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Roger Enterprises P. Ltd. Vs. Commissioner Of Income Tax Delhi
February, 08th 2016
$~
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                              ITA 439/2003

                                                 Reserved on: January 12, 2016
                                              Date of decision: February 4, 2016

       ROGER ENTERPRISES P. LTD.                  ..... Appellant
                   Through: Mr. Ajay Vohra, Senior Advocate with
                   Ms. Kavita Jha and Mr. Vaibhav Kulkarni,
                   Advocates.

                               versus

       COMMISSIONER OF INCOME TAX DELHI         ..... Respondent
                   Through: Ms. Lakshmi Gurung along with Mr. P.
                   Roy Choudhary, Standing counsels and Mr. Ishant
                   Goswami and Mr. Rajesh Kumar, Advocates.

                               And

+                              ITA 156/2014

       COMMISSIONER OF INCOME TAX DELHI         ..... Appellant
                   Through: Ms. Lakshmi Gurung along with Mr. P.
                   Roy Choudhary, Standing counsels and Mr. Ishant
                   Goswami and Mr. Rajesh Kumar, Advocates.

                               versus

       ROGER ENTERPRISES P. LTD.                   ..... Respondent
                    Through: Mr. Ajay Vohra, Senior Advocate with
                    Ms. Kavita Jha and Mr. Vaibhav Kulkarni,
                    Advocates.
       CORAM:
       JUSTICE S.MURALIDHAR
       JUSTICE VIBHU BAKHRU




ITA Nos. 439/2003 & 156/2004                                              Page 1 of 20
                               JUDGMENT
%                               04.02.2016

Dr. S. Muralidhar, J.:
1. ITA No. 439 of 2003 filed by the Assessee, Roger Enterprises Private
Limited, under Section 260A of the Income Tax Act, 1961 (`Act') is
directed against the common impugned order dated 8 th May 2003 passed by
the Income Tax Appellate Tribunal (`ITAT') in ITA No. 1515 to 1517/D/97
for the Assessment Years (`AYs') 1981-82, 1982-83 and 1983-84.

2. By the said impugned order, the ITAT upheld the common order dated
23rd December 1996 passed by the Commissioner of Income Tax (Appeals)
[`CIT (A)'] which in turn affirmed the separate reassessment orders dated
25th March 1996 passed by the Assessing Officer (`AO') under Section 148
of the Act for the said AYs.

3. The background to the appeal is that the Assessee company claimed to
represent customers for supply of equipments required by various
governments and semi-government departments/undertakings. According to
the Assessee, it engages sub-agents to render the services of bringing
proposals for prospective tenders/contracts; ensuring follow up with the
customers and concerned departments; forwarding necessary marketing and
business information; procuring necessary business information in
connection with the items supplied; assisting the principals with the
submission of competitive offers; assisting the principals and guiding the
Assessee on necessary infrastructure transportation, clearing and handling of
goods whenever required depending on the nature of the contract. According



ITA Nos. 439/2003 & 156/2004                                           Page 2 of 20
to the Assessee, if the business materialised, the sub-agents received the
agreed commission out of the commission received by the Assessee.

4. While completing the assessments for AYs 1981-82, 1982-83 and 1983-
84 by the orders dated 29th October 1982, 28th September 1983 and 24th May
1983 respectively under Section 143 (3) of the Act, the AO allowed the
deductions as claimed by the Assessee towards payment of commission as
under:
Asstt. Year Amount     of Parties to whom paid         Name of contract
            commission
81-82       21,86,042     Excavators India (P)         Telecom Equipment
                          Ltd. (`EIP')                 from 1975 to 1980
82-83       33,30,162     Triveni International        Bulb Type Generator
                          Production (P) Ltd.          from 1978 to 1982
                          (`TIP')

                10,47,810      Bahri & C. (P) Ltd.     Casing Pipe contract
                               (`BCP')                 for 1980 & 81
83-84           11,45,983      Triveni International   Bulb Type Generator
                               Production (P) Ltd.     from 1978 to 1982
                               (`TIP')

5. According to the Assessee, the contracts in respect of which the
commission was paid continued for two to five years. It was stated that there
was voluminous correspondence in respect of each of the contracts. Further,
documents including bank statements of the Assessee for all the three years,
receipts issued by the parties, confirming the receipt of commission, which
contained their permanent account numbers (`PAN'), bank statement of TIP,
one of the recipient company, and day-to-day correspondence were filed
with the AO.




ITA Nos. 439/2003 & 156/2004                                           Page 3 of 20
6. In May 1987, a search was conducted on the entities to whom commission
was purportedly paid by the Assessee. According to the Revenue, during the
course of search, Mr. M.K. Meattle, Managing Director (MD) of the
aforementioned three payee companies admitted in a statement given on 15th
September 1987 that the transactions with the Assessee were hawala entries.
This information was then passed on to the AO of the Assessee who on 18th
March 1988 issued notice under Section 148 of the Act for reopening the
assessments for the AYs in question. The reason for issuance of notice was
that there was tangible material to show that commission paid by the
Assessee was not genuine.




7. Mr. Meattle gave another statement before the AO on 8 th March 1990
inter alia stating that he was contacted by Mr. A.K. Jhunjhunwala,
Chartered Accountant (`CA') who claimed to be a relative of Mr. Jajodia,
the then MD of the Assessee. Mr. Meattle stated that money would be
withdrawn from the bank accounts immediately after the commission
cheques were deposited. Mr. Meattle stated that he did not receive any
commission at the time of such withdrawal of cash because the deal was that
1% of commission would be paid after completion of transactions of Rs. 1
crore. According to Mr. Meattle, the receipt of commission was neither
accounted for in the books of account of the companies nor declared to
income tax authorities.

8. On 8th March 1990 the AO forwarded to the Assessee a copy of Mr.
Meattle's statement. The Assessee was offered an opportunity to cross-
examine Mr. Meattle on 13th March 1990. By letter dated 13th March 1990




ITA Nos. 439/2003 & 156/2004                                         Page 4 of 20
addressed to the AO, the Assessee expressed its inability to cross-examine
Mr. Meattle at a short notice of two working days since the records
pertaining to the previous eight years required to be examined.

9. Since the time period for completing the reassessments was about to
expire, by three separate orders dated 29 th March 1990, the AO completed
the reassessment for the three AYs in question and added back the amounts
representing the commission purportedly paid by the Assessee.

10. Meanwhile, subsequent to the reassessment proceedings and during the
pendency of the penalty and appellate proceedings, on 13th November 1990
the statement of Mr. Jhunjhunwala was recorded under Section 132 (4) of
the Act by the Assistant Director of Income Tax (Investigation) [`ADIT
(Investigation)'], Bombay wherein Mr. Jhunjhunwala admitted that Mr.
Jajodia, MD of the Assessee was related to him and that on the instructions
of Mr. Jajodia, he used to deposit cheques and withdraw cash from the
accounts of the companies of Mr. Meattle, whom he knew. Another
statement of Mr. Jhunjhunwala was recorded on 15th March 1991 in which
he admitted to filling in the pay-in-slips and the signed blank cheques. The
cheques were drawn on the companies of which Mr. Meattle was the MD.
As per the instructions of Mr. Jajodia, Mr. Jhunjhunwala handed over the
cash immediately either to Mr. Jajodia or Mr. Lok Nath Saraf.

11. Aggrieved by the reassessment orders dated 29th March 1990, the
Assessee filed appeals before the CIT (A). The appeals for AYs 1981-82,
1982-83 and 1983-84 were dismissed by the CIT (A) by orders dated 16th
May 1991, 15th April 1991 and 27th May 1991 respectively. The CIT (A)



ITA Nos. 439/2003 & 156/2004                                          Page 5 of 20
held that adequate opportunity to cross-examine the witnesses had been
provided to the Assessee.

12. Against the orders of the CIT (A), appeals were filed by the Assessee
before the ITAT. These appeals were disposed of by a common order dated
24th December 1993 by the ITAT holding that the AO should have granted
some more time to the Assessee to gather the materials needed for a proper
cross-examination of Mr. Meattle and Mr. Jhunjhunwala and that the request
made in that behalf by the Assessee was bonafide and should have been
accepted. The matter was therefore, restored to the file of the AO.

13. On remand, the AO asked the Assessee to be ready for cross-
examination of Mr. Meattle and Mr. Jhunjhunwala on 27th February 1996.
One day prior thereto, i.e., on 26th February 1996 the Assessee filed a letter
with the AO requesting for supply of certain documents of the three payee
companies (i.e EIP, TIP and BCP). On the day fixed for cross-examination
at 11 am, Mr. Jhunjhunwala was present in the office of the AO. At the time
of cross-examination at 11 am, neither the Assessee nor anyone on behalf of
the Assessee attended the office of the AO. Even till 2.30 pm no one
appeared. At 3 pm Mr. Jajodia and one Mr. M.K. Jain were present. They
were     asked     to   cross-examine   Mr.   Jhunjhunwala.   However,    they
categorically refused to cross-examine him on the ground that he was
stranger to the transactions. According to the Assessee, without first cross-
examining Mr. Meattle, no useful purpose would be served in cross-
examining Mr. Jhunjhunwala. Accordingly, the Assessee declined to cross-
examine Mr. Jhunjhunwala. Mr. Meattle did not turn up till 4 pm. Before the




ITA Nos. 439/2003 & 156/2004                                             Page 6 of 20
AO, counsel for the Assessee stated that they cannot wait for long for Mr.
Meattle to appear and left the office of the AO at 4.05 pm.

14. The ITAT has in the impugned order noted that from the orders passed
by the AO it transpired that the summons sent to Mr. Meattle at his last
known address was received back unserved. The AO then requested the
Deputy Director of Income Tax (Investigations), Bombay to trace Mr.
Meattle asking him to attend the hearing before the AO for the propose of
cross-examination. By a letter dated 12th February 1996, the ADIT
(Investigation) informed the AO that Mr. Meattle could not be found.
Another letter dated 19th February 1996 sent by the AO to the ADIT
(Investigation) asking Mr. Meattle to attend the hearing before the AO on
27th February 1996 was replied back stating that Mr. Meattle could not be
traced. Despite efforts by the AO, Mr. Meattle could not be traced and
produced for his cross-examination. Accordingly, the AO then came to the
conclusion that the Assessee was not interested in completing the
proceedings. Accordingly, the AO decided to proceed with the reassessment.

15. For a second time, the CIT (A) dismissed the Assessee' appeals and that
is how the Assessee again approached the ITAT with ITA Nos. 1515 to
1517/D/97. By the impugned order dated 8th May 2003, the ITAT dismissed
the appeals. The summary of the ITAT's conclusions is as follows:
       (i) From the statements made by Mr. Meattle and Mr. Jhunjhunwala,
       it was clear that both of them were involved in the transactions
       inasmuch as whatever was stated by Mr. Meattle was confirmed by
       Mr. Jhunjhunwala. It could not be said that Mr. Jhunjhunwala was a




ITA Nos. 439/2003 & 156/2004                                         Page 7 of 20
       stranger to the transactions.
       (ii) On a detailed analysis of the statements of Mr. Meattle and Mr.
       Jhunjhunwala, the ITAT concluded that Mr. Jhunjhunwala admitted to
       having been handed over by Mr. Jajodia the bearer cheques drawn on
       companies of Mr. Meattle and that he used to withdraw the said
       amount and handed it over to one Mr. Loknath who was introduced to
       him by Mr. Jajodia. While it could not be said that Mr. Jhunjhunwala
       drew support from Mr. Meattle, both had their independent roles to
       achieve one goal, i.e., to help the Assessee company to justify its
       claim before the Revenue authorities with respect to the payment of
       commissions which, according to Mr. Jhunjhunwala, were never paid.

       (iii) By refusing to cross-examine Mr. Jhunjhunwala, the Assessee
       should be taken to have admitted the statements made by him to be
       correct. The statement made by Mr. Jhunjhunwala could be accepted
       in its entirety against the Assessee.

       (iv) The Assessee having failed to cross-examine Mr. Meattle in the
       first round when the opportunity was granted, the Revenue could fall
       back on Section 33 of the Indian Evidence Act, 1872 (IEA) to use the
       evidence given by Mr. Meattle against the Assessee.

       (v) The Assessee had failed to discharge the onus of showing that the
       payments of commission were genuine.

16. While admitting ITA No. 439 of 2003 on 27th March 2008, the Court
framed the following questions of law for consideration:




ITA Nos. 439/2003 & 156/2004                                          Page 8 of 20
       "1. Whether the Income Tax Appellate Tribunal was correct in law in
       proceeding with the appeal filed by the Assessee in the absence of Mr.
       Meattle having been served or made available for cross- examination
       by the Assessee?

       2. Whether the Income Tax Appellate Tribunal was correct in law in
       placing reliance on Section 33 of the Indian Evidence Act while
       denying an opportunity to the Assessee to cross-examine Mr.
       Meattle?"

17. The Court has heard the submissions of Mr. Ajay Vohra, learned Senior
counsel for the Assessee and Ms. Lakshmi Gurung and Mr. P. Roy
Choudhary, Standing counsel for the Revenue.

18. Mr. Vohra submitted that the Assessee was justified in declining to
cross-examine Mr. Jhunjhunwala since in the absence of Mr. Meattle, there
would be no point in cross-examining Mr. Jhunjhunwala. No adverse
inference could be drawn against the Assessee on that score.

19. Mr. Vohra submitted that the ITAT erred in applying Section 33 of the
IEA in the facts of the present case. According to him, one of the conditions
for applicability of Section 33 of the IEA, viz., an opportunity to cross-
examine Mr. Meattle, was not fulfilled. The ITAT itself had by the earlier
order dated 24th December 1993 held that only one opportunity had been
granted to the Assessee to cross-examine Mr. Meattle on 13th March 1990
and was, therefore, inadequate.

20. Mr. Vohra submitted that even otherwise there were inconsistencies and
contradictions in the statements of Mr. Jhunjhunwala and Mr. Meattle. Mr.
Meattle, while explaining the modus-operandi of the bogus transactions of




ITA Nos. 439/2003 & 156/2004                                           Page 9 of 20
payments of commission, had stated that Mr. Jhunjhunwala used to take
blank cheques of his companies duly signed by him. However, Mr.
Jhunjhunwala in his statement made on 15th March 1991 in a response to
specific question (Question No. 3) denied that Mr. Meattle used to give him
blank cheques. According to him, the cheques used to be handed over by
Mr. Loknath Saraf of the Assessee. In reply to Question No. 23 of statement
recorded on 30th November 1990, Mr. Jhunjhunwala claimed not to know
the company, M/s. Bahri & Co. Pvt. Ltd. However, in reply to Question No.
31 on the very date, i.e., 30th November 1990 and Question No. 2 dated 15th
March 1991 Mr. Jhunjhunwala admitted that he knew Mr. Meattle. The
statements of Mr. Jhunjhunwala were neither truthful nor trustworthy. The
Assessee had sought to cross-examine Mr. Meattle in order to confirm the
identity of the person who used to give him blank cheques. In the
voluminous correspondence between Mr. Meattle and the Assessee there
was no reference to Mr. Jhunjhunwala. Further Mr. Meattle stated that Mr.
Jhunjhunwala had drawn the cheques. However, Mr. Jhunjhunwala on being
shown the photocopies of cheques denied that they were in his handwriting.
Although he claimed to know Mr. Jajodia who was related to the MD of the
Assessee, and had helped the Assessee in its bogus transactions without any
vested interest, Mr. Jhunjhunwala was not assigned any remunerative
work/assignment. This showed that Mr. Meattle and Mr. Jhunjhunwala were
in collusion with each other in order to implicate the Assessee and to evade
payment of taxes on the income earned by the companies of Mr. Meattle.
According to him, these facts could have been unearthed only after the
cross-examination of Mr. Meattle.




ITA Nos. 439/2003 & 156/2004                                         Page 10 of 20
21. In support of the proposition that the denial of cross-examination of Mr.
Meattle, whose statement formed the basis of the assessment proceeding,
would result in violation of the principles of natural justice, reliance was
placed on the decision of the Supreme Court in Andaman Timber
Industries v. Commissioner of Central Excise, Kolkata-II (2015) 62
taxmann.com 3 (SC) and of this Court in Commissioner of Income Tax v.
Praveen Kumar Gupta (2008) 303 ITR 95 (Del). Reliance was also placed
on the decision of the Supreme Court in Kishanchand Chellaram v. CIT
(1980) 125 ITR 713 (SC).

22. Ms. Gurung, learned counsel for the Revenue, on the other hand pointed
out that sufficient opportunities had been granted to the Assessee for cross-
examination of the witnesses whose statements were recorded in the
assessment proceedings. The Assessee chose not to cross-examine Mr.
Jhunjhunwala despite sufficient opportunities. In the circumstances, there
was no question of any violation of the principles of natural justice.

23. As already noticed, this was second round of litigation before the ITAT.
By an earlier order dated 24th December 1993, the ITAT had opined that the
AO "should have granted some more time to Assessee to gather material
needed for proper cross-examination of Shri Meattle." The matter was
restored to the AO to enable him to offer reasonable opportunity to the
Assessee "to cross-examine the above two persons in accordance with law
and then re-consider the claim of payment of commission." It was to the
above extent the impugned order was set aside and the matter was restored
to the file of the AO for all the three AYs. It was made clear that other




ITA Nos. 439/2003 & 156/2004                                             Page 11 of 20
grounds urged by the Assessee regarding validity of the assessment
proceeding were not pressed during the course of the said appeals before the
ITAT and these grounds were rejected.

24. When the matter was remanded to the AO, the case was posted for
hearing on 6th September 1995 on which date the AO asked the authorized
representative (`AR') of the Assessee to indicate the preparedness of th e
Assessee cross-examining both Mr. Meattle and Mr. Jhunjhunwala. The case
was adjourned to 20th October 1995. However, on that date the letter was
filed by the Assessee stating that they need 15 days time since the Director
who was looking after the taxation work of the Assessee was out of station.
This was acceded to and the case was fixed for 8th November 1995. On that
date there was no response from the Assessee. On 29 th January 1996
summons were issued to both Mr. Meattle and Mr. Jhunjhunwala requiring
them to attend the hearing before the AO on 19th February 1996 for the
purpose of their cross-examination by the Assessee. The Dy. Director of
Income Tax (Investigation) (Headquarters), Bombay requested by a letter
dated 29th January 1996 to trace the witnesses and to inform the AO if there
had been any change in their addresses. Mr. Jhunjhunwala sent a letter dated
7th February 1996 expressing his inability to attend the hearing on 19 th
February 1996 and instead opted for 27th February 1996. On the adjourned
date, 27th February 1996, he attended the hearing for cross-examination. In
the case of Mr. Meattle, the summons sent at the last known address
returned unserved. The ADIT (Investigation) Bombay by his letter dated 12 th
February 1996 stated that Mr. Meattle was not found in his premises as it
was locked. A further letter was addressed to the DDIT on 19th February




ITA Nos. 439/2003 & 156/2004                                         Page 12 of 20
1996 furnishing the last known address of Mr. Meattle.

25. By a letter dated 16th February 1996, the Assessee was asked by the AO
to cross-examine the witnesses and to attend the proceeding on 27th February
1996. Three days prior thereto, i.e., on 23rd February 1996 the Assessee sent
a letter requiring several documents so that there could be a meaningful
cross-examination of the witnesses. The order sheet of the AO showed that
on 27th February 1996 Mr. Jhunjhunwala attended the proceedings both at
the stipulated hour, i.e., 11 am and 3 pm at which time Mr. Jajodia and Mr.
Jain also attended the office. Mr. Jhunjhunwala filed a letter confirming his
statements dated 30th November 1990 and 15th March 1991. When asked to
cross-examine Mr. Jhunjhunwala, Mr. Jajodia stated that Mr. Jhunjhunwala
was a stranger to the transactions involving Mr. Meattle and that without
cross-examining Mr. Meattle there was no use in cross-examining Mr.
Jhunjhunwala. When till 4 pm Mr. Meattle did not turn up, the AR of the
Assessee stated that they could not wait longer and that they reserved their
right to cross-examine Mr. Meattle and all of them left the office of the AO
at 4.05 pm. The AO noted that the Assessee submitted another letter dated
8th March 1996 and 12th March 1996 again stating that the proposed
disallowance of commission payment should be dropped in view of the non-
furnishing of the financial statement, income tax return etc. of the three
payee companies by the Department and also because Mr. Meattle did not
attend the hearing. Meanwhile ADIT (Investigation) (Hqrs) by his letter
dated 18th March 1996 again stated that Mr. Meattle could not be found at
the address indicated by him to the ACIT by his letter dated 21 st August
1995.




ITA Nos. 439/2003 & 156/2004                                          Page 13 of 20
26. The AO realized that the proceedings would be barred by limitation on
31st March 1996 and therefore, the AO had no other options to complete the
proceedings.

27. The question that arises is whether in the above facts it could be said that
there was violation of the principles of natural justice. The further question
that arises is whether there was non-compliance of orders passed earlier by
the ITAT on 24th December 1993.

28. The Court is satisfied that as far as making Mr. Meattle available for his
cross-examination is concerned, every effort was made by the Department to
locate him. It could not be said that the failure to produce Mr. Meattle for
cross-examination was deliberate. That does not appear to be any wilful
disobedience of the order passed by the ITAT in that regard.




29. While there may be merit in the contention of Mr. Vohra that Section 33
of IEA may not strictly apply in the facts and circumstances of the present
case, nevertheless the fact remains that Mr. Jhunjhunwala was an important
witness. He had made incriminating statements against the Assessee and the
Assessee chose not to counter it. Despite opportunities, the Assessee
declined to cross-examine Mr. Jhunjhunwala. There have to be
consequences as a result of the failure by the Assessee to avail of the above
opportunities. In A E G Carapiet v. A Y Derderian AIR 1961 Cal 359, it
was held that "wherever the opponent has declined to avail himself of the
opportunity to put his essential and material case in cross-examination, it
must follow that he believed that the testimony given could not be disputed




ITA Nos. 439/2003 & 156/2004                                             Page 14 of 20
at all." Here, the AO proceeded to draw an adverse inference and considered
the statement made by Mr. Jhunjhunwala as substantive evidence against the
Assessee. The above conclusion of the AO cannot be faulted.

30. While the wisdom of applying Section 33 of the IEA to the evidence of
Mr. Meattle may be doubtful, the Court is of the view that de hors the
evidence of Mr. Meattle, the evidence of Mr. Jhunjhunwala was by itself
sufficient to draw an adverse inference against the Assessee that the
payments of commission were fictitious. The Court is not persuaded to hold
that Mr. Jhunjhunwala had made contradictory and inconsistent statements
particularly since he was never confronted with those inconsistencies and
contradictions by the Assessee. If, as is urged by the Assessee, Mr. Meattle's
statements are to be entirely kept aside, then Mr. Jhunjhunwala's statements
can be examined for their intrinsic worth. The Assessee took a calculated
risk in declining to cross-examine Mr. Jhunjhunwala on the understanding
that it had to be preceded by the cross-examination of Mr. Meattle.

31. Two conclusions that could be drawn from the above narration are that
there is no violation of principles of natural justice as far as the Assessee is
concerned, and the uncontroverted statements of Mr. Jhunjhunwala were
sufficient to substantiate the case of the Revenue against the Assessee.

32. Consequently, the Court is unable to find any error having been
committed by the ITAT in upholding the concurrent findings of the AO and
the CIT (A) regarding disallowance of the commission payments claimed by
the Assessee.




ITA Nos. 439/2003 & 156/2004                                               Page 15 of 20
33. In sum, as far as ITA No. 439 of 2003 is concerned, Question (2) is
answered in the negative i.e., in favour of the Assessee and against the
Revenue. However, Question (1) is answered in the affirmative i.e. in favour
of the Revenue and against the Assessee. The net result is that the
conclusion reached the impugned order of the ITAT is affirmed and ITA No.
439 of 2003 is dismissed.

ITA No. 156 of 2014
34. ITA No. 156 of 2014 by the Revenue is directed against the order dated
7th September 2012 passed by the ITAT in ITA No. 569/Del/06 for the AY
1983-84. This is a penalty appeal where the Revenue aggrieved by the ITAT
setting aside the penalty levied on the Assessee under Section 271 (1) (c) of
the Act.

35. While admitting ITA No. 156 of 2014, the following question was
framed for consideration by the Court by its order dated 18 th December
2015:
        "Was the ITAT correct in confirming the order of the CIT (A)
        deleting the penalty levied on the Respondent Assessee under Section
        271 (1 ) (c) of the Act?"

36. A perusal of the order of the CIT (A) reveals that one of the reasons for
the deletion of penalty was only that "the whole assessment, reassessment is
based upon the statement of the two persons mentioned above and no
opportunity was allowed in the penalty proceedings." It was held that the
penalty levied "without allowing opportunity to the company for cross -
examination of both the persons are liable to be cancelled." It was concluded
that the explanation offered by the Assessee was bonafide and "the additions



ITA Nos. 439/2003 & 156/2004                                          Page 16 of 20
made just on the statements of the two persons mentioned above does not
amount to concealment or filing of inaccurate particulars of income."

37. The conclusion of the CIT (A) that no opportunity was given to the
Assessee to cross-examine "both the persons" is factually erroneous. From
the above narration it is plain that despite specific opportunities having been
afforded to the Assessee, it declined to cross-examine Mr. Jhunjhunwala.
The very basis on which the CIT (A) proceeded in the matter was, therefore,
erroneous.

38. As far as the ITAT is concerned, one factor that appears to have weighed
with it was that the Assessee's quantum appeal had been admitted by this
Court. It was therefore concluded that "the issue is debatable" and the
penalty was accordingly not leviable. The mere pendency of the quantum
appeal could not have led the ITAT to conclude that the issue was debatable.

39. It was contended by Mr. Vohra that it was necessary for the AO to offer
Mr. Meattle and Mr. Jhunjhunwala for cross-examination even in the
penalty proceedings. Further he submitted that the satisfaction arrived at by
the AO in the original assessment order regarding initiation of the penalty
proceedings was based on the statements of both Mr. Meattle and Mr.
Jhunjhunwala. If the statement of Mr. Meattle is kept set aside, then the
matter would have to be remanded to the AO for him to record his
satisfaction de novo regarding initiation of the penalty proceedings only on
the basis of the statement of Mr. Jhunjhunwala. He submitted that in the
penalty proceedings a standard of proof higher than preponderance of
probabilities was called for. Therefore, even if it were to be held that Mr.



ITA Nos. 439/2003 & 156/2004                                            Page 17 of 20
Jhunjhunwala's statement could form the basis of the disallowance of the
commission paid by the Assessee, it might not be sufficient to initiate
penalty proceedings. Mr. Vohra submitted that the Assessee had disclosed
all facts. There was a distinction to be drawn between making a 'wrong'
claim and a `false' claim and in the present case the Revenue had been
unable to show that a false claim was made. Reliance was placed on the
decisions in CIT v. Somnath Oil Mills (1995) 214 ITR 32 (Guj), MAK Data
P. Ltd. v. CIT (2013) 358 ITR 593 (SC), Anantharam Veerasinghaiah v.
CIT (1980) 123 ITR 457 (SC), Union of India v. Dharmender Textile
Processors (2008) 306 ITR 277 (SC).

40. In reply, it is submitted by Ms. Gurung, learned counsel for the Revenue,
that after the insertion of Explanation 1 to Section 271 (1), wilful
concealment was not an essential ingredient for attracting penalty. She
referred to the decision in Chairman, SEBI v. Shriram Mutual Fund 2006
(5) SCC 361 where it is reiterated that the penalty under Section 271 (1) (c)
of the Act was in the nature of a civil liability. This was reaffirmed by a
larger Bench of the Supreme Court in Union of India vs. Dharmender
Textile Processors (supra).

41. The Court first notes that on merits, the finding of the ITAT that no
material was placed on record by the Assessee to demonstrate the nature of
service rendered by the three companies to whom the commission was paid
has been concurrently upheld by this Court. The Assessee indeed failed to
discharge onus on proving the genuineness of those payments. The
conclusion that the payment of commission was bogus has been




ITA Nos. 439/2003 & 156/2004                                          Page 18 of 20
concurrently held by the CIT (A), by the ITAT and this Court.

42. Consequently, the essential conditions for attracting the penalty under
Section 271 (1) (c) of the Act stand fulfilled in the present case. Further
observed in Union of India vs. Dharmender Textile Processors (supra), the
findings in the assessment (quantum) proceedings would be relevant and
admissible in the penalty proceedings. The adverse inference against the
Assessee for failing to cross-examine Mr. Jhunjhunwala would equally
apply to the penalty proceedings. There was no necessity to again offer the
Assessee a further opportunity of cross-examining Mr. Meattle and Mr.
Jhunjhunwala in the penalty proceedings.

43. As already noted, the CIT (A) erred in proceeding to delete the penalty
on the ground that the Assessee had been denied an opportunity of cross-
examining both Mr. Meattle and Mr. Jhunjhunwala. The ITAT erred in
concluding that the mere pendency of the Assessee's quantum appeal made
the issue a debatable one.

44. The Court rejects the plea of the Assessee that the matter should be
remanded to the AO for arriving at a satisfaction de novo regarding initiation
of penalty proceedings. In the facts of the present case, where the
disallowance of the commission payment has been upheld by this Court, on
account of the Assessee failing to furnish the true and correct particulars, the
initiation of the penalty proceedings against the Assessee under Section 271
(1) (c) of the Act is perfectly justified.

45. The decision in CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR




ITA Nos. 439/2003 & 156/2004                                             Page 19 of 20
158 (SC) proceeded on the basis that no information given in the return was
found to be incorrect or inaccurate. It was in that context that it was
observed that the mere making of an incorrect claim would not tantamount
to furnishing inaccurate particulars. Here the question is not mere making of
a wrong claim but in making a claim that is demonstrably false. With the
Assessee failing to establish the genuineness to the commission payments
the essential conditions for attracting penalty under Section 271 (1) (c) of
the Act stood fulfilled.

46. The impugned orders of the ITAT and the CIT (A) deleting the penalty
are hereby set aside. The penalty as ordered by the AO is restored. The
question framed is answered in the negative, i.e., in favour of the Revenue
and against the Assessee.

47. ITA No. 439 of 2003 is dismissed and ITA No. 156 of 2014 is allowed,
but with no order as to costs.




                                                   S.MURALIDHAR, J



                                                   VIBHU BAKHRU, J
FEBRUARY 4, 2016
Rk




ITA Nos. 439/2003 & 156/2004                                          Page 20 of 20

 
 
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