2023 (11) TMI 1325 - AT - Income Tax

Challenging the assessment order on the ground of violation of principle of natural justice - search and seizure action u/s 132 concluded - CIT(A) has granted part relief to the assessee in respect of some of the addition made by the AO which is purely based on assumption and not based on the seized material or other tangible material - HELD THAT - Most of the additions were made by the AO on the basis of the seized material revealing the investments made in various properties and other assets. These investments were found to be Benami transactions made by the assessee in the name of his family members including father and sisters. Thus, the main objection of the assessee as emphasized during the course of hearing is that the AO has relied upon various documents without confronting the assessee and therefore, assessee was not given an opportunity to revert those documents relied upon by Ld. AO. The first objection of the Ld. Sr. counsel is regarding the report/statement of DSP Lokayukt in respect of disproportionate income and asset hold by the assessee which was obtained by the AO without confronting the assessee of the said information collected behind the back of the assesse. Therefore, the said information/report of DSP Lokayukt MP used by the AO is in violation of principle of natural justice. There is no quarrel on the point that if any evidence or statement is made the basis of the assessment order without allowing the assessee to cross examine the witness or to rebut the evidence amounts to violation of principle of natural justice as held in case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT . The question of cross examination by the assessee of the investigating officer in the assessment proceedings does not arise as it would be a futile exercise when the said report as well as the witnesses are to be examined before the concerned court of law in the appropriate proceedings and assessee would be having its remedy under the relevant law and procedure. Assessee has a right to be confronted with the information before the same is used against the assesse. Though the CIT(A) has already dealt with all these issues however at this stage we are not going into merits of the issue as the Ld. Sr. counsel has restricted his arguments only on the point of violation of principle of natural justice. The department has not disputed the fact as pointed out by the assessee that the statements were first time provided to the assessee along with assessment order being annexures to the assessment order. Therefore, having regard to the facts and circumstances when the report/statements of DSP Lokayukt MP has been obtained by the AO and the same was supplied to the assessee only after the assessment order was passed. We are of the opinion that there is a violation of principle of natural justice as the assessee was deprived of the information/evidence which was considered by the AO while passing the assessment order. It is incumbent on the assessing officer to disclose and confront to the assessee all the material on the basis of which he is going to pass the order. Similarly if the AO proposes to conduct an inquiry then he must communicate the same to the assessee about the outcome of such inquiry and information/evidence gathered as a result of such inquiry. The assessee has all the rights to know the evidence and information which was to be used by the AO against him so that he would bring his own stands and material to meet such information/evidence brought against him by the AO. There is no dispute that the AO has the jurisdiction and authority to collect material to facilitate the assessment but the assessee must be informed about the material so collected and desired to be used against the assessee so that the assessee get an adequate opportunity to explain it and controvert the contents of the same. If the assessee is deprived the fair opportunity to contradict or challenge the correctness of the information/evidence proposed to be used by the AO against the assessee then it would amount to violation of principle of natural justice. Second contention and objection of the Ld. Sr. counsel is regarding the addition made by the AO on the basis of the statement of Shri S.P. Kohli without affording an opportunity of cross examination of the evidences - There is no dispute that the statement of Shri S.P. Kohli has been made the basis of some of the addition while framing the assessment order. Though the statements of Shri S.P. Kohli was recorded during the course of search and seizure action and post search inquiry and were very much in the knowledge of the assessee however, if the addition is made by the AO on the basis of such statements without giving opportunity of cross examination to the assessee then the same is in violation of principle of natural justice. Addition made by the AO on the basis of the statement of Shri H.M. Joshi father of the assessee recorded during the course of search u/s 132(4) which was subsequently retracted by filing an affidavit of Shri H.M. Joshi - There is nothing reflected either from the manner in which statement was recorded or the language of the question and answers recorded in the statements. To suggest any coercion from team. Therefore, in absence of any circumstances indicating any situation leading to disorientation or intimidation of Shri H.M. Joshi, the question of any coercion or undue pressure is completely ruled out. Further Shri H.M. Joshi is not a third person witness but he is one of the searched person and father of the assesse, managing all the alleged elicit income, investment and affairs of the certain concerns wherein the alleged investment was made by the assesse. Therefore, to the extent of the objection against the statement of Shri H.M. Joshi we do not find any merit or substance. However, it is a matter of consideration while deciding the merits of the addition whether the statement of Shri H.M. Joshi can be a basis of addition or not. Next objection of assessee is regarding the report of hand writing expert obtained by the AO without giving the opportunities to assessee of cross examination - On the perusal of the report of the hand writing expert we find that all the details of the handwriting expert such as qualification and experience are given in the letter head on which the report is submitted. Further the handwriting expert has signed the report in the capacity of a hand writing expert. Therefore, in absence of any contrary fact or material a mere objection of the assessee to the competence, qualification and expertise of the hand writing expert is without any substance or merit. However, since the AO has used the report of the handwriting expert to give a finding that the handwriting on the seized material is of the assessee then it is in the fair play to give an opportunity to the assessee to cross examine the handwriting expert or produce any contrary material. Violation of principle of natural justice - It is pertinent to note that the statements relied upon by the AO are to prove the contents of the documents and therefore, the denial of cross examination of the witnesses is clearly a violation of principle of natural justice. Without going into the merits of the various additions made by the AO at the outset, we note that there is a violation of principle of natural justice in respect of various statements as well as reports and documents made the basis of the assessment without confronting the assessee and without giving the assessee an opportunity to cross examine the witness whose statements were recorded during the proceedings under the Income Tax Act. Accordingly in the interest of justice we set aside the impugned composite order of the CIT(A) and remand the matter to the record of the AO to allow the assessee to cross examination of the witnesses whose statements were recorded in the proceedings under the income Tax Act including the assessment proceedings and also give the opportunity to the assessee to revert and meet the reports and other evidences collected by the AO and used against the assessee in the assessment proceedings but were supplied only after the assessment was completed. Since the AO has passed the composite order for all the assessment years 2004 to 2010-11 using the same evidence and statements. Therefore, the matters for assessment years 2004-05 to 2010-11 are set aside to the record of the AO for re-adjudication as per the directions above. AO made protective assessment in the hands of Smt. Tinno Joshi as the substantive addition was made in the hands of Shri Arvind Joshi. Since the matter in case of Shri Arvind Joshi where substantive addition was made is set aside to the record of the AO for fresh adjudication therefore, these matters in case of Smt. Tinno Joshi are also set aside to the record of the AO for fresh adjudication as per the outcome of the matters of Shri Arvind Joshi. Needless to say the assessee be given an appropriate opportunity of hearing before passing fresh order.

Summary

Issues Involved:
1. Violation of Principles of Natural Justice.
2. Use of Statements and Evidence Without Cross-Examination.
3. Legality of Additions Based on Assumptions and Presumptions.
4. Competence of Handwriting Experts.
5. Protective vs. Substantive Assessments.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The primary issue raised by the appellant is the alleged violation of the principles of natural justice. The appellant argued that the assessment order was passed without supplying the material and evidence used against them, such as reports from the State Government Department, police, and handwriting experts. The appellant was not given the opportunity to cross-examine witnesses whose statements were used in the assessment order. This lack of opportunity to rebut evidence was claimed to render the assessment order illegal and void. The Tribunal acknowledged the violation of principles of natural justice, emphasizing that the appellant was deprived of the opportunity to challenge the evidence used against them.

2. Use of Statements and Evidence Without Cross-Examination:
The appellant contended that statements from individuals like Shri S.P. Kohli and other witnesses were used without providing an opportunity for cross-examination. The Tribunal recognized that the statements were made the basis of some additions without allowing the appellant to cross-examine the witnesses, which constitutes a serious flaw. The Tribunal cited the Supreme Court's decision in Andaman Timber Industries, which held that not allowing cross-examination makes the order a nullity due to the violation of natural justice.

3. Legality of Additions Based on Assumptions and Presumptions:
The appellant challenged various additions made by the Assessing Officer (AO) based on assumptions and presumptions, such as illegal rectifications and investments in properties. The Tribunal noted that many additions were made without tangible evidence and were based on assumptions, which were not sustainable. The CIT(A) had granted partial relief for some additions that were not based on seized material or other tangible evidence. The Tribunal emphasized the need for the AO to confront the appellant with the evidence before using it against them.

4. Competence of Handwriting Experts:
The appellant questioned the competence and qualifications of the handwriting experts whose reports were used to conclude that certain notings were in the appellant's handwriting. The Tribunal found that the AO did not provide an opportunity for the appellant to cross-examine the handwriting experts or to contest the report. The Tribunal held that it was necessary to allow the appellant to challenge the handwriting expert's report to ensure fair play.

5. Protective vs. Substantive Assessments:
In the case of Smt. Tinoo Joshi, the Tribunal addressed the issue of protective assessments made by the AO. The CIT(A) had deleted the protective assessments due to substantive additions upheld in the hands of the appellant's husband. The Tribunal noted that since the matter in the case of the appellant was set aside for fresh adjudication, the protective assessments in the case of Smt. Tinoo Joshi should also be reconsidered based on the outcome of the appellant's case.

Conclusion:
The Tribunal set aside the impugned composite order of the CIT(A) and remanded the matter back to the AO for re-adjudication. The AO was directed to allow the appellant to cross-examine the witnesses whose statements were used in the assessment and to provide an opportunity to contest the reports and other evidence. The Tribunal emphasized the importance of adhering to the principles of natural justice and ensuring that the appellant is given a fair opportunity to challenge the evidence used against them.