2017 (1) TMI 1593 - HC - Income Tax

Violation of the principles of natural justice - case of the assessee that on the basis of a statement recorded from one Ranga Rao behind the back of the assessee, the order of assessment came to be passed without supplying the copy of the statement or giving an opportunity to the assessee to cross-examine - Held that - The law is very clear that whenever an order is vitiated for non-compliance with the principles of natural justice, the order should be set aside and the matter remitted back to the same authority. It is only in cases where the original authority had lost its jurisdiction in the meantime, an order of remand cannot be passed. The powers of the Income Tax Appellate Tribunal to pass an order of remand are not in doubt nor in dispute. Therefore, the contention that an order of assessment passed in violation of the principles of natural justice is void abinitio, is completely contrary to the fundamental principles of law, especially when the original authority had not lost its jurisdiction so as to become ineligible to deal with the issue after remand. - Decided against assessee. Payment of on-money - Held that - The case of the assessee is alleged to fall under the second category. This is not a case where the company M/s. Emaar Hills Township (P) Ltd., has admitted to have received any on- money from the assessee. This is a case where other persons, who bought the property from the very same company, had allegedly paid huge amounts for the purchase of the property. These statements may indicate three things, viz., (1) that the assessee also might have paid the very same rate; or (2) that the assessee was conferred with the special privilege of a reduced rate, which may attract other provisions of the Act; or (3) that the market value of the property purchased by the assessee was not the same as indicated in the title documents. When the Assessing Officer is left with the option of examining all these three alternatives, it is not correct on the part of the department to think that the fate of the assessment is now sealed. Hence the second question of law is answered accordingly

Summary

Issues:
1. Violation of principles of natural justice in assessment order.
2. Addition of unexplained investments under Section 69B.
3. Opportunity for cross-examination not provided to the assessee.
4. Remand by the Tribunal for violation of principles of natural justice.
5. Questions of law raised by the Revenue and the assessee.
6. Orders of remand and observations by the Tribunal.
7. Direct evidence linking the assessee to cash payments.
8. Assessment order validity and remand by the Tribunal.
9. Payment of on-money issue.
10. Evidence and statements regarding on-money payments.

Analysis:

1. Violation of Principles of Natural Justice in Assessment Order:
The assessment order was challenged due to the violation of principles of natural justice as the assessee was not provided with an opportunity to cross-examine a crucial witness, leading to the order being set aside. The Tribunal remanded the matter back to the Assessing Officer for proper consideration.

2. Addition of Unexplained Investments under Section 69B:
The Assessing Officer made additions, including unexplained investments under Section 69B, based on discrepancies in payment amounts for a property purchase. The information was obtained through investigations conducted without the knowledge of the assessee, leading to a challenge regarding the validity of the additions.

3. Opportunity for Cross-Examination Not Provided to the Assessee:
The Tribunal accepted the contention that the assessee should have been given an opportunity to cross-examine the witness whose statement was used as the basis for the additions. The lack of opportunity for cross-examination was considered a violation of principles of natural justice.

4. Remand by the Tribunal for Violation of Principles of Natural Justice:
The Tribunal remanded the matter back to the Assessing Officer to provide the assessee with an opportunity to address the issues raised and to ensure compliance with principles of natural justice. The remand was based on the need for proper examination and consideration of the evidence.

5. Questions of Law Raised by the Revenue and the Assessee:
Both the Revenue and the assessee raised questions of law regarding the validity of the assessment order, the necessity of direct evidence linking the assessee to cash payments, and the remand process. The issues focused on procedural fairness and the evidentiary requirements for making additions to the income.

6. Orders of Remand and Observations by the Tribunal:
The Tribunal's orders of remand were based on the need for a fair assessment process, including the opportunity for cross-examination and the requirement of direct evidence linking the assessee to financial transactions. The observations highlighted the importance of following due process in tax assessments.

7. Direct Evidence Linking the Assessee to Cash Payments:
The Revenue challenged the Tribunal's observation that no addition could be made without direct evidence linking the assessee to cash payments. The requirement for specific evidence to establish financial transactions was a point of contention between the parties.

8. Assessment Order Validity and Remand by the Tribunal:
The validity of the assessment order was questioned due to procedural irregularities and the lack of opportunity for the assessee to address the allegations. The Tribunal's decision to remand the matter back for proper consideration was based on the principles of natural justice.

9. Payment of On-Money Issue:
The issue of on-money payments was central to the case, with the Tribunal considering the evidentiary requirements for making additions under Section 69B. The Tribunal's decision emphasized the need for clear evidence linking the assessee to the alleged financial transactions.

10. Evidence and Statements Regarding On-Money Payments:
The Tribunal analyzed the evidence and statements related to on-money payments, highlighting the different methods through which such evidence could be established. The Tribunal emphasized the importance of considering all alternatives and circumstantial evidence before making additions to the income.