2022 (10) TMI 484 - AT - Income Tax

Denial of natural justice to revenue - CIT-A deleted the addition - neither an opportunity of cross examination of the concerned persons of broker was granted nor were information/documents furnished pursuant to summons under section 131 of the Act provided to the AO, on the basis of which impugned addition was deleted by the CIT(A) - HELD THAT - We are of the considered view that the principles of natural justice which applies in favour of assessee also equally applies in favour of the Revenue, since both are parties in appeal before the learned CIT(A). Accordingly, we deem it appropriate to restore the appeal before the learned CIT(A) for de novo adjudication. We further direct the learned CIT(A) to not only share the information received, pursuant to summons under section 131 of the Act, with the AO but also grant opportunity of cross examination of the concerned persons of the broker to the AO. We also direct the AO to file its report/response before the learned CIT(A) pursuant to the above. The assessee shall also be at liberty to file rejoinder, if any, in reply to the report/response of the AO. Needless to mention that no order shall be passed without affording opportunity of hearing to both the sides. Accordingly, grounds raised by the Revenue are allowed for statistical purpose.

Issues Involved:
1. Validity of the conclusion that no trade was booked in the name of the Principal Investors Fund Inc. International Growth Fund.
2. Assessment of the assessee's presentation of details and misrepresentation of facts.
3. Evaluation of documentary proof provided by the assessee.
4. Consideration of facts brought out in the Remand Report.
5. Opportunity for the AO to cross-examine the representatives of the broker Macquarie Capital.
6. Deletion of penalty levied under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Conclusion on Trade Booking:
The Revenue challenged the CIT(A)'s conclusion that no trade was booked in the name of the Principal Investors Fund Inc. International Growth Fund. The CIT(A) based this conclusion on an affidavit from the broker, Macquarie Capital Securities (India) Private Limited, which stated that trades executed using the PAN of the Principal Investors Fund were subsequently allocated to other sub-accounts. The Tribunal found merit in the Revenue's submission that the CIT(A) did not provide the AO with an opportunity to cross-examine the broker's representatives or review the additional documents furnished.

2. Assessment of Misrepresentation of Facts:
The Revenue argued that the assessee presented untruthful details and repeatedly misrepresented facts, misleading the Revenue authorities. The Tribunal noted that the CIT(A) did not adequately address these concerns and did not provide the AO with an opportunity to cross-examine the broker's representatives, which could have clarified the matter.

3. Evaluation of Documentary Proof:
The CIT(A) accepted the documentary proof provided by the assessee, including the broker's affidavit, without giving the AO a chance to cross-examine the broker or review the additional evidence. The Tribunal highlighted the importance of allowing the AO to examine the evidence and cross-examine the broker to ensure a fair assessment.

4. Consideration of the Remand Report:
The Tribunal found that while the CIT(A) sought a remand report from the AO, the subsequent issuance of summons under section 131 and the additional information received were not shared with the AO. The Tribunal emphasized the need for the AO to have access to all relevant information and the opportunity to cross-examine the broker's representatives.

5. Opportunity for AO to Cross-Examine Broker Representatives:
The Tribunal underscored the principle of natural justice, stating that both the assessee and the Revenue should have the opportunity to cross-examine witnesses and review all relevant evidence. The Tribunal cited the Supreme Court's judgment in Andaman Timber Industries vs. Commissioner of Central Excise, which held that not allowing cross-examination of witnesses relied upon by the adjudicating authority is a serious flaw.

6. Deletion of Penalty under Section 271(1)(c):
The CIT(A) deleted the penalty levied under section 271(1)(c) based on the deletion of the addition on merits. Since the quantum appeal for the assessment year 2010-11 was remanded for de novo adjudication, the Tribunal also remanded the penalty appeal for the same year for fresh adjudication.

Conclusion:
The Tribunal allowed all the appeals by the Revenue for statistical purposes, remanding the matters to the CIT(A) for de novo adjudication. The CIT(A) was directed to share the information received under section 131 with the AO, allow the AO to cross-examine the broker's representatives, and provide both parties with the opportunity to present their case. The Tribunal emphasized the principles of natural justice and the need for a fair and thorough examination of all evidence and testimonies.

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