SUBHASH V.KANEKAR,NAVI MUMBAI vs DCIT 22(3), MUMBAI

Shri Subhash V. Kanekar 2 & 1748/Mum/2017 ORDER PER N.K. PRADHAN, A.M. The captioned cross appeals- one by the Revenue and the one by the assessee – are directed against the order of the Commissioner of Income Tax (Appeals)-26, Mumbai and arise out of the assessment completed u/s 143(3) r.w.s 147 of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience. There has been a delay of 54 days on the part of the assessee to file this appeal. The assessee has filed an affidavit for condoning the above delay. Having gone through the contents of the affidavit, we find that there was genuine difficulty on the part of the assessee to file the appeal in time. Therefore, we condone the delay of 54 days by the assessee to file the appeal.

The grounds of appeal

filed by the Revenue read as under:

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.1,54,42,911/- made by the AO u/s 69C of the Act of Rs.23,16,437/- @ 15% of total bogus purchases of Rs.1,54,42,911/-, thereby allowing relief Rs.1,31,26,474/- to the assessee.

2. The appellant prays that the order of CIT(A) on the above grounds be reserved and that the Assessing Officer be restored.

2. The grounds of appeal filed by the assessee read as under:

1. In the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in upholding the reassessment proceedings initiated u/s Shri Subhash V. Kanekar 3 & 1748/Mum/2017 147 on 31/01/2013 by the learned Assessing Officer without independent application of mind on the information received from DGIT(Investigation).

2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the Assessing Officer of completing the assessment u/s 143(3) without providing any opportunity of cross examination of the witnesses relied upon by the Assessing Officer and thus violating the law laid down by Honorable Supreme Court in the case of Kishanchand Chellaram v. CIT (1980) 125 ITR 713 and Andaman Timber Industries vs. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006).

3. In the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in sustaining addition u/s 69C of Rs.23,16,437/- being ad hoc 15% of purchases of Rs.1,54,42,911/-.

4. In the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in upholding the action of Assessing Officer in considering two adjacent flats used by appellant, as one house for his residential purpose, as two different houses and thereby making an addition of Rs2,52,000/- under the head Income from House Property.

5. Without prejudice to Ground no 4, the Learned CIT(A) has erred in upholding the action of Assessing Officer in determining the annual value of Flat no. 606 in Kalyan Tower CHS at Rs3,60,000/- on the basis of some alleged market enquiry without providing the appellant any details or information or finding or basis of such market enquiries.

6. Without prejudice to Ground No. 4 & 5, the Ld. CIT(A) has erred in upholding the action of Assessing Officer in determining the annual value of Flat no. 606 in Kalyan Tower CHS at Rs.3,60,000/- whereas per his own alleged market enquiry property is capable of fetching annual rent of Rs.3,00,000/-.

We begin with the 1st ground of appeal of the Revenue, and the 1st, 2nd and 3rd ground of appeal of the assessee and discuss them together Shri Subhash V. Kanekar 4 & 1748/Mum/2017 as the address a common issue. Briefly stated, the facts of the case are that the assessee filed his return of income for the AY 2010-11 on 23.09.2010 declaring total income of Rs.63,45,610/-. The return of income was processed u/s 143(1). Thereafter, the AO received information from the Director General of Income Tax (Inv.), Mumbai that the assessee had merely taken entries of purchases from hawala dealers as reflected in the website of the Sales Tax Department, Government of Maharashtra. Therefore, the AO issued notice u/s 148 reopening the assessment earlier made u/s 143(1). During the course of reassessment proceedings the AO issued notice u/s 133(6) to 15 parties at the address given by the assessee requesting them to file copy of ledger, bank statement, balance sheet with schedules and acknowledgement of the income tax return filed for the AY 2010-11. The intention was to establish the genuineness of the purchases from the said parties amounting to Rs.1,54,42,911/-. However, the said notices issued by the AO were returned unserved by the postal authorities. Therefore, the AO asked the assessee to produce the said parties along with their accounts for examination. However, the assessee failed to produce the above parties before the AO. The assessee also failed to file before the AO the evidence to establish genuineness of purchases made from the said parties. In view of the above, the AO made an addition of Rs.1,54,42,911/- u/s 69C of the Act.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) restricted the Shri Subhash V. Kanekar 5 & 1748/Mum/2017 disallowance to 15% of the said bogus purchases of Rs.1,54,42,911/- which comes to Rs.23,16,437/-.

5. Before us, the Ld. DR submits that the assessee failed to produce before the AO the said parties for examination. This was required as the notices issued by the AO u/s 133(6) to the said parties in the address given by the AO were returned unserved by the postal authorities. Also it is stated by him that the assessee failed to file the evidence before the AO to prove the genuineness of transactions. Therefore, the Ld. DR submits that the Ld. CIT(A) should have confirmed the disallowance of Rs.1,54,42,911/- made by AO instead of restricting it to 15%.

6. On the other hand, the Ld. counsel of the assessee submits that the details were filed before the AO. He files a copy of the submission dated 14.02.2014, 25.02.2014 and 01.03.2014 filed before the AO. The Ld. counsel also submits a copy of the submission dated 06.10.2016 and 22.07.2016 filed before the Ld. CIT(A). A copy of the audited profit and loss account and balance sheet with schedules and return of income was filed by him before us. The Ld. counsel submits that the assessee should have been given opportunity to cross-examine the said parties.

We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. As mentioned hereinbefore the AO has reopened by issuing notice u/s 148 the earlier assessment made u/s 143(1). In ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500 (SC), the Hon’ble Supreme Court has held that intimation u/s 143(1)(a) in not an assessment. It Shri Subhash V. Kanekar 6 & 1748/Mum/2017 held the notice issued u/s 148 as valid. In the instant case the AO had received specific information that the assessee had merely taken entries of purchases from hawala dealers reflected in the website of the Sales Tax Department, Government of Maharashtra. In view of the decision in Rajesh Jhaveri Stock Brokers P. Ltd. (supra), we hold that the AO has rightly issued notice u/s 148. The 1st ground of appeal of the assessee is thus dismissed. 7.1 Now we come to the 1st ground of appeal of the Revenue and the 2nd and 3rd ground of appeal of the assessee. The fact remains that after the notice u/s 133(6) issued by the AO came back unserved by the postal authorities, he had requested the assessee to produce the above parties for examination. The assessee failed to produce the above parties before the AO. We are of the considered view that the contentious issues in the instant case could be resolved by examining the above parties. It is the duty of the AO to enforce attendance of a witness if his evidence is material. At the same time the assessee must furnish the complete address of such person. A proper hearing must always include a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view. Cross-examination is allowed by procedural rules and evidently also by the rules of natural justice. Any witness who has been sworn on behalf of any party is liable to be cross- examined on behalf of the other party to the proceedings.

Shri Subhash V. Kanekar 7 & 1748/Mum/2017 The Hon'ble Supreme Court in State of Kerala vs. K.T. Shaduli Grocery Dealer AIR 1977 SC 1627, recognised the importance of oral evidence by holding that the opportunity to prove the correctness or completeness of the return necessarily carry with it the right to examine witnesses and that includes equally the right to cross-examine witnesses. In ITO vs. M. Pirai Choodi (2012) 20 taxmann.com 733 (SC), the Hon'ble Supreme Court has held that “Order of assessment passed without granting an opportunity to assessee to cross-examine, should not have been set aside by High Court; at most, High Court should have directed Assessing Officer to grant an opportunity to assessee to cross- examine concerned witness.” The importance of cross-examination has been emphasized by the Hon’ble Bombay High Court in the case of Om Vinyls P. Ltd. vs. ITO [WP(L) No. 3114 of 2014]. In view of the above, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a fresh assessment in the light of our observation hereinbefore after giving opportunity to the assessee to cross-examine the concerned parties. We also direct the assessee to file the relevant documents/evidence before the AO. Needless to say the AO would give reasonable opportunity of being heard to the assessee before finalizing the assessment order.

Shri Subhash V. Kanekar 8 & 1748/Mum/2017 As the above issues have been restored to the file of the AO to make a fresh assessment, we are not adverting to the case laws relied on by the Ld. counsels. Thus the 1st ground of appeal of the Revenue and the 2nd and 3rd ground of appeal of the assessee are allowed for statistical purposes.

8. We now turn to the 4th, 5th and 6th ground of appeal of the assessee and deal them together as they address a common issue. The AO found that the assessee was owner two flats. The assessee had treated the one flat as self occupied. On the basis of market enquiry the AO estimated the rent of the second flat at Rs.25,000/- per month and determined the income from house property at Rs.2,52,000/- after allowing deduction u/s 24(b). In appeal the Ld. CIT(A) agreed with the reasons given by the AO and dismissed the appeal filed by the assessee. 8.1 We have perused the relevant materials on record. We find that the AO has estimated the rent of the second flat at Rs.25,000/- per month without any basis. He has not mentioned in the assessment order the sort of market enquiry conducted by him. As the rate arrived at by the AO is based on conjectures, we delete the addition of Rs.2,52,000/- made by the AO as income from house property. Thus we allow the 4th, 5th and 6th ground of appeal of the assessee.

SUBHASH V.KANEKAR,NAVI MUMBAI vs. DCIT 22(3), MUMBAI