Kapil Kanodia, Mumbai vs Department Of Income Tax

आयकर अपील य अ धकरण, 'ए' खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI "A" BENCH सव ी आई पी बंसल , या यक सद य एवं राजे , लेखा सद य Before S/Sh. I P Bansal,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.8553/Mum/2010, नधारण वष/Assessment Year-2007-08 Income tax OfficerWard-1(3) Sh. Kapil Kanodia Vardaan Bldg. MIDC, WIE Flat No.1903, 19th FloorD-Wing, Thane(W)-400 601. Vs AsharResidency,Pokhran Rd.No.2, Vasant Vihar,Thane PAN: ALMPK 5768 L (अपीलाथ /Appellant) ( यथ / Respondent) नधा रती ओर से/Assessee by :Shri Vimal Punmiya राज व क ओर से/ Revenue by :Shri Asghar Zain सन ु वाई क तार ख/ Date of Hearing : 28-05-2015 घोषणा क तार ख / Date of Pronouncement : 28-05-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Inco me-tax Act,1961(Act) लेखा सद य राजे के अनुसार PER RAJENDRA, AM-

Challenging the order dated 19/08/2010 of the CIT(A)-II,Thane, the Assessing Officer(AO) has raised following Grounds of Appeal:

"1. Whether on facts and circumstances of the case, the Hon'ble CIT(A ) was justified in deleting the addition of Rs.21,53,067/- on account of unexplained investments.

2. the Assessing Officer craves leave to add, amend, alter or delete any ground of appeal."

Assessee,an individual, trading in yarn filed his return of income on 29/10/2007 declaring income of Rs.2.42 lacs. The AO completed assessement on 24/12/2009 u/s. 143(3) of the Act determining the income of the assessee at Rs.29.25 lacs.

2.Effective ground of appeal is about deletion of addition of Rs.21.53 lacs,made on account of unexplained investments.During the assessment proceedings,the AO found that the assessee had made purchases from Jay Laxmi Trading Co.(JLTC),amounting to Rs.79.67 lacs, that in his books of account he had shown payment of Rs.58.14 lacs,that balance payment of Rs.21.53 was shown to have been outstanding as on 31.3.2007. The AO called for information u/s. 133(6) of the Act from JLTC,who informed the AO that it had received the entire amount from the assessee during the year under consideration.The AO issued summons u/s. 131 to M.C. Joshi (MCJ) proprietor of JLTC.In the statement recorded u/s. 131,MCJ stated that he had received all the payment due from the assessee,that the assessee had made payment of Rs.58.14 lacs through cheques,that balance payment was given by the assessee in form of cross bearer cheques, that the account of the assessee was squared up and there was no payment outstanding from him as on 31.3.2007. In support of his statement,MCJ produced the third party cross bearer cheques, pay-in slips. It was found that the pay in slips of the cross bearer cheques had signatures of the brother of the assessee,Sandeep Kanodia.Considering the above the AO issued a show cause notice to the assessee asking him to explain as to why the payment amounting to Rs.21.53 lacs made by ITA No.8553/Mum/10,AY.07-08-Kapil K

him through cross bearer cheque to JLTC should not be treated as unexplained investment. He also supplied the copy of the statement of MCJ to the assessee .Vide his letter, dt.18/12/200, the assessee stated that he had not issued any cross bearer cheques to JLTC. He requested the AO to give opportunity to cross-examine MCJ. It was contended before the AO that the balance payment was made to JLTC in the next Financial Year.After considering the submission of the assessee the AO held that it was difficult to believe as to why any person would deposit cheques of third party against the name of a person from whom the same amount was receivable, that MCJ had specifically stated that he had received third party cheque through his brother Sandeeep Kanodia,that from the copies of pay-in slips it was evident that the said third party cheques were received against liability of Laxmi Rayons,that the assessee had not availed opportunity of cross examining MCJ. Finally he held that the third party cheque amounting to Rs.21.53 lacs belonged to the assessee . He treated the said amount as unexplained investment of the assessee and added it to his total income for the year under consideration.

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,the assessee argued that he had made purchase of Rs.79.67 lacs from JTCL,that he made the payment of Rs.58.14 lacs, that on 31.3.2007 balance outstanding was Rs.21.53 lacs, that during AY 2008-09 Rs.21.53 lacs was paid to JTCL, that he had asked the AO for further cross-verification,that the AO did not consider his request, that cross bearer cheques deposited in his account by JLTC were never issue by him, that MCJ had deposited the same in the bank known for the reason best known to him, that there was no evidence that the cross bearer cheques were handed over by the assessee to JLTC. As per the FAA, during the course of appellate proceedings the assessee had filed copies of his bank statement as well as that of JLTC for the period 1.4.2007 to 31.5.2007. The FAA observed that in that account the cheques amounting to 21.53 lacs issued by the assessee, in favour of JLTC were reflected,that during that period no further purchases had been made by the assessee from JLTC,that JLTC further started making sales to the assessee firm from Oct. 2007, that there was no explanation about the squaring up of the account as on 31.3.2007 and accepting the payment of Rs.21.53 lacs by JLTC.As per the FAA the AO had not question on MCJ on payment received by him from assessee's bank A/c. maintained with Bank of Rajasthan.He further observed that in the pay-slips of the cross bearer cheques the name of the brother of the assessee was appearing.In that regard,he observed that AO had not questioned MCJ about the discrepancy as to how the cross bearer cheques with name written as Sandeep Kanodia could be accounted for in the account of the assessee. The FAA also held that the AO had not afforded the assessee an opportunity to cross-examine MCJ. The FAA referred to the judgment of Hon'ble Supreme Court delivered in the case of K.T. Sauduli Grocery Dealer etc.(1977 CTR 260) and held that by not providing an opportunity of cross examination the AO had vitiated the process of justice.Finally,he deleted the addition made by AO of Rs.21.53 lacs made under the head unexplained investment.

4.During the course of hearing before us,Departmental Representative(DR)stated that the AO had given an opportunity to the assessee to cross examine MCJ, that the assessee had to avail the opportunity by 17/12/2009, that the assessee did not inform the AO as to whether he wanted to cross-examine MCJ.He referred to pg-25 of the PB filed by the assessee . He furtheer argued that FAA had not directed the AO to file any remand report.Authorised Representative(AR) stated

2 ITA No.8553/Mum/10,AY.07-08-Kapil K

that the assessee had made a request to AO on 18.12.2009 for cross examination of MCJ, that assessee had not issued cross bearer cheques to MCJ, that Rs.21.53 lacs were paid by the assessee in the next AY.

5.We have heard the rival submissions and perused the material before us.We find that the FAA had held that the AO had not questioned MCJ about the payments received by him from the assessee,that the AO had not made inquiry about the signatures found on the back side of the pay in slips,that assessee was not afforded an opportunity of cross examination. Referring to the case of K T Saludi Grocery Dealers Etc.(supra),the FAA allowed the appeal filed by the assessee.We find that the assessee was specifically informed as to whether he would like to cross- examine any body and, if yes, he should intimate the AO by 17.12.2009(Pg.25of PB).The assessee did not file reply till 17.12.2009 and on 18.12.2009 requested the AO allow cross examination.Being a time barring assessment if the AO decided the issue on available material,then in our opinion he had not committed any mistake.The FAA has all the powers of the AO.So,before allowing the appeal of the assessee for not affording opportunity of cross examination he should have called for a remand report from the AO.He himself could have allowed the assessee to cross examine MCJ.If the AO had not made necessary inquiries,it was the duty to the FAA to direct him to do the needful before adjudicating the appeal filed by the assessee.Considering the peculiar facts and circumstances of the case we are of the opinion that in the interest of the justice matter should be restored back to the file of the FAA for fresh adjudication.He may allow the assessee to cross examine MCJ himself or through the AO and he will also direct the AO to file report about the issues that were not investigated properly as per the then FAA.Effective ground of appeal filed by the AO is decided in his favour,in part.

As a result,appeal filed by the AO stands partly allowed.

फलतः नधा रती अ धकार वारा दा खल क गई अपील अंशतः मंजरू क जाती है .

Order pronounced in the open court on 28th ,May,2015.

आदे श क घोषणा खल ु े यायालय म दनांक 28 मई,2015 को क गई ।

Sd/- Sd/- (आई पी बंसल/I. P. Bansal) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मुंबई/Mumbai, दनांक/Date:28.05.2015 व. न.स Jv.Sr.PS.

3 ITA No.8553/Mum/10,AY.07-08-Kapil K

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR A Bench, ITAT, Mumbai / वभागीय त न ध, ए खंडपीठ,आ.अ. याया.मुंबई

6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai.

4