No additions based on statements of ex-employees & dealers without cross examination: ITAT

Case Details: DSG Papers (P.) Ltd. v. ACIT/Dy.CIT - [2023] 147 taxmann.com 195 (Chandigarh-Trib.)

Judiciary and Counsel Details

• • N. K. Saini, Vice President & Sudhanshu Srivastava, Judicial Member
  • Sudhir Sehgal, Adv. for the Appellant.
  • Smt. Priyanka Dhar, Sr. DR. for the Respondent.

Facts of the Case

Assessee was a private limited company, engaged in the business of manufacturing paper and paper products. A search operation by the GST Intelligence was conducted on the business premises of the assessee along with the residential premises of the ex-president and ex-employees of the company. During the search proceedings on the residential premises, evidence regarding unaccounted sales to third parties was recovered. Also, statements from ex-employees of the assessee were recorded.

After receiving information, the Assessing Officer (AO) initiated reassessment proceedings under section 148 on account of alleged undisclosed sales by way of under-invoicing of the sales and made additions to the assessee’s income.

On appeal, the CIT(A) upheld the additions made by the AO. Aggrieved-assessee preferred an instant appeal to the Chandigarh Tribunal.

ITAT Held

The Tribunal held that the evidence for undisclosed sales was recovered from the residential premises of the ex-employees and not from the business premise of the assessee. Except for the invoices, no other evidence was obtained. Also, the assessee was not allowed to cross-examine such persons on whose statement AO relied. AO proceeded to make the additions without giving the proper opportunity of hearing to the assessee.

With respect to the availability of invoices with the ex-president, a fact was brought to the notice that the assessee lodged an FIR against the ex-president alleging theft of documents of the company which evidenced that the ex-president was a disgruntled employee of the company indulged in some kind of malpractice to put the assessee into financial trouble. Also, the FIR was lodged much before the time of the search operation.

Further, in their statement, the ex-employees contended that after the delivery of the undisclosed consignment sales invoices were destroyed. This statement lies in contradiction with the availability of such invoices with the ex-president of the company.

Thus, the statements given by the ex-employees, the very foundation for making additions to the income of the assessee, are contradictory and therefore, stand demolished. In addition, where the assessee was being adversely affected by the statement of a third party, denial of cross-examination by AO of such third party would not be justified. Hence, additions made by the AO were liable to be deleted.

List of Cases Reviewed

• • Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC) (para 9.4)
  • CIT v. Rajesh Kumar [2008] 172 Taxman 74/306 ITR 27 (Delhi) (para 9.4.1)
  • CIT v Dharam Pal Prem Chand Ltd. [2008] 167 Taxman 168/[2007] 295 ITR 105 (Delhi) (para 9.4.2)
  • Prakash Chand Nahta v. CIT [2008] 170 Taxman 520/301 ITR 134 (M.P.) (para 9.4.3) followed.

List of Cases Referred to

• • Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC) (para 7.7)
  • CIT v. Rajesh Kumar [2008] 172 Taxman 74/306 ITR 27 (Delhi) (para 9.4.1)
  • CIT v Dharam Pal Prem Chand Ltd. [2008] 167 Taxman 168/[2007] 295 ITR 105 (Delhi) (para 9.4.2)
  • Prakash Chand Nahta v. CIT [2008] 170 Taxman 520/301 ITR 134 (M.P.) (para 9.4.3).