2016 (12) TMI 884 - HC - VAT and Sales Tax

Validity of assessment order - whether the AO can make additions solely relying upon the third party statement and without any further corroborative evidence - Held that - solely on the basis of information gathered by another officer on the basis of visit made outside the State in the premise of T.R.Somani & Sons and Bhavna Trade Agencies, in which, there is reference of sale by them to appellant-assessee, the addition is made - Identical question came to be considered by this Court in the case of Kantibhai Revidas Patel 2013 (11) TMI 972 - GUJARAT HIGH COURT , where the Assessing Officer made the additions on the basis of statement of third party and on the basis of other documents recovered from the third party premises. The learned CIT(A) deleted the the said additions by stating that in the absence of any other corroborative evidence, the said addition cannot be made on the basis of presumption and on the basis of statement of any third party and particularly when seized document was recovered from the third party premises. In the present case, there is no other corroborative evidence collected by the AO justifying the addition in exercise of powers on reassessment, more particularly, with respect to sale of the goods by T.R.Somani & Sons and Bhavna Trade Agencies alleged to have been made to the appellant. Without giving any opportunity of being heard to the appellant to confront the said material and / or without giving any opportunity to cross examine them, straightway and solely relying upon the same, in exercise of powers of reassessment, the AO has made addition, which in the facts and circumstances of the case, cannot be sustained. The impugned judgment and order passed by the learned Tribunal is hereby quashed and set aside and it is held that AO could not have made additions solely relying upon the third party statement and without any further corroborative evidence - decided in favor of assessee.

Summary

Issues:
1. Addition made on the basis of third party information without evidence
2. Opportunity of cross-examination and furnishing information to the assessee
3. Breach of principles of natural justice in reassessment

Analysis:

Issue 1: Addition made on the basis of third party information without evidence
The appellant, engaged in tea resale business, faced reassessment due to unaccounted purchases from T.R.Somani & Sons and Bhavna Trade Agencies. The Assessing Officer (AO) relied solely on information from a department visit to these entities outside the state, without providing evidence or opportunity for the appellant to dispute the claims. The Tribunal confirmed the addition, but the High Court held that additions cannot be made solely on third party information without corroborative evidence. Citing a similar case, the Court emphasized the need for corroborative evidence to support such additions.

Issue 2: Opportunity of cross-examination and furnishing information to the assessee
The appellant was not given the chance to cross-examine or receive information gathered by the concerned officer regarding the alleged purchases. Despite disputing any transactions with the mentioned entities, the AO proceeded with the addition based on information from another officer's visit. The Court highlighted the importance of providing the assessee with relevant information and an opportunity to confront the material used against them.

Issue 3: Breach of principles of natural justice in reassessment
The Court found that the reassessment order lacked adherence to principles of natural justice as the addition was made solely on third party information without giving the appellant a fair chance to defend against the claims. Due to the absence of corroborative evidence and the failure to provide the appellant with relevant information, the Court quashed the Tribunal's judgment, ruling in favor of the assessee. The Court emphasized that additions cannot be sustained without proper evidence and opportunities for the assessee to respond.

In conclusion, the High Court ruled in favor of the assessee, emphasizing the importance of providing corroborative evidence and ensuring the principles of natural justice are upheld during reassessment proceedings.