M/S. SREE TRADING CORPORATION vs. INCOME TAX OFFICER, WARD 4(1), HYDERABAD

In the hearing today, learned counsel for the appellant submits that the following question is a substantial question of law arising out of the order of the Tribunal which would correctly reflect the dispute between the parties. It is as under:

Appellant is an assessee under the Act carrying on the business of commission agent for M/s. Parle Products, Mumbai which includes transportation of its products all over the country. For the assessment year 2001-2002, appellant filed return of income disclosing taxable income of Rs.2,51,398.00. Assessment case of the appellant was selected for scrutiny. Following scrutiny, assessing officer passed the assessment order dated

Appellant preferred appeal before the Commissioner of Income Tax (Appeals)-V, Hyderabad (briefly referred to hereinafter as ‘CIT(A)’). By the appellate order dated 06.08.2004, CIT(A) upheld the order of the assessing officer and held that credits amounting to Rs.11,71,893.00 was not established beyond doubt by the appellant. Accordingly, addition made by the assessing officer was confirmed.

Appellant preferred further appeal before the Tribunal. By the order dated 05.10.2005, Tribunal upheld the addition of Rs.11,71,893.00. The aforesaid ground of the appellant was accordingly rejected. It was thereafter that the present appeal came to be filed.

Learned counsel for the appellant has painstakingly taken us to the order of assessment, order passed by the first appellate authority as well as order of the Tribunal. She submits that revenue had relied upon sworn statement of Mr. Kuldip Vasta, proprietor of M/s. Trans India Express dated 16.02.2004, one of the creditors of the appellant. In the said statement, Mr. Kuldip Vasta denied that M/s. Trans India Express had received Rs.7,83,986.00 from the appellant. Not only that, he also denied giving any such confirmation letter. Copy of the above signed statement was not furnished to the appellant. That apart, request of the appellant to cross-examine the creditors was not granted by the revenue at any stage. Had such an opportunity been granted, the truthfulness or otherwise of the statements of the creditors would have been established.

In support of her contention, learned counsel for the appellant has relied upon a decision of the Supreme Court in M/s. Kishinchand Chellaram v. Commissioner of

Mr. Prasad, learned Standing Counsel however submits that due opportunity of hearing was granted to the appellant by the assessing officer during the assessment proceedings. Substance of the statements made by the creditors were also made available to the appellant. Appellant did not raise any ground before the first appellate authority that it had insisted for cross-examination of the

Submissions made by learned counsel for the parties have received the due consideration of the Court.

To appreciate the rival submissions in the context of the substantial question of law which we have framed today, let us examine the orders passed by the revenue authorities.

Before the assessing officer, appellant submitted that certain amounts were outstanding to be paid to four creditors whose vehicles were utilized by the appellant in the

In support of the above claim, appellant had furnished confirmation letters from the four transporters. In order to verify correctness of the confirmation letters, assessing officer issued notice to the transporters under Section 133(6) of the Act. All the four transporters (creditors) denied that the above outstanding credits were receivable by them from the appellant.

We find from the paper book a copy of letter dated 20.02.2004 issued by the assessing officer to the appellant. By way of the said letter, appellant was informed about the next date of hearing. It was brought to the notice of the appellant that in respect of the credit claim of Rs.7,83,970.00 qua M/s. Trans India Express, for which

From a perusal of the above, what is discernible is that the assessing officer did not inform the appellant that Mr. Kuldip Vasta had made a sworn statement under Section 131 of the Act denying any outstanding dues from the appellant. On the contrary, assessing officer informed the

Reverting back to the assessment order, we find that appellant had not only filed confirmation letters from the transporters but had also produced vouchers and TDS certificates in support of such credits. While confirmation letters and vouchers can be said to be disputed, there can be no dispute as to deposit of TDS. In fact this is accepted by the assessing officer but he went on to add that mere making of TDS would not make a transaction genuine; that apart, appellant did not file any TDS return. Question here is not of the appellant taking the benefit of making deposit of TDS by filing TDS return. The question here is that TDS certificate was filed to prima facie show credit of the appellant towards the four transporters.

It is true that in appeal before the first appellate authority, appellant did not raise the ground relating to cross-examination and thus violation of the principles of natural justice. However, the first appellate authority extracted the statement made by Mr. Kuldip Vasta under Section 131 of the Act. But the first appellate authority did not furnish the same to the appellant to contest the stand taken by Mr. Kuldip Vasta. On the contrary, first appellate authority held that in a transaction involving two persons, genuineness of the same has to be concluded only after both the persons involved in the transaction confirm having entered into the same. If one denies, obviously the other person has to prove that the denial is out of any special reason including a reason of hostility. Further observing that no such reason was forthcoming and that there was no material on record to hold a view that Mr. Kuldip Vasta became hostile to the appellant, first appellate authority further took the view that appellant did not demand cross- examination of Mr. Kuldip Vasta before the assessing officer

Tribunal on the other hand adopted a strange approach. Learned counsel for the appellant had submitted before the Tribunal that opportunity for cross-examination was not given to the appellant. This was answered by the Tribunal by holding that cross-examination is not always necessary. However Tribunal once again relied upon the statement of Mr. Kuldip Vasta that he did not sign the confirmation letter.

From the above, it becomes quite clear that the revenue authorities had relied upon statements and evidence made by the creditors adverse to the appellant, which were

In M/s. Kishinchand Chellaram (supra 1), the question for consideration was whether there was any material evidence to justify the finding that a sum of Rs.1,07,350.00 was remitted by the assessee from Madras to Bombay and that it represented the undisclosed income of the assessee. Supreme Court noted that the only evidence before the Tribunal was a letter dated 18.02.1955 addressed

Again in Andaman Timber Industries (supra 2), Supreme Court held that 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 a nullity in as much as it amounts to violation of the principles of natural justice. In the facts of that case, Supreme Court observed that order of the Commissioner was based on statements given by the two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, adjudicating authority did not grant this opportunity to the assessee. It was mentioned that adjudicating authority had referred to in the impugned order the request of the assessee for cross-examination, but such an opportunity was denied. Tribunal had simply stated that cross-examination of the two witnesses would not have brought about any material difference to the narrative of the

That being the position and following the decisions of the Supreme Court in M/s. Kishinchand Chellaram (supra 1) and Andaman Timber Industries (supra 2), we are of the considered opinion that findings rendered by the revenue authorities stood vitiated for failure on their part to afford an opportunity to the appellant to cross-examine the transporters and for disbelieving the evidence adduced such as TDS certificates.

Consequently, we answer the question framed supra in favour of the assessee and against the revenue.

Appeal is accordingly allowed. No costs.

As a sequel, miscellaneous applications pending, if any, in this Appeal, shall stand closed.