Case Law Details

Case Name : Shri Ashokkumar Bhailal Vs Income Tax Officer (ITAT Ahmedabad)
Appeal Number : Income Tax Appeal no 489/Ahd/2005
Date of Judgement/Order : 12/06/2015
Related Assessment Year :

Brief of the case

In the case of Asst Shri Ashokkumar Bhailal v Income Tax Officer, ITAT Ahmedabad has held that addition made on basis of witness statements, without giving assessee an opportunity to cross examine the witness and without collaborating other independent evidence is not sustainable in law.

 Facts of the case

1. On first of July, 1995, FERA Authorities (Foreign Exchange Regulation Authorities) had carried a search at LT Shroff of Group at Suthar Chal, Javeri Bazar, Mumbai. Subsequently, a search u/s. 132 of the income tax act was also carried out at various business/residential premises of the LT Shroff Group by the income tax department. Statement of Shri Kalpesh Thakkar who was managing business by LT Shroff was recorded u/s. 132(4) on 2nd August, 1996. During the search of FERA authorities, a diary containing entries of cash receipts and payments to various parties for the period 01-11-94 to 28th May, 1995 on day to day basis was found and seized. The LT Shroff Group was found carrying out the business of accepting deposits in cash on interest and advance loans in cash by charging interest on large scale from the four different branches situated at Modasa, Manek Chawk, Ahmedabad, Manhaton Building, Mithakali, Ahmedabad and Zaveri Bazar, Mumbai.

2. The statements of various persons in this group were recorded at different places and at different times. Lots of documents were seized from different places. According to the Assessing Officer, DCIT, Central Circle 2(1) vide letter dated 05-09-1999 has forwarded the extract of transactions recorded in the name of B D Ahoskbhai, on various dates, with extract of ledger prepared on the basis of this diary for the period starting from First November, 1994, to 28th May, 1995 was supplied to the Assessing Officer having jurisdiction over the assessee. The ld. Assessing Officer has recorded reasons and issued notice u/s. 148 of the income tax act which was duly served upon the assessee on 23rd January, 2001. The Assessing Officer thereafter issued a notice u/s. 143(2)/142(1).

3. On the basis of this diary ld. Assessing Officer has calculated a payment by Shri Ashokbhailal of Rs. 61,25,700/-. This payment is between the dates 08- 11-1994 up to 23rd March, 1995. He made an addition of this amount in Assessment Year 1995-96. In the case of the firm, ld. Assessing Officer made additions of Rs. 61,25,700/- in Assessment Year 1995-96 and 14,80,000/- in Assessment Year 1996-97 because three payments alleged to have been made on 24th, 27th April, 1995 and 3rd May aggregating to Rs. 14,80,000/-.

4. On appeal, Ld. Commissioner of Income Tax (Appeals) has confirmed additions of Rs. 7,90,000/- in the hands of Ashok Bhailal (individual) and Rs. 53,35,700/- in the hand of firm, on the ground that source of fund is from the firm. In Assessment Year 1996-97, ld. Commissioner of Income Tax (Appeals) has confirmed Rs. 14,90,000/- in the hands of firm.

5. Aggrieved by the decision of CIT(A) , assessee is in appeal before Tribunal.


1. Whether notice issued u/s 148 based on the information received from FEMA authority is valid. And

2. Whether addition made base on statement of witness and without giving assessee an opportunity to cross examine the witness is sustainable in law?

3. Whether Penalty can be levied on above addition?

Assessee’s Contention

1. That Assessing Officer which did not possess any concrete information which has a direct nexus with the escapement of income in the case of the assessee. The material possessed by the Assessing Officer is of such a nature, which can only give rise to suspicion and, therefore, he was not justified to reopen the assessment.

2. That he has never done any business with LT Shroff Group. Statement of Ashokbhai was recorded by the Assessing Officer on 28th March, 2002. The assessee has specifically denied when suggestion put by the Assessing Officer in connection with any transaction carried out with Lt Shroff Group. The assessee has specifically asked for supply of the copy of the diary as well as cross-examination of the author of the diary. It appears that pages of the diary were given to the assessee but he was not apprised the author of the diary and he was not allowed to cross examine the author.

Revenue’s Contention

1. Department Representative supported order of AO.

2. Department is possessing a diary which contains names of different individual/office/firms who had either deposited the money with LT Shroff or availed loan facility. Now, the evidence which we have extracted above nowhere gave a pointer towards the assessee in clinching way. 

ITAT decision / observations 

1. We find that information in the shape of communication made by DCIT, Central Circle 2(1) is specific and clear demonstrating the modus operandi of L.T. Shroff and Group. The name of B D Ashokbhai is available in the list resemble with the assessee and, therefore, Assessing Officer can reasonably harbour a belief that income belonging to the assessee has escaped from taxation. Therefore, he has rightly reopened the assessment and issued notice to both the assessees u/s. 148 of the income tax act. We do not find any merit in this fold of contention.

2. The evidence vis-à-vis the stand of assessee, we are of the view that Hon’ble Supreme Court way back 1980 in the case of Kishanchand Chellaram vs. Commissioner of Income Tax reported in 125 ITR 713 dealing with an assessment year 1947-48 has observed that, if the opportunity to cross-examine the witness upon whose statement reliance is being placed was not granted, then, that statement recorded behind the back of assessee cannot be used in evidence. Similar is the exposition by the Hon’ble Supreme Court in the case of State of Kerala vs. K.T. Sadala Yusuf 39 ITC 478.

3. There is no corroborative evidence apart from this explanation of L.T. Shroff. This is a diary written by a third person found at the premises of the third person. It was not written by assessee. The assessee repeatedly asked to bring the author and give him an opportunity to cross-examine. If that man is not traceable, then it does not mean that assessee would be deprived of his right to verify how his name has been mentioned in the alleged diary. When he has no alleged connection with L.T Shroff, the department ought to have collected some other corroborative evidences which can establish the nexus or link between the assessee and L. T Shroff.

4. The evidence collected by the department is not worthy of credence, more particularly in view of the judgment of Hon’ble Supreme Court in the case of CBI vs. V.C. Shukla & others reported in 1998 35 SSC page 410. There is no independent evidence on the record, therefore, we are of the view that addition with the help of this much information can not be made. Therefore, addition made is not sustainable in law.

5. In the present case, we have deleted the quantum addition, therefore, the charge against the assessee of evading the taxes on the addition no more survive. There cannot be any penalty which can be computed in the present case. As a result, this appeal is also allowed and penalty is deleted.

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