Gujarat H.C : Whether on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the addition of Rs. 8,78,358 in the hands of the assessee ?

High Court Of Gujarat

Heirs And LRS Of Late Laxmanbhai S. Patel vs. CIT

Section 68

Asst. Year 1985-86

K.A. Puj & Bankim N. Mehta, JJ.

IT Ref. No. 41 of 1997

22nd July, 2008

Counsel Appeared :

Manish J. Shah, for the Applicants : Manish R. Bhatt, for the Respondent

JUDGMENT

K.A. PUJ, j. :

During the pendency of this reference before this Court, the applicant assessee, namely, Shri Laxmanbhai S. Patel expired and hence, his heirs and legal representatives are brought on record vide order dt. 9th July, 2008 passed in Civil Appln. No. 142 of 2008 and they are pursuing this reference before this Court.

2. The Tribunal, Ahmedabad Bench ‘A’, Ahmedabad vide statement of case drawn in March, 1997, referred to the following question of law for the asst. yr. 1985-86, at the instance of the assessee, for the opinion of this Court :

“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the addition of Rs. 8,78,358 in the hands of the assessee ?”

3. The brief facts giving rise to the present reference are that there was a search and seizure operation under s. 132 of the IT Act, 1961 (hereinafter referred to as ‘the Act’) carried out at the residential premises of the assessee on
26th March, 1986 in which no substantial thing was found. Again, similar search operation was carried out by the Department at the residence of one Mr. Rameshbhai M. Patel on 25th July, 1986 and a key of the bank locker along with two packets containing six promissory notes were found. The statement of the said Mr. Rameshbhai M. Patel was recorded at the time of search in which he has stated that the said key of the bank locker as well as both the envelopes containing the promissory notes were handed over to him by Laxmanbhai S. Patel, the assessee. Out of the six promissory notes, one promissory note is for Rs. 8,78,358, dt. 25th Oct., 1984 executed by Shri Kantilal Motilal on behalf of M/s Durga Cotton Industries in the capacity of a partner. The statement of Shri Kantilal Motilal was also recorded on that very day of search, i.e., 25th July, 1986 and in his statement, the said Shri Kantilal Motilal admitted that he had written the promissory note and signed the same on behalf of M/s Durga Cotton Industries after obtaining a sum of Rs. 8,78,358.75 on behalf of his firm. It has also come on record that the said Shri Kantilal M. Patel filed an affidavit on 7th Aug., 1986 to the effect that his statement was recorded at late hours on the night of 25th/26th July, 1986 and under pressure by the IT authorities. From this subsequent affidavit dt. 7th Aug., 1986 of Shri Kantilal M. Patel, it appeared to the authorities that the said Shri Kantilal M. Patel tried to retract from the earlier statement recorded by the authorities on 25th/26th July, 1986. Thereafter, on 22nd Sept., 1986, a disclosure petition was moved on behalf of all the three partners, namely, Kantilal M. Patel, Baldev M. Patel and Babubhai Manilal Shah of M/s Durga Cotton Industries in which they disclosed a sum of Rs. 11 lacs including the sum of Rs. 8,78,358.75 of that promissory note. The proceedings under s. 132(5) were initiated against the assessee in regard to the addition of Rs. 8,78,358.75 in the hands of the assessee on the basis of that promissory note executed by Kantilal M. Patel in favour of the assessee. The case of the assessee is that he has no concern with the said promissory note nor he handed over the same to Laxmanbhai S. Patel nor he ever lent any money to Shri Kantilal M. Patel. This contention of the assessee was rejected by the AO. Later on, during the assessment proceedings, the AO again gave an opportunity to the assessee to explain as to why the sum of Rs. 8,78,358.75 should not be added in his hands. The assessee filed reply dt. 25th Jan., 1988 in which he reiterated the same facts that he has never advanced any amount to Shri Kantilal M. Patel in respect of the said promissory note. He further stated that statement of Shri Kantilal M. Patel was recorded somewhere in the midnight after putting lot of pressure and that statement had been retracted by said Kantilal M. Patel. He further corroborated the same story of partners of M/s Durga Cotton Industries that they had disclosed a sum of Rs. 11 lacs including this sum of Rs. 8,78,358.75. Again, the case of the assessee was that each of the partners of M/s Durga Cotton Industries had been assessed by the concerned ITO for the sum disclosed by them in the disclosure petition dt. 29th Sept., 1986 and once the amount including the amount of Rs. 8,78,358.75 had been taxed in the hands of Kantilal M. Patel, Baldevbhai M. Patel and Babubhai S. Shah, then said amount cannot be taxed twice in the hands of the assessee. The AO did not find any substance in all these assertions of the assessee and he treated the amount of Rs. 8,78,358.75 as income of the assessee from undisclosed sources and added the same in the total income.

Being aggrieved by the said order of the AO, the assessee went in appeal and legal as well as factual pleas were raised before the CIT(A). The first legal plea raised on behalf of the assessee was that the assessee was not having any concern with the promissory note nor has he advanced any amount to Kantilal M. Patel or M/s Durga Cotton Industries. The plea of the assessee was that partners of M/s Durga Cotton Industries made a voluntary disclosure of Rs. 11 lacs as belonging to all the partners which included the sum of Rs. 8,78,358.75 also and that amount stood assessed in their hands and after that, there was no logic to assess the same amount in the hands of the assessee. The other legal plea was that the Department has placed reliance on the statement of Shri Ramesh M. Patel but no opportunity was given to the assessee to cross-examine him nor copy of his statement was furnished to him. The learned CIT(A) took up each and every point and concluded that the statement of Kantibhai M. Patel recorded by the Asstt. Director of IT (Inv.) on 25th July, 1986 was not to be given all credence as the same has not been properly retracted. The other plea of the assessee that already Rs. 11 lacs disclosed by partners of M/s Durga Cotton Industries including the sum of Rs. 8,78,358 stands assessed in the hands of those partners and need not be taxed twice in the hands of the assessee was also repelled by the learned CIT(A) on the basis that assessment of Shri Kantilal M. Patel and other two partners was under Amnesty Scheme and the Department was not precluded from making assessment in the hands of the appellant. Lastly, the learned CIT(A) also observed that it was not a case in which Rameshbhai M. Patel should have been cross-examined by the assessee as facts stated by him were almost admitted facts. The learned CIT(A) also decided the point on merits against the assessee and concluded that amount was rightly assessed in the hands of the assessee.

Being further aggrieved by the order of learned CIT(A), the assessee went in appeal before the Tribunal, Ahmedabad, and before the Tribunal, the same contentions were reiterated by the assessee. The first contention was that addition of the impugned amount was made by the Revenue after placing reliance on the original statement of Kantibhai M. Patel and promissory notes but statement of Kantibhai M. Patel could not have been relied upon as the same stood retracted by him through affidavit mentioning that his earlier statement was taken at the late hours of the night and under pressure. The other plea was that the amount of Rs. 8,78,358 was included in the sum of Rs. 11 lacs which has since been disclosed under voluntary disclosure scheme by Shri Kantilal M. Patel and other two partners vide disclosure petition and even partners of M/s Durga Cotton Industries were assessed for the disclosed amount. The other plea was that once the amount of Rs. 11 lacs including the disputed figure of Rs. 8,78,358 stood assessed in the hands of three partners of M/s Durga Cotton Industries, then the same amount cannot be assessed in the hands of assessee on the principle of double taxation. The last plea was that promissory note was not recovered from the possession of assessee but from the possession of Rameshbhai M. Patel and his statement was recorded at the back of assessee and opportunity of cross-examination was not given to the assessee. On the basis of these facts, the contention of the assessee was that appeal should be allowed.

On the other hand, the learned Departmental Representative appearing for the Revenue, relied upon the orders of the authorities below and pointed out that cross-examination of Rameshbhai M. Patel was not relevant factor as whatever was stated by him was admitted by the assessee and thus no purpose would have been served by his cross-examination. About retraction of Kantibhai M. Patel, the learned Departmental Representative pointed out that his original statement was spontaneous which should have been given precedence over the subsequent events and retraction was a manipulated move. Disclosure petition of partners of M/s Durga Cotton Industries was also an after-thought and that move was at the instance of the assessee. According to the learned Departmental Representative, it is not a case of double taxation but the amount in question is to be assessed in the hands of right person and assessee is the right person. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of ITO vs. Ch. Atchaiah (1996) 130 CTR (SC) 404 : (1996) 218 ITR 239 (SC).

The Tribunal, after considering all the facts and circumstances of the case did not find any merit in the plea of the assessee and accepting the argument of the learned Departmental Representative came to the conclusion that addition was rightly made in the hands of assessee who was the right person in view of the decision of the Hon’ble Supreme Court.

On the above premises, the question of law as reproduced earlier was referred to by the Tribunal for the opinion of this Court. Mr. Manish J. Shah, learned advocate, appearing for the assessee, has reiterated all the three contentions which were raised before the authorities below. He has taken us through the orders passed by the authorities below as well as the documents produced along with the paper book. He has strongly urged before us that all the three authorities have not correctly applied the principle of law to the facts of the case and arrived at an erroneous conclusion in law which cannot be sustained in view of the settled position in law. He has submitted that the statement of Rameshbhai M. Patel on which heavy reliance was placed by the Revenue was not at all referred to in the assessment order and the AO has made the addition of Rs. 8,78,358.75 in the hands of the assessee. Neither the copy of the statement was given to the assessee nor any opportunity of cross-examining the said Rameshbhai M. Patel was given to the assessee. Before the learned CIT (A), the statement of Rameshbhai M. Patel is produced by the Revenue and though the assessee has raised an objection against production of additional evidence, the said statement was allowed to be produced and the request made by the assessee to allow him to cross-examine the said Rameshbhai M. Patel was not accepted by the learned CIT(A). He has, therefore, submitted that the entire addition made by the AO and confirmed by the learned CIT(A) as well as the Tribunal is required to be deleted on the ground that it is in violation of the principles of natural justice.

In support of his submission, he relied on the decision of the Hon’ble Supreme Court in the case of Kishinchand Chellaram vs. CIT (1980) 19 CTR (SC) 360 : (1980) 125 ITR 713 (SC), wherein it is held that before the IT authorities could rely upon the letters dt. 18th Feb., 1955 and 9th March, 1957, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statement made by him. He further relied on the decision of the Hon’ble Supreme Court in the case of C.B. Gautam vs. Union of India & Ors. (1992) 108 CTR (SC) 304 r/w (1993) 110 CTR (SC) 179 : (1993) 199 ITR 530 (SC) wherein it is held that the Courts have generally read into the provisions of the relevant sections a requirement of giving a reasonable opportunity of being heard before an order is made which would have adverse civil consequences for the parties affected. This would be particularly so in a case where the validity of the section would be open to a serious challenge for want of such an opportunity. He further relied on the decision of Delhi High Court in the case of CIT vs. Dharam Pal Prem Chand Ltd. (2007) 212 CTR (Del) 253 : (2007) 295 ITR 105 (Del), wherein it is held that the AO had based his assessment order on the report obtained from the research institute. The correctness of that report itself having been under challenge by the assessee who had not only filed petitions thereto but also sought permission on several occasions to cross-examine the analyst even agreeing to pay the necessary expenses, the report could not automatically have been accepted. Since the AO did not permit the correctness or otherwise of the report to be tested, there was a clear violation of the principles of natural justice by him in relying upon it to the detriment of the assessee. Even if the strict rules of evidence may not apply to assessment proceedings, the basic principles of natural justice would apply to the facts of the case. Accordingly, the appeal filed by the Revenue before the Delhi High Court was dismissed.

Mr. Shah further relied on the decision of the Madhya Pradesh High Court in the case of Prakash Chand Nahta vs. CIT (2008) 218 CTR (MP) 367 : (2008) 301 ITR 134 (MP), wherein it is held that as the AO had not summoned R inspite of his request made under s. 131 of the Act, the evidence of R could not have been used against the assessee and in the absence of affording a reasonable opportunity of being heard by summoning the said witness the assessment order was vitiated.

Mr. Shah further relied on the decision of the Hon’ble Supreme Court in the case of Rajesh Kumar & Ors. vs. Dy. CIT & Ors. (2006) 206 CTR (SC) 175 : (2006) 287 ITR 91 (SC), wherein it is held that principles of natural justice are based on two principles : (i) nobody shall be condemned unheard and (ii) nobody shall be Judge of his own cause. Duty to assign reasons is, however, Judge made law. When civil consequences ensue, there is hardly any distinction between an administrative order and a quasi judicial order. It is now well-settled that the thin demarcating line between an administrative order and a quasi judicial order stands obliterated. It is further held that when an authority, be it administrative or quasi judicial, adjudicates on a dispute and if its order is appealable or subject to judicial review, it would be necessary to spell out the reasons therefor. While, however, applying the principles of natural justice the Court must also bear in mind the theory of useless formality and the prejudicial doctrine. The Court accordingly held that assuming that two sets of accounts were maintained by the assessee, it did not mean that the nature of the accounts was difficult to understand, and an order under s. 142(2A) could not be made on that sole basis.

Mr. Shah has further submitted that the authorities have committed an error in rejecting the contention of the assessee regarding double taxation after having simply followed the decision of the Hon’ble Supreme Court in the case of ITO vs. Ch. Atchaiah (supra). He has submitted that the said case has no application at all. In that case, there is an admitted position that income is to be assessed either in the hands of the individuals or in the hands of AOP. In that context, the Hon’ble Supreme Court has observed that under the present Act, i.e. Act of 1961, the ITO has no option like the one he had under the 1922 Act. He can and he must tax the right person and the right person alone. By right person is meant a person who is liable to be taxed according to law with respect to a particular income. The expression wrong person is obviously used as the opposite of the expression right person. Merely because a wrong person is taxed with respect to a particular income, the AO is not precluded from taxing the right person with respect to that income. Here, in the present case, it cannot be said that the assessee is a right person in whose hand the amount of Rs. 8,78,358.75 is to be taxed as an income from undisclosed sources. Since Kantibhai M. Patel and other two partners have admitted that the amount belongs to them and they have offered the said amount as their income in the petition filed under voluntary disclosure scheme and the same has been assessed in their hands, it cannot be said that the right persons have not been assessed and that the said amount belongs to the assessee and again it is required to be assessed in the hands of the assessee. He has, therefore, submitted that the addition made by the AO and confirmed by the appellate authority deserves to be deleted and the question referred to this Court is required to be answered in favour of the assessee and against the Revenue.

Mr. Manish R. Bhatt, learned senior standing counsel appearing for the Revenue, on the other hand, has supported the orders passed by the authorities below and submitted that the authorities below have appreciated the facts in correct perspective and arrived at the correct conclusion which requires no interference by this Court as addition was rightly made in the hands of the assessee. He has further submitted that the main argument of the assessee is that the assessee was not given an opportunity of cross-examining Shri Rameshbhai S. Patel, on whose statement heavy reliance was placed by the AO. It was argued on behalf of the assessee that by denying the opportunity of cross-examining the said Shri Rameshbhai, the AO has violated the principles of natural justice. In this connection, he has submitted that whatever was stated by the said Shri Rameshbhai was not rebutted by the assessee and the same stood proved by all the facts and circumstances of the case available on record. The assessee himself has admitted that he handed over the key of the locker and one envelope containing promissory notes to the said Shri Rameshbhai for safe custody. The assessee has falsely denied the fact that he handed over two envelopes. The authorities have considered the statement of the assessee in which initially, he stated that he was having one locker in the joint name of his wife and his own and did not state about the existence of locker, the key of which was handed over by him to the said Shri Rameshbhai. It was only after the Asstt. Director of IT (Inv.) read over the statement of the said Shri Rameshbhai to him that the assessee had to admit the existence of another locker. The assessee was habitual lier and tried to conceal the bare facts. On these premises, the authorities have come to the conclusion that the assessee must have handed over two envelopes to the said Shri Rameshbhai and not one, including the promissory note in question and hence, there was no necessity of cross-examining the said Shri Rameshbhai.

Mr. Bhatt has further submitted that the retraction of Shri Kantilal M. Patel is nothing but an afterthought. The first statement of the said Shri Kantilal M. Patel was spontaneous and that should be given precedence over the subsequent events. The retraction was made apparently at the instance of the assessee who has lent huge amount to the said Shri Kantilal and his partners and he could have easily prevailed upon the will of these three partners. The retraction was not a real retraction but it was made to help the cause of the assessee. Even the disclosure petition filed by the three partners was also an after-thought and the same was moved at the instance of the assessee. He has further submitted that in case any pressure or coercion was put to the said Shri Kantilal or that his statement was recorded at the midnight, he could have come before the authorities just after the said coercion or pressure was put up by the authorities and should not have waited for a week or so for retraction. He has, therefore, submitted that no weightage should be given to the alleged retraction of the said Kantilal M. Patel.

So far as the plea of double taxation is concerned, Mr. Bhatt has submitted that there is no case of double taxation. Simply because Kantilal M. Patel and other two partners have filed disclosure petition and have disclosed their income therein from undisclosed sources, that does not preclude the Department to make an inquiry into the undisclosed income of the assessee and if it were found on sufficient evidence that the amount in question belonged to the assessee, the Department could not be prevented from taxing the said income in the hands of the assessee. In support of this submission, Mr. Bhatt relied on the decision of the Hon’ble Supreme Court in the case of Jamnaprasad Kanhaiyalal vs. CIT (1981) 130 ITR 244 (SC), wherein it is held that (i) the declaration under s.

24(2) of the Finance (No. 2) Act, 1965, had to relate to income actually earned by the declarant and the Act granted immunity to the declarant alone and not to other persons to whom the income really belonged; (ii) the finality under s. 24(8) of the Finance (No. 2) Act, 1965, was to the order of the Central Board under s. 24(6) and not to the assessment of tax made on the declarations furnished under the scheme; (iii) under s. 24(1), the declaration was required to be made in respect of the amount which represented the income of the declarant. The declaration could not be made in respect of an amount which was not the income of the declarant. If, therefore, a person made a false declaration with respect to an amount which was not his income, but was the income of somebody else, then there was nothing to prevent an investigation into the true source of the amount. There was nothing in s. 24 of the Finance (No. 2) Act, 1965, which prevented the ITO, if he was not satisfied with the explanation of an assessee about the genuineness or source of an amount found credited in his books, in spite of its having already been made the subject of a declaration by the creditor and taxed under the scheme, from investigating the true nature and source of the creditors; (iv) the legal fiction created by s. 24(3) of the Finance (No. 2) Act, 1965, was limited in its scope and could not be invoked in assessment proceedings relating to any person other than the person making the declaration under that Act so as to rule out the applicability of s. 68 of the IT Act, 1961; (v) in a case of this description, there was no question of double taxation. Once it was found that the income declared by the creditors did not belong to them there was nothing to prevent the same being taxed in the hands of the assessee to whom it actually belonged.

Mr. Bhatt has further submitted that the above decision of the Hon’ble Supreme Court was followed in the case of ITO & Ors. vs. Ratan Lal & Ors. (1984) 38 CTR (SC) 382 : (1984) 145 ITR 183 (SC), wherein it was held that the immunity enjoyable by a declarant under s. 24 of the Finance (No. 2) Act of 1965, under the voluntary disclosure scheme is confined to the declarant alone and is not extended to the assessment of a third party assessee in relation to the income disclosed by the declarant. There is nothing in the section which prevents the ITO, if he is not satisfied with the explanation of the assessee about the genuineness of sources of amounts found credited in his books, in spite of these having already been made the subject-matter of the declaration by the depositors/creditors, to include them as income of the assessee from undisclosed sources. Sec. 24 of the Finance (No. 2) Act, 1965, does not have overriding effect over s. 68 of the IT Act, 1961, insofar as persons other than the declarants are concerned. In a case of this description, there is no question of double taxation. Mr. Bhatt has, therefore, submitted that there is no substance in the arguments of the assessee that once Shri Kantilal M. Patel and other two partners having disclosed this very amount in their disclosure petition, the same cannot be taxed in the hands of the assessee as it amounted to double taxation.

Mr. Bhatt has further submitted that the Tribunal being final fact finding authority had given its finding after appreciation of facts and evidence on record and hence, findings on questions of pure facts arrived at by the Tribunal are not to be disturbed by this Court on a reference unless it appears that there was no evidence before the Tribunal upon which they, as a reasonable man, would come to the conclusion to which they have come and this is so, even though, this Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. He has submitted that such a finding can be reviewed only on the ground that there is no evidence to support it or that it is perverse. In support of this submission, he relied on the old decision of the Hon’ble Supreme Court in the case of Sree Meenakshi Mills Ltd. vs. CIT (1957) 31 ITR 28 (SC), wherein the Hon’ble Supreme Court has carved out certain principles emerging from the decided cases. The principles are as under : (i) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the Court under s. 66(1). (ii) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final, its decision as to the legal effect of those findings is a question of law which can be reviewed by the Court. (iii) A finding on a question of fact is open to attack under s. 66(1) as erroneous in law when there is no evidence to support it or if it is perverse. (iv) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact. Mr. Bhatt has, therefore, submitted that the order passed by the Tribunal confirming the order of the learned CIT(A) who in turn confirmed the order of the AO, is not required to be distributed on any count and hence, the present reference is required to be answered in favour of the Revenue and against the assessee.

We have considered rival submissions of the parties. We have also gone through the orders passed by the authorities below. We have applied our mind to the relevant statutory provisions and the decided case law on the subject. It is true that while deciding the reference under s. 256(1) of the IT Act, 1961, the Court is mainly concerned with the decision on questions of law. If the question posed before the Court is purely a question of fact, the Court should not entertain the reference. However, if some basic principles of law or statutory or constitutional provisions are violated by the authorities, the Court would not shut its eyes and take the view that the authorities below have appreciated the facts and evidence on record and arrived at a finding which is based on facts and no question of law arises from the orders passed by the authorities below. The case on hand is one of such cases where apparently there was a violation of principles of natural justice as the statement of one of the important witnesses, namely, Shri Rameshbhai M. Patel on which heavy reliance was placed by the AO while making an addition of Rs. 8,78,358.35 on account of unexplained cash credit under s. 68 of the IT Act, 1961, is neither referred to in the assessment order nor copy thereof was given to the assessee nor the assessee was given an opportunity of cross- examining the said Shri Rameshbhai M. Patel. The authorities below could not be absolved from the obligation by merely stating that it was not necessary to give such copy to the assessee nor it was necessary to give an opportunity of cross-examining the said Shri Rameshbhai M. Patel as the facts stated by him are admitted by the assessee. The whole issue of the addition in question is required to be viewed in this context.

It is an admitted position that right from the beginning, the assessee has stated that no amounts were due to him in respect of the promissory note in question as he had never advanced any amount to Shri Kantilal M. Patel in respect of the said promissory note. It is found from the evidence on record that the statement of Shri Kantilal M. Patel was recorded at about 2.00 AM in the midnight. It was alleged that the said statement was recorded under great strain and tension. Soon thereafter, the said Shri Kantilal M. Patel filed an affidavit pointing out the circumstances under which the said statement was obtained from him under great pressure, tension and coercion. The assessee has also made it clear that there was no business relation between him and the said Shri Kantilal M. Patel for which he could advance such a huge amount to him. It is none of the business of the assessee to know as to what was the motive or purpose behind the execution of such promissory note.

It has also come on record that the said Shri Kantilal M. Patel has not only retracted his earlier statement which was said to have been obtained under great pressure, tension and coercion; in fact, the said Shri Kantilal M. Patel along with Shri Baldev M. Patel and Babubhai Manilal Shah, other two partners of M/s Durga Cotton Industries, made a voluntary disclosure on 29th Sept., 1986 disclosing an aggregate sum of Rs. 11 lacs as belonging to the said three partners which included a sum of Rs. 8,78,358.35 covered by the said promissory note. The plain reading of the said disclosure petition makes it abundantly clear that the said amount belonged to them and at one stage, they had entrusted a sum of Rs. 9 lacs to the assessee and had subsequently withdrawn smaller amounts from him and finally, the entire amount was taken away by them on or about 25th Oct., 1994. Even this version of the disclosure petition was not accepted by the assessee as he had neither given nor taken any amount from the said Shri Kantilal M. Patel. The assessee had made very clear in his reply to the AO that he did not admit the truth or otherwise of the story put forward by the said three partners in the said voluntary disclosure made by them. But, it

clearly showed that a sum of Rs. 9 lacs which according to them included the amount of promissory note alleged to have been executed in favour of the assessee and it was part of their concealed income for which they were making the said disclosure. It is also found from the record that the assessee along with his letter dt. 18th Nov., 1986 pointed out to the AO that Shri Kantilal M. Patel made a statement before the ITO, Circle 8, Ward B, Ahmedabad, in respect of the said disclosure under s. 131 of the Act which included the amount of the alleged promissory note executed in his favour. The said statement was furnished along with the said reply. Despite this fact, the AO had not chosen to refer the same or to deal with the said voluntary disclosure in his order and made the addition in the hands of the assessee.

One more glaring fact which has come on record is that the AO has obtained the statement of Shri Rameshbhai M. Patel from whose possession, the key of the locker as well as two envelopes were found. Out of these two envelopes, one envelope contained the alleged promissory note. The assessee had subsequently denied to have given this promissory note to the said Shri Rameshbhai M. Patel in subsequent proceedings. Despite this fact, the said statement of Shri Rameshbhai M. Patel has neither been referred to in the assessment order nor copy thereof was given to the assessee. During the course of appellate proceedings before the CIT(A), the Revenue has made an attempt to produce the same by way of an additional evidence and even at that stage, a request was made for cross- examination on behalf of the assessee. However, such a request was not granted. The appellate authorities could not have taken the view that cross-examination was not necessary. The assessee could have asked the questions to the said Shri Rameshbhai M. Patel with regard to the exact number of envelopes and the contents of the said envelopes. In absence of such cross-examination, it is not justified to arrive at the conclusion that the assessee had given two envelopes to the said Shri Rameshbhai M. Patel and out of these two envelopes, one envelope contained the promissory note which was said to have been executed by Shri Kantilal M. Patel in favour of the assessee. If one looks at the amount of other promissory notes, they are hardly of Rs. 5,000 to Rs. 25,000. This is the only promissory note which is of Rs. 8,78,358. This would certainly raise a doubt or suspicion and this very fact goes in favour of the assessee. The Court is mindful of the fact that reappreciation of facts or evidence is not permissible while exercising the advisory jurisdiction of this Court. However, as held by the Hon’ble Supreme Court in the case of Sree Meenakshi Mills Ltd. vs. CIT (supra) that when the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final, its decision as to the legal effect of those findings is a question of law which can be reviewed by the Court. The finding is arrived at by the authorities below while denying an opportunity of cross-examining the important witness, namely, Shri Rameshbhai M. Patel and the legal effect of this finding is certainly a question of law which is required to be reviewed by the Court. The legal effect of the statement recorded behind the back of the assessee and without furnishing the copy thereof to the assessee or without giving an opportunity of cross-examination, if the addition is made, the same is required to be deleted on the ground of violation of the principles of natural justice. This is clearly stated by the Hon’ble Supreme Court in the case of Kishinchand Chellaram vs. CIT (supra) wherein it is stated that before the IT authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine. Except the statements of Shri Kantilal M. Patel and Shri Rameshbhai, there was no other evidence available with the Department. A copy of the statement of Shri Rameshbhai was not given nor an opportunity of cross-examining the said Shri Rameshbhai was given to the assessee. Shri Kantilal M. Patel has subsequently retracted his statement. Even after retraction, he along with two other partners had filed disclosure petition disclosing this very amount in the said disclosure petition. The assessee’s statement was recorded by the AO and some discrepancies were pointed out but merely on the basis of such discrepancies, one would not jump to the conclusion that he is an habitual lier and all sorts of adverse presumptions can be drawn against him. The Department has clearly failed to establish any nexus between the alleged promissory note and the amount said to have been given by the assessee to the said Shri Kantilal M. Patel. Considering the entire facts and circumstances of the case and applying the correct principles of law to the facts found on record, we are of the view that all the three authorities have committed an error in arriving at the conclusion that the addition of Rs. 8,78,358 is rightly made in the hands of the assessee. We, therefore, quash and set aside the orders of the authorities below on this point and hold that Tribunal was not right in law in upholding the addition of Rs. 8,78,358 in the hands of the assessee. We, therefore, answer the question referred to us in negative, i.e., in favour of the assessee and against the Revenue.

This reference stands disposed of accordingly.

[Citation : 327 ITR 290]