2006 (6) TMI 140 - AT - Income Tax

Issues Involved:
1. Sustaining the addition of Rs. 94,56,500 based on an alleged confessional statement.
2. Endorsing the addition of interest under sections 234A, 234B, and 234C of the Income Tax Act.
3. Validity of the assessment due to improper notice service.
4. Justification of proceeding with the assessment without examining and offering cross-examination of key witnesses.
5. Legality of the interest levy under sections 234B and 234C.

Detailed Analysis:

Issue 1: Sustaining the Addition of Rs. 94,56,500
The assessee contested the addition of Rs. 94,56,500 made by the Assessing Officer (AO) based on a statement recorded under the Foreign Exchange Regulation Act (FERA). The Enforcement Directorate had conducted searches and recorded statements implicating the assessee in arranging foreign currency and making payments through unaccounted money. The CIT(A) had initially set aside the assessment for fresh consideration, directing the AO to provide the assessee with copies of the statements and documents and an opportunity to cross-examine the witnesses. However, the AO repeated the addition ex parte under section 144 of the Income Tax Act, leading to the current appeal.

Issue 2: Endorsing the Addition of Interest under Sections 234A, 234B, and 234C
The assessee argued that the interest levied under sections 234A, 234B, and 234C was illegal as the assessment order did not specify the basis for such interest. The Tribunal noted that the AO's actions in framing the assessment ex parte and without following due process, including the directions from the CIT(A), rendered the assessment invalid.

Issue 3: Validity of the Assessment Due to Improper Notice Service
The assessee claimed that no proper notice had been served for fixing the hearing, which was a ground for annulling the assessment. The Tribunal found that the AO had issued multiple notices, but the assessee's authorized representative had requested adjournments due to difficulties in contacting the assessee. The Tribunal observed that the AO did not reject these adjournment requests, nor did he serve the notices directly to the assessee as requested, leading to procedural lapses.

Issue 4: Justification of Proceeding Without Examining Key Witnesses
The assessee contended that the AO proceeded with the assessment without examining and offering cross-examination of key witnesses, namely Shri Raj Kumar Seth and Shri Krishna Kumar Pittie. The Tribunal emphasized that the AO's failure to comply with the CIT(A)'s directions to provide copies of statements and documents and allow cross-examination violated the principles of natural justice. The AO's actions were deemed arbitrary and not in accordance with the law.

Issue 5: Legality of the Interest Levy under Sections 234B and 234C
The assessee argued that the interest levy under sections 234B and 234C was illegal as the assessment order did not state that such interest was to be levied. The Tribunal did not specifically address this issue, as the primary focus was on the procedural lapses and the invalidity of the assessment itself.

Conclusion:
The Tribunal quashed the assessment framed by the AO, citing repeated non-observance of the principles of natural justice, failure to comply with the CIT(A)'s directions, and procedural lapses in serving notices and providing opportunities for cross-examination. The Tribunal emphasized that it would be subversive of judicial discipline to remand the matter back to the AO, given the persistent refusal to follow due process. The appeal filed by the assessee was allowed, rendering other issues academic and not requiring further adjudication.

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