M/S R.w. Promotions P. Ltd., Mumbai v. Assistant Commissioner Of Income Tax9(3), Mumbai And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1489 OF 2013 M/s R.W. Promotions P. Ltd., Mumbai ..Appellant Vs. Assistant Commissioner of Income Tax9(3), Mumbai and Ors...Respondents .... Dr. K.Shivram, Senior Advocate a/w Rahul Hakani and Ms. NeelamJadhav, Advocate i/b Ajay Singh & Paras Savla for Appellant.Mr. Arvind Pinto, Advocate for Respondent. .... P.C.: CORAM : M.S. SANKLECHA & N.M. JAMDAR, JJ. DATED : 13 JULY 2015 This appeal under Section 260A of the Income Tax Act,1961 (the 'Act') the challenge is to the order dated 16 January 2013of the Income Tax Appellate Tribunal (the 'Tribunal'). TheAssessment Year involved is Assessment Year 2007-08. 2.Although numerous questions have been framed, at thehearing the appellant only urged the following questions which areadmitted as substantial question of law: “(a)Whether the Tribunal is justified in law inholding that the appellant had failed to show that ithad rendered services? (b)Whether Tribunal erred in law notproviding the appellant an opportunity to crossexamine the parties on basis of whose statement thereopening of assessment was done and disallowanceof Rs.1,15,41,044/- was sustained?” 3.As the issues are within a narrow campus at the requestof the Counsel, the appeal itself is taken up for final disposal. 4.The appellant is engaged in the business ofadvertisement, market research and business promotions for itsclients. During the subject Assessment Year 2007-08, the appellanthad engaged services of M/s Inorbit Advertising and MarketingServices P. Ltd. ('Inorbit') and M/s Nupur Management ConsultancyPvt. Ltd. ('Nupur') to enable them to carryout promotional andadvertisement activities. The amounts of Rs.1.15 crores paid tothem was treated as expenditure to arrive at its profit while filing itsreturn of income. This was accepted by the Assessing Officer u/s143(1) of the Act. 5.Thereafter on 4 February 2010, the Assessing Officerissued a notice u/s 148 of the Act seeking to reopen the assessmentfor the Assessment Year 2007-08. This on the ground that theexpenditure claimed of Rs.1.15 crores was bogus as evidenced bystatement of representatives of M/s Inorbit and M/s Nupur. Theappellant objected to reopening. However the same was rejected bythe Assessing Officer. 6.During the course of the assessment proceedings, theappellant called upon the Assessing Officer to make available tothem the statement recorded of the representatives of M/s Inorbitand M/s Nupur which were allegedly adverse to them. Thereafterthe appellant sought cross examination of the deponents of thestatements made on behalf of M/s Inorbit and M/s Nupur. In spiteof the above request, the Assessing Officer passed an assessmentorder dated 24 December 2012 under Section 143(3) r/w 147 ofthe Act disallowing the expenditure of Rs.1.15 crores. This withoutgiving an opportunity to cross examine the deponents of thestatements which were allegedly against them and formed the basisof the disallowance in the assessment order..S.S.DESHPANDE3 / 8 7.In appeal, the Commissioner of Income Tax (Appeals)(the 'CIT (A)') upheld the order of the Assessing Officer. Inparticular holding that disallowance of expenditure incurred forreceiving services from M/s Inorbit and M/s Nupur called for nointerference. 7.In appeal, the Commissioner of Income Tax (Appeals)(the 'CIT (A)') upheld the order of the Assessing Officer. Inparticular holding that disallowance of expenditure incurred forreceiving services from M/s Inorbit and M/s Nupur called for nointerference. 8.On further appeal before the Tribunal, the appellantagain contended that the entire proceedings against them hascommenced and also culminated by placing reliance upon thestatement of representatives of M/s Inorbit and M/s Nupur whowere not offered for cross examination. The Tribunal by theimpugned order after accepting the fact that the cross examinationsought by the parties was not given by the Assessing Officerproceeded to uphold the order of lower authorities.Notwithstanding the above, the impugned order holds that it is afinal fact finding authority and it could direct cross examination incase it felt that material relied upon by the Assessing Officer todisallow expenses was required to be subjected to the crossexamination. In view of the above, the impugned order held that 4 / 8 denial of cross examination of the representative of M/s Inorbit andM/s Nupur has not led to breach of principle of natural justice andthus confirmed the orders of the lower authorities. 9.Dr. Shivram, the learned Senior Counsel for the appellantpoints out that denial of cross examination has led to breach ofprinciples of natural justice. The statements relied upon weregeneral in nature and also subjecting the statements to crossexamine could assist in bring out the truth. In particular it wasemphasized that in an identical fact situation where two partiesinvolved herein M/s Inorbit and M/s Nupur had alleged to haverendered services to one M/s Satellite Cable TV Network, theTribunal had set aside the order adverse to M/s Satellite Cable TVNetworks for failure to made available representatives of M/sInorbit and M/s Nupur for cross examination. The expensesclaimed as payments to M/s Inorbit and M/s Nupur was disallowedby the authorities on the basis of their statements while makingthem unavailable for cross examination. M/s Satellite CableNetwork urged before the Tribunal that it was given no opportunity of cross examining the deponents of statement made on behalf ofM/s Inorbit and M/s Nupur during the assessment proceedings.The Tribunal by its order in the case of M/s Satellite Cable TVNetwork rendered on 23 May 2012 in Income Tax Appeal No.4619/Mum/2011 set aside the orders of CIT(A) and AssessingOfficer and restored the issue to the Assessing Officer to pass a freshorder after providing an opportunity to the assessee therein to crossexamine the representatives of M/s Inorbit and M/s Nupur who hadmade the statement adverse to M/s Satellite Cable TV Network Ltd.It is submitted that the facts are identical and the sametest/measure as applied in case of M/s Satellite Cable TV NetworkLtd should be applied in this case also. 10.Dr. Shivram submits that the appellant on coming toknow of aforesaid order dated 23 May 2012 in M/s Satellite CableTV Network of the Tribunal filed an application for rectification.However the same was dismissed by order dated 12 June 2015 ofTribunal holding that entertaining such an application wouldamount to review. 10.Dr. Shivram submits that the appellant on coming toknow of aforesaid order dated 23 May 2012 in M/s Satellite CableTV Network of the Tribunal filed an application for rectification.However the same was dismissed by order dated 12 June 2015 ofTribunal holding that entertaining such an application wouldamount to review. 11.We find that there has been a breach of principles ofnatural justice in as much as the Assessing Officer has in his orderplaced reliance upon the statements of representatives of M/sInorbit and M/s Nupur to come to the conclusion that claim forexpenditure made by the appellant is not genuine. Thus theappellant was entitled to cross examine them before any reliancecould be placed upon them to the extent it is adverse to theappellant. This right to cross examine is a part of the audi altrempartem principle and the same can be denied only on strong reasonto be recorded and communicated. The impugned order holdingthat it would have directed cross examination if it felt it wasnecessary, is hardly a reason in support of coming to the conclusionthat no cross examination was called for in the present facts. Thisreason itself makes the impugned order vulnerable. 12.Moreover, in the present facts, the appellant had alsofiled affidavit of the representatives of M/s Inorbit and M/s Nupurwhich indicates that they had received payment from the appellantfor rendering of services to the appellant. These affidavits also have not been taken into account by any authority including the Tribunalwhile upholding the disallowance of the expenditure. 13.Thus the appellant was not given an opportunity to crossexamine the witnesses whose statement is relied upon by therevenue and the evidence led by the appellant has not beenconsidered. Therefore clearly a breach of principles of naturaljustice. In view of the above, we set aside the order of the Tribunaland restore the issue to the Assessing Officer for fresh disposal afterfollowing the principles of natural justice and in accordance withlaw. It is made clear that the challenge to the issue of reopening ofassessment is not pressed before us therefore that issue standsconcluded. 14.The appeal is disposed of in above terms. No order as tocosts.costs. [N.M. JAMDAR, J] [M.S. SANKLECHA, J.]