2023 (4) TMI 196 - HC - Income Tax

Unexplained creditors - AO denied afford an opportunity to the appellant to cross-examine the transporters and for disbelieving the evidence adduced such as TDS certificates - Tribunal discredit the documentary evidence i.e. the TDS certificate and annual return of deduction of tax filed in Form No.26 (c) by the assessee and rely upon the oral evidence of the sundry creditors given behind the back of the assessee - HELD THAT - Revenue authorities had relied upon statements and evidence made by the creditors adverse to the appellant, which were not furnished to the appellant. That apart, claim of the appellant to cross-examine the transporters who according to the appellants had issued confirmation letters about the outstanding credits but subsequently retracted was denied. Revenue had evidently relied upon the sworn statement of Mr. Kuldip Vasta recorded u/s 131(1)(b) of the Act which was adverse to the appellant. Therefore, the appellant should have been afforded an opportunity to rebut the same by cross-examining the deponent for extracting the truth. Failure to provide such an opportunity amounted to violation of the principles of natural justice which vitiated the order of the Tribunal. As following the decisions of the Supreme Court in M/s. Kishinchand Chellaram 1980 (9) TMI 3 - SUPREME COURT and Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT we are of the considered opinion that findings rendered by the revenue authorities stood vitiated for failure on their part to afford an opportunity to the appellant to cross-examine the transporters and for disbelieving the evidence adduced such as TDS certificates. Decided in favour of the assessee.

Issues Involved:

1. Whether the Tribunal could ignore and discredit the documentary evidence i.e., the TDS certificate and annual return of deduction of tax filed in Form No.26 (c) by the assessee and rely upon the oral evidence of the sundry creditors given behind the back of the assessee?

Issue-wise Detailed Analysis:

1. Tribunal's Reliance on Oral Evidence Over Documentary Evidence:

The appellant, a commission agent for M/s. Parle Products, Mumbai, filed a return of income for the assessment year 2001-2002, which was selected for scrutiny. The assessing officer disallowed an amount of Rs.11,71,893.00 shown as receipts from trade creditors, resulting in a taxable income of Rs.15,86,408.00. The appellant's appeal to the Commissioner of Income Tax (Appeals) and subsequently to the Tribunal was unsuccessful. The Tribunal upheld the addition of Rs.11,71,893.00, leading to the present appeal.

The appellant argued that the Tribunal ignored documentary evidence, such as TDS certificates, and relied on the oral evidence of sundry creditors, which was not furnished to the appellant. The appellant was not allowed to cross-examine the creditors, which was a material irregularity. The appellant cited the Supreme Court judgments in M/s. Kishinchand Chellaram v. Commissioner of Income Tax and Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II to support this contention.

The respondent argued that due opportunity of hearing was granted to the appellant and that the issue raised was factual, which had been examined by the assessing officer and two lower appellate authorities. Therefore, it was not appropriate to reopen such findings of fact in an appeal under Section 260A of the Act.

2. Examination of Orders Passed by Revenue Authorities:

The appellant submitted confirmation letters from four transporters, which were denied by the transporters upon verification by the assessing officer. The assessing officer relied on a sworn statement by Mr. Kuldip Vasta, proprietor of M/s. Trans India Express, who denied receiving Rs.7,83,986.00 from the appellant. The assessing officer added the amounts shown as outstanding to the total income of the appellant.

The first appellate authority upheld the assessing officer's order, stating that the credits amounting to Rs.11,71,893.00 were not established beyond doubt. The Tribunal also upheld the addition, stating that cross-examination was not always necessary.

3. Violation of Principles of Natural Justice:

The appellant was not informed about Mr. Kuldip Vasta's sworn statement under Section 131 of the Act. The assessing officer's letter dated 20.02.2004 did not disclose the adverse statement or offer the appellant an opportunity to confront Mr. Kuldip Vasta.

The first appellate authority and the Tribunal did not provide the appellant with the statement made by Mr. Kuldip Vasta. The Tribunal relied on the statement without allowing the appellant to cross-examine Mr. Kuldip Vasta.

4. Supreme Court Precedents:

In M/s. Kishinchand Chellaram, the Supreme Court held that reliance on a document not shown to the assessee and without an opportunity to cross-examine the deponent amounted to a violation of the principles of natural justice. Similarly, in Andaman Timber Industries, the Supreme Court held that not allowing the assessee to cross-examine witnesses whose statements were the basis of the impugned order was a serious flaw, making the order a nullity.

Conclusion:

The revenue authorities relied on adverse statements and evidence not furnished to the appellant and denied the appellant the opportunity to cross-examine the transporters. This amounted to a violation of the principles of natural justice, vitiating the order of the Tribunal. Consequently, the findings rendered by the revenue authorities stood vitiated, and the appeal was allowed in favor of the assessee. The question framed was answered in favor of the assessee and against the revenue. The appeal was allowed with no costs, and miscellaneous applications pending in the appeal were closed.

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