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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: ARUN KHODPIA & ARUN KHODPIA & ARUN KHODPIA
IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE BEFORE S/SHRI GEORGE MATHAN, JUDICIAL JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER Assessment Year : 2012-13 M/s. GRM Trading Co., Bazar M/s. GRM Trading Co., Bazar Vs. ACIT, Circle ACIT, Circle-2(1), Chowk, Angul. Chowk, Angul. Bhubaneswar. Bhubaneswar. PAN/GIR No.AAJFG 9627 N (Appellant (Appellant) .. ( Respondent Respondent) Assessee by : ShriP.R.Mohanty P.R.Mohanty , AR Revenue by : Shri M.K.Gautam, CIT ( CIT (DR) Date of Hearing : 20/6 6/ 2022 Date of Pronouncement : 20/ /6/2022 O R D E R Per Bench This is an appeal filed by the assessee ag This is an appeal filed by the assessee against the order of the ainst the order of the CIT(A)-2 Bhubaneswar Bhubaneswar dated 8.9.2017 in Appeal No.0088/2016 dated 8.9.2017 in Appeal No.0088/2016-17 for the assessment year assessment year 2012-13.
Shri P.R.Mohanty, ld Shri P.R.Mohanty, ld AR appeared on behalf of the assessee and Shri AR appeared on behalf of the assessee and Shri M.K.Gautam, ld CIT DR appeared on behalf of the revenue. , ld CIT DR appeared on behalf of the revenue. , ld CIT DR appeared on behalf of the revenue.
It was submitted by ld AR that the assessee is a partnership firm, It was submitted by ld AR that the assessee is a partnership firm, It was submitted by ld AR that the assessee is a partnership firm, who is doing purchase and sale of gold bullion. It was submitted by ld AR who is doing purchase and sale of gold bullion. It was submitted by ld AR who is doing purchase and sale of gold bullion. It was submitted by ld AR that the assessee did he assessee did purchase from various concerns purchase from various concerns such as MMTC, M/s.
P a g e 1 | 19 Vertex Gold Trading Limited (VGTL) and others. It was the submission that there was a survey operation on M/s. Vertex Gold Trading Limited on 12.8.2015 by the Dy. Director of Income Tax (inv.) Unit-1(3), Hyderabad . It was the submission that as per the Assessing Officer, the survey showed that VGTL had sold gold bullion to the assessee during the relevant period and the impounded documents showed that the assessee had made a total purchases of Rs.26,15,28,018.92 and the same included cash purchases of gold bullion of Rs.12,68,49,286.72 and RTGS purchases of Rs.14,46,78,732.20. It was the submission that the allegation of the AO is that the assessee had only disclosed RTGS purchases and that the cash purchases made by the assessee from VGTL was undisclosed. It was the submission that the Assessing Officer had recorded reasons and had made the assessment treating the cash purchases as per Annexure-3 of the Report of the Dy. Director of Income Tax (inv.) Unit-1(3), Hyderabad as the unaccounted purchases and added the same as unexplained investment.
It was the submission of ld AR that the assessee had never made cash purchases. It was the submission that the assessee is a partnership firm and all the purchases done by the assessee have been paid through RTGS only. It was the submission that the cash transaction did not belong to the assessee and if at all it belonged to any other persons including the partners of the assessee, the same was liable to be assessed in those hands
P a g e 2 | 19 and not in the hands of the assessee. Ld AR has filed additional ground, wherein, he has challenged the reopening of assessment and to this extent, he has relied upon the decision of Hon’ble Jurisdictional High Court in the case of Sri Laxmi Narayan Agency vs ITO in W.P (C) No.16139/2016 dated 3.1.2022, wherein, the Hon’ble Jurisdictional High Court has quashed the assessment on multiple grounds being, the reasons recorded, in that case it was nothing but the reproduction of the language of the report of the Dy. Director of Income Tax (inv.) Unit-1(3), Hyderabad and without any application of mind by the Assessing Officer. It was submitted by ld AR that in the course of search on VGTL, on identical grounds, as it has been made in the hands of the assessee, evidence had been found against Shri Laxmi Narayan Agency also. It was the submission that it was in respect of the same VGTL that the issue was agitated before the Hon’ble Jurisdictional High Court and the reopening of assessment order was quashed in the case of Laxmi Narayan Agency (supra). It was the further submission that in the assessee’s case also, an opportunity of cross examination had not been granted. As the reasons recorded were clearly reproduction of the language of the Investigation Report by the Dy. Director of Income Tax (inv.) Unit-1(3), Hyderabad in respect of survey report in the case of VGTL and no independent verification or enquiry had been done by the AO, it was the submission that the reopening and the consequential assessment order is liable to be annulled.
P a g e 3 | 19
5. In reply, ld CIT DR submitted that the decision of the Hon’ble Jurisdictional High Court in the case of Sri Laxmi Narayan Agency (supra) would not apply insofar as in that case, the assessee therein had sought for the reasons recorded and the assessee had also filed their objection to the reasons recorded and non disposal of the objection filed by the assessee was one of the reasons for quashing of the assessment. It was the further submission that in the course of assessment proceedings itself, the assessee therein had sought for the cross examination of the Director of M/s. Vertex Gold Trading Ltd., Hyderabad and that have not been provided before passing of the assessment. It was the submission that in the assessee’s case, the assessee has asked for the documents on the basis of which, assessment has been reopened only on 25.8.2016 being much after the assessment. It was the submission that these clearly show that the facts in the assessee’s case were completely different from the facts in the case of Laxmi Narayan Agency (supra) and consequently, the decision of the Hon’ble Jurisdictional High Court in the case of Laxmi Narayan Agency (supra) does not apply to the facts of the assessee’s case. Ld CIT DR placed before us the copy of the reasons recorded, which is extracted below:
“The assessee-firm derives income from sale of Bullion trading. Return of income for the A.Y. 2012-13 was furnished electronically disclosing total income of Rs.4,860/-. The case was selected for scrutiny under CASS. Statutory notice u/s. 143(2) was issued and duly served on the assessee by Speed Post on 05.09.2014. Scrutiny
P a g e 4 | 19 assessment was completed in this case on 27.03.2015 determining the total income at Rs.38,660/- and ascertaining a tax liability of Rs. 18,670/ -. Later a survey operation had been conducted in the case of M/s. Vertex Gold Trading Ltd., (PAN: AAACU9234H), F 39, First Floor, Raghava Ratna Towers, Chirag AN Lane, Abids, Hyderabad - 500001 on 12.08.2015 by DDIT(Inv.), Unit-1(3), Hyderabad who had sold bullions to the assessee during the relevant previous year. From the impounded documents of M/s. Vertex Gold Trading Ltd., it was found that the assessee has made a total purchase of Rs.27,15,28,018.92 during the relevant previous year, which includes a cash purchase of gold bullion of Rs.12,68,49,286.72 and RTGS purchase of Rs. 14,46,78,732.20. On the contrary, the assessee has disclosed total purchase of Rs.25,25,48,378/ in his audited accounts(in the return of income the purchase figure is Rs.25,25,48,384/-). Thus, the assessee has made unaccounted purchase at Rs.1,89,79,640.92 (Rs.27,15,28,018.92 minus Rs.25,25,48,378/-). In view of the above, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 for the reason for failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year.
6. It was the submission that said reasons were in no way having any connection with the language as used by the DDIT(Inv.), Unit-1(3), Hyderabad. It was the submission that the Assessing Officer had applied his independent mind on the investigation report and had recorded the reasons validly and the same is liable to be upheld. It was the further submission that the assessee has not shown any where that the assessee has not undertaken cash transaction. It was, however, submitted that if at all, the assessee is adamant in his right of cross examination then the issue
P a g e 5 | 19 may be restored to the file of the AO for granting the opportunity of cross examination. Ld CIT DR has filed written submission as follows:
“ 1. In the additional and modified grounds of appeal filed on 14.06.2022, the Id. AR of the appellant firm has challenged the reopening u/s.147 on the ground that no addition can be made on the basis of third party information gathered by the Investigation Wing which has not been verified by the A.O. and he had not provided copy of statement to the assessee and thus denied the opportunity to cross-examine the third party. a) At the outset, the judgement of Hon'ble Jurisdictional High Court in the case of Sri Laxmi Narayan Agency vs. ITO in WP (C) No. 16139/2016 has been rendered on different facts & circumstances therefore it is not applicable to the present case due to following reasons: i.) In the said case, the assessee had raised objections against the re- opening u/s.147 of the Act and the A.O. had failed to dispose of the same as spelt out by the Hon'ble Supreme Court in the case of G K N Driveshafts (India) Ltd. vs. ITO (259 ITR 19). On that ground alone, the Hon'ble Orissa High Court held the re-opening to be bad- in-law in para-8 of its order. In the present case, the appellant firm has not raised any objections against the re-opening u/s.147 of the Act. ii.) In the said case, the assessee has requested for supply of documents impounded from the office premises of Vertex Gold Trading Ltd., Hyderabad which the A.O. had failed to supply. In the present case, the appellant firm has requested for supply of documents vide letter dated 25.08.2016 after the completion of re-assessment on 02.08.2016. iii.) In the said case, the assessee had requested through a letter for an opportunity to cross-examine the person whose statement had been relied upon by the Department (Mohammad Ilyas Shaik, director of Vertex Gold Trading Ltd., Hyderabad. But the A.O. had failed to provide such opportunity to the assessee. In the present case, the appellant firm never sought any opportunity to cross-examine the said person (Mohammad Ilyas Shaik, director of Vertex Gold Trading Ltd., Hyderabad). iv.) In the said case, it was held by the Hon'ble Orissa High Court in para-9 that reasons for re-opening repeated the language of report of the DDIT (inv.) without any application of mind by the A.O. In this connection, the P a g e 6 | 19 reasons recorded by the A.O. for re-opening u/s.147 of the Act and the report of the DDIT(Inv.), Unit-lO), Hyderabad dated 24.09.2015 may please be examined. It is clear from the same that the A.O. in the present case, has not repeated the language of DDIT (Inv.), Hyderabad. v.) In the said case, the Hon'ble Orissa High Court had relied upon the judgement of Hon'ble Delhi High Court in the case of Sabh Infrastructure Ltd. vs. ACIT (398 ITR 198) wherein it was held that there should be reasons to believe and not merely reasons to suspect that income had escaped assessment. In the cited case, during original assessment proceedings, the assessee had disclosed all relevant information regarding companies from which it had received share application money and Assessing Officer had not doubted such transaction, mere statement of an entry operator that companies in question were 'paper companies', by itself was insufficient to reopen assessment, unless Assessing Officer had further information that those companies were non- existent after making further inquiries into' matter. The assessee after initially submitting the details of the companies and the shares subscribed to, further provided confirmations from the said companies. It also submitted copies of the balance sheets of the said companies for the relevant assessment years showing that these amounts were duly reflected therein. The said companies were also assessed to tax. The Assessing Officer was satisfied with the details and information provided by the assessee. The Hon'ble Delhi High Court further held that as held in Kelvinator of India Ltd. (supra), the powers under section 147 of the Act have to be exercised after a period of four years only if there is a failure to disclose fully and truly all material facts and information, by the assessee. On the other hand, the re-opening in the present case, has been done within a period of four years hence the condition of failure to disclose fully and truly all the material facts and information, by the appellant firm shah not apply. It is further seen that in the original assessment proceedings, the A.O. had issued a notice u/s. 133(6) dated 13.02.2015 to Vertex Gold Trading Ltd.. Hyderabad however there was noncompliance from the said supplier. In spite of non-compliance, the A.O. did not draw an adverse inference. Further there was a difference of Rs.6.00,000/- in the closing balance in the ledger account of Vertex Gold Trading Ltd. in the books of the appellant firm. The cheques of Rs.3.00.000/- received on 09.01.2012, Rs.2,00,000/- received on 12.01.2012 and Rs.L00.000/- received on 20.01.2012 were not accounted for in the books of the appellant firm. The A.O. neither sought any reconciliation from the appellant firm nor applied his mind to this aspect. Hence the judgement of Hon'ble Delhi High Court shall not apply in the present case.
2. The Id. AR of the appellant firm has challenged the action of the AO in making various additions on account of third party's evidence without providing an opportunity of cross examination. At the outset, the AR or P a g e 7 | 19 the partners of the appellant firm never sought an opportunity to cross-examine the director of Vertex Gold Trading Ltd. Such a request was also not made before the CTT (Appeals). Moreover it is conceivable that a mere denial by the appellant firm is not sufficient to rebut the documentary evidence/statements which led to the inescapable conclusion that it had indulged in unaccounted purchases. The appellant firm had been confronted with the documents i.e. Unaccounted purchase bills for bullion, delivery challans, statement of director of Vertex Gold Trading Ltd. etc. It was failure on the part of the appellant firm that it did not seek an opportunity to cross-examine the director of Vertex Gold Trading Ltd. Moreover the assessment can't be cancelled merely on this ground.
3. Formal cross-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 pari of natural justice, therefore, it cannot be laid down as a general proposition of law that the Revenue cannot rely on any evidence which has not been subjected to cross-examination (T. Devasahaya Nadar vs. CIT (51 ITR 20)(Madras HC). 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 Collusive Nature. The Hon'ble Allahabad High Court held in the case of Digvijay Chemicals Ltd. vs. ACIT (248 ITR 381) that it is not necessary that there must be always a cross-examination of a witness before discarding its evidence. Reliance is also placed on the decision of Hon'ble Kolkata High Court in the case of Hindustan Tobacco Company (27 taxmann.com 155) and Hon'ble Patna High Court in the case of Dr. Gauri Shankar Prasad (88 taxmann.com 700).
4. In the case of Smt. Kusum Lata Thukral (327 ITR 424) the Honourable Punjab & Haryana High Court had an occasion to deal with the same issue. In the cited case, the learned authorised representative of the assessee had sought annulment of the order on the ground that the assessee was not allowed to cross-examine the donors. The Honourable High Court disagreed with this preposition. Whatever material the Assessing Officer had gathered was put to the assessee to comment. Therefore, the statements of the donors who had denied to have made any gift, had not been utilized against the assessee without affording the opportunity of the assessee. The assessee had not discharged the initial onus to produce the necessary evidence to support the genuineness of the transactions. The donors in their statements had denied to have given any gifts to Smt. Kusum Lata Thukral, the assessee. They had denied even the acquaintance with the assessee. They had also denied to have made the deposit of cash in their accounts and issue of drafts for the purpose of gifts.
P a g e 8 | 19 When the donors had denied to have given any gifts it had to be logically concluded that it was the assessee's own money, which was routed through the mode of alleged gifts through the accounts of the persons, who were not aware about the deposit of money in their accounts and purchase of bank drafts in favour of the assessee. It was held by the Hon'ble Punjab & Haryana High Court that the question whether denial of opportunity of cross-examination resulted in violation of natural justice would depend upon the facts of each case. The object of cross-examination is to test the veracity of the version given in examination-in chief. It was held that even if cross- examination was allowed and the donors who had disowned the making of gifts, were confronted and shown to be factually wrong, the same would have made no difference, as there was no natural love and affection and in its absence, the gifts were not genuine. The appeal of the assessee was accordingly dismissed. Reverting back to the present case, the assessee firm never made any request to the AO to cross-examine the witnesses or for that matter also before the CIT(A) to cross-examine such witnesses. It is an argument just for the sake of the argument.
The Hon'ble Kolkata High Court in the case of Swati Bajaj & others in IA No.GA/2/2022 & In ITAT/6/2022 dated 14.06.2022 has held as under: "55. The first argument on behalf of the assessee is that the copy of the investigation report was not furnished to them despite specific written request made on behalf of the assesses to furnish the copy of the report, the statements recorded and provide those persons from whom statements were recorded to be cross examined on behalf of the assessee. There is no dispute to the fact that the copy of the statement said to have been recorded during the course of investigation has not been furnished to the assessees and the request made by some of them for cross examining of those persons was not considered. The question would be as to whether the non-compliance of the above would render the assessments bad in law. The argument of the revenue is that the assessments cannot be held to be illegal merely on the grounds that the copy ol the report was not furnished as the respective assessing officers have clearly mentioned as to the nature of investigation done by the department and as the report itself states that the investigation commenced not from the assessees end but the individuals who dealt with these penny stocks who were targeted. It is equally true invariably in all cases, the statement of the stock brokers, the entry operators or the Directors of the various penny stock companies does not directly implicate the assessee. If such being the situation, the assessee cannot be heard to say that the copy of the entire report should have been furnished to him, the person from whom the statements were recorded should have been produced for cross examination as admittedly there is nothing to implicate the assessee Smt. Swati Bajaj of insider trading or rigging of share prices. But the allegation against the assessee is that the claim for LTCG/LTCL is bogus. As pointed out by Mr. Rai, learned senior standing counsel, the investigation report is general in nature not assessee
P a g e 9 | 19 specific. Therefore, we are required to see as to whether non-furnishing of the report which according to the revenue is available in the public domain would vitiate the proceedings on the ground that the assessee was put to prejudice.
In Slate Bank of Patiala and Others versus S.K. Sharma, the Hon'ble Supreme Court pointed out that violation of any and every procedural provision cannot be said to automatically vitiate the domestic enquiry held against the delinquent employee or the order passed by the disciplinary authority except in cases falling under no notice, no opportunity and no hearing categories. Further it was held that if no prejudice is established to have resulted from such violation of procedural provisions no interference is called for, against the ultimate orders. The test laid down was whether the person has received a fair hearing considering all things as the ultimate test is always the test of prejudice or the test of fair hearing as. Further the Hon'ble Supreme Court pointed out a distinction between a case of no opportunity and a case of no adequate opportunity and while examining the latter case, it was held that the violation has to be examined from the stand point of prejudice, in other words the Court or the tribunal has to see whether in the totality of the circumstances, the delinquent officer/employee did or did not have a fair hearing and the orders to be made shall depend upon the answers to the said query. Further it was held that there may be a situation where interest of the state or public interest may call for curtailing of rule of audi alteram partem and in such a situation the Court may have to balance public/state interest with the requirements of natural justice and arrive at an appropriate decision.
In a very recent decision of the Hon'ble Supreme Court in M.J. James after referring to a catena of decisions on the point the Hon'ble Supreme Court pointed out that natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more lead to the conclusion that prejudice is thereby caused. Where procedural and /or substantive provisions of law embodied the principles of natural justice, their infraction per-se does not lead to invalidity of the order passed. The prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only in individual interest but also in public interest. Further by referring to the decision in State of Uttar Pradesh Versus Sudhir Kumar Singh (2020) SCC Online SC 847, it was held that the "prejudice" exception must be more than a mere apprehension or even a reasonable suspicion of a litigant, it should exist as a matter of fact or to be cast upon a definite inference of likelihood of prejudice flowing from the non-observance of natural justice.
Therefore, the assessees have to specifically point out as to how they were prejudiced on account of non-furnishing of the investigation report in its entirety, failure to produce the persons from whom the statements were recorded for being cross
P a g e 10 | 19 examined would cause prejudice to the assessee as nowhere in the report the names of the assessees feature. The investigation report states that the investigation has not commenced from the individuals but it has commenced who had dealt with the penny stocks, concept of working backwards. This is a very significant factor to be remembered. Therefore, there has been absolute anonymity of the assessee in the process of investigation. The endeavour of the department is to examine the "modus operandi" adopted and in that process now seek to identify the assessees who have benefited on account of such "modus operandi". Therefore, considering the factual scenario no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded.
We are conscious of the fact that there may be exceptions however nothing has been brought before us to show that there was an exception in any of these appeals heard by us. In a few cases the assessee has been made known of the statement of the Director of the penny stock company or the stock broker, entry operator despite which those assessees could not make any headway. While on this issue, we need to consider as to whether and under what circumstances the right of cross examination can be demanded as a vested right. In Kishanlal Agarwalla, the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable opportunity would receive, comment and criticize the evidence, statements or records on which the charges is being against him, the demand and tests of natural justice are satisfied.
In Bakshi Ghulam Mohammad AIR (1967) SC 122, the Hon'ble Supreme Court held that the right of hearing cannot include the right of cross examination and the right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being enquired into.
Thus, the report submitted by the investigation department cannot be thrown out on the grounds urged on behalf of the assessees. The assesses have not been shown to be prejudiced on account of non furnishing of the investigation report or non- production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, we have noted that the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (investigation) of all the states of the country. It is thereafter the concerned assessing officers
P a g e 11 | 19 have been informed to consider as to the bonafideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have commenced by the assessing officers calling upon the assessee to explain the genuineness of the claim of LTCG/ LTCL made by them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the some would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement mere mentioning that non-furnishing of the report or non- availability of the person for cross examination cannot vitiate the proceedings. The asscssees have miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under Sections 143(2) and 142(1) of the Act they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the assessing officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the assessing officer in scrutiny assessment under Section 143(3) of the Act. The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced before us by the learned standing counsel for the revenue, nothing prevented the assesses who are ably defended by Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements ol violation of principles of natural justice the assessees have not made out any case.
It is equally not in dispute that whatever information which was required to be made known to the assessee has been informed to the assessee by the assessing officer by issuance of a notice to each of the assesses to which they have responded by submitting their replies. Therefore, in the absence of any prejudice caused to the assessee on account of non-furnishing of the entire report, the assessees cannot be a heard to say that there has been violation of principles of natural justice and their right to defend themselves was in any manner affected. At this juncture, it would be of much relevance to refer to the decision in K. R. Ajmera. The question of law which arose for consideration before the Hon'ble Supreme Court was as to what is the degree of proof required to hold brokers/sub-brokcrs liable for fraudulent/manipulative practices under the SEBI Regulations and for violating the code of conduct of the SEBI
P a g e 12 | 19 (Stocks brokers and Sub-brokers) Regulations. It was pointed out that the code of conduct for stock brokers lays down that they shall maintain high standard of integrity, promptitude and fairness in the conduct of all investment business and shall act with due skill and care and diligence in the conduct of all investment business. The Code also enumerates different shades of duties of stock brokers towards the investor and those duties pertain to high standard of integrity that the stock broker is required to maintain in the conduct of his business. It was further pointed out that it is a fundamental principle of law that prove of an allegation levelled against a person may be in the form of direct substantive evidence or as in many cases such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/ charges made and levelled. It was further held that direct evidence is a more certain basis to come to a conclusion yet in the absence thereof the courts cannot be helpless. It was further pointed out that it is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion. The above tests laid down by the Hon'ble Supreme Court were applied to the facts of the case in K.R. Ajmera and it was noted that the scrips in which trading had been done wherefore illiquid scrips meaning thereby that such scrips though listed in the BSE were not a matter of every day buy and sell transactions. Further it was held that trading in such illiquid scrips is not impermissible yet voluminous trading over a period of time in such scrips is a fact that should attract the attention of a vigilant trader engaged in such trades. It was further pointed out that though proximity of time between the buy and sell orders may not be conclusive in an isolated case such an event in a situation where there is a huge volume and trading can reasonable point to some kind of a fraudulent/manipulative exercise with prior meeting of minds. Such meeting of minds so as to attract the liability of the brokers / sub-broker and may be between the brokers/sub-broker and the client or it could be between two brokers/sub brokers engaged in the buy and sell transactions. Further it was pointed out that when over a period of time such transactions have been made between the same set of brokers or a group of brokers a conclusion can be a reasonable reached that there is a concerted effort on the part of the brokers concerned to indulge in synchronized trade the consequences of which is large volumes of fictitious trading resulting in unnatural rise in hiking the price/value of the scrips. In the said case, it was argued that on a screen based trading the identity of the second party to be a client or the broker is not known to the first party/client or broker. This argument was rejected as being irrelevant. It was pointed out that the screen-based identity system keeps the identity of the parties anonymous and it will be too naive to rests the final conclusions on said basis which overlooks a meeting of minds elsewhere. Further it was held that direct proof of such meeting of mind elsewhere would rarely be forth coming and therefore the P a g e 13 | 19 test is one of the preponderance of probabilities so far as the adjudication of a civil liability arising out of violation of the Act or to the Regulations. Further it was held that the conclusion has to be gathered from various circumstances like that volume of trade effected; the period of persistence in trading in particular scrips; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors.
Thus, the legal principle which can be culled out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction, it would be very difficult to gather direct proof of the meeting of minds of those brokers or sub-brokers or middlemen or entry operators and therefore, the test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income Tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, in our considered view the methodology adopted by the department cannot be faulted.
In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in K.R. Ajmera."
Without prejudice to the above, reliance is placed on the decision of the Hon'ble Supreme Court in the case of ITO vs. M. Pirai Choodi (63 DTR 187) wherein in the absence of an opportunity to cross-examine the witness, the matter was restored to the A.O. The Hon'ble Delhi High Court in the case of CIT vs. P C Chemicals (27 taxmann.com 9) held that where assessment was reopened and additions under section 69A were made without providing statements and materials,
P a g e 14 | 19 on basis of which such additions were made, to assessee, matter should be remitted back without quashing said order. The Hon'ble Madras High Court in the case of Vetrivel Minerals vs. ACIT (129 taxmann.com 126) held where assessment orders passed in case of assessee under section 153A were passed in gross violation of principles of natural justice as copies of all materials seized which were used for framing assessment had not been supplied to assessee.no opportunity for cross- examination had been provided and even section 65B of Evidence Act had not been complied with before admitting electronic evidence, matter was to remanded back to Assessing Officer for adjudication afresh. In the alternative, the matter has to be restored to the file of the A.O. to provide an opportunity of cross-examination to the appellant firm.”
We have considered the rival submissions. A perusal of the reasons recorded for reopening of the assessment in the present case shows that what is supplied as the reasons recorded is in fact an Annexure. The said Annexure does not contain any date but as it has been submitted by ld CIT DR claiming the same to be the reasons recorded and the statement has been made at the Bar, we give credence to the statement and we shall treat the same as reasons recorded for the purpose of reopening of the assessment. A perusal of the decision of Hon’ble Jurisdictional High Court in the case of Laxmi Narayan Agency (supra) referred to supra do not, admittedly, extract the reasons recorded therein in respect of that case. Therefore, we are not going to do the comparison. A perusal of the reasons recorded in assessee’s case shows that the original assessment had been completed u/s.143(3) on 5.9.2014, on the basis of investigation report of the DDIT(Inv.), Unit-1(3), Hyderabad, certain documents had been impounded in the case of Vertex Gold Trading Ltd., Hyderabad which P a g e 15 | 19 showed that the assessee has dealt with said Vertex Gold Trading Ltd., in cash in respect of the purchases of gold bullion but the same has not been recorded in its books nor shown in its turnover. The reasons recorded does have a live link to the issue before us. The figures have also been specifically quantified. Consequently, we are not able to say that the reasons recorded were invalid.
Coming to the assessment proceedings that has been done in the present case on the basis of the evidence in the form of Investigation report of the DDIT(Inv.), Unit-1(3), Hyderabad. The issue is different. One of the basic principles when doing the assessment u/s.143(3) is that in the event the AO proposes to use any evidence against the assessee, it is incumbent on the AO to provide the same to the assessee for the purpose of rebuttal. There is no necessity under the Act or any of the provisions for the assessee to ask for any documents. The duty is cast on the AO and it rest on the shoulder of the AO and in unequivocal terms it can be said that the AO cannot shirk his responsibility in any manner whatsoever. In the present case, the AO primarily has not done its responsibility. The Assessing Officer has also not granted the assessee the opportunity to cross examine the persons from whom statements have been recorded which has been used against the assessee. Surprisingly, the AO also makes a reference to the provisions of section 101 of the Indian Evidence Act, 1872 to hold that the burden is on the assessee to provea with supporting
P a g e 16 | 19 evidence that the assessee did not make any cash purchase from Vertex Gold Trading Ltd. The assessee cannot be asked to do an act which is impossible of being done. It is the AO who is making the allegation that the assessee has made cash purchases. The AO had all the access to the bank account in which the alleged cash has been deposited. Unfortunately, the AO did not examine the said bank to examine as to who had deposited the cash and on whose PAN account the cash has been deposited. Any cash deposit in excess of Rs.50,000/- in bank account has to be supported by PAN. Non-supplying of the details more being the survey report by the AO on the ground that it contains information of other parties cannot protect the Assessing officer’s action. In fact such failure should clearly lead to the quashing of the assessment as has been held by Hon’ble Delhi High Court in the case of Commissioner Of Income Tax vs Smc Share Brokers Ltd, 288 ITR 345 (Del). However, under the jurisdiction of the Hon’ble Orissa High Court, it would not be appropriate for this Tribunal to follow the decision of Hon’ble Delhi High Court in the case of Smc Share Brokers Ltd (supra) especially in the presence of the decision of Hon’ble Orissa High court in the case of Shiv Kumar Agarwal, 186 ITR 734 (Ori), wherein, the Hon’ble Jurisdictional High Court has categorically held that when the proceedings have been validly initiated but if there has been an irregularity in the course of the proceedings, then such proceedings would not have to be restored to the point, wherein, the irregularity occur so that the P a g e 17 | 19 proceedings can continue to its logical conclusion from that onwards. This view is also supported by the decision of Hon’ble Supreme Court in the case of ITO vs M. Pirai Choodi, (2011) 63 DTR 187 (SC), wherein, the Hon’ble Supreme Court had held that the Hon’ble High Court should not have set aside the assessment on the ground that no opportunity of cross examination was granted but the Hon’ble High Court could have directed the AO to grant an opportunity to the assessee to cross examine the concerned witnesses.
In the present case, clearly the irregularity took place on the point when the AO proceeded with the assessment by relying upon the investigation report of the DDIT(Inv.), Unit-1(3), Hyderabad without granting the assessee the benefit of the entire report and without granting the assessee the benefit of cross examination of the persons from whom, the statement has been recorded and which has been used against the assessee. In these circumstances, the issues in this appeal are restored to the file of the Ao with the specific direction to grant the assessee all the documents which are being used by him for the purpose of reopening the assessment and should include all the documents received by him in respect of the DDIT(Inv.), Unit-1(3), Hyderabad report. The AO shall produce all such persons from whom statements have been recorded which are being used against the assessee in this assessment for cross examination by the P a g e 18 | 19 assessee The assessee shall not be asked to do the impossible being to prove to negative.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order dictated and pronounced in the open court on 20/6/2022. Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 20/06/2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to :
1. 1. The Appellant : M/s. GRM Trading Co., Bazar Chowk, Angul.
2. The Respondent. ACIT, Circle-2(1), Bhubaneswar 3. The CIT(A)-2, Bhubaneswar 4. Pr.CIT-2, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order
Sr.Pvt.secretary ITAT, Cuttack
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