IPCA LABAORATORIES LTD,MUMBAI vs. ASST CIT LTU, MUMBAI

The re-assessment proceedings initiated by the AO u/s 147 initiated by the AO are bad in law as conditions required to be satisfied for issue of notice u/s.148 of the Act have not been satisfied. The appellant submits that no income chargeable to tax has escaped assessment by reason of failure on the part of Ipca Laboratories Ltd. the appellant to disclose fully and truly all material facts necessary for the purpose of assessment.

The appellant submits that, there was no basis for the conclusion arrived at by the Assessing Officer that, the transaction of purchases of software by the appellant was inflated and bogus. No evidence is brought out by the AO to prove that, these are inflated and bogus purchases. The AO relied solely on the statement of Mr. Sanjay D. Sonawani without bringing any other evidence on record to substantiate the allegation that the income of the assessee had escaped assessment.

During the course of the hearing, arguments were made by Shri F.V. Irani, ld. Counsel of the assessee and Shri Neil Philip, ld. Departmental Representative (in short referred to as „DR‟) on behalf of the revenue. The only effective issue properly argued by the ld. Counsel relates to disallowance of depreciation of Rs.6,07,500/- on purchase of software. The brief facts of the case are that the assessment of the assessee was re-opened on the ground that Shri Sanjay D. Sonawani, Chairman of M/s. Washington Software Ltd. deposed on oath u/s 131 of the Act before the Dy. Director of Investigation, Pune that the said company had provided bogus bills to the assessee-company. The assessee had purchased the software from the said company on which it claimed depreciation in the year under consideration.

Being aggrieved, the assessee filed an appeal before the ld. CIT(A), wherein no relief was given as the ld. CIT(A) also preferred to rely upon the statement of the said person read with his subsequent reply. Being aggrieved, the assessee filed an appeal before the Tribunal.

During the course of the hearing, it has been argued by Shri F.V. Irani, ld. Counsel of assessee that in the absence of proper opportunity of cross- examination, the statement of third party could not have been used against the assessee. In support of his claim, he relied upon the judgment of the Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE, 324 E.L.T 641 and few other judgments. He also drew our attention to the copies of the invoices submitted before the lower authorities. He also argued that there was apparent contradiction in the statement of Shri Sonawani. It was submitted that Shri Sonawani had himself stated in the statement that bills issued by him in F.Y 2003-04 were genuine and bills issued only after this year were bogus. Thus, even if the statement of Shri Sonawani is taken into consideration, the same should be read in favour of the assessee. In case same was to be used against the assessee, then, opportunity of cross-examination was must.

On the other hand, the ld. DR relied upon the orders of the lower authorities. It was submitted by him that even if Shri Sonawani did not appear, but he had sent his reply confirming his statement. Under such circumstances, it was not justified to ignore the statement of Shri Sonawani.

We have gone through the orders of the lower authorities, the material submitted before us as well as the arguments made by both the parties. We have also carefully gone through the statement of Shri Sonawani and the Ipca Laboratories Ltd. inferences drawn by the AO. We find substance in the arguments of the ld. Counsel that there was some contradiction and confusion in the facts narrated by Shri Sonawani, particularly in answer no. 5 read with answer no. 6 of his statement. It is further noted by us that the statement of Shri Sonawani should not be used against the assessee in the absence of effective opportunity of cross- examination. It is further noted by us that the Assessee had submitted proper invoices duly signed by authorized signatory of M/s. Washington Software Ltd. It is further brought to our notice that payment of the same has been made by cheque. Under these circumstances, the assessee may like to put forth all these facts before Shri Sonawani to examine the truth in his statement. The AO should not take biased or one-sided view by blindly relying upon the statement recorded by some other authority and ignoring the direct documentary evidences submitted by the assessee, that too, without giving proper opportunity of cross-examination to the parties. In view of these facts, we find it appropriate to send this issue back to the file of the AO. The AO shall grant effective opportunity of cross-examination before using this statement against the assessee. We further find it appropriate that the assessee may also bring more evidences in its possession which may throw some light on the actual user of the software by the assessee to strengthen its case. The assessee is free to raise all legal and factual issues before the AO. The AO shall re-adjudicate this issue after considering all the facts and evidences in terms of our direction as given above.

Thus, in view of the aforesaid discussion, all the grounds raised by the assessee are sent back to the file of the AO to be decided afresh, and accordingly these grounds may be treated as partly allowed for statistical purposes.