$ * IN HIGH COURT OF DELHI AT NEW DELHI R.138 + ITA 224/2003 COMMISSIONER OF INCOME TAX ..... Appellant Through: Mr. Raghvendra K Singh, Advocate versus SUNIL AGGARWAL ..... Respondents Through: None CORAM: JUSTICE S.MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 02.11.2015 S. Muralidhar,J. 1. This is appeal by Revenue against order dated 8th August 2002 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 157/Del/97 for block period 1st April 1986 to 20th June 1996. 2. In present appeal, Respondent, despite service did not enter appearance and case has proceeded ex parte. By order dated 7th February 2005, following two questions were framed by Court for ITANo.224/2003 Page 1 of 11 consideration: (A) Whether on facts and circumstances of case, Income Tax Appellate Tribunal was correct in law, in deleting addition of Rs. 1,38,41,971? (B) Whether in facts and circumstances of case, Income Tax Appellate Tribunal, was correct in deleting addition of Rs.86 lakhs on account of cash seized from one of employees of assessee, namely, Shri Gopal Singh? 3. background to present appeal is that Respondent Assessee is engaged in business of plastic raw material and is carrying on business in names of two proprietorship concerns, M/s Polychem Traders and M/s Petrochem Overseas (India). In addition, Assessee was Director in Petro Impex (India) P. Ltd and Par Petrochem Ltd. 4. search and seizure operation was conducted on 20th June 1996 at residential and business premises of Assessee as well as his associate concerns and it continued till 30th July 1996. case of Revenue is that despite notice issued on 30th September 1996 to Assessee under Section 158BC of Act, requiring him to file return of total income including undisclosed income for block period, Assessee failed to do so. Ultimately, after gap of eight months, he filed return on 9 th June 1997. In this return, Assessee declared income of Rs.24,50,310 for various assessment years of block period. assessment was completed under Section 158 BC (1) at undisclosed income of Rs. 3,71,79,576. 5. In assessment order, it was recorded by Assessing Officer ( AO ) ITANo.224/2003 Page 2 of 11 that during course of search cash amounting to Rs.86 lakhs was seized from premises of Canara Bank, Arya Samaj Road, Karol Bagh from employee of Assessee, one Mr. Gopal Singh. It was further recorded by AO that statement of Assessee was recorded during course of search under Section 132(4) of Act. In response to question No.11, Assessee is stated to have made categorical admission that said sum of Rs.86 lakhs belonged to him; that it was being deposited by Mr. Gopal Singh in Canara Bank account which was not account of Assessee; that routinely surplus cash was given to Mr. Gopal Singh to be deposited for which he was paid 5% of cash money; that seized cash amount of Rs.86 lakhs represented my undisclosed income not recorded in Books of Accounts . 6. Assessee retracted above admission during course of assessment proceedings, but not immediately after making said statement. He started providing information to AO from 14th July 1997 onwards, i.e., around two weeks before deadline for finalization of assessment, i.e., 31st July 1997. In his retraction, Assessee stated that surrender was made under mistaken belief and without looking into books of account and without understanding law . He further stated that he had been compelled perturbed by events of search and wherein I had no opportunity either to consult my advocates, my staff or my books of accounts etc. pressure of search was built so much that I had to make this surrender without having actual possession of assets or unexplained investments or expenses incurred and hence there being no such income as undisclosed . He claimed that money seized already stood declared as ITANo.224/2003 Page 3 of 11 out of known sources and said surrender was meaningless. He did not admit that surrender was voluntary. Assessee also offered explanation regarding said cash amount that these were from undisclosed sales of disclosed purchases which were verified from records and books of accounts. 7. In assessment order, AO, however, declined to accept above explanation offered by Assessee. He was of view that statement given by Assessee voluntarily during course of search under Section 132(4) of Act had evidentiary value and could be relied upon. It was held that Assessee had introduced fictitious debtors in his books of accounts and had deposited cash realized on sale of raw material into bank accounts of those fictitious debtors. However, explanation of Assessee for certain other cash deposits found in books of accounts in other accounts was accepted by AO and no additions were made in that regard. 8. other major addition made by AO was on account of purported loan of Rs.45,00,000 received from M/s Nice International, proprietor of which was Mr. Sant Kumar Sharma of Bombay. Mr. Sant Kumar Sharma, during course of enquiry, stated on oath that he arranged export orders in sum of Rs.1.36 crores and alleged purchase of garments were received from M/s Ambica Agency of Delhi and M/s H.T. Avia of Delhi. payments received from Russia were credited to accounts of M/s Nice International and from said account said amount was deposited in account of Assessee and three other persons showing amount ITANo.224/2003 Page 4 of 11 as loan advanced to said persons. AO after setting out entire statement of Mr. Sant Kumar Sharma concluded that Assessee was main person who arranged said transactions and used Sant Kumar Sharma as front man. money channelized through bank belonged to Assessee who was ultimate beneficiary. Despite being asked to furnish addresses of alleged purchase parties, i.e., Ambica Agency and H.T. Avia of Delhi, Assessee failed to furnish any information and origin of fund invested in form of purchases of export garments remained unexplained. Though no payment had in fact been made to either of above agencies and no interest was paid to Mr. Sant Kumar Sharma, it was found that total export realisation i.e.Rs.1,36,41,971 belonged to Assessee was further disbursed in form of loans in name of Assessee, his wife and person known to him. said sum was accordingly added to income of Assessee as unexplained cash credit under Section 68 of Act. 9. In appeal filed before ITAT, there was concurrent view of two Members comprising Bench i.e. Mr. R.K. Gupta and Mr. R.S. Syal that additions made in sum of Rs.86 lakhs to income of Assessee should be deleted. It was noted that pursuant to search and seizure, Assessee had surrendered sum of Rs.2.26 crores which included sum of Rs.86 lakhs, viz., cash seized from Canara Bank. It was noted that explanation offered by Assessee for sum constituting Rs.2.26 crores minus 86 lakhs had been accepted by AO. It was held that explanation given by Assessee in respect of said sum of Rs.86 lakhs also ought to have been accepted by AO. AO had not doubted ITANo.224/2003 Page 5 of 11 sales and purchase figures or fact of cash sales having been made. It was accordingly held that addition of Rs.86 lakhs was not justified. 10. However, on question of addition of Rs.1,36,41,971, there was slight difference of opinion between two Members comprising Bench. In his opinion dated 21st July 2000, Mr. R.K. Gupta was of view that Assessee had not been afforded opportunity to cross-examine Mr. Sant Kumar Sharma and therefore, statement of Mr. Sant Kumar Sharma could not be considered for making addition. While Mr. R. S. Syal did not disagree with this finding, he observed view that AO should be given liberty to consider taxability of said sum in accordance with law. 11. above difference of opinion necessitated reference of matter to third member who by order dated 31 st May 2002 concluded that observation made by Mr. Syal was superfluous and that once two members had agreed that addition of Rs. 1.36 crores could not have been made, then there was no need to make any further observation . resultant order was passed by ITAT on 8th August 2002 allowing appeal of Assessee. 12. It was submitted by Mr. Raghvendra Singh, learned counsel for Revenue, that ITAT failed to appreciate that evidentiary value of statement on oath recorded by Assessee under Section 132(4) of Act carries more weight than statement made during survey under Section 133A. He accordingly submitted that reliance by ITAT on ITANo.224/2003 Page 6 of 11 decision of its co-ordinate Bench in Pushpa Vihar v. ACIT, 48 TTJ 389(Bom.) was misplaced, since that decision dealt with statement recorded during survey under Section 133A of Act. In this context, he also placed reliance on decision of this Court in CIT v. Dhingra Metal Works (2010) 328 ITR 384 (Del.) which in turn relied upon decision of Kerala High Court in Paul Mathews & Sons Vs. Commissioner of Income Tax (2003) 263 ITR 101 (Kerala). He further submitted that Assessee had not chosen to retract his statement till ten months after date of search and therefore retraction itself was not genuine. According to him, said retraction did not dilute evidentiary value of categorical admission made by Assessee in his statement under Section 132(4) of Act. He submitted that addition of Rs.86 lakhs solely on basis of said retracted statement as, therefore, permissible. He also placed reliance on decision of Punjab & Haryana High Court in CIT v. Lekh Raj Dhunna 344 ITR 352 to urge that unsatisfactory explanation regarding late retraction of statement made during course of search proceedings would not be accepted, and would not impinge upon authenticity of statement made in first place during search proceedings. 13. narration of facts hereinabove shows that Assessee did not simply retract statement made by him during course of surrender. He also offered explanation for sum of Rs.86 lakhs found in hands of his employee, Mr. Gopal Singh. One feature that distinguishes present case from that before Punjab and Haryana High Court in Lekh Raj ITANo.224/2003 Page 7 of 11 Dhunna (supra) is that in latter case, Assessee failed to discharge onus on him through cogent material to rebut presumption that stood attracted in view of statement made under Section 132(4) of Act. In present case, as noted by ITAT, Assessee sought to explain said amount with reference to entries in books of accounts of sales made during year and stock position. In other words, AO did not find that cash seized represented amounts not emanating from sales but some other source. fact that Assessee may have retracted his statement belatedly did not relieve AO from examining explanation offered by Assessee with reference to books of accounts produced before him. 14. Therefore, although counsel for Revenue may be right in his submission that statement under Section 132(4) of Act carries much greater weight than statement made under Section 133A of Act, retracted statement under Section 132(4) of Act would require some corroborative material for AO to proceed to make additions on basis of such statement. Of course, where retraction is not for any convincing reason, or where it is not shown by Assessee that he was under some coercion to make statement in first place, or where retraction is not followed by Assessee producing material to substantiate his defence, AO might be justified in make additions on basis of retracted statement. 15. In present case, Assessee had explanation for not retracting statement earlier. He also furnished explanation for cash that was ITANo.224/2003 Page 8 of 11 found in hands of his employee and this was verifiable from books of accounts. In circumstances, it was unsafe for AO to proceed to make additions solely on basis of statement made under Section 132(4) of Act, which was subsequently retracted. 16. Consequently, Court is unable to find any legal infirmity in conclusion reached by ITAT that addition of Rs.86 lakhs to income of Assessee was not justified. Question (B) is answered in affirmative, i.e., in favour of Assessee and against Revenue. 17. Turning now to Question (A), Court finds that indeed no opportunity was given to Assessee to cross-examine Mr. Sant Kumar Sharma, whose statement was principal basis for making addition of Rs. 1,38,41,971. 18. Mr. Singh has placed reliance on decision of Supreme Court in ITO v. M Pirai Choodi (2011) 334 ITR 262(SC) to urge that denial of opportunity to cross-examine by itself could not vitiate assessment proceedings particularly when Assessee had not raised demand to that effect before AO. He submitted that in present case, it was recorded by AO himself that despite sufficient opportunities, Assessee did not cooperate. It was also not recorded by AO that Assessee had asked for cross-examination of Mr. Sant Kumar Sharma and that such opportunity was being denied by AO. 19. Court finds that in present case basis for making addition of Rs. 1,38,41,971 was statement of Mr. Sant Kumar Sharma. He had ITANo.224/2003 Page 9 of 11 furnished various details which were incriminating as far as Assessee was concerned. It was incumbent on AO, in those circumstances, to afford Assessee opportunity of cross-examination of Mr. Sant Kumar Sharma. ITAT also noted that Assessee could not be said to have not cooperated at all in assessment proceedings. 20. Court further notes that in M. Pirai Choodi s case (supra), Assessee had not availed statutory remedy of filing appeal before Commissioner of Income Tax (Appeals) [CIT(A)] against order of AO but had approached High Court directly by way of writ petition. In those circumstances, Supreme Court held that High Court ought to have required Assessee to avail remedy of statutory appeal instead of quashing assessment proceedings on ground of violation of natural justice. Supreme Court, in fact, permitted Assessee to approach CIT (A). 21. It was then urged by Mr. Singh that if in present case Court was of view that there was violation of natural justice on account of denial of opportunity to Assessee to cross-examine Mr. Sant Kumar Sharma, matter ought to be remanded to AO for that purpose. While this may have been possible course to adopt, this Court is not inclined to do so since almost two decades have elapsed since date of search. There must be some finality to proceedings that seek to cover block period beginning 1st April 1986. Consequently, Question (A) is also answered in affirmative, i.e., in favour of Assessee and against Revenue. ITANo.224/2003 Page 10 of 11 22. appeal is dismissed, but in circumstances, with no order as to costs. S.MURALIDHAR, J VIBHU BAKHRU, J NOVEMBER 2, 2015 mg ITANo.224/2003 Page 11 of 11 Commissioner of Income Tax v. Sunil Aggarwal