Delhi High Court
Cit vs Pc Chemicals on 13 September, 2012
Author: S.Ravindra Bhat
$~10 to 17
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 13th September, 2012.
+ ITA 281/2012
+ ITA 285/2012
+ ITA 364/2012
+ ITA 365/2012
CIT ..... Appellant
Through: Ms. Suruchi Aggarwal, Sr. Standing
Counsel.
versus
PC CHEMICALS ..... Respondent
Through: Mr. S. Krishnan, Advocate.
+ ITA 282/2012
+ ITA 286/2012
+ ITA 287/2012
+ ITA 366/2012
CIT ..... Appellant
Through: Ms. Suruchi Aggarwal, Sr. Standing
Counsel.
versus
ASHOK PRASAD GUPTA ..... Respondent
Through: Mr. S. Krishnan, Advocate.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
ITA Nos.281/2012 & conn. Page 1 of 5
S. RAVINDRA BHAT,J: (OPEN COURT)
1. The Revenue is aggrieved in these appeals by orders of the Income Tax
Appellate Tribunal („Tribunal‟, for short) and they are disposed of by this common
judgment since the subject matter of these appeals is common. The question of law
sought to be urged is whether the Tribunal fell into error in not remanding the matter
to the Assessing Officer for providing opportunity to the assessee to furnish relevant
and material documents instead of deleting the addition.
2. Briefly the facts are that pursuant to the search and seizure under Section 132
of the Income Tax Act, 1961 („Act‟, for short) on 15.12.2004 in the premises of one
Brij Mohan Gupta, certain documents and the materials were found and seized. On
the basis of the statements of his son and accountant, the Assessing Officer reopened
the assessment of the assessees herein. During the course of the reassessment
proceedings, the Assessing Officer placed reliance upon the statement of Brij Mohan
Gupta and certain other materials which according to him were relevant and pertain to
the assessee. On that basis the Assessing Officer framed the assessments. The
assessees claimed to be aggrieved and carried the matter in appeal before the CIT
(Appeals) who by his order set-aside the assessments even while upholding the notice
under Section 148 of the Act. The Revenue as well as the assessees went into cross
appeals to the Tribunal. The Revenue‟s appeal was rejected by the Tribunal which
affirmed the observations of CIT (Appeals) with regard to denial of opportunity. As
far as the assessee‟s appeal was concerned, it was dismissed as not pressed. The
Tribunal held as follows: -
"11. Having heard the parties and having perused the material on
record, we do not find any force in the contentions of the department.
Undeniably, there is no material brought on record by the AO to
support the additions, which were based on mere conjectures and
surmises, without any evidence calling for such additions. Further, the
very statement forming the basis of the additions, i.e., the statement of
ITA Nos.281/2012 & conn. Page 2 of 5
Shri B. M. Gupta, was never provided to the assessee. The assessee
was thus never confronted with the material on which the additions
were based. The action of the AO was, therefore, hit by the principles
of natural justice. The assessee was condemned unheard."
3. The Revenue relies upon the recent decision of the Supreme Court reported as
ITO v. M. Pirai Choodi, (2011) 334 ITR 262 (SC). In this case the Court had
disapproved the approach of the concerned High Court which set-aside an order of
reassessment on the ground of the assessee not having been given opportunity to
cross-examine the concerned witness. The relevant observations of the Supreme
Court in this regard are as follows: -
".......We are of the view that the High Court should not have set aside
the entire assessment order. At the highest, the High Court should
have directed the Assessing Officer to grant an opportunity to the
assessee to cross-examine the concerned witness. Be that as it may, we
are of the view that, even on this particular aspect, the assessee could
have gone in appeal to the Commissioner of Income-tax (Appeals).
The assessee has failed to avail of the statutory remedy. In the
circumstances, we are of the view that the High Court should not have
quashed the assessment proceedings vide the impugned order."
4. In the present case too this Court is of the view that once the Assessing Officer
was of the opinion that the relevant materials and documents necessitated a conclusion
and he even proceeded to state (as he did in the assessment order) that such materials
were shown or disclosed to the assessee‟s representative - it was incumbent upon him
to discuss and advert to those facts. The counsel for the assessee disputed that in fact
such material was ever disclosed. We do not wish to enter into this controversy except
to state that since the Assessing Officer was of the distinctive opinion that the material
obtained during the search of B. N. Gupta and his associates‟ premises yielded some
relevant materials, he ought to have disclosed them to the assessee. But that did not
happen. In this context this Court recollects the Constitution Bench judgment in
ITA Nos.281/2012 & conn. Page 3 of 5
Dhakeswari Cotton Mills Ltd. V. Commissioner of Income-tax, West Bengal v. CIT, 26
ITR 775 (SC) wherein the Court had then very presciently observed as follows: -
"As regards the second contention, we are in entire agreement with the
learned Solicitor-General when he says that the Income-tax Officer is
not fettered by technical rules of evidence and pleadings, and that he is
entitled to act on material which may not be accepted as evidence in a
court of law, but there the agreement ends; because it is equally clear
that in making the assessment under sub-section (3) of Section 23 of
the Act, the Income-tax Officer is not entitled to make a pure guess and
make an assessment without reference to any evidence or any material
at all. There must be something more than bare suspicion to support
the assessment under Section 23(3). The rule of law on this subject
has, in our opinion, been fairly and rightly stated by the Lahore High
Court in the case of Seth Gurmukh Singh v. Commissioner of Income-
tax, Punjab.
In this case we are of the opinion that the Tribunal violated
certain fundamental rules of justice in reaching its conclusions.
Firstly, it did not disclose to the assessee what information had been
supplied to it by the departmental representative. Next, it did not give
any opportunity to the company to rebut the material furnished to it by
him, and lastly, it declined to take all the material that the assessee
wanted to produce in support of its case. The result is that the assessee
had not had a fair hearing. The estimate of the gross rate of profit on
sales, both by the Income-tax Officer and the Tribunal, seems to be
based on surmises, suspicions and conjectures."
5. The present case is no different. The assessment order is bereft of any
discussion as to what were the materials adverse to the assessee and what was the
inference that could be drawn in the light of those materials and documents.
Consequently, even while we do not fault the Tribunal‟s reasoning about the denial of
opportunity to the assessee, the outcome has to be slightly different especially in the
light of the decision of the Supreme Court in M. Pirai Choodi (supra). Resultantly
these matters have to be remitted for fresh consideration by the Assessing Officer who
ITA Nos.281/2012 & conn. Page 4 of 5
shall proceed to make available the necessary documents, adverse to the assessee, and
proceed in accordance with Section 69A of the Income Tax Act, 1961. The order so
made shall appropriately discuss the materials as well as the assessee‟s explanation in
that regard.
6. The Revenue‟s appeals are allowed in the above terms.
S. RAVINDRA BHAT, J.
R.V.EASWAR, J.
SEPTEMBER 13, 2012
hs
