2008 (4) TMI 233 - HC - Income Tax

Reassessment proceedings - addition made u/s 69 as income from undisclosed sources - since the Revenue relied upon the statement of Maheshwari it should have been made available to the Assessee with an opportunity of cross-examine him - This was not done by the Assessing Officer. It clearly shows that the principles of natural justice have been violated

Summary

Issues:
1. Merits of addition under Section 69 of the Income-tax Act, 1961.
2. Violation of principles of natural justice in not providing the Assessee with the opportunity to cross-examine a witness.

Analysis:
1. The case involved a dispute regarding an addition of Rs.4,89,325/- made under Section 69 of the Income-tax Act, 1961, as income from undisclosed sources. The Assessing Officer based his decision on a report from the Deputy Director of Income Tax (Investigation) alleging that the Assessee engaged in bogus share transactions. The Assessee had claimed a deduction under Section 54F for a long-term capital gain from the sale of shares, which the Assessing Officer deemed as not genuine.

2. The Assessee was issued a letter by the Assessing Officer requesting information and evidence to prove the genuineness of the share transactions. The Assessee complied with the requirements and provided all necessary details. However, crucial information, including a statement from a witness, Maheshwari, was not disclosed to the Assessee. The Tribunal held that the principles of natural justice were violated as the Assessee was not given the opportunity to cross-examine Maheshwari, whose statement was relied upon by the Revenue.

3. The Commissioner of Income Tax (Appeals) dismissed the Assessee's appeal on the grounds of not requesting statements of relevant persons. The Tribunal, however, accepted the Assessee's contention that crucial information was withheld, leading to a violation of natural justice. The Tribunal concluded that the Revenue's reliance on undisclosed material against the Assessee without providing an opportunity for cross-examination was unjust and violated the principles of natural justice.

4. The High Court upheld the Tribunal's decision, stating that the Assessee's lack of knowledge regarding the statement and material used against them, coupled with the failure to provide an opportunity for cross-examination, constituted a violation of natural justice. The Court found no error in the Tribunal's ruling and determined that no substantial question of law arose from the case.