ACIT-(CC)-7(3), MUMBAI vs. JAY JAGANNATH STEEL AND POWER LIMITED, ODISHA

The grounds of appeal are as under:-

1 In this regard, the assessee contended before the AO that only M/S. Hind Unitrade Private Limited could explain about the entries recorded in the losses sheet. The assessee claimed that it had not received any copies of depositions made by them in this regard and had also requested for cross verification of the person, who had given the depositions .The purchase of coal can be made only with prior approval of Odisha Mining Department. Hence, no purchase of coal including transporting of coal can be made without the transit pass (T.P.) issued by this Department. The complete stock of coal i.e. Opening Balance, Purchases, Consumption, Closing Stock were being regularly supervised by the above Department. Monthly returns were being given to them even the officers of this department were visiting the plant for the verification. All the payments were made through Bank only. The assessee also filed an affidavit in this regard claiming the it did not make any payment in cash. As per the ledger copies received from M/S. Hind Unitrade Private Limited there was no cash transactions. The copies of depositions also not received by the assessee. It had requested for cross examination of witness / company through which information /documents / statement were collected citing certain case laws. The request of the assessee was considered by the AO who provided opportunities of being heard and for the sake of natural justice to Page 5 A.Y. 2018-19 Jay Jagannath Steel and Power Limited prevail, cross examination as requested was providing by issuing summon to the M/s Hind Unitrade u/s 131(1)(b) dated 20.03.2023 fixing date for issuing summon to the M/s Hind Unitrade u/s 131(1)(b) dated 20.03.2023 fixing date for 23.03.2023. On fixed date M/s Hind Unitrade did not turn up for cross examination. The AO observed that the income tax proceedings are quasi judicial proceedings in nature and per various judgements of hon'ble courts, the requirement of the statute for a valid assessment would be met if all the evidence collected which is to be used against the assessee while framing the assessment order are placed before the assessee and he is given opportunity to rebut the evidence. In this case, all the incriminating material collected were supplied to the assessee company opportunities given to rebut the evidence. It is pertinent to mention that cross examination in this case was not warranted as department have conducted search operation on premises of M/s Hind Unitrade group and various incriminating documents and information were collected during the search proceedings and same were provided/ confronted to the assessee company also. The documents collected and supplied to the assessee were self explanatory. Furthermore, the assessee company and M/s Hind Untrade were directly linked/know to each other and were doing business substantial business transaction regularly through the relevant Page 6 A.Y. 2018-19 Jay Jagannath Steel and Power Limited year under consideration. Further, the assessee had submitted an affidavit for not payment of cash amount to M/s Hind Unitrade Pvt Ltd. during F.Y. 2017-18. The affidavit submitted was not accepted as correct as material available on record clearly shows that assessee is engaged in fraudulent practices of cash transactions which were not recorded in books of account as admitted by Director of M/s Hind Unitrade group. Further, support was drawn by the AO from the Hon'ble Supreme court statement, in one's own favour, could not be regarded as sufficient evidence for any court of law. The details of cash payment were clearly available in the Investigation report copy of ledger related cash component seized from the premises of Director of M/s Hind Unitrade Group which was available on record were already provided to the assessee during the assessment proceeding. Accordingly, he made the addition of the impugned cash transaction u/s 69C the Act. ,

In the subsequent appeal, the assessee contended that the allegation that the company had made cash payment, were vehemently Page 7 A.Y. 2018-19 Jay Jagannath Steel and Power Limited opposed and denied, as baseless, erroneous and incorrect, and were not related to assessee. The company had purchased coal of Rs. 6,70,83,381/- from M/s Hind Unitrade Pvt. Ltd., Ambikapur, during FY 2017-18 (AY 2018-19). The company has also paid Transportation charges of Rs. 1,71,15,182/- to M/s Hind Unitrade Pvt. Ltd. during AY 2018-19. All the payments to above party were made through bank by RTGS. The company never paid any amount in cash to above party. The purchase prices paid to Hind Unitrade was as per the market rates only, because company had purchased coal from other parties also during above period, where the prices are similar to it. So question of difference payment by cash did not arise. Further, the AO stated that for cross examination, summons u/s 131 had been issued separately to Hind Unitrade Group. Photocopy of one page of seized document/ materials which is going to be used against the assessee, was not at all clear to the assessee. It did not know from where and why they hade recorded these entries. The assessee had already submitted the ledger accounts received from M/s Hind Unitrade Pvt. Ltd. from 01.04.2017 to 31.03.2018, which was confirmed and signed by them as well the assessee, Regarding above one page of seized material, M/s Hind Unitrade Pvt. Ltd. only could be able to explain about these entries. The assessee had not received any copies of depositions made by them in this regard. The assessee had also Page 8 A.Y. 2018-19 Jay Jagannath Steel and Power Limited requested for Cross Verification of the person, who has given the depositions. Without prejudice, it was submitted that the said sheet that the upper part of it contained some debit entries of bills/ credit entries of payments received, with Balance amount of Rs. 2,77,42,957/-. In lower part, it purportedly showed Cash receipts of Rs. 67,00,000/-, and debit bills of Rs. 20,03,719/-, with Balance amount of Rs. 46,96,281/-. Thereafter, total due had been arrived at Rs. 2,30,46,676/- (i.e. 2,77,42,957 – 46,96,281). Below it, there appeared another entry of Rs. 1,21,43,554/- was recorded. It was further stated that the addition was made in respect of aforesaid entry for June (1815.180 Tons) of Rs. 1,21,43,554/-, which apparently represented value of 1815.180 tons, without any indication of type of goods and whether the same were actually purchased or not, and without any specific details about movement of cash in regard to the same. Hence, even in this sheet as relied upon by the Assessing Officer, there was no specific details available about the alleged cash payment amounting to Rs. 1,21,43,554/-. Therefore, such addition was made for unexplained expenditure u/s 69C of the Act was made without any tangible material in possession of Assessing Officer. The assessee company had truly accounted for all inward-outward of goods. The books of accounts were duly audited by professional Chartered accountants. The Auditors had duly certified the Page 9 A.Y. 2018-19 Jay Jagannath Steel and Power Limited quantitative details of Raw Material consumed and Finished Goods produced.Even after repeated requests made to Assessing Officer, the statements of witness were never provided to it. The opportunity to cross examine the witness was not provided to the it either. Though the Assessing Officer had issued summon to the witness to appear during video conferencing, however the witness did not appear. The assessee's right to cross examine the witness was not foregone in case the Assessing Officer is unable to ensure the presence of his own witness. It was the duty of AO to produce his witness for cross examination. He, without providing any further opportunity of cross examination, assumed that the same was not warranted in present case.

1 The ld.CIT(A) deleted the addition fully,interalia observing that the above one-page sheet was unsigned. The noting's on this ledger sheet could be divided in to three parts. 1) Part one -On left hand side, there were noting's of certain payments and on right hand side there are noting's of sale bills. As per the A.O, these transactions were part of regular books of accounts. 2) Part two-Certain transactions were recorded under the head cash receipts- the nature of which was not specified. In these noting's cash receipts of Rs.67 lacs was mentioned. 3) Part Three -There was one entry written as : June – 1815.180 tons – Rs. A.Y. 2018-19 Jay Jagannath Steel and Power Limited 12,143,554.20.It is stated that he verified the entries of part -1 with the ledger account confirmation submitted by the assessee with Hind Unitrade Pvt Ltd and noticed that while certain entries on the left side related to bank payment tallied with the ledger account confirmation, not even a single entry on the right-hand side written as bill, tallied with the ledger account. Thus, not a single entry of bills matched with the books of accounts. Regarding Part-2 of the one-page sheet, he observed that none of the items tallied with the ledger account confirmation of Hind Unitrade Pvt Ltd submitted by the assessee. Some entries of cash were noted. However, the AO had not given any comments on these entries. It was difficult to correlate these entries as no details were mentioned. The noting on Part -3 read as under: “June 1815.180 TONS Rs. 12,143,554.20” It could be seen that now-where it was written that the assessee had made cash payment of Rs. 12,143,554. 20. There was no reference of any cash payment or receipt. Further there was no corroboration with any books/statement/ deposition.

1 From the above, he concluded that no conclusion could be drawn from entries written on this sheet. The entries in part 1, did not tally even with the book entries. The entries in part 2 and 3 could not held as unaccounted transactions. No meaning could be assigned to A.Y. 2018-19 Jay Jagannath Steel and Power Limited these alleged entries by any stretch of imagination. Therefore, this sheet did not have any evidentiary value. Further, the conclusion drawn by the A.O regarding the cash payment of 12,143,554.20 had no basis. This entry was not at all corroborated by any finding. It is also worthwhile to note that the Courts had time and again examined the authenticity of such documents and have also examined whether addition could be made on the basis of such sheets. He placed reliance on the ruling of Hon'ble Supreme court in the case of CBI Vs. V. C. Shukla (1998) 3 SCC 410/1998 Taxmann.com 2155 (SC). There was absolutely no independent evidence. Even the evidence relied upon by the AO was not provided to the assessee; not produced in the assessment order nor made part of the assessment order. Thus, this one-page sheet could not be admissible evidence and hence cannot be used against it. He held hold that the above one-page sheet is a “dumb” document as it was a random sheet not part of regular books of accounts. It was not corroborated with transactions carried out with the appellant. In present case, there is absolutely no evidence against the assessee that it had incurred any expenditure outside the books. The addition was made solely on the basis of surmise and conjectures and was deleted. A.Y. 2018-19 Jay Jagannath Steel and Power Limited

Before us, the ld AR has reiterated the same contentions as made before the authorities below. It is claimed that during the course of the reassessment proceedings, the assessee sought from the AO the documents/materials relied upon against it including the copy of the alleged statement of the Director of M/s Hind Unitrade as also an opportunity of cross-examination. In response, the AO furnished an Investigation Report along with annexures. However, a copy of the alleged statement of the Director of M/s Hindustan Unitrade was not provided. The AO, thereafter, issued summons to M/s Hind Unitrade to appear from cross-examination but none appeared from M/s Hind Unitrade. Be that as it may, he proceeded to conclude the reassessment proceedings by holding that no cross-examination was warranted in the facts of the present case and made the addition u/s 69C. The AO made the addition on the basis that - (i) details of cash payment were clearly available in the investigation report and (ii) copy of ledger seized from the premises of the Director of M/s Hind Unitrade was available on record. Thus, the assessment order was passed without any independent examination and in the absence of any corroborative evidence, solely relying upon the said loose sheet on the basis of a stray entry therein which reads as "JUNE 1815.180 Tonx 12,143,554.20",Clearly, the said entry did not even mention the word 'cash' and is bereft of any details A.Y. 2018-19 Jay Jagannath Steel and Power Limited whatsoever so as to conclude that the same was reflective of a cash transaction between M/s Hind Unitrade and the assessee. Copy of the alleged incriminatory statement of the Director of M/s Hind Unitrade was not furnished to the Respondent.

1 It is claimed that the finding of the AO that cross-examination was not warranted is nothing but a mere ruse to somehow avoid his duty to ensure the appearance of the person for cross-examination, whose alleged statement was sought to be relied upon against the assessee. If cross-examination was not warranted, there was no reason why the AO fixed a date for cross-examination in the first place. Non-furnishing of the alleged statement of the Director of M/s Hind Unitrade and failure to ensure his appearance for cross-examination goes to the root of the matter and makes the Assessment Order liable to be set aside. In this regard, reliance was placed on the judgement in HR Mehta v. ACIT Bom HC-Order dated 30.06.2016 amongst others.

2 The ld.AR has further contended that admittedly, the loose sheet in question was seized from the premises of Mr. Sanjay Mittal, the Managing Director of M/s Hind Unitrade Group. The Investigation Report does not mention about any statement of Mr. Sanjay Mittal having been recorded. Therefore, the question of Mr. Mittal admitting to A.Y. 2018-19 Jay Jagannath Steel and Power Limited any cash transactions with the Respondent not being recorded in regular books does not arise. It emerges from the Investigation Report that the statement of one another Director of M/s Hind Unitrade Group namely Mr. Vinod Agarwal was recorded, from whose premises documents pertaining to entities other than Respondent were seized. It is further submitted that the AO appears to have referred to and relied on the statement of Mr. Vinod Agarwal but failed to appreciate that the same did not pertain to the assessee. Loose Sheet in question does not hold any evidentiary value and is a ‘dumb' document. It is a well settled that a sheet of paper containing typed entries, not shown to be a part of the regular books of accounts, does not constitute material evidence. In this regard, reliance is placed on the judgements in CBI v. V C Shukla, (1998) 3 SCC 410, Common Cause v. Union of India, (2017) Taxmann 245 and DCIT v. Sunil Kumar Sharma, (2024) 469 ITR 197amongst others. Thus, no addition u/s 69C could have been made on the basis of a 'dumb document', which does not hold any evidentiary value in the eyes of law. The addition has been made by the Ld. AO on the basis of a stray entry in the loose sheet which reads as "JUNE 1815.180 Tons 12,143,554.20". The said entry does not even use the word 'cash' and is bereft of any details such as what goods were supplied, to whom to the goods were supplied etc. Even the Investigation Report characterizes the said entry A.Y. 2018-19 Jay Jagannath Steel and Power Limited as 'some receipt' and not as a cash receipt. Further, the Annexure to the Investigation Report classifies the amount shown in the said entry under the head of 'Further Sale' and not Cash Sale or Cash Receipt. Thus, the entry in the loose sheet, on the basis of which the addition has been made, is not conclusive of any cash transaction. Even the investigation report does not characterize the same as a cash transaction. Thus, the addition has been made on conjectures by relying on material which is ex-facie inconclusive.

The ld.DR has contested the arguments of the assessee stating that the addition was made based on certain loose sheet found and was corroborated by the statements of persons from whose premises it was found. The ledger account of the assessee as recorded in the paper reflected transaction through banking channels as also in cash which further supported the findings of the AO that it contained unaccounted transaction of the assessee with the said concern. It is not a dumb document as stated by the ld.CIT(A). The assessee having failed to explain the entries therein, addition was correctly made invoking the provisions of section 69C of the Act.

We have carefully considered all the relevant facts of the case, perused the records and the submissions made by both the sides. Before A.Y. 2018-19 Jay Jagannath Steel and Power Limited us, the ld.AR has reiterated the same contentions as made before the lower authorities challenging the addition stated to be based on certain document and statements and not supported by any corroborative evidence. He also objected to the denial of cross examination as the entire edifice of the addition is stated to be based on the affidavit only. In such a circumstance, it was incumbent on the authorities below to allow cross examination of the concerned persons. Denial of the same amounted to violation of the principles of natural justice. On careful consideration, we find sufficient force. There is no dispute that the AO has placed heavy reliance on the entries recorded in the loose sheet and the recorded statements of key persons of Hind Unitrade Group. We find that the AO did make some effort to allow the cross examination of the said person to the assessee, however, due to his non attendance, cross examination could not take place. The records do not indicate that any fresh attempt was made by the AO in this regard. Rather, without making any such fresh effort he went ahead in drawing adverse

1 According to us, not allowing the assessee to cross-examine the witnesses though the statements of those witnesses were made the basis of the impugned order is a serious flaw as it amounted to violation of principles of natural justice. It is to be borne in mind that the assessment order is primarily based upon the statements given by the aforesaid witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the authorities below did not grant this opportunity to the assessee though such an opportunity was repeatedly sought by the assessee.

2 In this regard, it may be stated here that in the case of GTC Industries Ltd. v ACIT 65 ITD 380, ITAT Mumbai Bench has relied upon the judgment of Calcutta High Court in the case of Kisanlal Agarwalla v. Collector of Land Customs AIR 1967 & Cal. 80 and quoted this judgment in para 90 which throws light on the right of cross examination-. “90. There is a good deal of misconception on this question of the right of cross-examination as part of natural justice. Natural justice is fast becoming the most unnatural and artificial justice and for that confusion A.Y. 2018-19 Jay Jagannath Steel and Power Limited the Courts are no less responsible than the litigants. Ordinarily the principle of natural justice is that no man shall be a judge in his own cause and that no man should be condemned unheard. This latter doctrine is known as audi alteram partem. It is on this principle that natural justice ensures that both sides should be heard fairly and reasonably. A part of this principle is that if any reliance is plated on evidence or record against a person then that evidence or record must be placed before him for his information, comment and criticism. That is all that is meant by the doctrine of audi alteram partem, that no party should be condemned unheard. No natural justice requires that there should be a kind of a formal cross-examination. Formal cross- examination is procedural justice. It is governed by rules of evidence. It is the creation of Courts and not a part of natural justice but of legal and statutory justice. Natural justice certainly includes that any statement of a person before it is accepted against somebody else, that somebody else should have an opportunity of meeting it whether it (sic), by way of interrogation or by way of comment does not matter. So long as the party charged has a fair and reasonable opportunity to see, comment and criticise the evidence, statement or record on which the charge is being made against him the demands and the test of natural justice are satisfied. Cross-examination in that sense is not the technical cross- examination in a Court of law in the witness-box.” ITAT has further held that, “As regards the dictum ‘audi alteram partem’ the assessee's basic contention was that the statements of witnesses and materials which were relied upon by the Assessing Officer in the assessment order to reach the conclusions and findings which were adverse to the assessee should have been disclosed to the assessee and the witnesses should have been offered for cross-examination. The right to cross-examine the witness who made adverse report is not an invariable attribute of the requirement of the said dictum. The principles of natural justice do not require formal cross- examination. Formal cross- A.Y. 2018-19 Jay Jagannath Steel and Power Limited 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, of law that the revenue could not rely on any evidence which had not been subjected to cross-examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross- examination. Adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature.”

3 In the case of ITO v. M. Pirai Choodi 334 ITR 262 where the High Court had set aside the order of assessment, it was held by the hon'ble Supreme Court that the High Court should not have set aside the entire ground that no opportunity to cross-examine was granted, as sought by the assessee and the High Court should have directed the Assessing Officer to grant an opportunity to the assessee to cross- examine the concerned witness.

4 Further, the CIT(A) who have co-terminus powers with the AO cannot delete the addition on the ground that opportunity of cross- examination was not given to the assessee, rather they should give this opportunity to the assessee even at appellate stage if it is crucial to decide the appeal. Rules of evidence do not govern the income-tax proceedings strictly, as the proceedings under the Income Tax Act are A.Y. 2018-19 Jay Jagannath Steel and Power Limited not judicial proceedings in the sense in which the phrase "judicial proceedings" is ordinarily used. The AO is not fettered or bound by technical rules of evidence contained in the Indian Evidence Act, and he is entitled to act on material which may or may not be accepted as evidence in a court of law. However, the principles of natural justice need to be applied by the income-tax authorities during assessment and appellate proceedings. Wherever Revenue collects evidences against the assessee and does not confront the same to the assessee, before using it against the assessee, the addition cannot be sustained. The hon'ble Supreme Court in the case of Andaman Timber Industries v Commissioner of Central Excise, Civil Appeal No. 4228 of 2006 has considered that if there was no material with the Department on the basis of which it could justify its action, and if the statement of the two witnesses who were unknown to the appellant was the only basis of issuing the show Cause Notice, right to cross-examination has to be given.

5 Considering the aforesaid judgments, we are of the view that the AO remained under a statutory obligation to facilitate cross- examination. The assessee could have dispelled the material that the A.O acted upon to disprove the authenticity of the loan transaction only if it A.Y. 2018-19 Jay Jagannath Steel and Power Limited was provided an opportunity to cross-examine the persons concerned who had allegedly referred the name of the assessee with regard to cash transactions. The ld.AR has also contended that the AO did not make available the statements of the two key persons of Hind Unitrade whose statement also he placed heavy reliance. Once the statements were used by the AO adversely, it was incumbent on him to supply the statements to the assessee for its defence. Thus, on this count also there is violation of the principles of natural justice.

6 Accordingly, we set aside the appellate order and restore the entire issue involving merits with a direction to the AO to allow cross examination to the assessee of the above named person and decide the issue in accordance with the provisions of the Act. The AO would also supply the relevant statements of Sri Vinod Agrawal and Sri Sanjay Mittal to the assessee for necessary action at its end.

We may make it clear that remanding the matter should not be in any manner construed to deciding the issue on merits of the case. The ld.AO would be at liberty to decide the issue after affording adequate opportunity of hearing to the assessee in this regard. A.Y. 2018-19 Jay Jagannath Steel and Power Limited

In the result, the appeal is allowed for statistical purposes. Order pronounced in the open court on 06/01/2026. NARENDER KUMAR CHOUDHRY (न्यायिक सदस्य /JUDICIAL MEMBER) Place: मुंबई/Mumbai दिनांक / Date 06.01.2026 Lubhna Shaikh / Steno PRABHASH SHANKAR (लेखाकार सदस्य/ACCOUNTANT MEMBER) आदेश की प्रतिलिपि अग्रेषित/Copy of the Order forwarded to : 1. 2. 3. 4. 5. अपीलार्थी / The Appellant प्रत्यर्थी / The Respondent. आयकर आयुक्त / CIT विभागीय प्रतिनिधि, आयकर अपीलीय अधिकरण DR, ITAT, Mumbai गार्ड फाईल / Guard file. सत्यापित प्रति //// आदेशानुसार / BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.