DHAIRYASHEEL PRALHAD PAWAR,,KOLHAPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX,, KOLHAPUR

This appeal preferred by the assessee emanates from the order of the ld. CIT(A)-11, Pune dated 30-11-2016 for A.Y. 2012-13 as per the grounds of appeal on record. The assessee has also filed an additional ground of appeal which reads as follows:

At the outset, the ld. Counsel for the assessee submitted that he is pressing this additional ground of appeal which is purely a legal ground and goes to the root of the matter since the principles of natural justice have been vitiated in his case. That the Department ought to have granted cross examination of one Mr. Govind Kulkarni to the assessee based on which the assessment has been finalised. The ld. D.R concedes on admission of this additional ground before us.

The ld. A.O has discussed this issue at para 10 of his order wherein it has been mentioned that during the course of survey at the premises of Maruti Export Corporation certain loose papers pages 6 and 7 (bundle No. 3) were impounded reflecting unexplained money of Rs. 45,00,000/-. During the assessment proceedings, the ld. A.R of the assessee had not furnished any documentary evidences nor had explained satisfactorily this issue and due to lack of justification regarding unexplained money in the said loose papers impounded an amount of Rs. 45,00,000/- was added to the income of the assessee. That, at the stage of ld. CIT(A), as evident from para 15 onwards, the issue was discussed. That, apart from what was stated in the assessment order, the ld. CIT(A) had also called for a remand report from the ld. A.O and the ld. A.O had submitted his letter dated 13-4-2015 which has been made part of the ld. CIT(A)’s order at para 16. The relevant extract is as follows:

That, in the aforesaid letter of the ld. A.O a statement u/s 131 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) was recorded of one Mr. Govind Kulkarni. The ld. A.R submitted that the ld. A.O has not given the assessee an opportunity while finalising the remand proceedings. The assessee was only given a copy of the remand report. However, even the right to cross examine the person making a statement i.e. Mr. Govind Kulkarni was also not provided to the assessee. Further, in the submissions made before the ld. CIT(A) the assessee had contended that he had made a request to the ld. A.O to give the copies of the said pages 6 and 7 of Bundle No. 3 having reference to addition of Rs. 45,00,000/-. This particular evidence which was used against the assessee for making an addition was also not furnished to the assessee by the Department. The ld. .A.R also submitted that at para 18, the ld. CIT(A) while confirming the addition observes that Mr. Kulkarni who has made the statement u/s 131 of the Act is stated to be the Accountant of the assessee as has been mentioned by the ld. A.O. However, the ld. .A.R made a statement at Bar that said Mr. Govind Kulkarni was not an Accountant of the assessee and he is just a third party who is absolutely unknown to the assessee. Therefore, making an addition relying on the statement of such third party without giving an opportunity of cross examination, in such a scenario, the addition is illegal, invalid and bad in law. At this stage, the ld. D.R could not place on record any new materials or evidences to counter the submissions made by the assessee. In a way, the ld. D.R conceded that as per records, right to cross examination of Mr. Govind Kulkarni was not given to the assessee before making the addition of Rs. 45,00,000/-.

We have perused the records, heard the rival contentions and analysed the facts and circumstances in this case. That, on perusal of the assessment order at para 10, an addition has been made by the ld. A.O in respect to unexplained money of Rs. 45,00,000/- which appeared in some loose papers at pages 6 and 7 of Bundle No. 3 and this was recovered during the course of survey in the premises of M/s. Maruti Export Corporation. The assessee was unable to furnish any documentary evidence before the ld. A.O and therefore, the said addition was made. However, at the first appellate stage, as is evident from para 16 that in the letter submitted to the ld. CIT(A) by the ld. A.O dated 13-4-2015, the ld. .A.O states that there was a statement recorded u/s 131 of the Act of one Mr. Govind Kulkarni. Thereafter, at para 18, the ld. CIT(A) upheld the addition made by the ld. A.O on the presumption that Mr. Govind Kulkarni is the Accountant of assessee. Whereas before us, the ld. A.R has made a statement at Bar saying that Mr. Kulkarni is only a third party and is absolutely unknown to the assessee. That from para 16 in the said order, it is also evident that the assessee was not given an opportunity to cross examine Mr. Govind Kulkarni as regards the statement made by him. That, also at para 17 though the assessee has requested for furnishing of the relevant details in respect of the addition of Rs. 45,00,000/- these details/evidences were not furnished by the Department to the assessee. The ld. D.R could not place on record any materials/documents to demonstrate that the assessee was given an opportunity to cross examine Mr. Govind Kulkarni and that all the evidences/documents which were used against the assessee were also furnished to the assessee for preparing his self-defence. We are of the considered view in this case, therefore, the principles of natural justice have not been complied with by the Department.

We find that the Hon’ble Apex Court in the case of Kishinchand Chellaram Vs. CIT Bombay 1981 SCC (1) 720 has held that the assessee must be given an opportunity to cross examine the person with reference to the statement made by him since the Department is proceeding against the assessee on the basis of statement made by the said person. That, without giving an opportunity to the assessee to cross examine the statement made by a person and simply relying on those statements, such proceedings by the Income-tax authorities is devoid of natural justice and thus is invalid and bad in law.

The Hon’ble Delhi High Court in the case of CIT Vs. Smc Share Brokers Ltd. (2007) 288 ITR 386 (Del) observed that the assessee had made repeated requests to the ld. A.O for cross examination of the person on the basis of whose statement proceedings had been launched, so that the assessee could prove its case. These requests were not acceded to by the ld. A.O and the Tribunal had held that this was in complete violation of the principles of natural justice. Hon’ble Delhi High Court held that the Tribunal was right in its view that in absence of the cross examination being made available despite repeated requests by the assessee, the statement of such person cannot be relied upon. The issue was answered in favour of the assessee and against the Revenue. The Revenue’s appeal was dismissed.

That in the totality of the facts and circumstances and considering aforestated judicial pronouncements, we set aside the order of the ld. CIT(A) and remand the matter back to the file of the ld. A.O. We direct the ld. A.O to allow the assessee the right to cross examine Mr. Govind Kulkarni relying on whose statement, the additions were upheld by the ld. CIT(A). The Ld. A.O shall comply with the principles of natural justice and re-adjudicate the matter as per law.

In the result, the additional ground filed by the assessee is allowed for statistical purposes. The other grounds of appeal in the appeal memo therefore, becomes academic in nature. Without going into the merits of the case, on the legal ground itself the matter is remanded to the file of the Ld. A.O. as indicated hereinabove.