2013 (11) TMI 1493 - HC - Income Tax

Block assessment u/s 158BC - Genuineness of purchase transactions - claim of deduction u/s 80HHC - Held that - The Revenue does not doubt or dispute receipt of payment through banking channels - In most money laundering cases this would not be in issue as receipt through banking channels becomes the starting point of investigation - Adjudicating authorities and courts 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 The CIT(A) has not found that the purchases from Sachdeva Trading Co. and Rave Scans were genuine - Purchases were made in cash from third parties which were rejected and returned by the Hong Kong party - The assessment order does not refer to re-import and rejection of material by the Hong Kong party after export Tribunal has not decided the ground of appeal that the respondent had not filed certificate as postulated under Section 80HHC(4) - - while deciding the question law in favor of revenue, matter remanded back to ITAT for fresh decision.

Issues Involved:

1. 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?
2. 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?

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs.5,23,78,058/-:

The respondent-assessee was subjected to search and seizure operations on 14th July, 1999. The Assessing Officer made an 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. During the first appeal, the Commissioner of Income Tax (Appeals) held that the proceedings under Section 158BC were validly initiated but found the findings somewhat contradictory, accepting the exports and export proceeds as genuine but questioning the purchases.

The Tribunal deleted the addition, stating that no evidence was found as a result of the search to suggest that the transactions of purchase and sale were bogus. The Tribunal relied on the judgment of the Delhi High Court in CIT vs. Ravi Kant Jain, which held that block assessment proceedings were not a substitute for regular assessment proceedings and their scope was limited to materials unearthed during the search.

However, the High Court found the Tribunal's findings incorrect and legally unacceptable as the Tribunal failed to notice the facts recorded by the Assessing Officer and the Commissioner (Appeals). The Assessing Officer had documented that the respondent had not filed a return for the assessment year 1994-95 and had found purchase bills of Iram Group International during the search, indicating purchases from M/s Sachdeva Trading Co. and M/s Rave Scans. The High Court noted that the legal finding by the Tribunal was wrong and factually incorrect, as the block assessment order was based on search and post-search material.

2. Erroneous and Contrary Order by the Tribunal:

The Tribunal's order was also challenged on the grounds that it did not adjudicate and decide the grounds of appeal placed by the Revenue. The Tribunal had observed that the statement of Chander Prakash Sachdeva, which was the basis of the addition, should be ignored as the respondent-assessee was not granted the opportunity to cross-examine him. The Tribunal cited the Supreme Court decision in Kishinchand Chellaram vs. CIT and the Delhi High Court decision in CIT vs. SMC Share Brokers Ltd. to support its stance.

The High Court highlighted that the Tribunal failed to consider the factual matrix and the reasons for Chander Prakash Sachdeva's refusal to appear for cross-examination. The High Court emphasized that the principles of natural justice and fair play apply, and the factual matrix must be examined to ascertain the cause and reason for the witness's refusal. The High Court referred to the constitutional validity of Section 9D of the Central Excise Act, 1944, which allows reliance on statements of witnesses who have not been cross-examined under certain conditions.

The High Court noted that the Tribunal's order lacked a holistic and pragmatic view, failing to consider the surrounding circumstances and corroborative evidence. The Tribunal did not address several facts that required explanation from the respondent, such as the substantial profit earned, the transfer of export proceeds to the accounts of Sachdeva Trading Co. and Rave Scans, and the absence of a return filed by the respondent for the assessment year 1994-95.

Conclusion:

The High Court found the Tribunal's findings unjustified, cryptic, and legally unacceptable. The High Court held that the Tribunal's order was contrary to the findings recorded by the Assessing Officer and the Commissioner (Appeals). The High Court answered the questions of law in favor of the Revenue and against the respondent, remanding the case to the Tribunal to discuss the entire evidence in detail on all aspects and examine the issues and contentions afresh. The factual findings in the High Court's order and the impugned order were not to be treated as conclusive and final. The appeals were disposed of with no orders as to costs.

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