Income Tax Appellate Tribunal - Mumbai
Mohanlal R. Daga vs Income Tax Officer [Alongwith Ita No. ... on 22 September, 2004
Equivalent citations: (2005)92TTJ(MUM)1236
ORDER
S.R. Chauhan, J.M.
1. ITA No. 7845/Mum/2003 and 7963/Mum/2003 are appeals by assessee namely Smt. Sampat Devi M. Daga and Mohanlal R. Daga respectively for asst. yr. 1998-99 and are directed against two separate orders of CIT(A), Murnbai each dt. 26th Sept., 2003.
2. We have heard the arguments of both sides and have also perused the records.
3. The facts, in brief, are that Mohanlal R. Daga, assessee in ITA No. 7963/Mum/2003 is carrying on the business of corrugated rolls and boxes. He had made a voluntary disclosure under VDIS 1997 disclosing 71 carats of loose diamonds along with other gold ornaments and the disclosure was accepted by the CIT. The assessee showed the sale of above diamonds weighing 71 carats and of gold ornaments claiming long-term capital gain/loss in the return for asst. yr. 1998-99 filed on 29th Oct., 1998. The original assessment was made on 25th Jan., 2001 under Section 143(3).
4. Similarly, in the case of Smt. Sampat Devi M. Daga, assessee in ITA No. 7845/Mum/2003, she had made a voluntary disclosure under VDIS 1997 disclosing possession of 65..90 carats of loose diamonds and other gold ornaments accepted by CIT. She filed her return of income for asst. yr. 1998-99 on 26th Oct., 1998, wherein she showed sale of 65.90 carat loose diamonds and gold ornaments claimed long-term capital gain/loss. The return was processed under Section 143(1)(a). The original assessments were reopened in the cases of both the above assessee's by issuing notices under Section 148 on 11th June, 2001, in the case of Smt. Sampat Devi and on 19th Feb., 2002 in the case of Mohanlal Daga. The assessee Mohanlal vide letter dt. 25th Feb., 2002, requested the AO to supply him the reasons for reopening assessment, but, the same were not supplied. Similarly, the reasons for reopening were not supplied to Smt. Sampat Devi despite request.
5. A survey action under Section 133A was taken on 30th/31st March, 2000 by ITO, Thane, against Vishnu Dutt Trivedi (VDT) Proprietor of M/s Dhanunjay Diamonds (DD) and his statements were recorded on 30th March, 2000 and 31st March, 2000, on the basis of which the assessments in the case of these two assessee's were reopened.
6. In the reassessments under Section 147 in the cases of Mohan Lal Daga and Smt. Sampat Devi the ITO made additions of Rs. 11,18,250 and Rs. 10,43,595 respectively as income from undisclosed sources. The said additions have been sustained by the CIT(A). Hence, these two assessees are in appeal before the Tribunal. In the cases of both the assessees-appellants, revised grounds of appeal have been filed before us and so we will consider these appeals on the basis of revised grounds of appeal.
7. First we take up the case of Mohanlal Daga, being ITA No. 7963/Mum/2003. The revised ground No. 1 disputes the validity of issuance of notice, reopening of assessment and reasons due to not letting the assessee-appellant to know the reasons recorded for reopening of assessment. The learned Authorised Representative of assessee has contended that after receiving notice under Section 148, the assessee-appellant requested the AO to supply the reasons for issuing of notice under Section 148 to the assessee (p. 31 of paper book), but, the same have not been supplied to the assessee till date. He has contended that the reopening of assessment and the resultant reassessment made under Section 147 are bad in law and invalid. He has cited the following decisions in his support:
(1) Comunidade of Chicalim v. ITO and Ors. (2002) 258 ITR 183(Bom) (2) GKN Driveshafts (India) Ltd. v. ITO and Ors. (2003) 259 ITR 19 (SC).
8. As against the above, the learned Departmental Representative has contended that if reasons of reopening recorded by AO are not given to the assessee, then the defect is curable and the matter should go back to the AO for communicating the reasons to the assessee and thereafter to reframe the assessment. In this regard, he has relied on Gehna v. Union of India and Anr. (2004) 267 ITR 782 (Raj).
9. We have considered the rival contentions, relevant material on record as also the cited decisions. In (2002) 258 ITR 183 (Bom) (supra) notice under Section 148 of the Act was issued, but the assessee had pleaded that the reasons for reopening, i.e., reasons to believe escapement from income, had not been disclosed. Although the ITO had filed affidavit denying the allegation, but there was no material on record to justify the denial. There was no material in the affidavit to show that the escapement was by reasons of the omission for failure on the part of the assessee to make the return or to disclose fully or truly, all material facts necessary for the assessment for the year in question. In these circumstances, it was held that the mandatory requirement of Section 148 was not complied with and, therefore, the notice issued under Section 148 was liable to be quashed.
10. In GKN Driveshafts (India) Ltd. v. ITO (supra) it has been held that when a notice under Section 148 is issued, the proper course of action for the noticee is to file the return and to seek reasons for issuing notice and then AO is bound to furnish reasons within a reasonable time. It has also been held that on receipt of reasons, the noticee is entitled to file objections to the issuance of notice and the AO is bound to dispose of the same by passing a speaking order.
11. In (2004) 267 ITR 782 (Raj) (supra), the judgment of Hon'ble Supreme Court in (2003) 259 ITR 19 (SC) (supra) has been followed and the AO having not supplied the reasons to the assessee, the matter was remanded to AO to supply the reasons for issuance of notice under Section 148 to the assessee within 30 days with liberty to assessee to file objections whereupon the AO to decide the objections.
12. However, in the case decided by Hon'ble jurisdictional High Court reported, in (2002) 258 ITR 183 (Bom) (supra), apart from non-supply of reasons of reopening assessment to the assessee, there was also the fact that no material was placed on record before the Hon'ble High Court nor was there any material in affidavit of ITO to show reasons for issuing notice under Section 148. But in the instant case, the AO has discussed the relevant facts in reassessment. As such respectfully following the legal position emanating from the aforesaid judgments, we are of the view that the AO ought to have supplied the reasons to believe escapement of income from assessment to the assessee particularly when specific request for the same had been made to the AO, and thus the AO failed to comply with the mandatory requirement. However, we are not setting aside the matter to AO for making the above compliance as no material prejudice is caused to the assessee in view of the finding we are arriving at on merits.
13. Revised ground no. 2 along with its parts (i) and (ii) dispute the addition of Rs. 11,18,250 made by AO on account of alleged bogus sales. The learned Authorised Representative of assessee has contended that the present assessee (Mohanlal R. Daga) had sold loose diamonds weighing 71 cts. To M/s Dhananjay Diamonds, being the proprietary concern of Vishnudutt Trivedi and the said sale was accepted in original assessment made under Section 143(3) on 25th Jan., 2001. He has also referred to p. 5 of paper book being Annexure of return, for long-term gain/loss contending that at Sr. No. B Diamond 71 cts., sale consideration Rs. 11,18,250 have been shown together with long-term capital gain of Rs. 1,70,491. Referring to p. 56 paper book he has also contended that the certificate under Section 68(2) of VDIS, 1997 has been issued wherein the assessee's possession of loose diamonds along with gold jewellery valued at Rs. 6.35 lakhs as per the valuation as on 1st April, 1987 has been reflected. He has contended that the declaration under VDIS are available on record from p. 57 to 61 paper book, valuation report is placed on 62 to 64 paper book. He has contended that the affidavit of assessee explaining the details of acquisition and utilisation of assessee's jewellery as also loose diamonds weighing 781 cts. has been furnished. He has contended that in the reopened assessment (reassessment), the AO made addition on the basis of this sale of loose diamonds weighing 71 cts. which is not justified inasmuch as the assessee has explained and furnished the supportive evidence. He has contended that the sale of 71 cts. of diamonds by assessee is supported by sales certificate dt. 7th Jan., 1998 p. 93 paper book of M/s Dhananjay Diamonds. He has contended that the AO's case is that this sale of diamond is only a paper transaction and is bogus and that the assessee had routed assessee's own unaccounted money through VDT, proprietor of M/s Dhananjay Diamonds. He has contended that for making the addition as above in the hands of assessee, the AO has relied on the first and second statements of VDT recorded on 30th March, 2000 (pp. 83 to 87 paper book) and 31st March, 2000 (pp. 88 to 92 paper book) respectively and ignoring his third statement recorded on 25th Oct., 2002 (pp. 55A to 55F paper book). He has contended that the abovementioned first and second statements of VDT were recorded during survey in the case of VDT and the statements are quite general as well and do not make any mention of assessee. He has contended that the said first and second statements were not recorded in the case of assessee, and the same have also been retracted by VDT vide assessee's letter dt. 4th April, 2000 placed on p. 55G paper book, wherein he asserted that he had made the purchases and correctly issued the bills. He has contended that the Department has relied on those two statements dt. 30th and 31st March, 2000 whereas the same cannot be read/used against assessee as the same were not recorded in the case of assessee nor the assessee has been provided opportunity to cross-examine VDT in respect of those statements; and even the copies of those statements were supplied to assessee along with the assessment order only as attached therewith and the same is mentioned in the assessment order. He has contended that the only statement recorded in the case of assessee is that of 25th Oct., 2002 (pp. 55A to 55F paper book) when the AO issued summons to VDT who appeared before AO in response thereto on 25th Oct., 2002 when he was examined by AO and that in this statement (pp. 55A to 55F paper book) VDT has, in answer to question Nos. 15 to 18, 21 and 23 admitted the purchase of loose diamonds from assessee, taking physical delivery, making payment by account payee cheque and issuing purchase bill. He has contended that VDT is an income-tax assessee and this fact has been specifically stated by him in answer to question No. 25 (p. 55D, paper book). He has contended that the assessee's transaction of sale of loose diamonds is supported by VDT's aforesaid statement (pp. 55A to 55F, paper book) and affidavit (p. 53 paper book), having been given in response to summons issued to him by AO. He has contended that the details of payment are given on p. 54 paper book; that two cheques had rebounced and thus VDT gave fresh cheques, which were cleared. He has contended that the assessee had given the diamonds to VDT on 7th Jan., 1998 and VDT has given postdated cheques to him as detailed on p. 54 paper book. He has contended that the Department's stand is not correct regarding, giving of cash back by assessee to VDT, there is no evidence regarding the same, and otherwise why the two cheques would have bounced if the transaction had been a bogus one. He has contended that the assessee has furnished the summary of cash book and the Department has accepted assessee's long-term capital gain in original assessment under Section 143(3). The learned Authorised Representative of assessee has contended that for coming to a right conclusion, the statement should be read as a whole. In this regard, he has cited the following decisions:
1. Glass Line Equipments (P) Ltd. v. CIT (2002) 253 ITR 454 (Guj)
2. Chander Mohan Mehta v. Asstt. CIT (1999) 65 TTJ (Pune) 327 : (1999) 71 ITD 245 (Pune).
He has contended that the assessee has proved the identity of the purchaser as also his credit-worthiness and furnished copy of the bank statement of VDT. He has contended that the genuineness of transaction has also been established by assessee on the basis of VDT's statement dt. 25th Oct., 2002 (pp. 65A to 55F, paper book) affidavit (pp. 53 to 55 paper book), purchase bill (p. 9,3 paper book), VDIS certificate, bank statement etc. He has cited Dy. CIT v. Rohini Builders (2002) 256 ITR 360 (Guj). He has contended that similar addition was deleted by Hyderabad Tribunal in the case of Harish Kumar v. Dy. CIT (2003) 80 TTJ (Hyd) 174 : (2003) 85 ITD 366 (Hyd) in his support.
14. As against the above, the learned Departmental Representative has contended that in making the addition in the case of assessee, the AO has rightly relied on assessee's first and second statements dt. 30th March, 2000 and 31st March, 2000 having been made during survey at the premises of VDT, which were made in natural course; and in those statements VDT, having not mentioned the name of assessee nor any other specific thing against assessee rather shows that the statements were made without any force or pressure by the Department. He has contended that in those two statements VDT had elaborately explained, in general, his manner of making transactions, being made on paper only and not real ones. He has contended that in retraction, VDT has not controverted the facts given in those statements and retraction letter is not an affidavit. He has contended that the retraction letter dt. 4th April, 2000 was received by Department on 18th July, 2000 as has been mentioned in learned CIT(A)'s order in para 12 on p. 8. Referring to VDT's answer to question No. 33 on p. 55E, paper book, he has contended that his books being under seizure and lying with his ITO and he is saying that he does not remember the details of the transaction, so his affidavit need not be given much importance. He has also contended that in the earlier statements dt. 30th and 31st March, 2000, the Department need not record the names of all the parties with whom he has entered into bogus transactions. Regarding bouncing of cheques, he has contended that VDT was operating 5 or 6 accounts and may be that he could not transfer amount in the particular bank account by that time, and so the fact of bouncing of cheques does not establish the genuineness of the transaction. He has contended that the learned CIT(A) has elaborately discussed the issue and he relies thereon; and that the Authorised Representatives citations are distinguishable on facts. He has contended that the opportunity for cross-examination of VDT was not asked for by assessee.
15. We have considered the rival contentions, relevant material on record and also the cited decisions. As regards the first and second statements of VDT, the same having been recorded not during the proceedings pertaining to assessee, but during survey in the case of VDT, the copies of the same having not been supplied to the assessee prior to assessment and supplied only as attached with the assessment order and opportunity for cross-examining VDT in respect of those statements having not been accorded to the assessee, the same cannot be read/used against assessee. The question of assessee's self asking for cross-examination of VDT in respect of those two statements dt. 30th and 31st March, 2000 does not arise when the copies of the same had not been supplied to the assessee before making assessment. Besides, it is the basic principle of law that without affording opportunity of cross-examination, a statement recorded at the back of assessee will not partake of the nature of evidence against assessee and cannot be read/used against assessee. Even apart, the said statements have been retracted by VDT vide his letter dt. 4th April, 2000 (p. 55G, paper book) and the same was despatched by registered post on 11th April, 2000 vide postal receipt placed on p. 55H paper book and was delivered to the Department vide AD receipt dt. 17th April, 2000 as placed on p. 55-1 paper book. Its receipt on 18th July, 2000, as mentioned in para 12 p. 8 of his order seems to be due to some typographical error. In the said retraction (p. 55G) VDT has mentioned that those statements were given by him as directed by the Department and he was under the state of total confusion. He has also mentioned in the said retraction letter that he had made the purchases, correctly issued bills, accounted for in his books and also furnished to the ST Department. He has supported the purchase of 71 carats of diamonds from assessee by his affidavit and statement dt. 25th Oct., 2002 recorded by AO when he made his attendance before AO in response to the summons issued to him by AO during assessment proceedings pertaining to present assessee. The sale of diamonds by present assessee to VDT is also supported by VDT's purchase bill (p. 93 paper book); the payments have been made by VDT to assessee by account payee cheques and the same is corroborated by bank statement. This transaction of sale of 71 carats of loose diamonds by assessee to VDT has already been accepted in assessee's original assessment under Section 143(3). There is no evidence on record that any cash amount was paid back by assessee to VDT. The possession of loose diamonds by assessee is proved by assessee's declaration under VDIS. As such, considering all the facts and circumstances of the case together with the legal position, we find no justification for holding the sale of loose diamonds by assessee to M/s Dhananjay Diamonds as bogus order as a mere paper transaction and not genuine, and in turn for making/sustaining addition. We, therefore, delete the addition.
16. In the result, assessee's appeal no. 7963/Mum/2003 is allowed.
17. Now we take up ITA No. 7845/Mum/2003 being appeal by assessee named Smt. Sampat Devi. We will decide the appeal considering only the revised grounds of appeal. Revised ground no. 1 disputes the reopening of assessment but, the same has not been pressed before us by the learned Authorised Representative of assessee during arguments and so the same is dismissed accordingly.
18. Revised ground Nos. 2(i) and (ii) dispute the addition of Rs. 10,43,595 made/sustained by treating the sale of loose diamonds weighing 65.90 carats by assessee to M/s Dhananjay Diamonds, proprietary concern of VDT as bogus. Both the rival representatives have relied on their same contentions as relied by them on similar issue in the case of Mohanlal R. Daga, in ITA No. 7963/Mum/2003, as discussed by us above; submitting that the facts of both the cases are identical.
19. We have considered the rival contentions, relevant material on record as also the cited decisions. In the case of assessee Smt. Sampat Devi Daga also, the addition has been made by AO by treating the sale as bogus on the basis of VDT's statements dt. 30th and 31st March, 2000, recorded during survey in the case of VDT, and not during assessment proceedings of Smt. Sampat Devi Daga. The copies of statements were supplied as attached to assessment order and no opportunity of cross-examining VDT in respect of those statements was afforded to assessee. The statement recorded during assessment proceedings of present assessee Smt. Sampat Devi Daga is one dt. 25th Oct., 2000 wherein VDT has supported the assessee's case by admitting purchase, making payment by account payee cheques and issuing purchase bill. VDT also furnished his affidavit dt. 25th Oct., 2000 corroborating the transaction as pleaded by assessee, when he appeared before AO in response to the summons issued to him by AO. The earlier statements dt. 30th and 31st March, 2000 have been retracted by assessee. As such, considering all the facts and circumstances of the case as also the situation that the facts of this case are identical with those of Mohanlal Daga's case, we follow our decision rendered above on similar issue in the case of Mohanlal Daga in ITA No. 7963/Mum/2003 and hold accordingly and, in turn, delete the addition.
20. In the result, assessee's Appeal No. 7845/Mum/2003 is allowed.