2021 (1) TMI 1061 - AT - Income Tax

Denial of deduction u/s 35AC on the basis of statement of Trustee - Assessee argued that opportunity to cross examine the Trustee was not provided to the assessee - HELD THAT - It is a well settled law that a statement cannot be used against the assessee unless an opportunity is granted to the assessee to cross examine the person who has made such statement. Apex Court in the case of ICDS Ltd. 2020 (2) TMI 1424 - SUPREME COURT held that where opportunity to cross-examine witness relied upon by the Assessing Officer is not extended to the assessee, the entire issue has to be adjudicated fresh by giving fair opportunity to both the sides. Nowhere it is emanating from perusal of assessment order that the statement recorded by the Department that was used to disallow assessee s claim was provided to the assessee or the opportunity to cross- examine the person whose statement was used against the assessee was afforded to the assessee. AO ought to have provided material used against the assessee apart from providing an opportunity to cross examine deponent whose statement was used against the assessee. Besides the said statement there is no substantive material to disbelieve the claim of assessee. The request of the assessee to cross-examine the person whose statement was used by the Revenue for making the addition was also declined by the CIT(A) - We restore the issue to the file of Assessing Officer for fresh adjudication after affording opportunity of cross examination to the assessee - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Absence of the assessee during appeal.
2. Disallowance of deduction under section 35AC.
3. Lack of opportunity for cross-examination.
4. Reliance on statement without cross-examination.

Analysis:
1. The appeal was decided in the absence of the assessee due to non-receipt of notices, indicating lack of interest. The Tribunal proceeded after hearing the Departmental Representative and examining the available record.

2. The assessee, engaged in commission and forex broking, made donations to a charitable trust claimed under section 35AC. The assessment was reopened based on information suggesting non-genuine donations. The Assessing Officer disallowed the deduction, leading to an appeal. The main contention was the lack of cross-examination opportunity.

3. The Department argued that the trust provided accommodation entries, including to the assessee, affecting the claimed deduction. The Tribunal noted the importance of cross-examination to establish the genuineness of the donation. The withdrawal of the deduction was solely based on the trustee's statement without allowing the assessee to cross-examine.

4. Citing legal precedents, the Tribunal emphasized the necessity of providing the opportunity to cross-examine witnesses relied upon by the Assessing Officer. The failure to grant this opportunity necessitated a fresh adjudication, as per established legal principles. The lack of material apart from the trustee's statement raised doubts on the disallowance.

5. The Tribunal found that the assessee was not given a chance to cross-examine the trustee, as the statement was used against them without proper verification. Consequently, the issue was remanded back to the Assessing Officer for a fair adjudication after affording the necessary cross-examination opportunity to the assessee, ensuring compliance with legal requirements.

This detailed analysis of the judgment highlights the issues of absence during appeal, disallowance of deduction, lack of cross-examination opportunity, and reliance on statements without proper verification, ultimately leading to a remand for a fresh adjudication.