment

Subsequent
References

CaseIQ

Smart Summary (Beta)

Structured Summary of the Tribunal Opinion — ITA Nos. 4565/Del/2018 & 4566/Del/2018

Factual and Procedural Background

These consolidated appeals were preferred by different assessees against the respective orders of the Learned Commissioner of Income Tax (Appeals) 12, New Delhi dated 13.04.2018 for assessment year 2014-15. Because the grounds were common and identical, the appeals were heard together and disposed of by a common order dealing primarily with ITA No. 4565/Del/2018 (Anubhav Jain vs. ITO).

Key factual and procedural events (as recorded in the opinion):

The assessee filed an e-return on 30.06.2014 declaring total income of Rs. 6,24,370; this return was revised on 22.04.2015 declaring total income of Rs. 6,26,250.
The case was selected for scrutiny through CASS on the reason "Suspicion long term capital gain or shares".
Notice under section 143(2) was issued on 17.08.2016 and notice under section 142(1) was issued on 14.09.2016.
The assessee's authorised representative attended proceedings and furnished documents. The Assessing Officer (AO) completed assessment under section 143(3) at an assessed income of Rs. 25,73,338.
The assessee appealed to the Commissioner (Appeals) who dismissed the appeal by order dated 13.04.2018. The assessee then appealed to the Tribunal.
The appeals were heard and the Tribunal's order was pronounced on 26.11.2018 by Judicial Member H.S. Sidhu.

Legal Issues Presented

Whether an addition made by the Assessing Officer solely on the basis of a third party's statement (identified in the record as that of Sh. Vikram/Vikrant Kayan) without providing the assessee an opportunity to inspect the statement and to cross-examine the third party violates the principles of natural justice.
Whether the Commissioner (Appeals) erred in upholding the AO's additions without considering the assessee's specific request for cross-examination and copies of the relevant third-party statements.

Arguments of the Parties

Appellant's Arguments

The appellant (assessee) contended that the AO relied on the statement of a third party (referred in the record once as Sh. Vikram Kayan and elsewhere as Sh. Vikrant Kayan) to make the impugned addition, but the assessee was not provided with a copy of that statement nor any opportunity to cross-examine the third party.
The assessee drew attention to his reply dated 07.12.2016 in which he had specifically requested permission to cross-examine the source whose statement formed the basis of the addition; the AO did not consider this request in the assessment order and the Commissioner (Appeals) also failed to adjudicate the ground (ground no. 5) challenging the addition on natural justice grounds.
The assessee relied on a decision of the ITAT, SMC Bench, Delhi in ITA No. 3510/Del/2018 (Smt. Jyoti Gupta vs. ITO) dated 06.11.2018, which had held that an addition based on the statement of Sh. Vikrant Kayan without granting opportunity for cross-examination violated principles of natural justice. The assessee further relied on the Supreme Court decision in Andaman Timber vs. CIT (Civil Appeal No. 4228 of 2006) for the proposition that denial of the opportunity to cross-examine witnesses whose statements form the basis of an adverse order renders that order legally infirm.
Accordingly, the assessee requested that the Tribunal follow the SMC Bench decision in Smt. Jyoti Gupta and set aside the impugned addition.

Respondent's Arguments

The Department Representative (Ld. DR) relied upon the orders of the authorities below (the AO and the Commissioner (Appeals)). The opinion records no further detail of additional submissions by the DR.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Smt. Jyoti Gupta vs. ITO, ITA No. 3510/Del/2018 (SMC Bench, Delhi), order dated 06.11.2018	Held that an addition made on the statement of Sh. Vikrant Kayan without providing the assessee an opportunity to cross-examine that witness and without dealing with that plea at the appellate stage violated the principles of natural justice.	The Tribunal in the present matter expressly followed the SMC Bench decision on identical facts and relied on its conclusion that the addition could not stand where the assessee was denied the opportunity to cross-examine the third-party witness.
Andaman Timber vs. CIT, Civil Appeal No. 4228 of 2006 (Hon'ble Supreme Court of India)	Established the principle that if an adjudicating authority bases its decision on statements of witnesses and denies the affected party the opportunity to cross-examine those witnesses, such denial is a violation of the principles of natural justice and may render the order a nullity.	The Tribunal relied on the ratio in Andaman Timber to conclude that the AO's addition (based on a third-party statement) and the failure of the Commissioner (Appeals) to consider the plea for cross-examination violated natural justice, warranting deletion of the addition.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in a stepwise manner, closely following the documentary record and precedents cited in the opinion:

The Tribunal examined the assessment order and found that the AO had himself reproduced the assessee's reply dated 07.12.2016 (Assessment Order, page 6, para 13), wherein the assessee had specifically requested permission to cross-examine the source whose statement formed the basis for the AO's adverse conclusion. The AO did not consider this request when passing the assessment order.
The Tribunal noted that the Commissioner (Appeals) had also reproduced the assessee's reply (CIT(A) order, para 13) but did not consider or adjudicate the plea for cross-examination; the Tribunal observed that the CIT(A) had not dealt with ground no. 5 raised by the assessee, which challenged the addition as being made without providing an opportunity to cross-examine persons whose statements formed the basis of the allegations.
The Tribunal highlighted that CIT(A)'s order (page 24) recorded that the assessee had specifically sought copies of the statements of Sh. Vikram Kayan and an opportunity to cross-examine that person, but that this request had not been considered or granted.
On the merits, the Tribunal found that the impugned addition had been made solely on the basis of the statement of Sh. Vikrant Kayan (as recorded in other portions of the record), without providing the assessee with a copy of that statement or any opportunity to cross-examine the witness. The Tribunal concluded that this omission amounted to a violation of the principles of natural justice.
The Tribunal then compared the facts to the earlier SMC Bench decision in Smt. Jyoti Gupta vs. ITO, which had held under identical facts that an addition based on the third-party statement of Sh. Vikrant Kayan—where the assessee was denied cross-examination—was in violation of principles of natural justice and contrary to the law laid down by the Supreme Court in Andaman Timber.
The Tribunal reproduced the relevant portion of the Smt. Jyoti Gupta order, including the Supreme Court's observations in Andaman Timber that refusal to allow cross-examination when witnesses' statements are the basis of an order is a serious flaw making the order a nullity.
Applying these authorities and the facts of the present case, the Tribunal found no merit in the impugned additions, set aside the findings of the CIT(A), and directed the AO to allow the claim of exemption under section 10(38) of the Income Tax Act (for Anubhav Jain). The Tribunal also applied the same reasoning to the similar appeal of Ashish Jain and deleted the addition there as well.

Holding and Implications

Holding:

The appeals are allowed and the impugned additions are deleted.

Immediate consequences for the parties (as stated in the opinion):

In the appeal of Anubhav Jain (ITA No. 4565/Del/2018) the Tribunal set aside the findings of the CIT(A) and directed the AO to allow the claim of exemption under section 10(38) of the Income Tax Act.
In the appeal of Ashish Jain (ITA No. 4566/Del/2018) the Tribunal, following the same reasoning, deleted the addition and allowed that appeal as well.

Broader implications:

The Tribunal followed the existing ratio in the SMC Bench decision (Smt. Jyoti Gupta vs. ITO) and the Supreme Court authority (Andaman Timber vs. CIT) to reach its conclusion. The opinion does not state that it is establishing new legal precedent; instead it expressly relies upon and follows prior decisions on the point that denial of an opportunity to cross-examine a witness whose statement forms the basis for an adverse finding breaches the principles of natural justice.

Order pronounced on 26.11.2018. Judicial Member: H.S. Sidhu. The copies were forwarded to the parties and the relevant authorities as recorded in the opinion.

Show all summary ...

These appeals by the different assessees are preferred against the respective orders of the Ld. Commissioner of Income Tax [Appeals] 12, New Delhi both dated 13.04.2018 pertaining to assessment year 2014-15. Since the grounds raised in both the appeals are common and identical, hence, the appeals were heard together and are being disposed of by this common order for the sake of convenience, by dealing with ITA No. 4565/Del/2018 (AY 2014-15) Anubhav Jain vs. ITO. In both the appeals the assessee has raised as many 05 grounds of appeal. But at the time of hearing, Ld. A.R. for the assessee has only argued the ground no. 3.2 which is reproduced as under:- 3.2 That the order passed by the Honble CIT(A) upholding the order of the Ld. AO is bad in law and liable to be quashed as the Honble CIT(A) and the Ld. AO placed reliance on statement of some person(s) without providing any opportunity to the appellant to cross-examine the same.

2. Brief facts of the case are that assessee filed his e-return of income on 30.6.2014 declaring total income of Rs. 6,24,370/- after claiming deduction under Chapter VI-A of Rs. 1,01,196/-. This return was revised on 22.4.2015 declaring total income of Rs. 6,26,250/-. The case of the assessee was selected for scrutiny through CASS for reason Suspicion long term capital gain or shares. Notice u/s. 143(2) of the Income Tax Act, 1961 (in short Act) was issued on 17.8.2016. Thereafter, notice u/s. 142(1) of the Act dated 14.9.2016 was issued. In response to the same, the A.R. for the assessee attended the proceedings from time to time and furnished various details / documents, as called for from time to time and verified it. Thereafter, the AO completed the assessment u/s. 143(3) of the Act at an income of Rs. 25,73,338/-. Against the assessment order, the Assessee appealed before the Ld. CIT(A) who vide his impugned order dated 13.4.2018 has dismissed the appeal of the assessee. Aggrieved with the order of the Ld. CIT(A), assessee appealed before the Tribunal.

3. During the hearing, Ld. A.R. for the assessee draw my attention towards the Assessment Order page no. 6 para 13 in which the AO has himself reproduced the submission of the assessee submitted vide assessees reply dated 7.12.2016 requesting therein to allow the assessee to cross examine the source on the basis of which such an opinion has been formed. he further submitted that AO has not considered this point while passing the assessment order. Further he draw my attention towards page no. 7 of the Ld. CIT(A)s order para no. 13 mentioning the assessees reply dated 7.12.2016 as made before the AO, as aforesaid, which was also not considered by the Ld. CIT(A). He further draw my attention towards page no. 24 of the Ld. CIT(A)s order wherein it was specifically mentioned that the assessee is specifically asked for copies of the statements of Sh. Vikram Kayan and also seeks cross examination of Sh. Vikram Kayan, but not considered the said request of the assessee. Further, it was submitted that vide ground no. 5 raised before the Ld. CIT(A) assessee has challenged the order of the AO by stating that the addition made by the AO is untenable in the eyes of law having been made without providing opportunity to cross examine the persons on the basis of whose statements the allegations have been made against the assessee and without following the principle of natural justice. He further submitted that Ld. CIT(A) has not adjudicated this ground and summarily dismissed the appeal of the assessee by upholding the assessment order. He further submitted that Finally, he submitted that this addition in dispute has been made only on the statement of Sh. Vikrant Kayan without providing any opportunity to the assessee to cross examine the same, which is violation of principle of natural justice. He further submitted that exactly on the similar facts and circumstances the ITAT, SMC, Delhi Bench vide its order dated 06.11.2018 passed in ITA No. 3510/Del/2018 (AY 2014-15) in the case of Smt. Jyoti Gupta vs. ITO the SMC Bench, Delhi has considered the statement of Vikrant Kayan and has held that impugned addition was made on the statement of Sh. Vikrant Kayan without providing any opportunity to the assessee to cross examine the same and Ld. CIT(A) has not considered the same, which is in violation of principle of natural justice and against the law settled in the decision rendered by the Honble Supreme Court of India in the case of Andaman Timber vs. CIT decided in Civil Appeal No. 4228 of 2006. Hence, he requested to follow the SMC Bench decision in the case of Jyoti Gupta (Supra) and allow the appeals of the assessee.

4. Ld. DR relied upon the orders of the authorities below.

5. I have heard both the parties and perused the records, especially the assessment as well as impugned order and the reply filed by the assessee before the AO in response to the show cause notice. I find from the Assessment Order page no. 6 para 13 in which the AO has himself reproduced the submission of the assessee submitted vide assessees reply dated 7.12.2016 requesting therein to allow the assessee to cross examine the source on the basis of which such an opinion has been formed which was not considered by the AO while passing the assessment order. I further note from the order of the Ld. CIT(A)s in para no. 13 wherein the assessees reply dated 7.12.2016 as made before the AO, as aforesaid was reproduced and also not considered by the Ld. CIT(A). I further find that at page no. 24 of the Ld. CIT(A)s order, it was mentioned that the assessee was specifically asked for copies of the statements of Sh. Vikram Kayan and also seeks cross examination of Sh. Vikram Kayan, but not considered the said plea of the assessee, despite request. I further find that in ground no. 5 raised before the Ld. CIT(A), wherein the assessee has challenged the order of the AO by stating that the addition made by the AO is untenable in the eyes of law having been made without providing opportunity to cross examine the persons on the basis of whose statements the allegations have been made against the assessee and without following the principle of natural justice. I note that Ld. CIT(A) has also not adjudicated the ground no. 5 raised before him and summarily dismissed the appeal of the assessee by upholding the assessment order. Moreover, the addition has been made only on the statement of Sh. Vikrant Kayan without providing the copy of statement of Sh. Vikrant Kayan and without providing any opportunity to the assessee to cross examine the same, which is in violation of principle of natural justice. I further note that exactly on the similar facts and circumstances the ITAT, SMC, Delhi Bench vide its order dated 06.11.2018 passed in ITA No. 3510/Del/2018 (AY 2014-15) in the case of Smt. Jyoti Gupta vs. ITO wherein, the SMC Bench has considered the statement of Vikrant Kayan and has held that since the impugned addition was made on the statement of Sh. Vikrant Kayan without providing any opportunity to the assessee to cross examine the same and Ld. CIT(A) has not considered the same ground, which is in violation of principle of natural justice and against the law laid down by the Honble Supreme Court of India in the case of Andaman Timber vs. CIT decided in Civil Appeal No. 4228 of 2006. For the sake of convenience, I am reproducing the relevant portion of the ITAT, SMC, Delhi Bench vide its order dated 06.11.2018 passed in ITA No. 3510/Del/2018 (AY 2014-15) in the case of Smt. Jyoti Gupta vs. ITO as under:-

13. Merely on the strength of statement of third party i.e. Shri Vikrant Kayan cannot justify the impugned additions. Moreso, when specific request was made by the assessee for allowing cross examination was denied by the Assessing Officer. The first appellate authority also did not consider it fit to allow cross-examination. This is in gross violation of the principles of natural justice and against the ratio laid down by the Hon'ble Supreme Court in the case of Andaman Timber Vs. CIT Civil Appeal No. 4228 OF 2006 wherein it has been held as under: According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross- examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross- examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal.

14. Considering the facts of the case in totality, I do not find any merit in the impugned additions. The findings of the CIT(A) are accordingly set aside. The Assessing Officer is directed to allow the claim of exemption u/s 10(38) of the Act.

6. Keeping in view of the facts and circumstances of the present case and respectfully following the order of the Tribunal, SMC Bench, Delhi in the case of Smt. Jyoti Gutpa vs. ITO (Supra) and in view of the law settled by the Honble Supreme Court of India in the case of Andaman Timber vs. CIT (Supra), on identical facts and circumstances, the addition in dispute is deleted and the appeal of the assessee is allowed.

7. Following the consistent view as taken in ITA No. 4565/Del/2018 (AY 2014-15) in the case of Anubhav Jain vs. ITO, as aforesaid, the addition involved in ITA No. 4566/Del/2018 (AY 2014-15) in the case of Ashish Jain vs. ITO is also deleted and this appeal is also allowed.

8. In the result, both the appeals filed by the different assessees are allowed. The order pronounced on 26.11.2018. Sd/- [H.S. SIDHU] JUDICIAL MEMBER Dated: 26th November, 2018 SR BHATNAGAR Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(A) Asst. Registrar,

5. DR ITAT, New Delhi