2018 (7) TMI 286 - AT - Income Tax

Reopening of assessment - opportunity to the assessee to cross examine - Held that - In the instant case, we find that the assessee never participated in the assessment proceedings, therefore, the question of asking and granting opportunity to cross examine does not arise. During First Appellate proceedings, the assessee made request to cross examine the witnesses whose statements were used for re-opening the assessments. Principles of natural justice demand that fair chance should be given to rebut the evidence used to make addition. An opportunity to cross examine the witnesses should be provided when the statements of witnesses are used against the assessee for re-opening assessment resulting into addition of income. Taking into consideration entire facts of the case, we deem it appropriate to restore these appeals to the file of Commissioner of Income Tax (Appeal) for allowing an opportunity to the assessee to cross examine the dealers whose statements were used by the Department for re-opening the assessments in the case of assessee. Identical grounds have been raised by the assessee in all the appeals. Accordingly, the ground No.1 raised in the appeals are allowed for statistical purpose.

Summary

Issues:
Appeals challenging assessment orders for three consecutive years - Re-opening of assessments based on information from Sales Tax Department - Additions on account of fictitious purchases from Hawala operators - Validity of re-assessment proceedings - Opportunity for cross-examination - Disallowance of 25% of alleged bogus purchases - Compliance with principles of natural justice.

Analysis:

Relevant Facts:
The appeals by the assessee for three consecutive assessment years were directed against the Commissioner of Income Tax (Appeal)'s order. The assessments were re-opened based on information from the Sales Tax Department regarding the assessee's transactions with Hawala operators. The Assessing Officer made significant additions on account of alleged fictitious purchases from Hawala operators for each year.

Validity of Re-assessment Proceedings:
The assessee challenged the validity of the re-assessment proceedings before the Commissioner of Income Tax (Appeal). Despite the assessee's non-participation in the assessment proceedings, the Commissioner upheld the re-assessment but restricted the additions to 25% of the alleged bogus purchases. The assessee contended that the denial of an opportunity for cross-examination violated principles of natural justice.

Cross-Examination and Natural Justice:
The assessee argued for the right to cross-examine witnesses, emphasizing the importance of fair opportunity to rebut evidence used for additions. Citing relevant judgments, including the Hon'ble Supreme Court's ruling in M/s. Andaman Timber Industries case, the assessee sought the chance to cross-examine witnesses whose statements led to the re-opening of assessments.

Tribunal's Decision:
The Tribunal acknowledged the significance of providing a fair chance for cross-examination to maintain principles of natural justice. As the assessee had not participated in the initial assessment proceedings, the Tribunal directed the restoration of the appeals to the Commissioner of Income Tax (Appeal) for allowing the assessee an opportunity to cross-examine the witnesses crucial to the re-assessment process. Consequently, the appeals were partly allowed for statistical purposes.

Conclusion:
The Tribunal's decision highlighted the necessity of upholding principles of natural justice, particularly regarding the right to cross-examine witnesses in assessment proceedings. By granting the assessee the opportunity for cross-examination, the Tribunal aimed to ensure a fair and transparent assessment process, emphasizing compliance with legal standards and procedural fairness.

This comprehensive analysis covers the issues raised in the appeals, the arguments presented by both parties, the Tribunal's decision, and the implications for the assessment proceedings.