2017 (2) TMI 904 - AT - Income Tax

Assessability of advance received on relinquishment of development rights - denial of natural justice - grievance of assessee is that the addition has been made in the hands of assessee solely relying on the statement of Shri Aditya Dadhe, partner of Viraj Properties without giving the assessee an opportunity to examine him in his presence or cross-examine him in respect of statement of deponent witness being used as evidence against the assessee - Held that - There is violation of principles of natural justice as the statement of Shri Aditya Dadhe which was made the basis for making addition was not given to the assessee by the Assessing Officer and his request to examine and cross-examine the said witness was rejected by the Assessing Officer in the remand proceedings and also by the CIT(A) when this fact was brought to his knowledge. The assessment order was passed in the present case relying on the said statement which was recorded during investigation by ADIT(Inv) and not by the Assessing Officer during assessment proceedings. The said statement was recorded at the back of assessee and copy of which was not given to assessee and assessment order was passed relying on the same. The assessee was held liable for tax on the basis of said statement. But in case the testimony of the said witness is discarded as before the Apex Court for violation of Rule of audi alteram partem, then there is no basis for making addition in the hands of assessee, since both the authorities below have made addition on the basis of statement given by Shri Aditya Dadhe. Accordingly, for violation of principles of natural justice and Rule of audi alteram partem, the addition made by the Assessing Officer and upheld by the CIT(A) is not sustainable and hence, the same is deleted. The preliminary issue raised vide ground of appeal No.3 in this regard is allowed and the issue on merits becomes academic. - Decided in favour of assessee.

Summary

Issues Involved:
1. Assessability of advance received on relinquishment of development rights.
2. Violation of principles of natural justice due to non-opportunity to cross-examine the witness.
3. Reopening of assessment under section 148 of the Income Tax Act, 1961.

Detailed Analysis:

1. Assessability of Advance Received on Relinquishment of Development Rights:
The primary issue revolves around whether the advance received by the assessee for relinquishing development rights should be considered as income for the relevant assessment year. The assessee argued that the amount received was not a full and final settlement and thus should not be taxed in the year in question. The Assessing Officer (AO) noted that the assessee had received ?1.59 crores for relinquishing development rights and added this amount to the income of the assessee for the assessment year 2003-04. The CIT(A) upheld this addition, noting that the assessee had accepted the consideration and shown the amount in its books, implying consent to the cancellation of the original MOU with DCPL.

2. Violation of Principles of Natural Justice:
The assessee contended that the addition was made based on the statement of Shri Aditya Dadhe, recorded without giving the assessee an opportunity to cross-examine him. The CIT(A) remanded the matter to the AO to provide the assessee with a copy of the statement and an opportunity to cross-examine the witness. However, the AO did not comply with this directive, leading to a significant procedural lapse. The Tribunal held that this failure constituted a violation of the principles of natural justice, as it deprived the assessee of a fair opportunity to challenge the evidence used against him.

3. Reopening of Assessment under Section 148:
The AO reopened the assessment on the grounds that the assessee had not offered the advance received for relinquishing development rights to tax. The assessee objected to the reopening, arguing that the reasons for reopening were based on a statement recorded in 2006, while the reopening notice was issued in 2010. The Tribunal did not specifically address the validity of the reopening in its final judgment, focusing instead on the procedural fairness and the merits of the addition.

Conclusion:
The Tribunal concluded that the addition made by the AO and upheld by the CIT(A) was not sustainable due to the violation of principles of natural justice. The Tribunal emphasized that the assessee was not given a fair opportunity to cross-examine the witness, which was a serious flaw making the order invalid. Consequently, the Tribunal deleted the addition of ?1.59 crores made to the assessee's income for the assessment year 2003-04. The appeal of the assessee was allowed on these grounds, rendering the issue on merits academic.