* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA Nos. 923/2009 & 1157/2009
Reserved on: 27th August, 2013
% Date of Decision: 25th November, 2013
Commissioner of Income Tax, Delhi XVI. ....Appellant
Through Ms. Suruchi Aggarwal, Sr. Standing Counsel.
Versus
Arun Malhotra ...Respondent
Through Mr. S. Krishnan, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J.
This common order will dispose of the two appeals preferred
by the Revenue i.e. Commissioner of Income Tax, Delhi XVI, against
Arun Malhotra, respondent assessee. These appeals arise out of the
common order of the tribunal dated 5th September, 2008 relating to
block assessment period 1st April, 1989 to 14th July, 1999. Two
appeals have been preferred by the Revenue as two cross appeals
were filed against the order of the first appellate authority,
Commissioner of Income Tax (Appeals) by both Revenue and the
assessee.
ITA Nos.923 & 1157/2009 Page 1 of 27
2. By order dated 7th May, 2012 the following substantial
question of law was framed:
"Whether the Income Tax Appellate Tribunal
was right in deleting the addition of
Rs.5,23,78,058/- in the block assessment
proceedings on account of the transactions in
question?"
3. Later on during the course of hearing on 6th August, 2013, the
following order was passed:
"Keeping in view the aforesaid position and
specifically ground `j' as raised by the Revenue,
we deem it appropriate to frame an additional
substantial question of law:
"Whether the order of the Tribunal
is erroneous and contrary to law as
it has not adjudicated and decided
the grounds of appeal placed by the
Revenue and on this ground the
entire order should be set aside?"
Thus, the second question of law was framed and we are required
to answer the two question of law.
4. The respondent-assessee was subjected to search and seizure
operations on 14th July, 1999 in which his residence was also
covered. Pursuant to notice under Section 158BC dated 9th August,
2000, return for the block period was filed on 22nd September, 2000,
declaring undisclosed income of Rs.2,10,000/-. The Assessing Officer
ITA Nos.923 & 1157/2009 Page 2 of 27
made addition of Rs.5,23,78,058/- as unexplained income under
Section 69A of the Act, holding that the transactions of purchase
from M/s Sachdeva Trading Co. and M/s Rave Scans were not
genuine and the transactions relating to export of graphic art films
and brass tips for ball pens were bogus. The said transactions relate
to the assessment year 1994-95, a year for which no return of
income was filed. The assessing officer observed that the assessee
had not filed not filed the prescribed form No. 10CCAC as stipulated
under Section 80HHC(4) of the Act and, therefore, deduction under
said Section was not available. We refrain from referring to
explication on aspects and findings recorded by the Assessing Officer
at this stage to avoid prolixity.
5. In the first appeal, Commissioner of Income Tax (Appeals) in
order dated 18th January, 2002 has given somewhat confusing
findings which are self-contradictory. It was held that proceedings
under Section 158BC were validly initiated. Further, the assessee
had not been able to show and establish purchases from M/s
Sachdeva Trading Co and M/s Rave Scans as per statements made by
Chander Prakash Sachdeva, the sole proprietor that he had not made
ITA Nos.923 & 1157/2009 Page 3 of 27
any sales and that the transactions in question were bogus.
Simultaneously, Commissioner (Appeals) accepted the exports and
the export proceeds as genuine being fully vouched and supported
by shipping bills as well as payments through banking channels. It
was held that the company Iram Group International Pvt. Ltd. had
filed return for the assessment year 1995-96 along with copy of
audited report in prescribed form and it being a case of succession
benefit under section 80HHC should not be denied to the
respondent-assessee, an individual. At the same time, it was held
that expenditure incurred for purchasing the exported goods might
have exceeded Rs.10,000/20,000/- and therefore Section 40A(3)
might be attracted. The Assessing Officer was directed to
recompute the deduction under Section 80HHC and determine if any
disallowance under Section 40A(3) was required to be made. Thus,
holding that purchases were from unknown parties.
6. It appears that thereafter the Assessing Officer made
disallowance of Rs.1,19,881/- under Section 80HHC and this order
was made subject matter of challenge before Commissioner of
Income Tax (Appeals), where the said addition was deleted by order
ITA Nos.923 & 1157/2009 Page 4 of 27
dated 20th March, 2003. Revenue preferred appeal No.
IT(SS)294(Del)2003, which was dismissed vide order dated 14th
September, 2007. Subsequently, the Revenue preferred a misc.
application under Section 254(2) on the ground that appeal against
the original order of Commissioner (Appeals), ITA(SS) No. 85/D/02
was still pending but the said application was dismissed on 9th May,
2008.
7. We have referred to these facts in view of the contention
raised by the counsel for the respondent-assessee which was
discerned by us in our order dated 6th August, 2013. Counsel for the
respondent-assessee had raised an erroneous plea and had
incorrectly relied upon grounds of appeal subject matter of IT(SS)A
294(Del.)2003. A very limited and narrow issue on the question of
computation of disallowance under Section 80HHC was raised. The
main appeal by the Revenue was against the deletion of the
additions and the finding recorded by the Commissioner (Appeal) in
the order dated 18th March, 2002 which was made subject matter of
cross-appeals IT(SS)A 77/Del/2002 filed by the respondent-assessee
and IT(SS)A 85/Del/2002 filed by the Revenue.
ITA Nos.923 & 1157/2009 Page 5 of 27
8. For the sake of completeness and to avoid any confusion as to
what was held by the tribunal while deciding appeals IT(SS)
A77/Del/2002 and IT(SS) A85/Del/2002, we intend to reproduce the
findings recorded by the tribunal in paragraph 5 and 6 of the
impugned order dated 5th September, 2008, which read as under:-
"5. We have considered the rival submissions. It is an
admitted fact that the sole basis of addition by the
Assessing Officer was on the basis of statement of Shri
Sachdeva. It is also admitted fact that no evidence was
found as a result of search which suggest that the
transaction entered into by the assessee are bogus or
such material reveal any undisclosed income. It is
settled law that when income is computed under
section 158BB, the same can be only on the basis of
evidence found as a result of search or other
documents and such other material or information as
are available with the Assessing Officer and relatable to
such evidence. Since admittedly no evidence was
found as a result of search to suggest that the
transaction of purchase and sale were bogus, no
addition could be made by way of undisclosed income
in respect of such transaction. Hon'ble Delhi High
Court in the case of Ravi Kant Jain (supra) held as
under:-
"Block assessment under Chapter XIV-B of the
Income tax Act, 1961, is not intended to be a
substitute for regular assessment. Its scope and
ambit is limited in that sense to materials
unearthed during search. It is in addition to the
regular assessment already done or to be done.
The assessment for the block period can only be
done on the basis of evidence found as a result
of search or requisition of books of accounts or
documents and such other materials or
information as are available with the Assessing
Officer. Evidence found as a result of search is
clearly relatable to section 132 and 132A."
ITA Nos.923 & 1157/2009 Page 6 of 27
We, therefore, delete the addition made solely on the
basis of statement of Shri Sachdeva. Accordingly, the
addition of Rs.5,23,78,058/- is required to be deleted.
6. It is also admitted fact that the basis of addition
is the statement of Shri Sachdeva. Accordingly Shri
Sachdeva is the witness of the Assessing Officer. It is
settled law that when an adverse view is to be taken on
the basis of statement of third party, the person
affected should be afforded a reasonable opportunity
of cross-examination, if requested for. In the present
case the assessee emphatically asked for opportunity
of cross-examination of Shri Sachdeva. For reasons
best known to Shri Sachdeva, he refused to appear.
We therefore, on the principles laid down by the
Hon'ble Supreme Court in the case of Kishinchand
Chellaram vs. CIT (125 ITR 713) and that by the Delhi
High Court in the case of CIT vs. SMC Share Brokers Ltd.
(288 ITR 345), hold that the Assessing Officer cannot
take adverse view on the basis of statement of Shri
Sachdeva. If the statement of Shri Sachdeva is
discarded or is ignored while considering the evidence
on record, there is no other material before the
Assessing Officer to take an adverse view. We,
therefore, deleted the addition as made by the
Assessing Officer on the basis of the statement of Shri
Sachdeva. Since, we have deleted the entire addition,
the finding of the learned CIT(A) and addition is to be
made as per section 40A(3) of the Act, no longer
survives."
9. At this stage, we note and record that these are the only
findings and reasoning recorded by the tribunal. The first finding
relies upon the judgment of Delhi High court in CIT vs. Ravi Kant Jain
(2001) 250 ITR 141 (Del.). In the said case, it was held that the block
assessment proceedings were not a substitute for regular
ITA Nos.923 & 1157/2009 Page 7 of 27
assessment proceedings and their scope and ambit was limited in
that sense to the material unearthed during the search. The block
assessment proceedings were in addition to regular proceedings
done or to be done. In the block assessment proceedings evidence
found as a result of search, on requisition of books of accounts or
documents, could be relied upon but the said evidence should be
found as a result of search under Section 132/132A of the Act.
10. There is clearly a failure on the part of the tribunal to notice
the facts found and recorded by the Assessing Officer and the finding
of the Commissioner (Appeals) in this regard. The Assessing Officer
in the assessment order has recorded that the assessee had not filed
return for the assessment year 1994-95. Further finding is that the
respondent assessee was the sole proprietor of Iram Group
International, which subsequently in the next assessment year was
converted into a company M/s Iram Group International (P) Ltd.
(IGI(P) Ltd for short). Assessment order mentions that during the
course of search, purchase bills of Iram Group International were
seized. As per the said purchase bills, the respondent had procured
and purchased graphic art films and brass tips for ball pens from M/s
ITA Nos.923 & 1157/2009 Page 8 of 27
Sachdeva Trading Co. and M/s Rave Scans, operating from 3/67
Subhash Nagar, New Delhi and C B-8, Ring Road, Naraina, New Delhi,
respectively. One Chander Prakash Sachdeva was stated to be sole
proprietor of the said concerns. During pre-search enquiries, visits
were made to the addresses mentioned but it was found that no
such concerns were operating. 3/67 Subhash Nagar was residence
of Chander Prakash Sachdeva and at the other address no concern in
the name of M/s Rave Scans was operating for the last 10 years.
Chander Prakash Sachdeva was summoned and his statements were
recorded during the post search enquiries. He deposed not having
sold the said goods to the respondent assessee, the transactions
being bogus, he was made to sign blank papers including blank
cheque books etc. He was working as a part time photographer,
accountant and gave tuitions for livelihood. His monthly income was
Rs.3000/- to Rs.4000/-. He had worked with New Light Plastic from
1985-86 to 1993-94 and Vinit Garg and Co. from 1994-95 to 1996-97
as an accountant. During his stint with Vinit Grag and Co, Vinit
Aggarwal introduced him to the respondent Arun Malhotra. The said
Arun Malhotra had expressed interest in doing export business with
ITA Nos.923 & 1157/2009 Page 9 of 27
him and thereafter M/s Sachdeva Trading Co. was setup, where he
was shown as a sole proprietor. Bank Account was opened in the
name of the said concern at Bank of India, Connaught Place branch.
He was made to sign documents including partnership deed. He had
signed blank cheque books, bank opening forms, bond papers and
some affidavits. But, he did not do business in the name of Sachdeva
Trading Co. and the deposits in the bank account were made by Arun
Malhotra. Similarly, he had opened bank account in Dena Bank in
the name of M/s Rave Scans, in which he was again shown as a sole
proprietor. He had signed documents including blank papers,
cheques etc and had given them to Arun Malhotra. He was not in a
position to supply goods of the value and all bills and invoices of
Sachdeva Trading Co. and Rave Scans were bogus. The telephone
number and sales tax number on the bills of Sachdeva Trading Co.
were not genuine though his residential address was mentioned. He
did not know the address C B-8, Ring Road, Naraina, printed on the
bills of Rave Scans. He was unaware of brass tips for ball pens and
did not know any person by the name of S.P. Batra.
ITA Nos.923 & 1157/2009 Page 10 of 27
11. We have referred to the aforesaid facts in detail to highlight
that the legal finding on the first aspect recorded by the tribunal in
the impugned order, are wrong and factually incorrect. The block
assessment order was based on the search and post search material.
It is a case in which no return of income was filed by the respondent-
assessee for the relevant assessment year, i.e. 1994-95. These
aspects have been ignored and went unnoticed. We would like to
reproduce findings recorded by the Assessing Officer with regard to
purchase bills of Sachdeva Trading Co. and Rave Scans found in the
search. The said findings read as under:-
"During the search at the residence of Shri Arun Malhotra,
following purchase bills of Sachdeva Trading Co. & Rave Scans
were found and seized. During the post search enquiry Shri
Arun Malhotra has also furnished the certified copies of the
remaining purchase bills of Rave Scans and Sachdeva Trading
Co. The details of the bills found and seized during the search
as per annexure A-2 and certified bills furnished by Shri Arun
Malhotra are as under:-
S. Name of Bill No. Date Amount Page No./
No. the party Remarks
1. M/s 165 25.7.94 39,42,400/- 37 as per
Sachdeva annexure A-
Trading Co. 2
2. -Do- 164 27.7.94 39,42,400/- 38 as per
annexure A-
2
3. -Do- 163 20.7.94 32,25,600/- 39 as per
annexure A-
2
4. -Do- 162 19.7.94 32,25,600/- 40 as per
annexure A-
2
ITA Nos.923 & 1157/2009 Page 11 of 27
5. -Do- 160 18.7.94 16,53,120/- 41 as per
annexure A-
2
6. -Do- 159 15.7.94 16,53,120 42 as per
annexure A-
2
7. -Do- 158 11.7.94 14,58,240/- 43 as per
annexure A-
2
8. -Do- 157 10.7.94 16,53,120/- 44 as per
annexure A-
2
9. -Do- 156 9.7.94 14,58,240/- 45 as per
annexure A-
2
10. -Do- 155 8.7.94 13,91,040/- 46 as per
annexure A-
2
11 -Do- 154 7.7.94 13,91,040/- 47 as per
annexure A-
2
12. -Do- 153 6.7.94 14,51,520/- 48 as per
annexure A-
2
13. -Do- 152 5.7.94 14,51,520/- 49 as per
annexure A-
2
14. -Do- 151 1.7.94 8,06,400/- 50 as per
annexure A-
2
1. M/s Rave 026 25.8.94 15,00,000/- 56 as per
Scans annexure A-
2
2. -Do- 030 27.8.94 18,00,000/- Certified
copy of this
bill
furnished by
Sh. Arun
Malhotra
3. -Do- 035 30.8.94 21,00,000/- -Do-
4. -Do- 040 2.9.94 21,00,000/- -Do-
5. -Do- 018 22.8.94 15,00,000/- -Do-
6. -Do- 017 20.8.94 12,00,000/- -Do-
7. -Do- 015 18.8.94 15,00,000/- -Do-
8. -Do- 008 13.8.94 15,00,000/- -Do-
''
12. During post search enquiries Bank accounts of Iram Group
International in the Central Bank of India, Barakhamba Road, New
ITA Nos.923 & 1157/2009 Page 12 of 27
Delhi were requisitioned and produced. Similarly bank accounts in
Dena Bank relating to Rave Scans and Bank of India relating to
Sachdeva Trading Co. were called for and placed on record. As per
the bills seized during the course of search, respondent had shown
purchases of Rs.1,91,65,440/- from Sachdeva Trading Co. and
Rs.1,47,00,000/- from Rave Scans, totaling Rs.3,38,65,440/-. The
respondent had received export proceeds of Rs.5,21,72,843/- from
M/s Triwood Ltd., Hong Kong between 17th October, 1994 to 1st
March, 1995. After the proceeds were received, the same were
transferred to the bank account of Sachdeva Trading Co. and Rave
Scans from where they were withdrawn by way of cash withdrawals.
The respondent assessee has accepted and admitted that Iram
Group International nor he had not filed any return for the
assessment year 1994-95.
13. On the said aspect, the Commissioner (Appeals) had recorded
that the respondent had not filed any return and, therefore, books
of accounts and documents cannot be treated as part of any return
filed, besides several purchase invoices were seized in order to
establish that the purchases were not genuine. Commissioner
ITA Nos.923 & 1157/2009 Page 13 of 27
(Appeals) thus upheld initiation of the block assessment
proceedings.
14. Initiation of block assessment proceedings under Section
158BC depends upon the facts at the initial stage and not upon the
final outcome pursuant to appellate order or even the assessment
order. At the beginning or initiation stage, the final outcome was
not known and not relevant. In view of what has been stated above,
we have to hold that the findings recorded by the tribunal on the
first aspect is entirely unjustified, devoid of merits besides being
cryptic as it does not refer to the findings and facts found and held
by the Assessing Officer and Commissioner (Appeals). The findings
recorded by the tribunal are incorrect and legally unacceptable as
the tribunal has not disturbed the clear factual matrix/position
recorded by the Assessing Officer and Commissioner (Appeals).
Incorrect assertion, without material/basis has been made in
paragraph 5 to the effect that it was an admitted fact that no
evidence was found as a result of search to find that the transactions
by the respondent assessee were bogus and no such material
revealed any undisclosed income. In view of the aforesaid position,
ITA Nos.923 & 1157/2009 Page 14 of 27
the tribunal has erred in holding that proceedings under Section
158BC were invalid.
15. The said finding of the tribunal is contrary to the findings
recorded in paragraph 6, with reference to the statement made by
Chander Prakash Sachdeva and the observation that respondent-
assessee was not granted opportunity to cross examine the said
person. Cross examination was matter relating to block assessment
proceedings and not initiation or issue of notice under Section 158
BC of the Act. Tribunal has observed that statement of Chander
Prakash Sachdeva has to be ignored and cannot be relied upon for
adverse findings. Reference was made to the decision of Supreme
Court in Kishinchand Chellarama vs. CIT, (1980) 125 ITR 713 (SC) and
decision of Delhi High Court in CIT vs. SMC Share Brokers Ltd. (2007)
288 ITR 345 (Del). It has been observed that as the entire addition
had been deleted, findings of the Commissioner (Appeals) regarding
Section 40A(3) no longer survived.
16. It is a fact that Chander Prakash Sachdeva refused cross-
examination by the respondent-assessee. The Tribunal was required
to examine the reason and effect thereof. Factual matrix of each
ITA Nos.923 & 1157/2009 Page 15 of 27
case has to be examined to ascertain the cause/reason and decide
why the witness did not appear or refused and did not agree be
subjected to cross-examination. Evidence Act is not directly and
specifically made applicable to income tax assessment proceedings.
However, principles of natural justice and fair play apply. Principles
of natural justice require and mandate, a fair, equitable and just
procedure and what could be fair and just in a given case is premised
on the factual matrix and cannot be put in a strait jacket formula.
The Delhi High Court in J & K Cigarettes Ltd. vs. Collector of Central
Excise, 2009 (242) ELT 189 (Del.) examined the constitutional validity
of Section 9D of the Central Excise Act, 1944 which confers power or
discretion upon the Central Excise Officer to rely upon statement of
witnesses who have not been subjected to cross-examination, if any
of the following conditions are satisfied:
"(a) when the person who had given the statement is
dead;
(b) when he cannot be found;
(c) when he is incapable of giving evidence;
(d) when he is kept out of the way by the adverse
party; and
(e) when his presence cannot be obtained without an
amount of delay or expense, which the Officer
considers unreasonable."
17. It was accordingly held as under:-
ITA Nos.923 & 1157/2009 Page 16 of 27
"25. Section 9-D of the Act stipulates following five
circumstances, already taken note of, under which
statements previously recorded can be made relevant.
These are :-
(a) when the person who had given the statement is
dead;
(b) when he cannot be found; (c) when he is incapable
of giving evidence;
(d) when he is kept out of the way by the adverse
party; and
(e) when his presence cannot be obtained without an
amount of
delay or expense, which the Officer considers
unreasonable.
26. Interestingly, the learned senior counsel for the
petitioners did not join the issue that the aforesaid
circumstances are not exceptional circumstances. They
are the circumstances which naturally would be
beyond the control of the parties and it would not be
possible to produce such a person for cross-
examination who had made a statement on earlier
occasion. The provisions under Section 9-D of the Act
are necessary to ensure that under certain
circumstances, as enumerated therein, viz. if the
witness has been won over by the adverse party or is
avoiding appearance despite several opportunities
being given. The rationale is that decision making in a
case cannot be allowed to continue in perpetuity.
These provisions are based on the Doctrine of
Necessity. It provides for relevancy of statements
recorded under Section 14 of the Act dispensing with
or without the opportunity for testing the truth of such
evidence by crossexamination. For, when a person is
dead or incapable of giving evidence or cannot be
found, no better evidence can be had in the
circumstances than the statement tendered by
witnesses before a quasi-judicial authority.
The safeguards which are enumerated in the
provision under Section 32 of the Evidence Act are
essential as the provision provides for an exception to
the rule of exclusion of hearsay evidence, while proving
for relevancy of even direct oral evidence of the fact
under enquiry, which otherwise is not admissible, to
ITA Nos.923 & 1157/2009 Page 17 of 27
ensure that there is no miscarriage of justice. Similarly,
provisions under Section 9-D provide for relevancy of
statements recorded under Section 14 of the Act,
under certain circumstances, in criminal as well as
quasi judicial proceedings, to meet the ends of justice.
27. We, thus, are intent to agree with the submission
of the learned Addl. Solicitor General that if an Act of
Parliament uses the same language which was used in
a former Act of Parliament referring to the same
subject, viz. relevancy of statement of fact by person
who is dead or cannot be found under certain
circumstances, passed with the same purpose and for
the same object, the safe and well known rule of
construction is to assume that the legislature, when
using well known words upon which there have been
well known decisions, use those words in the sense
which the decisions have attached to them. The
provisions under Section 32 of the Evidence Act have
not been found to be ultra vires of the Constitution.
Therefore, the provisions under Section 9-D of the Act,
which are pari materia with the provisions under
Section 32 of the Evidence Act, cannot be held as ultra
vires of the Constitution."
18. The Division Bench, thereafter, referred to the provisions and
position of law de hors Section 9D and it was observed that
whenever power was given to an adjudicating authority to pass
quasi judicial order which might have adverse civil consequences, it
must be exercised in just, fair and bonafide manner and in good
faith. It should not be arbitrary. The said conditions were sine qua
non to the pillars of democratic set up but they cannot and should
not be extended beyond limits. Decision by one of us (Sanjiv
Khanna, J.) in Central Excise Act Case No. 15/2010 decided on 8th
ITA Nos.923 & 1157/2009 Page 18 of 27
November, 2011 titled Slotco Steel Porducts Pvt. Ltd. vs.
Commissioner of Central Excise, Delhi-I, is not different and
proceeded on the same line and ratio. In view of the facts of the
said case, an order of remand was passed.
19. Here, we would like to reproduce certain other facts which
have been categorically recorded by the Assessing Officer:-
(i) Chander Prakash Sachdeva was not a man of means. He had
no business and was never engaged in any business activities, except
alleged transactions in the present case. He had claimed that he did
not even own a cycle.
(ii) Vinit Aggarwal, Chartered Accountant was known to Arun
Malhotra and had audited accounts of IGI (P) Ltd. Vinit Aggarwal was
known to Chander Prakash Sachdeva.
(iii) The respondent had purportedly received export proceeds of
Rs.5,21,72,843/- on sale of graphic films and brass tips of ball pen to
M/s Triwood Ltd., Hong Kong.
(iv) Respondent had claimed that he had made purchases of
Rs.2,87,03,360/- from Sachdeva Trading Co. and Rave Scans and
three bills dated 25.7.1994, 27.7.1994 and 10.7.1994 of
ITA Nos.923 & 1157/2009 Page 19 of 27
Rs.39,42,400/-, Rs.39,42,400/- and Rs.16,53,120/- were not paid as
goods supplied were defective.
(v) The respondent had earned substantial profit of
Rs.2,34,69,483/-(Rs.5,21,72,843/- less Rs. 2,87,03,360/-).
(vi) Aforesaid foreign exchange proceeds on receipt of
Rs.5,21,72,843/- was deposited in the bank account of Iram Group
International between 17th October, 1994 and 1st March, 1995.
Payments were not made to Sachdeva Trading co. and Rave Scans at
the time of alleged purchase. These receipts were subsequently
transferred to the bank accounts of Sachdeva Trading Co. and Rave
Scans and the amounts deposited were withdrawn in cash.
(vii) The respondent assessee Arun Malhotra had not filed his
return for the assessment year 1994-95 and income was not
disclosed in his return.
(vii) Iram Group International was established on 1st July, 1992 as a
proprietorship concern of Arun Malhotra. Import Export Code was
applied for in the name of Iram Group International on 27th August,
1992 and was issued. Iram Group International was registered with
Apparel Export Promotion Council. RBI Code was also issued for the
ITA Nos.923 & 1157/2009 Page 20 of 27
said proprietorship concern. Invoice in question were issued by Iram
Group International. Sales bills were also raised by them. Papers
were signed by Arun Malhotra as sole proprietor. Certificate of
Export and Realization was issued in the name of Iram Group
International with Arun Malhotra as the proprietor. Proceeds were
deposited in the Central Bank of India account of Iram Group
International.
20. The Assessing Officer has referred to several statements of
Chander Prakash Sachdeva recorded on different dates. Copies of
these statements were made available to the respondent for his
comments. Chander Prakash Sachdeva was also summoned for
cross-examination by the respondent-assessee. However, Chander
Prakash Sachdeva refused cross-examination on the ground that he
feared for his life. The said fact is specifically mentioned in the
assessment order, though at another place it is also mentioned that
for reasons best known to him, Chander Prakash Sachdeva refused
cross-examination. The fact that Chander Prakash Sachdeva had
feared for his life, stands recorded in the order passed by the
Commissioner (Appeals). It is recorded that during the course of
ITA Nos.923 & 1157/2009 Page 21 of 27
statement on 9th November, 1998, Chander Prakash Sachdeva had
asserted that he had been threatened and warned that he would be
killed. The Commissioner (Appeal), however, disbelieved him as
Chander Prakash Sachdeva had made complaint to Custom
authorities etc. but had claimed that he did not file a police
complaint for fear to his life. The said fact and the assertion that
Chander Prakash Sachdeva feared for his life has not been adverted
to and mentioned in the order passed by the tribunal. Witness
protection to those threatened and terrorized has engaged attention
of the courts. Right to cross-examine though an important and
valuable right, is not absolute and inalienable. It should not become
a cause or a ground to intimidate witnesses and non-appearance or
reluctance to stand for cross-examination, an alibi or excuse to
escape legal liability. The perpetrator or the culprit, should not be
permitted and allowed to take advantage or benefit of execrable
situation which is his own creation. Of course, the authorities and
tribunal should be satisfied that the witness was being prevented,
intimidated or threatened and the said finding must have some basis
or foundation. Failure to answer questions or appear as witness is
ITA Nos.923 & 1157/2009 Page 22 of 27
violation of law and an offence. Considered answer after
examination of all facts is required and should form basis of an
opinion, whether the statement should be relied on. Further
surrounding and corroborated evidence and material is required to
be examined, for deciding whether there is truth in the statement.
Even if the statement is not relied upon, there should be reference
and examination of corroborative and surrounding facts and
material. This aspect and examination is clearly absent in the order
of the tribunal.
21. The factual decision and adjudication must take into account
the facts relevant and material and no undue importance to
irrelevant or neutral facts should be given. The question in the
present case is genuineness of the transactions for purchase and the
exports. The Revenue does not doubt or dispute receipt of payment
through banking channels. This is not the issue and indeed in most
money laundering cases this would not be in issue as receipt through
banking channels becomes the starting point of investigation. A
holistic and pragmatic view, taking into consideration relevant facts,
has to be taken and should form the basis of any factual adjudication
ITA Nos.923 & 1157/2009 Page 23 of 27
applying the principle of preponderance of probabilities.
Adjudicating authorities and courts while deciding disputes of such
nature, cannot take a myopic view but a holistic approach is
required. The surrounding circumstances and milieu have to be
gone into and examined and indeed would reflect and help in
ascertainment of truth. In the present case, the order of the tribunal
is lacking on the said aspects. Even if there may be justification and
reason to ignore or not entirely base the case on statements of
Chander Prakash Sachdeva, several facts required explanation and
elucidation from the respondent. Absence or failure to explain may
in fact be reflective and help in adjudicating the contention whether
any threats were extended to Chander Prakash Sachdeva or whether
the facts corroborate the statement and together establish the stand
of the Revenue.
22. We would now like to refer to the written submissions field by
the respondent and notice the contentions. The respondent-
assessee has incorrectly submitted that the Commissioner (Appeals)
had held that the purchases from Sachdeva Trading Co. and Rave
Scans were genuine. There is no such finding by the Commissioner
ITA Nos.923 & 1157/2009 Page 24 of 27
(Appeals). Findings of Commissioner (Appeals) as noticed above is
vague, contradictory and not coherent. Commissioner (Appeals) had
not agreed that the purchases of the exported goods were made
from Sachdeva Trading Co. or Rave Scans and has observed that
purchases were made in cash from third parties and, therefore, the
Assessing Officer should examine the applicability of Section 40A of
the Act. Our attention was also drawn to the fact that the goods
were rejected and returned by the Hong Kong party and this had
made Chander Prakash Sachdeva unhappy and he backed out. The
said finding has been recorded by the Commissioner (Appeals) but
without recording on what basis. Tribunal has not given any finding
on the said aspect and their order is silent. Submission by the
respondent before the Assessing Officer was that three bills totaling
to Rs.95,37,920/- were returned and not paid as the material
supplied was rejected and returned. The assessment order does not
refer to re-import and rejection of material by the Hong Kong party
after export. At this stage, we may notice that the decision of the
Delhi High Court in the case of CIT vs. SMC Share Brokers Ltd. (2007)
288 ITR 345 was overruled by the Supreme Court with an order of
ITA Nos.923 & 1157/2009 Page 25 of 27
remand in the decision reported as Income Tax Officer vs. M. Pirari
Chrodi (2011) 334 ITR 262 (SC) with a direction that the High court
was not correct in taking the view and an order of remand was
passed for cross examination. Even if we ignore the statement of
Chander Prakash Sachdeva, the appellant's contention is that there
was sufficient evidence or material to show that transactions were
not genuine. Further in case statements of Chander Prakash
Sachdeva were debatable, it has to be analyzed as to what weight
was to be given to the said statements and whether the
corroborative/surrounding circumstances, justify clean purgation of
the respondent assessee.
23. We have also noticed and record that tribunal has not decided
the ground of appeal that the respondent had not filed certificate as
postulated under Section 80HHC(4) and, therefore, was not eligible
for deduction in the said Section. The contention of the Revenue is
that there is contradiction in the order of the Commissioner
(Appeals) because on one hand he has recorded that material was
not purchased from Sachdeva Trading Co./Rave Scans but at the
ITA Nos.923 & 1157/2009 Page 26 of 27
same time she had directed benefit of Section 80HHC. The said
aspect has not been looked into and examined by the tribunal.
24. In view of the aforesaid, we answer the questions of law in
favour of the Revenue and against the respondent but with an order
of remand to the tribunal to discuss the entire evidence in detail on
all aspects. The issues and contentions will be examined afresh.
Factual findings in this order and the impugned order will not be
treated as conclusive and final. To cut short delay, we direct that
the parties shall appear before the tribunal on 16th December, 2013,
when a date of hearing shall be fixed.
25. The appeals are accordingly disposed of with no orders as to
costs.
(SANJIV KHANNA)
JUDGE
(SANJEEV SACHDEVA)
JUDGE
November 25th, 2013
kkb
ITA Nos.923 & 1157/2009 Page 27 of 27
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