ITO RG 17(2)(3), MUMBAI v. SANJAY PATEL, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI J SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 942 TO 944/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) SANJAY PATEL 3 LAUKIK BLDG GADGE MAHARAJ LANE DP ROAD DADAR (E) MUMBAI-400014 AAEPPO624C APPELLANT VS INCOME TAX OFFICER 17(2)(3) MUMBAI. RESPONDENT ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) INCOME TAX OFFICER 17(2)(3) MUMBAI. ...APPELLANT VS SANJAY PATEL .RESPONDENT ASSESSEE BY : SHRI K SHIVRAM REVENUE BY : SHRI HEMANT LAL O R D E R PER BENCH THESE SIX CROSS-APPEALS THREE BY THE ASSESSEE AN D THREE BY THE REVENUE ARE DIRECTED AGAINST THE THREE DIFFERENT ITA NO. 942 TO 944/MUM/2010 ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) 2 ORDERS DATED 23.11.2009 PASSED BY THE CIT(A) FOR TH E ASSESSMENT YEARS 2003-04 2004-05 AND 2005-06. 2. ONLY COMMON ISSUE ARISES IN THE ASSESSEES APPEA LS IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) IS JUSTIFIED IN CONFIRMING THE PART ADDITIO N MADE BY THE AO AS UNEXPLAINED INVESTMENT OF THE ASSESSEE UNDER PEAK CREDIT METHOD WITHOUT GIVING THE ASSESSEE AN OPPORT UNITY OF CROSS-EXAMINATION OF THE THIRD PARTY ON THE BASIS O F WHOSE STATEMENT THE ADDITION WAS MADE. 3. ONLY COMMON GROUND RAISED BY THE REVENUE IN THE APPEALS FILED BY IT IS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE PART ADDITION MADE U/S 69 IGNORING THE FACTS THAT THE ASSESSEE HAS BEEN IDENTIFIED BY THE MANAGER OF M/S DURGA FINANCE WITH WHOM THE ASSESSEE HAS MADE VARIOUS TRANSACTIONS 4. THE ISSUE IN THE ASSESSEES AS WELL AS REVENUE S APPEALS ARE ARISING FROM COMMON DISPUTE OF ADDITIO N MADE UNDER SECTION 69 OF THE ACT BY THE AO AND THE CIT (A) HAS DELETED THE MAJOR PART OF THE ADDITION AND CONFIRME D THE BALANCE. THUS BOTH THE ASSESSEE AS WELL AS REVENU E ARE IN APPEALS FOR THESE ASSESSMENT YEARS. ITA NO. 942 TO 944/MUM/2010 ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) 3 4.1 THE FACTS OF THE CASE RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS A DIRECTOR IN M/S NTP TAR PRODUCTS PV T LTD AND M/S AMBER ROADWAYS PVT LTD. THE ASSESSEE DERIVES INCOME FROM SALARY RECEIVED AS DIRECTOR FROM THESE COMPAN IES AND ALSO INCOME FROM PLYING OF TRUCKS AND BANK INTEREST . THE AO HAS RECORDED THE FACTS IN THE ASSESSMENT ORDER GIVI NG RISE TO THE ADDITION FOR ALL THE THREE YEARS AS UNDER: ON THE BASIS OF INTIMATION RECEIVED FROM THE INCOM E TAX OFFICER A SURVEY ACTION WAS CONDUCTED U/S 133A ON 30.3.2005 AT THE BUSINESS PREMISES OF M/S DURGA FINANCE PROP. MRS. REKHABEN K THAKKANR OF BARODA AND DURING THE SAID SURVEY ACTION CERTAIN DOCUMENTS WERE IMPOUNDED. DURING THE SURVEY ACTION IT IS ALSO FOUND THAT THERE ARE VARIOUS CASH CREDI T ENTRIES IN THE NAME OF THE ASSESSEE. THE TOTAL CA SH CREDIT WAS QUANTIFIED BY HIM AT RS.71 64 471/- FOR THE ASSESSMENT YEAR 2003-04 RS.2 50 28 135/- FOR THE ASSESSMENT YEAR 2004-05 AND RS.1 76 02 325/- FOR THE ASSESSMENT YEAR 2005-06. HOWEVER VERIFICATION OF THE RETURN OF THE INCOME FILED BY THE ASSESSEE O N 8.3.2004 8.02.2005 AND 6.12.2005 DID NOT SHOW ANY SUCH TRANSACTION. THEREFORE NOTICE U/S 148 OF THE ACT DATED 16.11.2007 WAS ISSUED TO THE ASSESSEE AND SERVED FOR ALL THREE ASSESSMENT YEARS AS THERE WAS A REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO T AX HAS ESCAPED ASSESSMENT ON ACCOUNT OF OMISSION ON THE PART OF THE ASSESSEE.. 4.2 AFTER RECORDING THE STATEMENT OF THE ASSESSEE AND ON THE BASIS OF COPIES OF DOCUMENTS IMPOUNDED DURING T HE SURVEY AT M/S DURGA FINANCE THE AO MADE THE ADDITION OF T HE TOTAL AMOUNT APPEARING IN THE NAME OF THE ASSESSEE IN THE DAILY TRANSACTION SHEET OF M/S DURGA FINANCE FOR THE RES PECTIVE ITA NO. 942 TO 944/MUM/2010 ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) 4 THREE YEARS TREATING THE SAME AS ASSESSEES UNEXPL AINED INVESTMENT WITHIN THE MEANING OF SECTION 69 OF THE ACT. THE ASSESSEE CHALLENGED THE ADDITION MADE BY THE AO BE FORE THE CIT(A). THE CIT(A) PASSED THE REMAND ORDER FOR OF FERING THE ASSESSEE AN OPPORTUNITY TO CROSS-EXAMINE SHRI HIREN THAKKAR MANAGER OF M/S DURGA FINANCE. IN THE REMAND PROCEE DINGS THE AO SUMMONED SHRI HIREN THAKKAR BUT HE DID NOT APPEAR THEREFORE THE AO EXPRESSED HIS INABILITY TO PRODU CE THE WITNESS. THE CIT(A) HELD THAT AT BEST THERE CAN B E ONLY ADDITION OF PEAK AMOUNT OF CREDIT AND ACCORDINGLY THE HIGHEST AMOUNT OF CASH WAS TAKEN AS UNEXPLAINED INCOME OF THE ASSESSEE FOR ALL THE THREE YEARS AND BALANCE WAS DE LETED. 4.3 BEFORE US THE LEARNED AR OF THE ASSESSEE HAS S UBMITTED THAT THE ADDITION WAD MADE BY THE AO ON THE BASIS OF THE STATEMENT OF SHRI HIREN THAKKAR WHO IS NOT A RELAT ED PARTY WITH THE ASSESSEE AND WITHOUT GIVING THE OPPORTUNIT Y TO THE ASSESSEE TO CROSS-EXAMINE HIM. THUS THE LEARNED AR HAS SUBMITTED THAT NO ADDITION CAN BE MADE ON THE BASI S OF THE STATEMENT OF THIRD PARTY WITHOUT ALLOWING THE ASSE SSEE TO CROSS-EXAMINE SHRI HIREN THAKKAR 4.4 THE ASSESSEE DEMANDED THE CROSS-EXAMINATION OF THE WITNESS BEFORE THE AO BUT THE AO DID NOT GRANT T HE ITA NO. 942 TO 944/MUM/2010 ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) 5 OPPORTUNITY TO THE ASSESSEE TO CROSS-EXAMINE EVEN BEFORE THE CIT(A) THE ASSESSEE WAS NOT GIVEN THE OPPORT UNITY TO CROSS-EXAMINE BECAUSE THE AO FAILED TO PRODUCE TH E WITNESS IN THE REMAND PROCEEDINGS. THEREFORE THE LD. AR SUBMITTED THAT THE ADDITION IS NOT SUSTAINABLE ON THE BASIS OF THE STATEMENT. HE HAS RELIED UPON THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF KISHANCHAND CHELLARAM V/S CIT REPORTED IN 125 ITR 713 (SC) AND SUBMITTED THAT THE STATEMENT OF THE THIRD PARTY CANNOT BE USED AGAINS T THE ASSESSEE WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY OF CROSS- EXAMINE THE WITNESS. THE LD. AR HAS FURTHER SUBMIT TED THAT EVEN THE COPY OF THE STATEMENT WAS NOT SUPPLIED TO THE ASSESSEE. FURTHER ACCORDING TO THE ASSESSEE THE XE ROX COPY OF DIARY SEIZED FROM M/S DURGA FINANCES PREMISES SHOWED VARIOUS DEBITS IN THE NAME OF ASSESSEE. HENCE THER E WERE NO CASH DEPOSITS. ALL THE ENTRIES WERE UNILATERAL IN THE BOOKS OF M/S DURGA FINANCE WITHOUT ANY SUPPORTING OR CONFI RMATION FROM THE ASSESSEE. ALL ENTRIES WERE WITHOUT ANYBOD YS SIGNATURE AND NO OTHER DOCUMENTS CONFIRMS THE RECEI PTS BY THE ASSESSEE IS FOUND. 4.5 ON THE OTHER HAND THE LEARNED DR HAS PRODUCED THE COPY OF THE STATEMENT OF SHRI HIREN THAKKAR AND SUB MITTED THAT SHRI HIREN THAKKAR IN HIS STATEMENT HAS IDENTIFIED THE ITA NO. 942 TO 944/MUM/2010 ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) 6 ASESEEE AND ALSO MENTIONED CORRECT ADDRESS OF THE A SSESE. HE HAS REFERRED THE QUESTION NO.11 AND ANSWER THERE TO IN THE STATEMENT AND SUBMITTED THAT SHRI HIREN THAKKAR HAS ALSO EXPLAINED THAT IN THE CHEQUES DISCOUNTING BUSINESS THEY WERE CHARGING COMMISSION OF 1.5% FOR RECEIVING CHEQUES AND GIVING CASH AND ALSO RECEIVING THE CASH AND GIVING DEMAND DRAFT. THEY WERE NOT DOING THE MONEY LENDING BUSIN ESS THEREFORE THE TRANSACTIONS IN THE NAME OF THE ASSE SSEE IN THE BOOKS OF ACCOUNT OF M/S DURGA FINANCE CLEARLY ESTAB LISHED THAT THE ASSESSEE WAS DEPOSITING THE CASH AND AGAI NST WHICH RECEIVING THE CHEQUES AND AGAIN GIVING CHEQUES AND RECEIVING THE CASH. THUS IN THE ABSENCE OF ANY MATERIAL TH AT THE SAME AMOUNT OF FUND WAS UTILIZED BY THE ASESEEE IN THE R EPEATED TRANSACTIONS THE THEORY OF PEAK CREDIT CANNOT BE APPLIED. THE LD. DR HAS SUBMITTED THAT THE CIT(A) COMMITTED THE ERROR BY APPLYING THE THEORY OF PEAK CREDIT AND DELETED T HE ADDITION. HE HAS RELIED UPON THE DECISION OF THE MADHYA PRADE SH HIGH COURT IN THE CASE OF JHAMATMAL THAKHATMAL KIRANA MERCHANTS V/S CIT REPORTED IN 152 CTR (MP) 311. 4.6 THE LEARNED DR ALSO RELIED UPON THE ORDER OF TH E ASSESSING OFFICER AND SUBMITTED THAT AFTER THE LAP SE OF SUCH LONG PERIOD IT IS NOT POSSIBLE TO PRODUCE THE WITN ESS. HE HAS FURTHER CONTENDED THAT THE ADDITION IS NOT MERELY O N THE BASIS ITA NO. 942 TO 944/MUM/2010 ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) 7 OF THE STATEMENT RECORDED DURING THE SURVEY ACTION BUT IT IS BASED ON THE RECORD AND DOCUMENTS IMPOUNDED DURING THE SURVEY. THE BURDEN IS ON THE ASSESSEE TO PROVE THE SOURCE OF FUND INVOLVED IN THE TRANSACTIONS APPEARING IN THE BOOKS OF ACCOUNTS OF M/S DURGA FINANCE. 4.7 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE RELEVANT RECORD. UNDISPUTEDLY THE AO RE-OPENE D ALL THESE THREE ASSESSMENT YEARS UNDER CONSIDERATION ON THE B ASIS OF INFORMATION RECEIVED FROM THE INCOME TAX OFFICER IN WHOSE JURISDICTION THE SURVEY ACTION WAS TAKEN U/S 133A I N THE PREMISES OF M./S DURGA FINANCE. IN THE SAID INFOR MATION THE STATEMENT OF MRS. HIREN THAKKAR AS WELL AS THE IMP OUNDED RECORD IN THE SHAPE OF DAILY ENTRIES IN THE BOOKS OF ACCOUNT OF M/S DURGA FINANCE WAS THE MATERIAL ON THE BASIS OF WHICH THE ADDITION WAS MADE. WE NOTE THAT THE ASSESSEE DEMA NDED THE COPIES OF THE STATEMENT AND DOCUMENTS IMPOUNDED D URING THE SURVEY AS WELL AS CROSS-EXAMINATION OF SHRI HIREN THAKKAR. EVEN BEFORE THE CIT(A) THE ASSESSEE AGAIN DEMANDED THE CROSS-EXAMINATION OF SHRI HIREN THAKKAR UPON WHICH THE CIT(A) ISSUED A REMAND ORDER DIRECTING THE AO TO OF FER THE OPPORTUNITY OF CROSS-EXAMINATION TO THE ASSESSEE. S INCE THE WITNESS DID NOT APPEAR BEFORE THE AO DURING THE RE MAND PROCEEDINGS THEREFORE THE ASSESSEE COULD NOT GET THE ITA NO. 942 TO 944/MUM/2010 ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) 8 OPPORTUNITY OF CROSS-EXAMINATION. IT IS SETTLED P RINCIPAL OF LAW THAT THE STATEMENT OF THE THIRD PARTY CANNOT BE USE D AGAINST THE ASSESSEE WITHOUT AFFORDING THE OPPORTUNITY TO T HE ASSESSEE FOR CROSS-EXAMINE. THEREFORE IN THE INTEREST OF J USTICE AND FAIR PLAY IT IS PROPER THAT THE ASSESSEE BE GIVEN PROPER OPPORTUNITY OF CROSS-EXAMINATION OF THE WITNESS WHO HAS GIVEN THE STATEMENT WHICH IS USED AGAINST THE ASSESSEE. AT THE SAME TIME WE FIND THAT THE CIT(A) HAS APPLIED THE THEORY OF THE PEAK CREDIT WITHOUT GIVING CONCRETE FINDING THA T THE SAME AMOUNT HAS BEEN UTILIZED FOR THE REPEATED TRANSACTI ONS. IN ANY CASE WHEN THE PRIMARY ISSUE OF SUSTAINABILITY OF T HE ADDITION OF THE AO IS REQUIRED TO BE RECONSIDERED AS NO OP PORTUNITY HAS BEEN GIVEN TO THE ASSESSEE TO CROSS-EXAMINE TH E WITNESS. THEREFORE IN THE INTEREST OF JUSTICE WE SET ASIDE THE ENTIRE ISSUE INVOLVING IN THE CROSS-APPEALS OF THE ASSES SEE AS WELL AS REVENUE AND REMIT THE SAME TO THE RECORD OF THE AO TO OFFER THE OPPORTUNITY TO THE ASSESSEE FOR CROSS-EXA MINATION OF THE WITNESS SHRI HIREN THAKKAR AND THEREAFTER DECID E THE SAME AS PER LAW. ITA NO. 942 TO 944/MUM/2010 ITA NO. 1030 TO 1032/MUM/2010 (ASSESSMENT YEARS 2003-04 TO 2005-06) 9 5. THE APPEALS FILED BY THE ASSESSEE AND CROSS-APPE ALS THERETO FILED BY THE REVENUE ARE ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH F EB 2011 SD SD (J.SUDHAKAR REDDY) (V IJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ON THIS 18 TH DAY OF FEB 2011 SRL:10211 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI