ACIT, NEW DELHI vs. SH VINOD KUMAR GUPTA, NEW DELHI

PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER

“8. We find that both the CIT(A) as also the Tribunal have founded their conclusion essentially on the premise that the respondent assessee had requested for an opportunity of cross examining Jamil A Khan and that such an opportunity had not been provided by the Assessing Officer. However, from the record we do not find that there was any such request made by the respondent assessee for cross examining Jamil A Khan. In fact, we find it rather intriguing as to why would the respondent ssessee request for cross examining Jamil A Khan when the respondent assessee himself had furnished affidavits to Jamil A Khan in support of his case. The observations of the CIT(A) as also of the Tribunal that despite the request of the respondent assessee, the A.O. had not provided opportunity of cross examining Jamil A Khan, are contrary to the record. We are therefore, of the opinion that the answer to the question framed has to be in favour of the revenue and against the respondent assessee.

3: 1.1. Consequently the matter is before us for fresh consideration of all the grounds of appeal.

2. Facts in brief:- Return of Income was filed by the assessee on 30.03.2007 declaring total income ofRs.6875880/- The assessing officer completed the assessment by making addition of Rs.15127450/- on account of additional sale consideration of sale of 48100 shares of a company namely R.S. Buildwell Pvt. Ltd. According to the assessing officer a survey action U/S 133A of the Income Tax Act, 1961 was conducted in the case of Samiah International Pvt. Ltd. on 15.01.2008 during which various papers were impounded and that Mr. Jamil A Khan admitted having surrendered amount ofRs.6.29 Crore. Aggrieved with the additions made by the assessing officer, the assessee preferred appeal before CIT(A). Vide order dated 14.01.2010, the CIT(A) deleted the disallowance made by the Assessing Officer. The reasons are given in Para 32 of his order.

“1. The order of the Ld.CIT(A) is not correct in law and on facts.

3. Whether on the facts and in the circumstances of the cases, the Ld.CIT(A) has erred in law and on the facts of the case in not accepting the authenticity of the document found during the survey when S.292C of the Act expressly presumed the document to be genuine and its contents to be true.”

4:

5.1. The Ld.Counsel for the assessee Mr.Amit Goel on the other hand drew the attention of the Bench to a letter dt. 29.12.2008 filed by the assessee before the AO running into 8 pages and which is placed at pages 24 to 31 of the paper book. He drew the attention of the Bench to para 8 page 6 wherein it was stated as follows : “ However, still your good self chose to rely upon the aforesaid letter and the documents, you are requested to produce the Directors of M/s Samiah International Builders Pvt.Ltd. for cross examination of the assessee, as well the author of the documents, so as to explain how on the basis of such purported documents it can be alleged that the assessee had been paid any further consideration on sale of shares. It is 5: well settled law, and recognized law that, a statement recorded behind the back of the assessee cannot be regarded as evidence and since the purported letter has been obtained behind the back of the assessee, the same can not otherwise, be relied upon to draw any adverse inference though the submission of the assessee that, even plain reading such a letter does not support the allegation leveled in the notice issued by you”. (Emphasis ours).

5.2. He submitted that a specific request in writing was made before the Assessing Officer, seeking cross examination of Mr.Jamil A Khan and also of the author of the documents on which the A.O. seeks to place his reliance on.

5.3. On the issue whether Mr.Jamil A Khan has filed a revised return declaring cash component for purchase of shares, he submitted that there is no evidence whatsoever to demonstrate that Mr.Jamil A Khan had filed a revised return of income wherein he has disclosed the transactions with the assessee and that he has declared the alleged cash component in such return of income. Even otherwise he submitted that even if it is presumed that a revised return is filed by Mr.Jamil A Khan in relation to the transaction with the assessee, an adverse inference cannot be drawn in the case of the assessee, unless an opportunity for cross examination of Mr.Jamil A Khan is provided to the assessee. He relied on the affidavit filed by Mr.Jamil A Khan before the AO, wherein he had categorically denied having made any cash payment to the assessee. He argued that revenue had not disputed this affidavit till date and had not examined Mr.Jamil A Khan on this affidavit and under those circumstances the averments in the affidavit have to be accepted as true. He further submitted that even otherwise, the contents of the seized documents, as held by the Ld.CIT(A), do not demonstrate that cash payment was made to the assessee. He submitted that the Revenue has not discharged the onus that lay upon it. He relied on the following case laws.

6: (i) Kisnichand Chellaram vs. CIT (1980) 125 ITR 713 (S.C.) (ii) Laxmnbhai S Patel vs. CIT(2008) 174 Taxman 206 (Guj.) (iii) CIT vs. Rajesh Kumar (2008) 172 Taxman 74 (Del.) (iv) CIT vs. Pradeep Kumar Gupta(2008) 303 ITR 95 (Del.)

6.1. In reply the Ld.DR submitted that he would produce the revised return of income filed by Mr. Mr.Jamil A Khan in support of his contentions that the transaction with the assessee was declared in such return of income. The Bench granted 15 days time to the Revenue to produce the revised return filed by Mr. Jamil A Khan as the assessee is strongly disputing this fact so as to verify the claim of the revenue that the transaction in relation to the assessee has been a subject matter of disclosure in that revised return of income. We have waited for two months and also enquired from the Ld.D.R. The alleged revised return of income filed by Mr.Jamil A Khan is not produced before us by the Revenue till date. In any event in view of the observations of the Hon’ble High Court on this issue, we do not draw any adverse inference on such act of the revenue in not producing the revised return of income.

7: 7.1. On a perusal of these documents as well as the evidence produced by the assessee, the Ld.CIT(A) has given the following factual finding. a). The assessee has filed confirmation from the buyer about the particulars of payments made by them for purchase of shares. Payment has been received by account payee cheques only. The assessing officer issued summon to the buyers and the buyers filed the necessary documents before the A.O. confirming the fact that there was no involved of any cash payment. This position is not disputed by A.O. b). The buyer(s) has / have filed affidavit with regard to the payment received in lieu of sale of shares. The buyers in their affidavit have categorically confirmed that no cash payment was made. The assessing officer has ignored the affidavit filed by the buyer. If an affidavit is filed by the assessee and he is not cross-examined on that point, the assessee may assume that the income tax authorities are satisfied with the affidavit as sufficient proof on the point in question [L.Sohan Lal Gupta vs CIT(1958) 33 ITR 786, 791 (All)]. This is so because the rejection of an affidavit filed by an assessee is not justified unless the deponent has either been discredited in cross examination or has failed to produce other supporting evidence when called upon to do so. c). The sale price of the share was based upon the independent valuation report of the valuer. Since the company whose shares were sold was owning a property, the valuation of the share was done by the Chartered Accountants after considering the market value of property and after duly considering the rate of land notified by the Greater Noida Authority. No defect or deficiency has been pointed out by the A.O. in the valuation report. d). In the case of Unitex Products Ltd. vs ITA (2008) 22 SOT 429 (Mum) it was held that section 133A(3)(iii) authorities authority to record statement of any person which may be useful for or relevant to any proceeding under the Act. However, the officer is not authorize to record .statement on oath and hence statement taken during the course of survey has no evidentiary value. e). The loose papers on the basis of which the Assessing Officer has made the addition bears no signature of the appellant. There is mention about total payment of ~ 12.29 Cr. On these pages, out of which Rs.6.29 Cr. is stated to be in cash and balance Rs. 6.00 Cr. by cheques. The A.O. has stated that the papers found during survey are a composite document in which two different modes of payment are given and payment made through

8: cheques are verifiable. The remarks of the A.O. are erroneous and do not fit into the scheme of things as has been made out by him. For instance in Para "A" there is a reference to payment of Rs.1,00,00,000/- on 05.12.2005 (Rs.55,00,000/- in cheque and Rs.45,00,000/- in cash). The assessee has not received any cheque of RS.5 Lacs. Similarly in Para "B", there is mention about various cash and cheques amount. The assessee has not received any cheque wherever there is mention of composite payment of cash and cheque. f). In the statement of Jarnil Ahmed, on the basis of which the A.O. has made addition, there is no reference to even the name of R.S. Builtwell (P) Ltd. (Emphasis ours) g) In the case of Sh.Vinod Kumar Gupta, sale of 10000 shares each has been made to Jarnil N. Khan and Tabassum Jamil. It is not understandable to how when these 20000 shares have not even been sold to Samiah International Builders Pvt. Ltd., how they could have made a surrender on account of alleged cash payment for purchase of Shares which have not even been purchased by them. h). Most importantly, Mr. Jamil A.Khan (on the basis of whose statement, the addition has been made) himself has filed affidavit before the A.O. that no cash payment was made to the appellant.”

7.2. The Ld.D.R. could not controvert the factual finding given by the Ld.CIT(A). The contents in the documents found during the survey do not support the case of the Assessing Officer as pointed out by the Ld.CIT(A). If the factual finding of the Ld.CIT(A) has to be dislodged then, the Ld.D.R. has to lead evidence to that effect. Documents have to be produced to demonstrate that the order of the Ld.CIT(A) is perverse. No revised return of income was produced before us despite adequate opportunity being given to revenue. When the Ld.CIT(A) records that the contents of the documents do not tally with the case made out by the A.O. as the cheques and amounts mentioned therein are not tallying with the actual transaction, then no addition can be made based on these documents. Coming to the legal position on the evidentiary value of statements recorded during the survey, the Hon’ble Courts have held that these statements have no evidentiary

9: value. Even otherwise the purchasers have filed affidavits which stand uncontroverted till date. The assessee produced all evidences in support of their claim. The A.O. could not dislodge their claim with evidence. In our opinion the A.O. could not prove that there was cash payment for the purchase of the shares.

7.3. It is well settled that when an allegation is made by the Revenue that the assessee has earned certain income, the burden is on the Revenue to prove the same. In the case on hand the facts and evidences demonstrate that the Revenue has not discharged this burden of proof that lay on it. Thus we have no other alternative but to uphold the factual finding as well as the order of the First Appellate Authority and dismiss this appeal of the Revenue.

9. ITA 1211/Del/11 is filed by the Revenue and is directed against the order of the Ld.CIT(A)-XXVII Delhi dt. 27th October,2010 for the A.Y. 2006- 07. The Cross Objection 105/Del/11 is filed by the assessee against the appeal by the Revenue in for the A.Y. 2006-07.

“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in confirming the action of Ld.AO of issuing notice u/s 148 of the Act. The Ld.CIT(A) should have held that notice u/s 148 of the Act was bad in law and reassessment made u/s 147 of the Act was liable to be quashed.

10: 11. The Ld.Counsel for the assessee submitted that the notice u/s 148 of the Act in this case is issued without jurisdiction. He submits that reasons for reopening were recorded by ITO, Ward 34(4) and thereafter, the case records were transferred to ACIT, Circle 34(1), without any order u/s 127 as the ITO, Ward 34(4) and thereafter, the case records were transferred to ACIT, Circle 34(1), without any order u/s 127 of the Act, as the ITO, Ward 34(4) realized that the jurisdiction of the case does not lie with him. He pointed out that the ACIT, Circle 34(1) without himself recording reasons issued notice u/s 148 of the Act. Reliance was placed on the decision of the Coordinate Bench of the Tribunal in the case of Mukesh Kumar vs. ITO in order dt. 12.6.2015 for the A.Y. 2004-05.

11.1. He further submitted that the assessee filed objections to issual of notice u/s 148 of the Act and these objections were not disposed off by the AO and hence the re-opening of assessment is bad in law. He relied on the following judgements of the Jurisdictional High Court. i. Principal CIT vs. Tupperware in ITA 415/2015 order dt. 10.8.2015 ii. Principal CIT vs. India in ITA 572/2015 order dt. 17.8.2015.

11.2. He further submitted that the assessee filed a return of income on 10.09.2008 in response to notice u/s 148 of the Act and that notice u/s 143(2) should have been issued to the assessee on or before 30.9.2009 and that the notice was issued beyond statutory period prescribed under the Act i.e. on 4.12.2009 and hence the reassessment order is bad in law on this count also. Reliance was placed on the judgement of the Hon’ble Supreme Court in the case of Hotel Blue Moon reported in 321 ITR 362 (S.C.)

11: 13. After hearing rival contentions we find that reasons for reopening were recorded by ITO, Ward 34(4), New Delhi and a notice u/s 148 of the Act dt. 1.7.2008 was issued to the assessee. In response, the assessee submitted his reply on 10.9.2008, stating that, the return of income filed by him on 31.8.2006 vide receipt no. 007521, is to be treated as a return filed in response to the above notice u/s 148 of the Act. Further the assessee sought a copy of the reasons recorded for reopening of the case. The ITO, ward 34(4) furnished a copy of the reasons recorded to the assessee on 7.9.2007. This is clear from para 2 page 3 of the assessment order. The ACIT, Circle 34(1), New Delhi has admittedly not recorded that he had reasons to believe that income chargeable to tax of the assessee has escaped assessment. He continued reassessment proceedings initiated by the ITO, Ward 34(4) of the Act without independently recording reasons for ree- opening or issuing a fresh notice u/s 148 of the Act. There is no order u/s 127 of the Act transferring the jurisdiction of the ccase from ITO, Ward 34(4) to ACIT, Ward 34(1). Thus this order of reassessment passed by the ACIT u/s 34(1) of the Act is without jurisdiction and hence is bad in law.

13.1. The Delhi E Bench of the Tribunal in ITA 2358/Del/12 in the case of Mukesh Kumar vs. ITO vide order dt. 12.6.2015 at para 5 held as follows. “5. We perused the relevant material on record. In the present case the notice u/s ;148 was issued on 2nd March, 2009 by ITO, Ward 26(4) New Delhi. After receipt of notice the appellant had responded through its authorized representative and submitted the copy of the return filed under provisions of S.139 of the Act. After noticing that the jurisdiction over the appellant is vested with ITO, Ward 26(3), the file was transferred by ITO Ward 26(4) to ITO Ward 26(3). The ITO Ward 26(3), New Delhi had processed with the framing assessment without issuing fresh notice u/s 148. It means that ITO Ward 26(4), New Delhi had no valid jurisdiction over the appellant, at the time of issuing notice u/s 148 of the Act. In such circumstances, it was held by the Hon’ble Allahabad High Court in the case of CIT vs. M/s MT Builders P.Ltd.

12: (2012) 349 ITR 271 (All.) that the notice issued by an Officr who had no valid jurisdiction over the assessee is invalid. The notice u/s 148 of the Act issued by the ITO, Ward 26(4) is non est in the eyes of law since he had no valid jurisdiction over the appellant either territorial as notified u/s 124 of the Act or by transferring the case under the provisions of S.127 of the Act. Now, the question is whether the action of the ITO, Ward 26(3) New Delhi was valid in law in concluding the assessment proceedings based on the notice issued u/s 148 of the Act by the ITO, Ward 26(4) who had no valid jurisdiction to issue the notice. The issue of valid jurisdiction is a condition precedent to the validity of any assessment u/s 147 of the Act, therefore, the assessment made pursuant to such notice is bad in law. In support of this propsotion we rely upon the case of Hon’ble Apex Court in the case of Y.Narayana Chetty vs. ITO 35 ITR 388, 392 (SC), CIT vs. Maharaja Pratap Singh Bahadur, 41 ITR 421 (SC), and CIT vs. Robert 48 ITR 177 (SC). In the light of the above settled principle of law, we have no hesitation to quash the reassessment proceedings since there was no valid notice pursuant to which the reassessment proceedings was made in the present case. Accordingly, the appeal filed by the appellant is allowed.”

13.2. Consistent with the decision of the Coordinate Bench of the Tribunal we have to necessarily quash the reassessment proceedings.

13.3. Even otherwise, the assessee has filed objections to the issual of notice u/s 148 of the Act after recording the reasons for re-opening disposed of by the AO. The Jurisdictional High Court under similar circumstances, in the case of Principal CIT vs. Tupperware India P.Ltd. in ITA 414/2015 order dt. 10.8.2015 has at paras 5 and 6 held as follows.

´5. Apparently, the assessee did raise an objection to the order of the A.O. reopening the assessment. In the order dt. 28th January,2011 allowing the assessee’s appeal, the CIT(A) noted that the assessee had indeed filed objections to the reopening of the assessment by its letter dt. 9th Agusut,2006.

13: In the remand report dated 20th December,2010 the AO quoted a paragraph from the order sheet which stated that the afore mentioned letter dt. 9th August, 2006 had been handed over to the AO and that the AO had sought some more information which the assessee had not filed. The CIT(A) accordingly held that by stating that no objections had been filed, the AO had ‘very conveniently disregarded the guidelines’ laid down by the Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19 (SC). The CIT(A), therefore, agreed with the assessee that since the procedure laid down by the SC in the afore mentioned decision was mandatory, the AO had in fact not disposed of the objections by a speaking order. Neverhteless, he CIT(A) held that the said defect ‘does not make the assessment order illegal and hence it cannot be quashed. It is a technical mistake which is curable.’ 6. The Court is of the considered view that after having correctly understood the decision of the Supreme Court in GKN Driveshafts (India) Ltd. (supra) as mandatorily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order, the CIT(A) committed an error in not quashing the reopening order and the consequent assessment.’ 13.4. This decision was followed by the judgement of the Court in ITA 572/2015 in the case of Principal CIT vs. India Business Network Ltd. order dt. 17.8.2015. Thus on this ground also the assessment has to be quashed.

Order pronounced in the Open Court on 23rd December,2015.