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M/s R.S. Switchgears, B-1/43A, Hauz Khas, New Delhi. Vs. Income Tax Officer, Ward-24(2), New Delhi 110 002.
December, 15th 2014
               IN THE INCOME TAX APPELLATE TRIBUNAL
                                 `F' : NEW DELHI
                     DELHI BENCH `F

           BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND
                           SIDHU, JUDICIAL MEMBER
                 SHRI H.S. SIDHU,

                   Nos.5871/Del/2010 & 5872/Del/2010
               ITA Nos
                                       2007-08
                     Assessment Year : 2007-


M/s R.S. Switchgears,          Vs.    Income Tax Officer,
B-1/43A, Hauz Khas,                   Ward-
                                      Ward-24(2),
New Delhi.                            New Delhi ­ 110 002.
PAN : AACFR6439A.
    (Appellant)                           (Respondent)

             Appellant by       :    Shri K.P. Garg, CA.
             Respondent by      :    Shri Vikram Sahay, Sr.DR.

                                ORDER

PER G.D. AGRAWAL, VP :
     These appeals by the assessee are directed against the order of
learned CIT(A)-XXIII, New Delhi dated 27th October, 2010 for the AY
2007-08.


2.   ITA No.5871/Del/2010 is the appeal for AY 2007-08 against the
assessment order passed under Section 143(3).        In this appeal, the
assessee has challenged the addition of `30,29,109/- made by the
Assessing Officer as unexplained cash credit under Section 68 of the
Income-tax Act, 1961.


3.   ITA No.5872/Del/2010 is the appeal for AY 2007-08 against the
order passed under Section 271(1)(c). In this appeal, the assessee has
challenged the levy of penalty under Section 271(1)(c) at `10,19,597/-.


4.   At the time of hearing before us, it is submitted by the learned
counsel that the assessee is a partnership firm which is engaged in the
                                        2                 ITA-5871 & 5872/D/2010



business of trading of electrical goods.           For the year under
consideration, the assessee filed the return declaring total income of
`2,48,638/-.      During the course of assessment proceedings, the
Assessing Officer observed that out of the total purchases of
`5,20,69,461/-, there was cash purchases of `30,29,109/- from the two
parties, the details of which are as under:-


      (i)      M/s Aggarwal Traders         -     Rs.13,28,062/-
               460, Near Gurudwara
               Railway Road, Bazaria,
               Ghaziabad.
      (ii)     M/s Shiva Enterprises,       -     Rs.1701047/-
               Shop No.2, Kailash Mandir
               Road, Sikandrabad, Agra


5.    The Assessing Officer issued notice under Section 133(6) to both
the parties in response to which M/s Aggarwal Traders vide letter dated
6.5.2009 informed that there was no transaction of sale or purchase
between them and M/s R.S. Switchgears i.e., the assessee. No reply
was received from M/s Shiva Enterprises.        Thereafter, the Assessing
Officer also recorded the statement of Shri Davender Gupta, proprietor
of M/s Aggarwal Traders on 15.12.2009 behind the back of the
assessee in which, as mentioned in the assessment order, Shri
Davender Gupta denied for making any sales to R.S. Switchgears, i.e.,
the assessee.      He submitted that the statement of Shri Davender
Gupta was brought to the notice of the assessee on 15th December,
2009 by order sheet entry and the assessee was required to furnish
the explanation on the next date of hearing i.e. 17th December, 2009,
i.e., just two days were allowed to the assessee. That any statement
recorded behind the back of the assessee cannot be relied against the
assessee unless the assessee is allowed to cross-examine such person.
                                   3                    ITA-5871 & 5872/D/2010






That Shri Davender Gupta denied to have made sales to the assessee
because he must have not recorded the sales in his books of account
so as to avoid payment of excise duty etc.      The assessee had duly
recorded the purchases as well as sales of the goods which were
purchased from M/s Aggarwal Traders. He, therefore, submitted that
the addition of `13,28,062/- in respect of purchases from M/s Aggarwal
Traders should be either deleted or the matter may be set aside to the
file of the Assessing Officer for allowing the opportunity of cross-
examining Shri Davender Gupta. He further submitted that so far as
M/s Shiva Enterprises is concerned, merely because the party chooses
not to reply to the letter of the Assessing Officer, does not ipso-facto
lead to the conclusion that the purchases made by the assessee from
them are bogus.    The Assessing Officer has not mentioned that the
notice issued under Section 133(6) to M/s Shiva Enterprises was not
served. It means that the party is in existence. If they did not reply,
before drawing any adverse inference, the Assessing Officer should
have made further investigation.    Learned counsel further submitted
that even if whatever is mentioned is accepted as correct, then at the
most, it is a case of non-verifiability of purchase and consequence
thereof could be the rejection of books of account and application of
proper gross profit rate.     But, by no stretch of imagination, for
unexplained purchases, the addition can be made under Section 68 for
unexplained cash credit. He referred to last page of the assessment
order and pointed out that the addition has been made by the
Assessing Officer as unexplained cash credit under Section 68.           He,
therefore, submitted that either the addition may be deleted or matter
may be set aside to the file of the Assessing Officer for further enquiry
and allowing opportunity of cross-examination of concerned parties to
the assessee.
                                    4                   ITA-5871 & 5872/D/2010



6.   Learned DR, on the other hand, pointed out that as soon as the
statement of Shri Davender Gupta, proprietor of M/s Aggarwal Traders
and non-compliance on the part of M/s Shiva Enterprises was brought
to the knowledge of the assessee's counsel vide order sheet entry
dated 15.12.2009, the assessee on the next date of hearing i.e.
17.12.2009, filed a letter which is signed by Shri Ajay Aggarwal,
partner of the firm wherein the assessee surrendered purchase of
`30,29,109/- from the above two parties.      When the assessee has
already surrendered the purchases from the above two parties, now in
this appeal, the assessee has no right to dispute the addition made
there for. He, therefore, submitted that the appeal of the assessee in
respect of addition as well as penalty both should be dismissed.


7.   In the rejoinder, learned counsel for the assessee stated that the
assessee made the surrender of income with the condition not to
initiate any penalty proceedings under Section 271(1)(c) of the Act.
Since the Revenue has initiated penalty proceedings and also levied
the penalty under Section 271(1)(c), the surrender made by the
assessee cannot remain binding on the assessee because it was a
conditional surrender.    He stated that the assessee has made the
purchases from both the parties and the goods purchased from them
were duly sold by the assessee. That merely because one party from
whom the purchase was more than `17 lakhs chooses not to reply to
the letter of the Assessing Officer, that by itself cannot make the
purchase as bogus.       Moreover, if Aggarwal Traders chooses not to
disclose the sales in its books of account so as to suppress its income,
the addition should be made in their hands and not in the case of the
assessee.   That the assessee made the surrender so as to expedite
finalization of the assessment proceedings and to avoid the long drawn
litigation to gain peace of mind. By surrender, the assessee no way
has admitted any concealment. On the other hand, the surrender was
                                       5                       ITA-5871 & 5872/D/2010



a conditional surrender of income. He reiterated that the assessee still
abides by the surrender if no penalty is levied.                He, therefore,
submitted that either the entire matter i.e. the addition as well as
penalty may be set aside to the file of the Assessing Officer or if the
Department wants to rely upon the surrender of the assessee for
confirming the addition, then the penalty should be cancelled.




8.   We have carefully considered the submissions of both the sides
and perused relevant material placed before us. After considering the
facts of the case and arguments of both the sides, in our opinion, it
would meet the ends of justice if the addition of `30,29,109 is
sustained and the penalty levied under Section 271(1)(c) to be
cancelled. It is a settled law that any statement recorded behind the
back of the assessee cannot be utilized against the assessee unless he
is allowed an opportunity to cross-examine such person. Similar is the
position with regard to collection of evidence against the assessee
behind his back.      Therefore, the letter of Aggarwal Traders and
statement of the partner of Aggarwal Traders cannot be utilized
against the assessee unless the assessee is supplied the copy of the
material/statement and is given an opportunity to cross-examine such
person.    On 15th December, 2009, the Assessing Officer allowed the
opportunity to the assessee and next date of hearing was fixed on 17th
December, 2009.       Obviously, the time allowed was too short.               The
assessee chooses to surrender the purchase of `30,29,109/- from the
above     mentioned   parties   with       the   condition   that    no   penalty
proceedings under Section 271(1)(c) to be initiated.                The Revenue
wants to rely upon this surrender made by the assessee for sustaining
the addition but this surrender was a conditional surrender and if
Revenue wants to rely upon this surrender, then the full effect is to be
given to the letter. If Revenue does not want to rely upon the letter,
                                       6                      ITA-5871 & 5872/D/2010






then the rule of natural justice is to be followed and the assessee to be
given adequate opportunity of being heard.              After considering the
entire facts and circumstances and also that the matter is already
about ten years old, in our opinion, it would meet the ends of justice if
the addition is sustained and penalty is cancelled.                  We order
accordingly and the addition of `30,29,109/- made for unexplained
purchases is sustained and penalty levied under Section 271(1)(c) of
the Act for `10,19,597/- is cancelled.


9.    In    the   result,   the   appeal    of   the    assessee      vide     ITA
No.5871/Del/2010 is dismissed whereas vide ITA No.5872/Del/2010 is
allowed.
      Decision pronounced in the open Court on 12th December, 2014.


                   Sd/-                                     Sd/-
                   SIDHU)
             (H.S. SIDHU)                               AGRAWAL)
                                                  (G.D. AGRAWAL)
           JUDICIAL MEMBER                        VICE PRESIDENT

Dated : 12.12.2014
VK.

Copy forwarded to: -

1.    Appellant     : M/s R.S. Switchgears,
                      B-1/43A, Hauz Khas, New Delhi.

2.    Respondent : Income Tax Officer,
                   Ward-24(2), New Delhi ­ 110 002.
                   Ward-
3.    CIT
4.    CIT(A)
5.    DR, ITAT

                                  Assistant Registrar

 
 
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