BOMBAY HIGH COURT

KALSHA BUILDERS PVT. LTD. VS ACIT

08-02-2019

ITA NO. 6126/MUM/2016

The captioned appeal by the assessee is directed against the order of CIT(A)-24, Mumbai dated 29.07.2016, pertaining to the Assessment Year 2009-10, which in turn has arisen from the order dated 27.03.2015 passed by the Assessing Officer, Mumbai under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short 'the Act').

2. In this appeal, the assessee has raised the following Ground of appeal:-

M/s. Kalsha Builders Pvt. Ltd.

"1. On facts & circumstances of the case and in law, the learned CIT(A) has erred in upholding the addition made of Rs.1,44,36,000/- u/s 69A of the Income Tax Act. The addition made of Rs.1,44,36,000/- should be deleted."

3. An Additional Ground has also been raised challenging the validity of proceedings initiated by the Assessing Officer under Sec. 147/148 of the Act.

4. The solitary issue raised by the assessee in this appeal relates to an addition of 1,44,36,000/- made by the income-tax authorities under Section 69A of the Act. In brief, the relevant facts are that the appellant before us is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of builders and developers. For the assessment year under consideration, assessee filed a return of income on 29.09.2009 declaring a loss of `3,09,18,542/-, which was subject to a scrutiny assessment under Section 143(3) dated 26.12.2011 wherein the total income was determined at a loss of `57,87,242/-. Subsequently, a notice under Section 148 of the Act dated 25.03.2014 was issued by the Assessing Officer reopening the earlier assessment on the ground that certain income chargeable to tax had escaped assessment. The relevant discussion in the assessment order reveals that the Assessing Officer received information that assessee had received unaccounted cash of `1,44,36,000/- from one, M/s. R.R. Construction with respect to sale of a plot of land at Sector 20, Ulwe. In the ensuing assessment, the case set-up by the Assessing Officer was that assessee had sold the plot to M/s. R.R. Construction vide Sale Deed dated 04.08.2008 for a stated consideration of 1,65,00,000/-, whereas the cash consideration received of `1,44,36,000/- was not disclosed. The Assessing Officer notes that in the course of the M/s. Kalsha Builders Pvt. Ltd.

Search and seizure action conducted on one, Pragati Group, a Partner of M/s. R.R. Construction, one Mr. Ramesh Nakrani admitted of having purchased the aforesaid plot from the assessee for a total consideration of `3,09,36,000/- as against the stated consideration of `1,65,00,000/-. On this basis, the Assessing Officer show-caused the assessee to explain as to why the difference of `1,44,36,000/- between the stated consideration of `1,65,00,000/- and the consideration of `3,09,36,000/- admitted by Shri Ramesh Nakrani, Partner of M/s. R. R. Construction may not be considered as unaccounted consideration received by the assessee, which was hitherto not disclosed in the return of income.

5. The explanation furnished by the assessee has been reproduced by the Assessing Officer in para 5.2 of the assessment order, which is on the following lines. Assessee contended that the consideration stated in the Sale Deed was the complete consideration and no amount over and above the stated consideration has been received. Assessee also pointed out that the statement of Shri Ramesh Nakrani, partner of M/s. R. R. Construction, being relied upon was not relevant inasmuch as the said person had not dealt with assessee on behalf of M/s. R. R. Construction. As per the assessee, it was one Mr. Jayantilal K. Nakrani who had transacted with the assessee as Partner of M/s. R. R. Construction and not Mr. Ramesh Nakrani. An Affidavit of Shri Jayantilal K. Nakrani was also submitted before the Assessing Officer averring that the total consideration paid for purchase of the plot was `1,65,00,000/- and that no amount over and above the stated consideration has been paid to the assessee. In the said Affidavit, Shri Jayantilal K. Nakrani also averred that it was he who had dealt with the assessee-firm with regard to the sale of the plot and not his brother, Shri Ramesh K. Nakrani. Assessee M/s. Kalsha Builders Pvt. Ltd. also furnished an explanation regarding the alleged loose paper found during the course of search at the premises of Shri Ramesh K. Nakrani, whose statement was being relied upon by the Assessing Officer. Thus, in terms of the said explanation, which is found reproduced in the assessment order, assessee asserted that the paper seized during search on the Pragati Group did not establish that the amount of `1,44,36,000/- in question reflected payment made to the assessee for the plot at Ulwe; in fact, the assessee referred to the notings in the seized paper and contended that they do not reflect any payment to assessee; that the notings seem to be the contributions made by various partners of M/s. R. R. Construction in order to fund the purchase of plot of land from the assessee-firm. As per the assessee, the only figure in the loose paper matching with the transaction was the amount paid to assessee through banking channels. Be that as it may, the assessee not only objected to the assertion of the Assessing Officer of payment of unaccounted consideration, but also objected to the validity of the proceedings initiated under Section 147/148 of the Act.

6. The Assessing Officer was not satisfied with the explanations furnished by the assessee, and he went by the statement of Shri Ramesh Nakrani, Partner of M/s. R. R. Construction and held that the amount of `1,44,36,000/- was indeed received by the assessee in cash for sale of plot at Ulwe to M/s. R. R. Construction, which was hitherto undisclosed and the same was assessable under Section 69A of the Act. Accordingly, the addition of `1,44,36,000/- was made and the final income has been assessed at `86,48,760/-. The aforesaid addition was disputed by the assessee in appeal before the CIT(A) on points of law as well as on facts.

M/s. Kalsha Builders Pvt. Ltd.

7. Before the CIT(A), assessee made varied submissions, which have been noted by the CIT(A) in para 2.4.5 of his order. Shorn of other details, one of the points raised by the assessee was that assessee's plea for cross- examination of Shri Ramesh Nakrani was not granted by the Assessing Officer, which is in violation of the principles of natural justice, thus the assessment was untenable in the eyes of law. The CIT(A) sustained the action of the Assessing Officer primarily on the ground that the admission by Shri Ramesh Nakrani made in the course of search carried evidentiary value, and that the Affidavit of Shri Jayantilal K. Nakrani was a self-serving document, and that too, by a person who was not examined by the authorised officers during the search proceedings. In para 2.4.6 of his order, the CIT(A) further notes that the Affidavit of Shri Jayantilal K. Nakrani could not be accorded merit because there was no proper application made by the assessee under Rule 46A of the Income Tax Rules, 1962 in order to bring such fresh evidence on record. The CIT(A) held that assessee did not discharge the burden of proof as regards the noting of undisclosed payment found at the time of search in the case of Pragati Group; therefore, the addition has been rightly made by the Assessing Officer. Against such a decision of the CIT(A), assessee is in further appeal before us.

8. Before us, the learned representative for the appellant has made multiple submissions, but a pertinent point that has been raised is that the impugned assessment suffers from vice of non-adherence to the principles of natural justice; and, therefore, the impugned addition is unsustainable. In this context, the learned representative vehemently pointed out that assessee had not only assailed the assertions of the Assessing Officer about receipt of unaccounted consideration at the time of assessment, but cross- examination of Shri Ramesh Nakrani was also sought in respect of his statement recorded on 18.02.2009, which has been used against the assessee. The learned representative pointed out that cross-examination was unjustly denied by the Assessing Officer as well as by the CIT(A), which was against the principles of natural justice and thus, the assessment of `1,44,36,000/- in the hands of the assessee was legally untenable. In support of his plea, reliance has been placed on various decisions, namely, CIT & Ors. vs Sunita Dhadda & Ors., 406 ITR 220 (Raj); Pr. CIT vs Jyotiben G. Vaghela, Tax Appeal no. 469/2018 dated 04.07.2018 (Guj); CIT Central vs Sunita Dhadda dated 28.03.2018, 403 ITR 309 (St.) (SC) and decision in Smt. Sunita Dhadda, 148 TTJ 749 (ITAT Jaipur).

9. On the other hand, the ld. DR appearing for the Revenue has emphasised on the statement of the partner of M/s. R. R. Construction, Shri Mr. Ramesh Nakrani to emphasise that consideration outside the books of account was paid to the assessee for sale of the impugned land. It was also asserted by the ld. DR that the partner of M/s. R. R. Construction also surrendered some income in the course of search, which has been duly assessed. Therefore, the Ld. DR defended the action of the income-tax authorities in coming to conclude that the impugned sum of `1,44,36,000/- represented consideration received by the assessee for sale of land, which was hitherto undisclosed.

10. We have carefully considered the rival submissions. As our discussion in the earlier paras reveal, the first and the foremost point which has been articulated by the assessee before us is the refusal of the income-tax authorities to allow cross-examination of Mr. Ramesh Nakrani, partner of M/s. Kalsha Builders Pvt. Ltd.

M/s. R. R. Construction. The point sought to be raised by the assessee is that certain material in the form of statement of Mr. Ramesh Nakrani has been used against the assessee without affording the assessee to rebut the same by means of cross-examination. It is a trite law that the Revenue is expected to confront the assessee with any adverse material which may come in its possession and which is intended to be used against the assessee. Even in the context of grant of cross-examination, the law is quite well-settled. The Hon'ble Supreme Court in the case of Kishinchand Chellaram vs CIT, 125 ITR 713 (SC) has also emphasised that an assessee is required to be given appropriate opportunity to rebut the material and evidence which is sought to be used against the assessee. Insofar as the present factual scenario is concerned, it is evident from the assessment order that it was imperative for the Assessing Officer to have allowed the assessee to cross-examine Mr. Ramesh Nakrani. We say so for the following reasons. Ostensibly, on being confronted during the assessment proceedings, assessee explained the circumstances in which the transaction was carried out with M/s. R. R. Construction; firstly, the assessee explained that the sale of land to M/s. R. R. Construction was transacted through one, Mr. Jayantilal K. Nakrani, partner of M/s. R. R. Construction and not Mr. Ramesh Nakrani; secondly, it also furnished an Affidavit of Mr. Jayantilal K. Nakrani averring the stand taken by the assessee as also the fact that no consideration over and above the stated consideration of `1,65,00,000/- was paid for the sale of land to M/s. R. R. Construction. The aforesaid scenario clearly emerges from the explanation of the assessee, which has been reproduced by the Assessing Officer in para 5.2 of the assessment order. Under these circumstances, there are two set of averments which were with the Assessing Officer; firstly, in the shape of statement of Mr. Ramesh Nakrani and the other being an Affidavit of Mr. M/s. Kalsha Builders Pvt. Ltd. Jayantilal K. Nakrani, both partners of M/s. R. R. Construction. Ostensibly, both had taken contrary stands. The Affidavit of Mr. Jayantilal K. Nakrani supported the version sought to be canvassed by the assessee and which was founded on the Sale Deed as well as the transaction reflected through banking channels. Thus, so far as the version sought to be relied upon by the Assessing Officer is concerned, the same was sought to be repelled by the assessee, on the basis of material, which was prima facie quite potent. Be that as it may, under these circumstances, it was required of the Assessing Officer to allow cross-examination of Mr. Ramesh Nakrani so as to determine whether or not any consideration has changed hands over and above the consideration stated in the Sale Deed. The cross-examination would have enabled the truth to come out - as to whether the version of Mr. Ramesh Nakrani was correct or that of Mr. Jayantilal K. Nakrani. It was not for the Assessing Officer to pre-suppose as to which of the two versions was preferable unless cross-examination of Mr. Ramesh Nakrani was allowed to the assessee. Pertinently, the assessee had asked for such cross- examination, which in our view, has been unjustly denied.

11. Even at the level of CIT(A), in our view, the grievance of the assessee has been not properly addressed. The CIT(A) notes that there was no application made by the assessee under Rule 46A of the Income Tax Rules, 1962 for placing reliance on the Affidavit of Mr. Jayantilal K. Nakrani. In our view, the CIT(A) has misdirected himself in considering the Affidavit of Mr. Jayantilal K. Nakrani as a piece of fresh evidence. It is quite clear from a perusal of the assessment order, especially the explanation of the assessee reproduced therein, that such an Affidavit was very much before the M/s. Kalsha Builders Pvt. Ltd.

Assessing Officer himself, and it was not a fresh evidence sought to be relied by the assessee before the CIT(A).

12. The Hon'ble Supreme Court in the case of M/s. Andaman Timber Industries vs Commissioner of Central Excise, Kolkata-II in Civil Appeal No. 4228 of 2006 dated 02.09.2015 found it fit to negate the stand of the Revenue which was based on the statement of witnesses, whose truthfulness was not established by allowing opportunity of cross- examination to the assessee. In our view, the parity of reasoning which prevailed with the Hon'ble Supreme Court in the case of M/s. Andaman Timber Industries (supra) is clearly attracted in the present case inasmuch as the truthfulness of statement of Mr. Ramesh Nakrani was indeed required to be tested by allowing cross-examination to the assessee inasmuch as the other partner of the firm, Mr. Jayantilal K. Nakrani had made averments in an Affidavit which were contrary to the statement of Mr. Ramesh Nakrani. Thus, the approach of the Assessing Officer as well as the CIT(A) in this regard is contrary to the legal position because once the testimony of Mr. Ramesh Nakrani is discredited, there is no other material with the Assessing Officer to justify that any amount over and above the stated consideration has changed hands in the impugned sale of land by assessee to M/s. R. R. Construction. Thus, the impugned addition is liable to be set-aside. We hold so. In the result, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the addition of `1,44,36,000/-.

13. Since we have deleted the addition on the point of denial of cross- examination, the other issues raised by the assessee are not being adjudicated as the same are rendered academic.

M/s. Kalsha Builders Pvt. Ltd.

14. In the result, appeal of the assessee is allowed, as above.

Order pronounced in the open court on 13th March, 2019.

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