2017 (9) TMI 802 - AT - Income Tax

Reopening of assessment - addition invoking sec 69B - not allowing Assessee to cross-examine witnesses - Held that - Denial of such opportunity goes to the root of the matter and strike at the very foundation of the assessment order. Not providing such opportunity amounted to violation of principle of natural justice, a serious flaw which makes the order nullity. We do not find any merit for the addition made by AO without allowing assessee an opportunity to cross examine the person on whose statement addition was made. See Andaman Timber Industriescase 2015 (10) TMI 442 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues involved:
1. Reopening of assessment under section 147 without proper justification.
2. Addition of ?40 lakhs under section 69B of the Income Tax Act.
3. Denial of opportunity for cross-examination and violation of natural justice.
4. Legality of the order passed by the Assessing Officer and confirmed by the CIT(A).

Issue 1: Reopening of assessment under section 147 without proper justification:
The appellant contested the reopening of the assessment under section 147, arguing that it was based on borrowed satisfaction without proper appreciation of facts. The Assessing Officer (AO) relied on information from the Directorate of Income Tax (Investigation) regarding a search operation in the Hiranandani Group. The appellant had booked flats in a building and allegedly made cash payments for the same. The Tribunal found that the AO had sufficient reason to believe that income had escaped assessment, justifying the reopening.

Issue 2: Addition of ?40 lakhs under section 69B of the Income Tax Act:
The AO made an addition of ?40 lakhs under section 69B as unexplained investment based on the statement of a director of the Hiranandani Group. The appellant requested cross-examination of the director, but both the AO and the CIT(A) denied this opportunity. The Tribunal held that denial of cross-examination violated the principles of natural justice, citing relevant judicial precedents. As the appellant was not allowed to cross-examine the person on whose statement the addition was made, the Tribunal concluded that the addition was not warranted.

Issue 3: Denial of opportunity for cross-examination and violation of natural justice:
The appellant was denied the opportunity to cross-examine the person whose statement formed the basis of the addition under section 69B. The Tribunal emphasized that not allowing cross-examination amounted to a serious flaw, making the order null and void due to the violation of principles of natural justice. Citing judgments from the Hon'ble Supreme Court and the Jurisdictional High Court, the Tribunal ruled that denial of such an opportunity undermined the foundation of the assessment order.

Issue 4: Legality of the order passed by the Assessing Officer and confirmed by the CIT(A):
The Tribunal allowed the appeal of the assessee, highlighting the importance of providing the assessee with the opportunity to cross-examine witnesses whose statements are used as the basis for additions in the assessment. By applying legal precedents and principles of natural justice, the Tribunal concluded that the addition of ?40 lakhs without allowing cross-examination was unjustified. The order was pronounced in favor of the assessee on 25/07/2017.

This detailed analysis of the legal judgment addresses the issues raised in the appeal comprehensively, focusing on the procedural fairness, justification for additions, and adherence to principles of natural justice in the assessment process.