2021 (1) TMI 883 - AT - Income Tax

Reopening of assessment - Addition on misuse of client code - statemet of third party relied upon - Whether there is document or material which could established that the client code modification was made which allegedly resulted in shifting of profit.? - HELD THAT - Where the assessee so desires, an opportunity to cross examine the persons whose statements are recorded be provided to the assessee. However, in the instant case, we find that the AO has not shared such information/statements and an opportunity to cross-examine these persons was also not provided and therefore, the principle of natural justice is clearly violated in the instant case which renders the order so passed by the AO as invalid in the eyes of law. Even during the appellate proceedings, the assessee was not made available any such statements and even the right of cross examination was denied by the ld CIT(A) who exercises the co-terminus powers as that of the AO. Thus, in view of the decision in case of CCE vs. Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT the assessment based on statement of third party without giving an opportunity to the assessee is not sustainable in law. The statement of a third party cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. In light of the same, we don t deem necessary to examine other contentions raised by the ld AR. The order so passed by the AO is hereby set-aside. The appeal of the assessee is thus allowed.

Summary

Issues:
- Challenge to sustaining additions by CIT(A)
- Jurisdictional error in issuing notice under section 148
- Violation of principle of natural justice by Assessing Officer
- Denial of opportunity for personal hearing and cross-examination
- Validity of reopening of assessment under section 147

Analysis:
1. Challenge to sustaining additions by CIT(A): The appeals were filed against the orders of the CIT(A) for the assessment year 2010-11. The common issues in both appeals were heard together. The lead case involved challenges to additions made by the CIT(A) totaling ?1,49,950, including amounts related to misuse of client code and commission paid to a broker. The grounds of appeal highlighted errors in sustaining these additions without sufficient evidence.

2. Jurisdictional error in issuing notice under section 148: The Assessing Officer issued a notice under section 148 based on information received from ADIT (Inv.) Unit-1(3), Ahmedabad. The appellant contested the jurisdictional error in issuing the notice, arguing that it lacked a proper basis and material for forming a necessary belief. The appellant claimed that the notice was invalid and should be set aside.

3. Violation of principle of natural justice by Assessing Officer: During the hearing, the appellant's representative raised contentions regarding the Assessing Officer's violation of natural justice principles. The appellant repeatedly requested copies of information, statements of brokers and clients, and opportunities for cross-examination and personal hearing. The Assessing Officer failed to provide the requested materials and denied the opportunity for cross-examination, leading to a gross violation of natural justice.

4. Denial of opportunity for personal hearing and cross-examination: The appellant emphasized that the Assessing Officer's actions, including issuing the order without providing copies of relied-upon material and denying opportunities for cross-examination and personal hearing, were in violation of natural justice principles. The appellant's contentions were summarily rejected by the CIT(A), further highlighting the denial of procedural fairness throughout the assessment process.

5. Validity of reopening of assessment under section 147: The appellant contested the validity of reopening the assessment under section 147 without sufficient grounds and reasons. The appellant argued that the Assessing Officer's actions lacked justification and failed to provide the necessary opportunity for the appellant to present their case adequately. The appellant sought to challenge the reopening of the assessment based on these procedural deficiencies.

In conclusion, the ITAT Jaipur set aside the Assessing Officer's order due to the violation of natural justice principles, emphasizing the importance of providing opportunities for cross-examination and sharing relevant information with the appellant. The judgment highlighted the necessity of procedural fairness in assessment proceedings and declared the assessment null and void based on the lack of due process. Both appeals were decided in favor of the assessee based on these grounds.