2008 (4) TMI 357 - AT - Income Tax

Correctness of initiating proceedings under s. 153A of the IT Act - addition on account of under pricing in the sales shown in the books of account - It is the case of the assessee that no search has been initiated in its case therefore resort to s. 153A was in violation of law - HELD THAT - There is no material on record to suggest that any exercise which has been mentioned in the provisions of s. 153C has been adopted. There is no force in the argument of learned Departmental Representative that such argument of the assessee is only technical therefore assessment framed on the assessee without following the procedure laid down in s. 153C cannot be held to be invalid. There may be a valid search in the case of said Shri Sandeep Bansal but assessment under s. 153A could be made only in his hands and not in the case of assessee unless procedure laid down in s. 153C is followed. Such defect in framing the assessment is a jurisdictional defect which cannot be cured and assessment has to be held to be invalid because the AO did not have any jurisdiction to assess the assessee without adopting the procedure laid down in s. 153C as the search was neither initiated nor conducted in the case of assessee. There was no warrant of authorization to conduct search on the assessee and no search was initiated or conducted in the case of the assessee. To further explain that the assessments framed in the hands of assessee company under s. 153A are not valid it is observed that the provisions of s. 153C(1) are almost similar to provisions of s. 158BD which is applicable to the searches conducted upto the day of 31st May 2003. In view of these observations it will be incorrect to say that non-fulfilment of conditions precedent for invoking provisions of s. 153C is merely a technical defect which can be cured. Reference here also can be made to the decision of Hon ble Calcutta High Court in the case of Sunrolling Mills (P) Ltd. vs. ITO 1985 (5) TMI 9 - CALCUTTA HIGH COURT wherein the AO had proceeded on the basis of s. 147(b) and AO sought to justify the proceedings at the time of reassessment as if they were taken under s. 147(a). There is a difference between these two sections as under s. 147(b) the requirement is that the information should come to the AO subsequent to the making of original assessment whereas s. 147(a) requires that escapement of income has occurred by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The argument of learned Departmental Representative that in view of s. 292B the assessments of the assessee could not be held invalid does not hold good and has to be rejected -Though it has been held by us that assessment framed are invalid but for the sake of completeness we also decide the other issues raised in these appeals. In the present case the assessee has been demanding the cross-examination of the person on the basis of whose statement addition has been made. The said opportunity for cross-examination has not been given to the assessee on the pretext that the affidavit of Shri Sandeep Bansal was an afterthought. It is the mandate of law that statement which is being relied against a person that person should be given an opportunity of cross-examination and unless the opportunity is given the addition cannot be held to be valid only on the ground that there was a violation of principle of natural justice as opportunity of cross-examination was not given to the assessee and such mandate of law is clear from the aforementioned decision of the Hon ble jurisdictional High Court in the case of CIT vs. SMC Share Brokers Ltd. 2006 (8) TMI 110 - DELHI HIGH COURT . Moreover the documents recovered from the residential premises of said Shri Sandeep Bansal can by no stretch of imagination be related to the assessee for framing the assessment under s. 153A without resorting to s. 153C. Thus the documents recovered from the residential premises of said Shri Sandeep Bansal cannot be the basis for making addition. Neither the statement of the said Shri. Sandeep Bansal has undergone a test nor affidavit submitted by him has undergone a test. Therefore nothing conclusive can be inferred either from statement or from affidavit. AO has also pointed out that the records recovered from the residential premises of said Shri Sandeep Bansal in respect of expenditure were in complete agreement with the regular books of account. In our opinion the same has no relevance to draw a conclusion that in respect of over-billing also the record seized will be correct as the said conclusion will be based on mere presumption without verifying the truth thereof. Allegation of the AO regarding payments received on account of over-billing from Chopra Group of cases no material has been brought on record by the Revenue that in fact any extra amount was received by the assessee from Chopra Group. It has already been pointed out that it was a matter of investigation and enquiry on the basis of which alone such addition could have been made. Keeping in view the above facts it is clear that addition has been made in violation of principle of natural justice as no opportunity was afforded by the AO to the assessee for cross-examination of said Shri Sandeep Bansal despite the repeated requests made in this regard. Therefore also the addition is liable to be deleted. To support such conclusion reliance can be placed on the decision in the case of Kalra Glue Factory vs. Sales-tax Tribunal Ors. 1987 (3) TMI 110 - SUPREME COURT . In the said case the appeal of the assessee was allowed solely on the ground that the statement of Bankelal which was not tested by cross-examination was used in order to reach the conclusion that the transaction was an inter-State sale. AO did not comment on such submission of the assessee. If there is an allegation of having receipt extra consideration and it is denied by the assessee by producing sufficient evidence to contend that such allegation of having received extra consideration is not supported by surrounding facts the said evidence cannot be rejected on the face of it without making verification in this regard. The evidence submitted by the assessee was documentary evidence containing all necessary particulars which included name of the seller name of the buyer type of commodity its quantity and rate. The parties between whom these transactions were made were also identifiable from where relevant enquiries could be made. Such evidence could not be rejected merely on the ground. that the statement of said Shri Sandeep Bansal has more evidentiary value than the evidence produced by the assessee. It has already been pointed out that the said statement did not have any evidentiary value unless the same was put to the test of cross-examination. Learned CIT(A) also could not find any defect in the submissions of the assessee that the rate charged by it was comparable with the rates charged for similar goods by the other manufacturers. Though it has been observed by CIT(A) that assessee s quality may be better but he has not brought any evidence on record to substantiate that in fact the quality of the assessee could fetch extra price in the market. Thus on merits also addition made by the AO cannot be sustained and is liable to be deleted. Conclusions (i) that the assessments framed on the assessee Under Section 153A are invalid assessments as discussed in the body of this order. (ii) the additions made in the assessments on account of under billing are deleted on account of non observance of principles of natural justice as well as on account of merits as discussed in the body of this order. Disallowance on account of unpaid CST - Though we have held that assessments are invalid but for the sake of completeness we proceed to decide this ground. The AO disallowed this amount as the same was not paid during the year. Before CIT (A) it was pleaded that the payment was made before the due date of filling the return. However Ld. CIT(A) has upheld the disallowance on the ground that no proof of payment was furnished with the return of income. After hearing both the parties on this issue we restore this issue to the file of AO with a direction to verify the payment. If the payment is made before the due date if filling the income tax return than the same will be allowed. We direct accordingly. This ground is allowed for statistical purposes. In the result appeals filed by the assessee are allowed.

Summary

Issues Involved:
1. Validity of assessment under Section 153A of the IT Act.
2. Justification of additions made on account of under-billing.
3. Non-observance of principles of natural justice.
4. Disallowance of unpaid CST.

Issue-Wise Detailed Analysis:

1. Validity of Assessment under Section 153A of the IT Act:
The primary issue was whether the assessment framed under Section 153A was valid. The assessee contended that no search was initiated against it under Section 132, and thus, the provisions of Section 153A could not be invoked. The Tribunal examined the Panchnamas and search warrants, which were in the name of Shri Sandeep Bansal, an employee of the assessee, and not in the name of the assessee company. The Tribunal concluded that the prerequisite condition for the application of Section 153A was not fulfilled as no search was initiated against the assessee. Consequently, the assessments framed under Section 153A were deemed invalid.

2. Justification of Additions Made on Account of Under-Billing:
The assessee challenged the addition of Rs. 2,62,68,654 for the assessment year 2003-04 and Rs. 11,59,78,180 for the assessment year 2004-05, made on the basis of the statement of Shri Sandeep Bansal and documents seized from his residence. The Tribunal noted that the statement of Shri Sandeep Bansal was recorded behind the back of the assessee and no opportunity for cross-examination was provided. The Tribunal emphasized that the statement of Shri Sandeep Bansal could not be relied upon without cross-examination, and the documents seized from his residence could not be attributed to the assessee without independent corroborative evidence. The Tribunal also noted that the assessee had provided comparative sales data showing that its prices were comparable to market rates, which the AO and CIT(A) failed to rebut with concrete evidence. Therefore, the additions were deleted.

3. Non-Observance of Principles of Natural Justice:
The Tribunal found that the AO violated the principles of natural justice by not providing the assessee an opportunity to cross-examine Shri Sandeep Bansal despite repeated requests. The Tribunal held that the failure to provide such an opportunity invalidated the reliance on Shri Sandeep Bansal's statement for making additions. The Tribunal cited several judicial precedents emphasizing the necessity of cross-examination to uphold the principles of natural justice.

4. Disallowance of Unpaid CST:
For the assessment year 2003-04, the AO disallowed Rs. 69,438 on account of unpaid CST. The CIT(A) upheld the disallowance on the ground that no proof of payment was furnished with the return of income. The Tribunal restored this issue to the AO for verification, directing that if the payment was made before the due date of filing the income tax return, the same should be allowed.

Conclusion:
The Tribunal quashed the assessments framed under Section 153A as invalid due to the lack of a valid search against the assessee. The additions made on account of under-billing were deleted due to non-observance of principles of natural justice and lack of substantive evidence. The issue of unpaid CST was remanded to the AO for verification. The appeals filed by the assessee were allowed.