JUDGMENT
1. The Tribunal, Allahabad, has referred the following question of law under Section 256(2) of the IT Act, 1961 ('the Act') for opinion to this Court :
Whether, on the facts and in the circumstances of the case, the reassessment made in contravention of the principles of natural justice, inasmuch as the witness relied upon having not been provided to the assessee for cross-examination is valid in law ?
The present reference relates to the asst. yrs. 1959-60, 1960-61 and 1961-62.
2. Briefly stated the facts giving rise to the present reference are as follows :
The applicant, a private limited company, derived income from running of rolling mill. It had the calendar year as its previous year. On 5th June, 1958, it had taken over a running concern M/s Jagdish Rolling Mills. Its original assessment for the asst. yr. 1959-60 was completed on a loss and assessments for the asst. yrs. 1960-61 and 1961-62 on nominal incomes. In a search and seizure operation conducted by the IT Department at the residential premises of one Sri Ram Nath Jain, a note" book, bearing No. G-6, was found and seized, which contained record of certain transactions. Statement of Sri Ram Nath Jain was recorded and he was required to explain the transactions recorded in the said note book. It transpired that a dispute had arisen amongst the two groups of directors M/s Kusum Industries (P) Ltd., the applicant-company, Shyam Lal Dwarika Prasad group and Banarsi Das Rameshwar Prasad group over the affairs of M/s Jagdish Rolling Mills. The matter was referred to a board of arbitrators comprising S/Shri Ram Nath Jain, Kishori Lal Garg, Mahraji Prasad and Bhagirath Prasad Jakhodia. The arbitration proceedings continued from 1st Jan., 1961 to 25th May, 1961. Sri Banarsi Das and Sri Rameshwar Prasad claimed before the arbitrators that profit amounting to Rs. 3,08,102 was earned by the rolling mills outside the books of account between the period 5th July, 1958 and 31st Oct., 1960. The arbitrators gave the decision on 12th Feb., 1961, in which this claim of Sri Banarsi Das and Rameshwar Prasad was unanimously upheld by them. It was further decided that No. 2 books of account would be burnt. In this statement Sri Kishori Lal Garg, another arbitrator, who wrote the "G-6" note book, confirmed the facts narrated by Sri Ram Nath Jain. Sri Banarsi Das, one of the directors of the applicant-company, also confirmed the above facts in his statement recorded under Section 131 of the Act. Statement of Sri Rameshwar Prasad, another director of the applicant-company, was also recorded. On the basis of this information, proceedings under Section 147 were initiated for the asst. yrs. 1959-60, 1960-61 and 1961-62 to assess the escaped income of Rs. 3,08,102, proportionately divided in the three assessment years. The reassessments completed on the basis of the above proceedings were set aside by the first appellate authority on the ground that proper opportunity was not given to the assessee to cross-examine the witnesses and to put his point of view. During the course of the fresh assessment proceedings, with a view to affording the applicant an opportunity to cross-examine them, the AO issued summons under s. 131 of the Act to S/Shri Bhagirath Prasad Jakhodia, Kishori Lal Garg, two of the arbitrators, Rameshwar Prasad Jain and Banarsi Das, two of the directors of the applicant-company. The AO pointed out that S/Shri Kishori Lal Garg and Banarsi Das, who had confirmed the fact of extra profit of Rs. 3,08,102 outside the books of account, were reported to have died and the other two persons did not appear. It was held that the cross-examinationof the aforesaid persons by the applicant was not possible. In his reply, the applicant had relied on the statement of Shri Rameshwar Prasad, one of its directors to the effect that whatever was stated in the IT and sales-tax returns was the correct profit and that there was no such unaccounted profit as was alleged. The AO observed that this statement was motivated. For reasons discussed in the assessment order, he refused to give any credence to the statement of Sri Rameshwar Prasad. In the fresh assessment completed by the ITO, Company Circle, B-Ward, Kanpur vide order dt. 23rd March, 1987 additions of Rs. 65,035, Rs. 1,32,614 and Rs. 1,10,453 were made in the asst. yrs. 1959-60, 1960-61 and 1961-62 respectively on account of income arising out of the unaccounted profit.
3. In the second round of appeal before the CIT(A), Kanpur the applicant besides challenging the validity of proceedings taken under Section 147 objected to the additions made in the fresh assessment, on several grounds. Vide order dt. 8th Feb., 1988, the CIT(A) upheld the validity of proceedings under Section 147 of the Act. On the question of affording the applicant proper opportunity of cross-examination of the concerned persons, he observed that no efforts were left out by the AO. The CIT(A) did not find merit in the applicant's other arguments also. Accordingly, the appeals were dismissed. In the second appeal by the applicant, the Tribunal after referring to the reasons recorded by the AO, did not find any infirmity in the initiation of proceedings under Section 148 of the Act. On the pleas taken by the applicant that the allegation that Shri Rameshwar Prasad worked out profit of Rs. 3,08,102 was not authenticated or relevant, the statement relied upon by the AO could not be used against the applicant, sufficient opportunity was not provided to the applicant, etc., were not found to be tenable by the Tribunal on face of facts brought on record by the Departmental authorities. After referring to the observations of the CIT(A), the Tribunal vide its order dt. 26th May, 1993 rendered in ITA Nos. 773, 774 and 7757All/1988 upheld the inference and the decision of the first appellate authority. The applicant's appeals were dismissed.
4. We have heard Sri Gaurav Mahajan, learned Counsel for the applicant and Sri R.K. Upadhyaya, learned standing counsel for the Revenue.
5. Learned counsel for the applicant submitted that as Sri Bhagirath Prasad Jakhodia, arbitrator and Sri Rameshwar Prasad Jain, director of the appellant-company did not appear in respect of the summons issued under Section 131 of the Act and the remaining two persons, namely, Sri Kishori Lal Garg, arbitrator and Sri Banarsi Das, director had died, the facts regarding extra profit of Rs. 3,08,102 outside the books of account cannot be taken a ground for reopening of the assessment and subjecting it to tax in the three assessment years. The submission is misconceived. It is to be noted that the applicant is a private limited company and is not a natural person. It appears that in a dispute amongst two groups of directors regarding earning of secret profits the matter was referred to arbitration and there was an award that a sum of Rs. 3,08,102 was an extra profit which was not reflected in the books of account. It is, however, not in dispute that the award had become final. As the award had become final it would be taken that the board of directors had accepted the factum of earning of secret profit not reflected in the books of account, which is also binding on the company. On the question that one of the arbitrators and one of the directors did not appear in respect of the summons issued under Section 131 of the Act, we find that it would not make any difference to the assessment order. Accordingly, the reassessment made in the present case was valid. The question is answered accordingly. However, there shall be no order as to costs.