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TMI Blog2016 (2) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... xamination of Mr. Meattle. Two conclusions that could be drawn from the above narration are that there is no violation of principles of natural justice as far as the Assessee is concerned, and the uncontroverted statements of Mr. Jhunjhunwala were sufficient to substantiate the case of the Revenue against the Assessee. Penalty u/s 271(1)(c) - Held that:- Here the question is not mere making of a wrong claim but in making a claim that is demonstrably false. With the Assessee failing to establish the genuineness to the commission payments the essential conditions for attracting penalty under Section 271 (1) (c) of the Act stood fulfilled. The impugned orders of the ITAT and the CIT (A) deleting the penalty are hereby set aside. The penalty as ordered by the AO is restored. The question framed is answered in the negative, i.e., in favour of the Revenue and against the Assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... racts in respect of which the commission was paid continued for two to five years. It was stated that there was voluminous correspondence in respect of each of the contracts. Further, documents including bank statements of the Assessee for all the three years, receipts issued by the parties, confirming the receipt of commission, which contained their permanent account numbers ('PAN'), bank statement of TIP, one of the recipient company, and day-to-day correspondence were filed with the AO. 6. In May 1987, a search was conducted on the entities to whom commission was purportedly paid by the Assessee. According to the Revenue, during the course of search, Mr. M.K. Meattle, Managing Director (MD) of the aforementioned three payee companies admitted in a statement given on 15th September 1987 that the transactions with the Assessee were hawala entries. This information was then passed on to the AO of the Assessee who on 18th March 1988 issued notice under Section 148 of the Act for reopening the assessments for the AYs in question. The reason for issuance of notice was that there was tangible material to show that commission paid by the Assessee was not genuine. 7. Mr. Meattle gave a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee filed appeals before the CIT (A). The appeals for AYs 1981-82, 1982-83 and 1983-84 were dismissed by the CIT (A) by orders dated 16th May 1991, 15th April 1991 and 27th May 1991 respectively. The CIT (A) held that adequate opportunity to cross-examine the witnesses had been provided to the Assessee. 12. Against the orders of the CIT (A), appeals were filed by the Assessee before the ITAT. These appeals were disposed of by a common order dated 24th December 1993 by the ITAT holding that the AO should have granted some more time to the Assessee to gather the materials needed for a proper cross-examination of Mr. Meattle and Mr. Jhunjhunwala and that the request made in that behalf by the Assessee was bonafide and should have been accepted. The matter was therefore, restored to the file of the AO. 13. On remand, the AO asked the Assessee to be ready for cross-examination of Mr. Meattle and Mr. Jhunjhunwala on 27th February 1996. One day prior thereto, i.e., on 26th February 1996 the Assessee filed a letter with the AO requesting for supply of certain documents of the three payee companies (i.e EIP, TIP and BCP). On the day fixed for cross-examination at 11 am, Mr. Jhunjhu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) On a detailed analysis of the statements of Mr. Meattle and Mr. Jhunjhunwala, the ITAT concluded that Mr. Jhunjhunwala admitted to having been handed over by Mr. Jajodia the bearer cheques drawn on companies of Mr. Meattle and that he used to withdraw the said amount and handed it over to one Mr. Loknath who was introduced to him by Mr. Jajodia. While it could not be said that Mr. Jhunjhunwala drew support from Mr. Meattle, both had their independent roles to achieve one goal, i.e., to help the Assessee company to justify its claim before the Revenue authorities with respect to the payment of commissions which, according to Mr. Jhunjhunwala, were never paid. (iii) By refusing to cross-examine Mr. Jhunjhunwala, the Assessee should be taken to have admitted the statements made by him to be correct. The statement made by Mr. Jhunjhunwala could be accepted in its entirety against the Assessee. (iv) The Assessee having failed to cross-examine Mr. Meattle in the first round when the opportunity was granted, the Revenue could fall back on Section 33 of the Indian Evidence Act, 1872 (IEA) to use the evidence given by Mr. Meattle against the Assessee. (v) The Assessee had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vember 1990 and Question No. 2 dated 15th March 1991 Mr. Jhunjhunwala admitted that he knew Mr. Meattle. The statements of Mr. Jhunjhunwala were neither truthful nor trustworthy. The Assessee had sought to cross-examine Mr. Meattle in order to confirm the identity of the person who used to give him blank cheques. In the voluminous correspondence between Mr. Meattle and the Assessee there was no reference to Mr. Jhunjhunwala. Further Mr. Meattle stated that Mr. Jhunjhunwala had drawn the cheques. However, Mr. Jhunjhunwala on being shown the photocopies of cheques denied that they were in his handwriting. Although he claimed to know Mr. Jajodia who was related to the MD of the Assessee, and had helped the Assessee in its bogus transactions without any vested interest, Mr. Jhunjhunwala was not assigned any remunerative work/assignment. This showed that Mr. Meattle and Mr. Jhunjhunwala were in collusion with each other in order to implicate the Assessee and to evade payment of taxes on the income earned by the companies of Mr. Meattle. According to him, these facts could have been unearthed only after the cross-examination of Mr. Meattle. 21. In support of the proposition that the den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat date there was no response from the Assessee. On 29th January 1996 summons were issued to both Mr. Meattle and Mr. Jhunjhunwala requiring them to attend the hearing before the AO on 19th February 1996 for the purpose of their cross-examination by the Assessee. The Dy. Director of Income Tax (Investigation) (Headquarters), Bombay requested by a letter dated 29th January 1996 to trace the witnesses and to inform the AO if there had been any change in their addresses. Mr. Jhunjhunwala sent a letter dated 7th February 1996 expressing his inability to attend the hearing on 19th February 1996 and instead opted for 27th February 1996. On the adjourned date, 27th February 1996, he attended the hearing for cross-examination. In the case of Mr. Meattle, the summons sent at the last known address returned unserved. The ADIT (Investigation) Bombay by his letter dated 12th February 1996 stated that Mr. Meattle was not found in his premises as it was locked. A further letter was addressed to the DDIT on 19th February 1996 furnishing the last known address of Mr. Meattle. 25. By a letter dated 16th February 1996, the Assessee was asked by the AO to cross-examine the witnesses and to attend t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit in the contention of Mr. Vohra that Section 33 of IEA may not strictly apply in the facts and circumstances of the present case, nevertheless the fact remains that Mr. Jhunjhunwala was an important witness. He had made incriminating statements against the Assessee and the Assessee chose not to counter it. Despite opportunities, the Assessee declined to cross-examine Mr. Jhunjhunwala. There have to be consequences as a result of the failure by the Assessee to avail of the above opportunities. In A E G Carapiet v. A Y Derderian AIR 1961 Cal 359, it was held that "wherever the opponent has declined to avail himself of the opportunity to put his essential and material case in cross-examination, it must follow that he believed that the testimony given could not be disputed at all." Here, the AO proceeded to draw an adverse inference and considered the statement made by Mr. Jhunjhunwala as substantive evidence against the Assessee. The above conclusion of the AO cannot be faulted. 30. While the wisdom of applying Section 33 of the IEA to the evidence of Mr. Meattle may be doubtful, the Court is of the view that de hors the evidence of Mr. Meattle, the evidence of Mr. Jhun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the statement of the two persons mentioned above and no opportunity was allowed in the penalty proceedings." It was held that the penalty levied "without allowing opportunity to the company for cross-examination of both the persons are liable to be cancelled." It was concluded that the explanation offered by the Assessee was bonafide and "the additions made just on the statements of the two persons mentioned above does not amount to concealment or filing of inaccurate particulars of income." 37. The conclusion of the CIT (A) that no opportunity was given to the Assessee to cross-examine "both the persons" is factually erroneous. From the above narration it is plain that despite specific opportunities having been afforded to the Assessee, it declined to cross-examine Mr. Jhunjhunwala. The very basis on which the CIT (A) proceeded in the matter was, therefore, erroneous. 38. As far as the ITAT is concerned, one factor that appears to have weighed with it was that the Assessee's quantum appeal had been admitted by this Court. It was therefore concluded that "the issue is debatable" and the penalty was accordingly not leviable. The mere pendency of the quantum appeal could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on proving the genuineness of those payments. The conclusion that the payment of commission was bogus has been concurrently held by the CIT (A), by the ITAT and this Court. 42. Consequently, the essential conditions for attracting the penalty under Section 271 (1) (c) of the Act stand fulfilled in the present case. Further observed in Union of India vs. Dharmender Textile Processors (supra), the findings in the assessment (quantum) proceedings would be relevant and admissible in the penalty proceedings. The adverse inference against the Assessee for failing to cross-examine Mr. Jhunjhunwala would equally apply to the penalty proceedings. There was no necessity to again offer the Assessee a further opportunity of cross-examining Mr. Meattle and Mr. Jhunjhunwala in the penalty proceedings. 43. As already noted, the CIT (A) erred in proceeding to delete the penalty on the ground that the Assessee had been denied an opportunity of cross-examining both Mr. Meattle and Mr. Jhunjhunwala. The ITAT erred in concluding that the mere pendency of the Assessee's quantum appeal made the issue a debatable one. 44. The Court rejects the plea of the Assessee that the matter should be reman ..... X X X X Extracts X X X X X X X X Extracts X X X X
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