RAM NIWAS GUPTA,DEHRADUN vs. DCIT, DEHRADUN

The learned authorised representative vehemently stated that during the course of search 5 invoices of purchase of jewelry were found along with 27.967 gram of the jewelry and certain cards containing the details of jewelry. He submitted that invoices of the jewelry are pertaining from financial year 2007 – 08 till the date of search. It was further his submission that central board of direct taxes have issued a circular wherein if the jewelry is falling within the allowed limit per person of the family according to the status, then no addition should be made. He therefore submitted that the assessee deserves the grant of benefit of that circular at least. For this proposition he relied upon the decision of the honourable Gujarat High Court in 339 ITR 351.

The learned departmental representative vehemently stated that the orders of the lower authorities may be affirmed for the simple reason that assessee is found in possession of certain invoices of purchase of jewelry as well as the jewelry. She submitted that benefit of circular cannot be given where the invoices of purchase of jewelry were found and not the actual jewelry.

We have carefully considered the rival contentions and perused the orders of the lower authorities. Fact shows that during the course of search conducted at the residence of the assessee on 26/4/2012 certain documents were found which were the invoices of the purchase of gold and diamond jewellery worth INR 1083958 for period from financial year 2006 – 07 to financial year 2010 – 11. The assessee was asked the question about the source of funds for purchase of the jewelry. The assessee submitted that these are the purchases made by him for his relatives and friends on their behalf. This argument of the assessee was negated and the addition was made and confirmed by the learned lower authorities. The only plea before us of the learned authorised representative is that the assessee should be granted the benefit of the circular of the CBDT which has been considered by the honourable Gujarat High Court. The honourable Gujarat High Court in CIT V Rtanlal Vyaparilal Jain 339 ITR 351 has held with respect to the possession of the jewelry and the source of acquisition of the jewelry, qua circular issued by CBDT as under :-

The 2nd edition related to the addition of INR 1640,000 with respect to cash received over and above the amount of sale consideration mentioned in the sale deed treated as undisclosed income of the assessee. Assessee as a joint owner ( 50 % ) purchased a property for Rs 24.20 lakhs and offered capita gain. Balance 50 % belonged to Shri Akshat Bansal. During the course of search, a copy of sale deed was found and seized as per annexure LP – 1 at page number 100 – 182 dated 07/01/2010 for INR 24.20 Lacs whose market value was found to be INR 7,865,000 for land situated at Khasra number 217 admeasuring 1210 sq meter at Muja Kargi Grant Dehradun between three different sellers and Sri Akshat Bansal, wherein the details of payment of 3 cheques of INR 800,000 each of the federal bank Dehradun and INR 20,000 Page | 5 cash was mentioned. Stamp duty of INR 629200/– was paid. Post search enquiries were conducted by issuing summons u/s 131 of the income tax act by The Assistant Director of Income Tax to the sellers and the statement was recorded on oath. One of the person in his statement stated that he along with his brothers has entered into an agreement dated 16/12/2009 with Sri Shamshad Hasan and MS Balodi where land area admeasuring 1.5 Bigha was agreed to be sold at the rate of INR 3,800,000/- per bigha . Accordingly, agreed sale consideration was INR 5,700,000 out of which the cheques of Rs 8,00,000 each was given to the 3 brothers and out of the balance of INR 3,300,000 receivable only INR 3,000,000 was received in cash and balance INR 300,000 was stated to be receivable. It was further stated that the deal was facilitated by one Sri Basant. Shri Prakash Chand, one of the sellers, confirmed the above transaction that he received INR 800,000 and INR 1,000,000 by cheque and cash respectively. The other person (3rd one) could not attend the office, but he filed a written letter wherein it was stated that he also received cheque of INR 800,000 and cash of INR 1,000,000. There are also certain cash deposits in these three bank accounts of the different persons. Therefore the learned assessing officer drew the conclusion that Shri Akshat Bansal and the assessee sold land for a consideration of INR 5,700,000 whereas the sale deed has been executed of Rs. 24.20 Lacs only. The circle rate of the property is INR 7,865,000. The assessee was confronted by issue of show cause notice. Assessee submitted that he and Akshat Bansal were not party to the agreement dated 16/12/2009 and as there was no approachable road to the land, it was purchased at a lesser rate. The learned AO rejected the explanation of the assessee holding that the sale deed was registered along with the 2 witnesses who signed the sale deed as well as the agreement to sale. He further held that bank account of father of one of the Buyer ( Akshat bansal) shows that two cheques were issued which coincide with the agreement date of 16/12/2009. Accordingly, the learned assessing officer made an addition of INR 3280,000 holding that about cash was received Over and above the amount of sale consideration mentioned in the sale deed treating it as undisclosed income of the assessee and Shri Akshat Bansal, consequently addition of Rs 1640000/- at the rate of 50% was made in the hands of assessee.

The main contention of the learned authorised representative is that above addition cannot be made in the hands of the assessee for following reasons a. Above statement recorded by the assessing officer was not confronted to the assessee. b. The agreements were also not found from the assessee‟s search and therefore same cannot be included in the assessment u/s 153A of the income tax act. He further stated that that no incriminating material was unearthed from the assessee‟s own search u/s 132 of the income tax act but the statements were taken by the revenue authorities subsequently. He therefore submitted that only option available with the revenue was to initiate proceedings under section 148 of the income tax act. c. He further stated that the assessing officer was also requested for the cross-examination of these parties however same was denied. He therefore submitted that as held by the honourable Supreme Court in case of Anadaman Timbers [281 CTR 472] any addition made without granting an opportunity of cross-examination of the witnesses who statements have been used by the assessing officer for making an addition is invalid. He therefore submitted that this additions deserves to be deleted on all these counts.

The learned departmental representative vehemently supported the order of the lower authorities. She referred paragraph number 5 of the order of the learned AO and stated that during the course of search copy of sale deed was found and seized. Such sale deed shows that the market value of the property is INR 7,865,000 which is purchased at INR 24.20 Lacs. Therefore there is an incriminating material found during the course of search. On the basis of the incriminating material found during the course of search the learned assessing officer has made further enquiries. Therefore it cannot be said that no addition can be made on this count. On the issue of the cross-examination raised by the assessee she referred the decision of the coordinate bench in 59 taxmann.com 212. She submitted that when assessee was confronted by the questionnaire dated 18/6/2014 and show cause notice dated 24/7/2014 the assessee got reasonable opportunity of rebutting the statement made by those Page | 7 parties. Therefore according to her there is no requirement of granting cross- examination to the assessee. She further submitted that merely because cross-examination has not given to the assessee of witnesses; addition cannot be deleted as there is no violation of principles of natural justice because assessee was put to the notice.

We have carefully considered the rival contentions and perused the orders of the lower authorities. The fact shows that sale deed was found during the course of search where the transaction value of the property was shown at INR 2,420,000 and market value of the property was INR 7,865,000. On the basis of this evidence revenue carried out post search enquiries with the sellers. The sellers in their statement on oath stated that along with the above sale deed another agreement was entered on 16/12/2009 with other parties where the sale consideration was stated to be of INR 5,700,000. The sellers also confirmed having received the cash amount and also deposited the same in their bank accounts. However agreement dated 16/12/2009 was executed by the sellers with 3rd parties and not with the assessee. The main contention of the assessee is that assessee was not a party to the agreement. Assessee further explained reason why there is a difference in the value of the property compared to market rate as there was no approachable road to the land. In the Consolidated reply filed by the assessee on 30/7/2014 to the assessing officer vide para number 2 of that letter, placed at page number 109 onwards in the paper book, clearly shows that assessee submitted that no opportunities was provided to cross examine any of the sellers or the persons who have signed the agreements with the sellers. Admittedly, there is no opportunity of the cross-examination granted to the assessee despite specific request made by the assessee before the assessing officer and therefore the moot question is that whether in suh a situation addition can be made without granting opportunity of cross examination to the assessee. Hon Supreme court in . 2015 (324) E.L.T. 641 (SC), 2017 (50) S.T.R. 93 (SC), 2016 (15) SCC 785 ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLKATA-II it is held that :- “6. 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 guesswork as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

Further the ld CIT DR has vehemently relied up on decision in case of 2015] 59 taxmann.com 212 (Delhi - Trib.) Nokia India (P.) Ltd.v.Deputy Director of Income-tax, Circle -2(1), International Taxation, New Delhi . That decision was on different facts where during the course of survey statement of employees of the assessee were recorded and assessee asked for cross examination. Further the adverse view against the assessee was also not on the solitary basis of statement of employees but many other materials. In that case the statements were recorded of the employees in survey proceedings u/s 133A of the act and those statements were stated by the ld AO himself as merely corroborating evidences and not the only evidence [ para no 6.18] 6.18 As regards the proceedings before the Assessing Officer (AO), ld. Special Counsel pointed out that in Para 3.2 of the order under section 201 of the Act, concluding the discussion on the nature of the Transaction, the AO has held that from the Transfer Pricing documentation, Software Supply Agreement dated 01.01.2006 and R&O sub-contract agreement between M/s. Nokia Corporation, Finland and M/s. Page | 10 Nokia India Ltd, emails and Statements that the payments for various intellectual property rights supplied by M/s. Nokia Corporation, Finland were being made regularly. Thus, Assessing Officer did not solely relied on the statements of employees only but used them to corroborate his findings. Ld. Special Counsel further submitted that at page 22 of his order, the AO has clearly stated that the statements without exception are relied upon not to establish the default, but 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 was be placed on Narayan Bhagwantrao Gasavi Batajiwale v. Gopal AIR 1960 SC 100 and Pranav Construction Co. v. Asstt. CIT [1998] 96 Taxman 323 (Mag.) (Mum.).

In that decision while considering another decision of the coordinate bench GTC Industries Ltd. v. Asstt. CIT [1998] 65 ITD 380, in [ Para No 12.3 sub para 105] has held that if a witness has given a directly incriminating statement and addition in the assessment is based solely or mainly on the basis of such statement, in the eventuality it is incumbent up on assessing officer to allow cross examination . It was further elaborated that :-

In the case of K.T. Shaduli Grocery Dealer (supra), it was held (at p. 1631) :

It is pertinent to note that in the case of M.K. Thomas (supra), it was held that the decision in K.T. Shaduli Grocery Dealer‟s case (supra), cannot be understood as recognising a right of cross-examination as an invariable attribute of the requirements of reasonable opportunity. 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.

"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.

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 held not to be admissible. It was held that opportunity to controvert should be given to the assessee.

In the case of Dr. Rash Lal Yadav (supra), it was held :

In the case of Mahendra Electricals Ltd. (supra), it was held that:

The concept and contents of natural justice go on changing. Natural justice is a living organism, advanced from time to time. Courts are giving new dimensions to the principles of natural justice. The principles embodied reflect the value of the society accepted for time being. The change is a fact of life. Every living thing takes new shape, new dimension with the flux of time. Hon‟ble Supreme Court has observed in 44 STC 61 (sic) :

„No riddle is more difficult to solve, none has more persistently engaged the attention of thoughtful mind‟, says Allen, than the problem of the natural sense of justice. We have carefully considered the profile of the subject in the light of the latest developments. Principles of justice prohibit, determination without hearing. [Terminer sans over] Similarly, hearing without determination [Over sans Terminer] is also interdicted by the finer norms of justice. That all is required is impartial and fair hearing, and determination 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 in mind 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.

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.

Therefore decision relied by the ld DR is also on the same line of reasoning as the decision cited by the ld AR. Therefore we do not have any hesitation is holding that when the addition is made solely on the basis of statement the third party and revenue does not have any other evidences, then without granting opportunity of cross examination , such addition cannot be made. In the result the assessee succeeds on the second issue. Gr. No 2 is allowed.

Accordingly appeal filed by the assessee for assessment year 2011 – 12 is allowed for statistical purposes.

The learned authorised representative referred to the fact that during the course of search an amount of INR 1809000/– has been found as cash in hand from the residence and bank locker of the assessee that the said amount represented the reported cash balance and his family members as per the statement of affairs filed with the Department. He referred to page number 83 of the paper book wherein he stated that as per statement of affairs of Shri Ram Niwas Gupta HUF the cash balances INR 1220243/–, Ram Niwas Gupta where the cash balance is INR 8 33530/– , Miss Swetha Gupta where the cash balances INR 1380180/– and Mrs Anurag Gupta where the cash in hand is INR 71033/–. He submitted that the total cash available on hand as on 31/3/2012 with the family members of the assessee is in all amounting to INR 3 504987/– whereas the amount of cash seized during the search operation was INR 1809000/–. He submitted that as the above cash balance as shown in the statement of affairs of the related family members of the assessee as per the return of income filed as on 31/3/2012 for respective assessment year is much higher than the cash found during search, such addition cannot be made. He submitted that both the lower authorities have rejected this contention of the assessee merely for the reason that assessee has already declared in his statement recorded on oath that it was part of his undisclosed income. He further stated that when the cash is available in the statement of affairs filed by the assessee along with the return of income for financial year ending on 31/3/2012 such cash balance should have been granted as credit against the total cash found during the search. He submitted that as the cash balance as per the statement of affairs is higher than the amount of cash found during the course of search, no addition on this account should be made. With respect to the statement, he stated that the retraction letter dated 9/7/2012 has already been filed before The Additional Director Of Income Tax (Investigation) by the appellant. Therefore such retracted statement cannot be used as evidence against assessee. He otherwise submitted that merely because of the statement u/s 132 (4) of the income tax act, despite the fact that the assessee was having enough cash on hand which was not found to be spent against any other expenditure found during the course of search, assessee is entitled to the above cash on hand shown in the statement of affairs of the related parties. Hence it was submitted that addition should have been deleted by the lower authorities.

The learned departmental representative vehemently submitted that when the assessee has disclosed the above sum in his statement recorded u/s 132 (4) of the income tax act, he does not have any right to speak now to say that there was a statement of affairs in which the above cash on hand was shown. The learned CIT DR also stated that though the explanation of the statement of affairs given by the assessee before the lower authorities however such statement of affairs are not available before the ITAT or before the lower authorities and it is also not known whether such statement of affairs have already been filed before the lower authorities are not. In view of this she submitted that the addition cannot be deleted.

We have carefully considered the rival contentions and find that the assessee has made a statement under section 132 (4) of the income tax act on 26/4/2012 which was later on retracted by the assessee by filing a letter dated 9/7/2012. Further the disclosure has been made by the assessee in the answer to question number 11 of the statement recorded by the income tax department at the time of search. In the answer to question number 11 the assessee has disclosed stating that it is made for buying peace of mind and to cover up the discrepancies stated in the statement and to save himself from legal proceedings. Assessee declared income of Rs. 1 Crore for financial year 2011 – 12 and INR 7,500,000 declared or financial year 2012 – 13. On reading of the statement of the assessee dated 26/4/2012, prior to question number 11, there is no reference of any cash found and admitting that it is undisclosed income of the assessee. Therefore the lower authorities could not have linked the cash found with the disclosure made by the assessee. Further the assessee has stated concurrently before the lower authorities that the statement of affairs of the various related parties shows the cash on hand, which is much higher than the amount of cash found during the course of search. If the above facts is proved to be correct, no addition on account of cash found during the course of search can be made. On reading of the statement of the assessee during the course of search it is also apparent that the statement of the various persons of the family of the assessee have also been obtained. However before The Assistant Director Of Income Tax (Investigation) the assessee was asked to file the copies of the return of income and the documents accompanying them along with the bank accounts statements of all individuals and family concerns run by the assessee and his family. In response to that , assessee submitted a letter dated 9/7/2012, in answer to question number 2 (iv ) assessee has submitted the copies of the returns of income and the documents accompanying the return for all the individuals including the family concerns run by the family members of the assessee. Before us assessee has filed a copy of that letter but relevant annexure were not filed. Therfore it is not possible for us to verify that assessee has filed any statement of affairs or not along with the return of income. Before us assessee has not submitted the statement of affairs as stated before the lower authorities. However assessee has referred them in reply to the assessment proceedings vide letter dated 14/7/2014. Therefore in view of this the whole issue is set aside back to the file of the learned assessing officer with a direction to the assessee to show the statement of affairs of all these family concerns and individuals in whose account the assessee is saying that there is enough cash available on hand. The learned assessing officer may verify the same and if it is found that that such persons are having the cash balances in the statement of affairs , then after examination and proper verification, the learned assessing officer is directed to delete the addition of INR 1809000/– on account of cash found during the course of search. Accordingly ground number 1 of the appeal of the assessee is allowed for statistical purposes with above direction.

Coming to Ground No 2 and 3 of the appeal, A further addition of INR 8191000 was made on account of the voluntary disclosure made by the assessee in his statement recorded u/s 132 (4) of the income tax act on 26/4/2014 for as financial year 2011 – 12. As assessee has disclosed a sum of Rs 1 Crore for this year. Out of which the ld AO has made addition of Rs 1809000/- as unaccounted cash found, the balance addition of Rs 81,91,000/- is made separately. The assessee did not submit the breakup of surrendered income and disclosing his return of income filed for the relevant assessment year. Therefore, as the cash found was also part of the disclosure. The amount of INR 7,500,000 was disclosed by the assessee in light of various discrepancies found in his accounts. Therefore, the balance amount of INR 8 191000/- that was added to the total income of the assessee. The assessee also challenges the above addition. Learned CIT – A confirmed the above addition. Therefore assessee is aggrieved with above additions preferred appeal before us.

The ld AR submitted that a. Statement made by the assessee is retracted by the assessee by filing a letter dated 9/7/2012. The statement was recorded on 26/4/2012. b. He stated that there is no evidence collected by the revenue during the search related to disclosure. c. There is no evidence stated in the assessment order which is linked to the disclosure. d. In the statement also there is no linkage of any material to the impugned disclosure. e. He relied up on the decision of Hon Delhi high court in 397 ITR 82 and Andhra Pradesh high court in 370 ITR 671 and 369 ITR 171 and 379 ITR 367. He also referred to the circular of CBDT with respect to statement of disclosure to be linked with evidence.

Ld CIT DR also vehemently referred to several decision of Honourable High courts and submitted that when once the disclosure is made the addition is required to be made.

We have carefully considered the rival contentions and also perused the orders of the lower authorities. We have also perused the statement of assessee u/s 132 (4) of the act dated 26/4/2012 wherein he made the above disclosure. The letter dated 9/7/2012 stating that there is no undisclosed income earned by the assessee. He also stated that there is no evidence found during search. Along with the statement in search he also handed over 4 post dated cheques of tax payments of Rs 58.30 lakhs which were also not presented for payments by the revenue. No evidence were also referred by the ld AO while making the above addition or by the ld CIT (A) at the time of Confirming the same. Even before us ld CIT DR also could not show the evidence on which the disclosure was made. The CBDT has issued a letter dated 18/12/2014 where in it has instructed its officers to not to obtain disclosure without gathering evidences supporting the disclosure. Further no coercive measures or pressure to be exerted for disclosure . The letter states as under :-

I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Board has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.

In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the I.T.Act,1961 and/or recording a disclosure of undisclosed income under undue pressure/ coercion shall be viewed by the Board adversely.

These guidelines may be brought to the notice of all concerned in your Region for strict compliance.

Further Hon Gujarat High court in case of . Kailashben Mangarlal Chokshi Vs CIT (2008) 174 Taxmann 466 (Guj.) / (2008) 14 DTR 257 (Guj.) has held that Merely on the basis admission, the assessee could not have been subjected to additions, unless and until some corroborative evidence was found in support of such admission In that decision also the statement was retracted by the assessee. Therfore based on the circular of CBDT as well as the decision of Honourable Gujarat High court, in absence of any material based on which disclosure is made, the addition cannot be sustained. In view of this Ground No 2 & 3 of the appeal is allowed.

Accoridngy appeal for AY 2012-13 is allowed.