2015 (5) TMI 820 - AT - Income Tax

Remittances made by NIPL to Nokia Corporation for software downloads are sums chargeable to Tax as laid down in S 195 - whether NIPL can be held to be an assessee in default for non-deduction of tax thereon as per law - validity of survey - denial of natural justice - Held that - On examination of the entire scheme of the Act we are of the considered opinion that the plea advanced by ld. counsel for the assessee deserves to be rejected for the simple reason that the term proceeding defined u/s 133A includes the TDS proceedings also. The survey thus could be conducted for obtaining information in regard to TDS proceedings also as mandated u/s 133A sub-section (1) clause (iii). We are in agreement with the submission of ld. Spl. counsel that this amendment has been inserted by way of abundant precaution so as to ensure that while carrying out the survey proceedings for ensuring compliance with TDS provisions cash and stock is not examined. Further we find from the case laws relied by ld. Special Counsel that survey was carried out for TDS purposes even prior to introduction of sub-section (2A) to section 133A and Hon ble Supreme Court has also taken cognizance of the same. We accordingly hold that the survey could be conducted even prior to insertion of subsection (2A) of section 133A. Authorization to DDIT Chennai for conducting the survey - Held that - There is no requirement under this section read with rules for issuing of authorisation. As per proviso to section 133A the survey can be carried out by the authorities mentioned in the section itself and only if the survey is carried out by an Asstt. Director or a Dy. Director or AO or tax recovery officer or Inspector of Income-tax then the approval of the Joint Director or the Joint Commissioner as the case may be is required. In the present case the DDIT Chennai was authorized by the Addl. Director of Income-tax (Inv.) which was in accordance with the CBDT Notification no. S.O. 1189(E) dated 3-12-2001. Thus it cannot be said that DDIT Chennai was not duly authorized to carry out the survey. A bare reading of section 133A(1) makes it clear that survey can be carried out at the place where business or profession is carried on irrespective of the fact whether the place of business or profession is separate from its registered office. The object of survey is to gather information in regard to the proceedings under the Act which is enumerated in clauses (i), (ii) & (iii) to section 133A(1) as reproduced above and therefore the powers cannot be restricted in any manner particularly when sufficient safeguards have been provided by legislature itself while drafting section 133A as is evident from bare reading of various clauses of section 133A. Statement u/s 131 could not be recorded because there was no non-cooperation of persons present at the time of survey as is contemplated u/s 133A(6) - Held that - The assessee has also submitted that the statement of ex-employee Mr. Jintendra Agarwal auditor being not present at the time of survey could not be recorded. In our opinion this plea deserves to be rejected at the very outset because once the powers are exercised u/s 131(1A) in order to gather the information the designated authorities could issue summons to any person. DDIT is one of the designated authority and therefore no irregularity/ illegality can be imputed.In view of above discussion we hold that there was no illegality in carrying out survey and the statements recorded u/s 131 at Chennai were validly recorded. Cross-examination being not provided in respect of various statements used in framing the order u/s 201/201(1A) - held that - All the statements were duly provided to assessee and during the proceedings before the AO the assessee never asked for cross-examination. Addition was not made merely on the basis of findings given apropos the secret bank accounts disbursement made out of such account s or on the strength of havala entries by which the bogus commission and trading income said to have been reintroduced in the books of the assessee. These aspects are only secondary subordinate and were used to buttress the main matter connected with the amount of addition. The violation or otherwise of any rule of natural justice must be a matter of substance not of mere form. Natural justice should always be used for the furtherance of the cause of justice. The palladium of justice requires that law suits be not protracted otherwise treat oppression might be done under the colour and pretence of law interest republica ut sit finis litum . These loafty principles which are harbinger of justice cannot be used for dragging the justice in the labyrinth. We have already indicated that adverse evidence and material relied upon in the order to reach the finality should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature. Having regard to the facts and circumstances of the case we are of the opinion that there was no denial of the principles of natural justice. The employees whose statements were relied by AO were highly technical persons controlling the entire manufacturing operations and therefore it cannot be accepted that they were not aware of various technicalities of the entire manufacturing process. The replies given by them have not been disputed/ controverted by assessee in any manner. The submission is that questions put during recording of statements were not taken to its logical end. Therefore taking an holistic view of the entire gamut of proceedings we are of the opinion that no irregularity has crept in during course of proceedings before AO/ CIT(A) and therefore the orders of both the lower authorities are not required to be set aside as the matter is not required to be restored to AO/ CIT(A) to correct any irregularity. However keeping in view the submissions of ld. Sr. Counsel noted above in order to impart substantial justice to both the parties we are of the opinion that a supplementary report should be submitted by AO on various issues pointed out by ld. Sr. Counsel in his written submissions placed on record if necessary after seeking clarifications from employees

Summary

Issues Involved:
1. Legality of survey proceedings.
2. Evidentiary value of statements recorded during the survey.
3. Right to cross-examine witnesses.

Detailed Analysis:

1. Legality of Survey Proceedings:
The assessee challenged the legality of the survey proceedings conducted on 8-1-2013 at its Gurgaon and Chennai premises, arguing that the survey for TDS compliance was unauthorized under the Income Tax Act before the insertion of section 133A(2A) by the Finance (No. 2) Act, 2014, effective from 1-10-2014. The Tribunal rejected this contention, stating that the term "proceeding" under section 133A includes TDS proceedings, and surveys for TDS compliance were permissible even before the amendment. The Tribunal also held that the DDIT, Chennai, was duly authorized to conduct the survey as per the CBDT Notification No. S.O. 1189(E) dated 3-12-2001, which provided the necessary territorial jurisdiction.

2. Evidentiary Value of Statements Recorded During the Survey:
The assessee argued that statements recorded during the survey had no evidentiary value, especially those recorded on oath, as section 133A does not authorize recording statements on oath. The Tribunal referred to the decision of the Hon'ble Bombay High Court in Dr. Dinesh Jain's case, which held that statements recorded during a survey do not lose their evidentiary value merely because they were made on oath. The Tribunal concluded that the statements, along with other corroborative evidence such as agreements, emails, and invoices, were validly used by the AO to arrive at his conclusions.

3. Right to Cross-Examine Witnesses:
The assessee contended that it was denied the right to cross-examine the employees whose statements were relied upon by the AO, thereby violating the principles of natural justice. The Tribunal noted that the assessee was provided with copies of all statements and other relevant documents during the assessment proceedings. The Tribunal found that the statements were used as corroborative evidence and not the sole basis for the AO's conclusions. The Tribunal also observed that the employees whose statements were recorded were technical experts directly involved in the manufacturing process and their statements were consistent and unchallenged by the assessee. The Tribunal held that the assessee did not demonstrate any prejudice caused by the lack of cross-examination and that the principles of natural justice were duly observed. However, to impart substantial justice, the Tribunal directed the AO to submit a supplementary report addressing the issues raised by the assessee, if necessary, after seeking clarifications from the employees.

Conclusion:
The Tribunal upheld the validity of the survey proceedings, the evidentiary value of the statements recorded during the survey, and the observance of natural justice principles. The Tribunal directed the AO to submit a supplementary report on the issues raised by the assessee, ensuring a fair and comprehensive resolution of the case.