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January, 08th 2014

+                     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.


Arun Malhotra                                      ...Respondent
                     Through Mr. S. Krishnan, Advocate.



       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


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

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,


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

                     "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

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-
          3.    -Do-          163    20.7.94    32,25,600/-   39 as per
                                                              annexure A-
          4.    -Do-          162    19.7.94    32,25,600/-   40 as per
                                                              annexure A-

ITA Nos.923 & 1157/2009                                       Page 11 of 27
          5.    -Do-       160   18.7.94   16,53,120/-   41 as per
                                                         annexure A-
          6.    -Do-       159   15.7.94   16,53,120     42 as per
                                                         annexure A-
          7.    -Do-       158   11.7.94   14,58,240/-   43 as per
                                                         annexure A-
          8.    -Do-       157   10.7.94   16,53,120/-   44 as per
                                                         annexure A-
          9.    -Do-       156   9.7.94    14,58,240/-   45 as per
                                                         annexure A-
          10.   -Do-       155   8.7.94    13,91,040/-   46 as per
                                                         annexure A-
          11    -Do-       154   7.7.94    13,91,040/-   47 as per
                                                         annexure A-
          12.   -Do-       153   6.7.94    14,51,520/-   48 as per
                                                         annexure A-
          13.   -Do-       152   5.7.94    14,51,520/-   49 as per
                                                         annexure A-
          14.   -Do-       151   1.7.94    8,06,400/-    50 as per
                                                         annexure A-

          1.    M/s Rave   026   25.8.94   15,00,000/-   56 as per
                Scans                                    annexure A-
          2.    -Do-       030   27.8.94   18,00,000/-   Certified
                                                         copy of this
                                                         furnished by
                                                         Sh.     Arun
          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


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
              (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
              (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

              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


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


                                                   (SANJIV KHANNA)

                                               (SANJEEV SACHDEVA)
November 25th, 2013

ITA Nos.923 & 1157/2009                               Page 27 of 27
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