Ponmani Suresh v. The Deputy Commissioner Of Income Taxnon-Corporate Ward 2Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 15.09.2020 THE HON'BLE MR.JUSTICE N.KIRUBAKARANandTHE HON'BLE MR.JUSTICE P.VELMURUGAN Ponmani Suresh ..Appellant/Appellant -Vs- The Deputy Commissioner of Income TaxNon-Corporate Ward 2Chennai..Respondent /Respondent Prayer:Tax Case Appeal filed under Section 260-A of the IncomeTax Act, 1961, against the order dated 21.09.2017 made inITA.No.1011/Mds/2017 on the file of the Income Tax AppellateTribunal, Chennai 'D' Bench relating to the Assessment Year2012-13 against the order of the Commissioner of Income Tax(Appeals)2 Chennai dated 31.03.2017 and made in I.T.A. No.4/CIT(A)-2/2015-2016 as against the order passed by the DeputyCommissioner of Income Tax Non Corporate Circle-2 Chennai inPAN/GIR No. AALPP7516R dated 30.03.2015 for the Assessment year2012-2013. JUDGMENT The Tax Case Appeal is filed by the appellant/assessee asagainst the order of the Income Tax Appellate Tribunal, ChennaiBench 'D' dated 21.09.2017 passed in ITA.No.1011/Mds/2017relating to the Assessment Year 2012-13. 2.1 The facts of this case is that the assessee declared atotal income of Rs.3,08,330/- in the original return of incomefiled on 30.05.2012 for the assessment year 2012-13.Subsequently, as a result of enquiry conducted by I & CI Unit ofthe Income Tax Department, Chennai, the assessee had filed arevised return of income on 31.03.2014 with a total income ofRs.19,14,060/-. The case was selected for scrutiny and notice https://hcservices.ecourts.gov.in/hcservices/ under Section 143(2) of the Income Tax Act, 1961 [hereinaftercalled as 'Act'] dated 04.09.2014 was served on the assessee.Subsequently, notice under section 142(1) dated 12.12.2014seeking details and documents, was also served on the assessee.After careful examination of the case, the assessment order waspassedcomputingthetaxableincomeassessedasRs.7,29,75,896/-. 2.2 Under the head Capital Gains, the appellant/assessee hadadmitted income from Long term capital gains of Rs.96,465/- fromthe sale of her property being Flat No.14, G.N.Chetty Road,T.Nagar, Chennai-17, jointly held with her husband. Since noevidence had been adduced in respect of cost of renovation ofRs.6,18,500/-, it was disallowed. The indexed cost ofacquisition was reworked at Rs.31,62,950/- as againstRs.37,03,535/- and consequently, the long term capital gains hadbeen assessed as Rs.5,37,050/- as against Rs.96,465/-. Thus, theadditional long term capital gains assessed was Rs.4,40,585/-. 2.3 Secondly, under the head of Profit on facilitating saleof property at Velacherry, since there was no supportingevidence in respect of the claim of payment/expenditure ofRs.6,64,95,000/- adduced by the assessee, notice u/s.142(1) ofthe Act, dated 17.03.2015 was issued to the following effect:-“ 1. ' In respect of your transaction inconnection with sale of property at Velachery ownedby Mr.Stephen John, out of the sum of Rs.6.8 croresreceived from M/s.ITC Ltd., you have claimed that asum of Rs.4.5 crores has been given to Mr.StephenJohn (Vendor). However, from the details of chequesissued, it is seen that the same has been issued inthe names of various other parties. In thisbackground, you are requested to furnish documentaryevidence in support of your claim that Rs.4.5 croreswas given to Mr.Stephen John, by producingconfirmation to this effect from the parties to whomthe above cheques have been issued. Also produce copyof your agreement with Mr.Stephen John in connectionwith this transaction. 2. Further, a sum of Rs.2,14,95,000/- has beenclaimed as payments made to various persons involvedin vacating tenants for putting the property forsale. The said payments have been made by way ofcheques issued. Furnish copies of receipts obtainedat the time of issue of cheques detailing the purposebehind the payment or confirmation from such parties.“ 2. Further, a sum of Rs.2,14,95,000/- has beenclaimed as payments made to various persons involvedin vacating tenants for putting the property forsale. The said payments have been made by way ofcheques issued. Furnish copies of receipts obtainedat the time of issue of cheques detailing the purposebehind the payment or confirmation from such parties.“ 2.4 The assessee, by reply dated 20.03.2015, stated thatshe did not have any records in the said transaction andtherefore, requested the department to exercise powers under https://hcservices.ecourts.gov.in/hcservices/ section 131 to summon Mr.Stephen John, residing at No.11/724,Pipeline Road, Cochin University Post, Cochin, to get furtherdetails of the transaction. 2.5 The department made enquiries with Stephen John and theDDIT (Inv.) Kochi, had recorded a statement from Stephen John on26.03.2015. It is stated that he was paid a cheque for Rs.8crores in the sale transaction and he has not received a singlerupee from either Ponmani Suresh or other persons. 2.6 Therefore, the Assessing Officer, viewed that the claimof the assessee that she is a mere real estate intermediarylacks truth and is proven that she is a major beneficiary in thetransaction. The Assessing Officer further viewed that the caseunder consideration is not an isolated issue and whileundertaking assessment proceedings of assessee's spouse,K.Suresh, large scale unexplained cash deposits into bankaccounts held by him were found and the baseless explanationgiven to support the source of cash availability was not foundacceptable. In the absence of confirmation from debtors/partiesfrom whom the assessee has claimed to have received real estateadvance in cash, the assessee's claim for availability of suchcash was not accepted and consequently, the entire cash depositsmade into the assessee's bank account were treated asunexplained. Thus, a sum of Rs.95,00,000/- was added to thetotal income under section 68 of the Act. The computation oftaxable income redrawn by the Assessing Officer wasRs.7,29,75,896/- and the said demand was directed to be paid asper the Demand Notice. 3. Aggrieved by the said order of the AssessingOfficer/Deputy Commissioner of Income Tax, Non Corporate Circle-2, Chennai, the appellant/assessee filed appeal before theCommissioner of Income Tax (Appeals)-1. 4. The CIT (Appeals)-1, on analysis of facts andcircumstances of the case, held that the appellant did not availthe opportunity of cross examination of Stephen John and did notemphasize the need to undertake a similar process to examine theso called debtors. Therefore, at the stage of remandproceedings, no evidence was submitted to substantiate thegenuineness of the claim. It is further pointed out by the CIT(Appeals)-1 that the cash obtained by the Appellant through selfdrawn cheques and covered under the provisions of Section 40A(3)cannot be telescoped with that of the cash deposit since thewithdrawal date succeeds the deposit date. Accordingly, theappeal of the assesse was dismissed. 5. Aggrieved by the said order of CIT (Appeals)-1, dated31.03.2017, the assessee filed appeal before the Income TaxAppellate Tribunal. 6. The ITAT found that the Assessing Officer, on examinationof the accounts and the veracity of the claims did not acceptthe nexus between the payments and the receipts and therefore,the entire expenditure relating to six parties ofRs.4,50,00,000/- and in respect of the balance, an amount ofRs.1,61,21,250/- was found to be ineligible as deduction andadded the same to the taxable income. The ITAT found that theassessee is not the owner of the asset transferred to ITC Ltd.,but had received a consideration of Rs.6.80 crores. The obviousreason is that the assessee was compensated in lieu offacilitating an unencumbered conveyance of property to thebuyer. 6. The ITAT found that the Assessing Officer, on examinationof the accounts and the veracity of the claims did not acceptthe nexus between the payments and the receipts and therefore,the entire expenditure relating to six parties ofRs.4,50,00,000/- and in respect of the balance, an amount ofRs.1,61,21,250/- was found to be ineligible as deduction andadded the same to the taxable income. The ITAT found that theassessee is not the owner of the asset transferred to ITC Ltd.,but had received a consideration of Rs.6.80 crores. The obviousreason is that the assessee was compensated in lieu offacilitating an unencumbered conveyance of property to thebuyer. 7. The ITAT dismissed the ground of the assessee that thereturn filed by the assessee on 31.03.2014 cannot be treated asreturn of income filed as per Section 139(5) of the Act, sincethe return is not filed on account of discovery of omission bythe assessee but as a result of enquiry, by holding thatassessee actively participated during the course of assessmentproceedings and therefore, the said ground cannot be entertainedbefore the Tribunal. 8. The other ground taken by the appellant/assessee was thatan opportunity of cross examination of Stephen John was notprovided to the assessee by the CIT (Appeals). 9. The ITAT, was of the opinion that when the assessee asksfor cross examination of the parties from whom evidences arecollected, it is appropriate to provide an opportunity for crossexamination. Though the statement of Stephen John was recordedin the presence of assessee's spouse, an opportunity of crossexamination was not at all given to the assessee. If the CIT(Appeals)/Assessing Officer collects the evidences from theparties during the remand proceedings, the CIT(Appeals)/AOshould have given an opportunity of cross examination to theassessee. In such view of the matter, the ITAT remitted theentire issue to the CIT (Appeals) with a direction to give anopportunity of cross examination before deciding the issue. 10. The ITAT thus remitted the entire issue to the file ofthe CIT (Appeals) and directed the CIT (Appeals) to give anopportunity of cross examination to the assessee before decidingthe issue. 11. Aggrieved by the said order of ITAT, the present TaxCase Appeal is filed by the appellant/assessee raising thefollowing substantial questions of law:-(1) Whether the return filed on 31/03/2014 for theAssessment Year 2012-13 is a non-est return and not a returnu/s.139(5) of the Income Tax Act, 1961? Consequently, whetherthe assessement framed u/s.143(3) based on a non-est returnfiled is valid in the eyes of law? (2) If the assessment based on a non-est return is invalid,whether such an invalidity can be cured by the provision ofSection 292BB of the Income Tax Act, 1961 which deals only withservice of notice and further for the reason that the appellantwas heard during the assessment proceedings? (3) Whether the assessment order dated 30.03.2015 passedwithout giving an opportunity of cross examination in respect ofevidence gathered behind the back of the appellant during theassessment proceedings is void and a nullity? (4) Whether an assessment order, which was passed withoutgiving an opportunity of cross examination in respect ofevidence gathered behind the back of the appellant during theassessment proceedings, can be validated by giving anopportunity of cross examination in the appellate proceedings? 12. Heard the learned counsel on either side and perused thematerials available on record. (3) Whether the assessment order dated 30.03.2015 passedwithout giving an opportunity of cross examination in respect ofevidence gathered behind the back of the appellant during theassessment proceedings is void and a nullity? (4) Whether an assessment order, which was passed withoutgiving an opportunity of cross examination in respect ofevidence gathered behind the back of the appellant during theassessment proceedings, can be validated by giving anopportunity of cross examination in the appellate proceedings? 12. Heard the learned counsel on either side and perused thematerials available on record. 13. Before the Income Tax Appellate Tribunal, the learnedcounsel who appeared on behalf of the assessee, contended thatan opportunity of cross examination of Shri.Stephen John was notprovided to the assessee by the CIT (Appeals) that too evenafter raising the said issue before the CIT(Appeals). Thelearned counsel further contended before the ITAT that whileexamining Stephen John, the statement was recorded by theAssessing Officer in the presence of the assessee's spouse,viz., Kalyanasundaram Suresh, but no opportunity of crossexamination of Stephen John was provided to the assessee. Thelearned counsel for the assessee thus contended before the ITATthat an opportunity may be given to the assessee to crossexamine Stephen John, before framing the assessment. 14. The Income tax Appellate Tribunal, after going throughthe entire submissions made on both sides, held as under:-“In the present case, though the statement fromStephen John was recorded in the presence of theassessee's spouse, an opportunity of cross examinationwas not at all given to the assessee. If the CIT (Appeals)/AO collects the evidences from the partiesduring the remand proceedings, the CIT (Appeals)/Assessing Officer should have given an opportunity ofcross examination to the assessee. Hence, in theinterest of justice, we are of the opinion that theentire issues to be remitted to the CIT (Appeals) with adirection to give an opportunity of cross examinationbefore deciding the issue.” 15. Since the appellant/assessee has raised the issue ofopportunity of cross examination of Stephen John and the samewas given to the assessee and for the same, the matter isremitted back to the CIT (Appeals), we are of the view thatthere is no infirmity in the order of the Income Tax AppellateTribunal and thus, we find no merit in the Tax Case appeal andthe Appeal is liable to be dismissed. 16. Since the Income Tax Appellate Tribunal has remittedback the matter to the CIT (Appeals) giving opportunity to theassessee for cross examination, and further directed the CIT(Appeals) to decide the matter, after giving opportunity ofcross examination to the assessee, the substantial questions oflaw 1 and 2 are concerned, they are left open to the CIT(Appeals) to decide the same on merits and in accordance withlaw. As far as Substantial questions of law 3 and 4 areconcerned, in view of the matter remitted back to the CIT(Appeals) by the Income Tax Appellate Tribunal and the saidorder is confirmed now, the same has been answered accordingly. 17. In the result, the Tax Case (Appeal) stands dismissed.The order of the Income Tax Appellate Tribunal in remitting backthe matter to the CIT (Appeals) is confirmed. No costs. s/d- Assistant Registrar(CS V) True Copy Sub-Assistant Registrar To 1.The Commissioner of Income Tax (Appeals)-2 121 Mahathma Gandhi Road Nungambakkam, Chennai 600 034. 2.The Deputy Commissioner of Income TaxNon-Corporate Ward 2Chennai https://hcservices.ecourts.gov.in/hcservices/ 3.The Income Tax Appellate TribunalChennai 'D' BenchChennai 'D' Bench +1 CC to Mr.T. Ravikumar, Advocate sr 29962. +1 Cc to Mr.K.Ravi, Advocate sr 30134. MP(CO) SP(21/10/2020) T.C.A.No.181 of 2018