1973 (8) TMI 16 - HC - Income Tax

Violation of the principles of natural justice - assessee was permitted to cross-examine witnesses but names of witnesses and substance of statements made by them were not given - Income-tax Officer had refused to give copies of the statements of the witnesses on the view that they formed part of the record. Even so he refused permission to the assessee to inspect the record. It is evident that the proceedings were vitiated by violation of the principles of natural justice - assessment would be valid

Summary

Issues:
1. Adequate opportunity to meet the case set up by the department.
2. Existence of material before the Tribunal to support the conclusion on concealed income.

Detailed Analysis:

Issue 1: Adequate opportunity to meet the case set up by the department
The case involved questions regarding the assessment year 1948-49, where the assessee had initially disclosed suppressed income of Rs. 45,000, later increased to Rs. 50,000 after negotiations with the Income-tax Officer. The Officer, however, alleged a concealed income of Rs. 85,937. The Appellate Assistant Commissioner found that the information against the assessee was not disclosed, leading to a remand for further report. Despite requests for evidence and cross-examination opportunities, the Income-tax Officer failed to provide witness statements or allow inspection of records. The court held that the assessee was not given an adequate opportunity to meet the material relied upon, violating principles of natural justice applicable to assessment proceedings. The failure to provide witness statements or substance of their statements for cross-examination rendered the proceedings unfair and vitiated by the violation of natural justice principles.

Issue 2: Existence of material before the Tribunal to support the conclusion on concealed income
The assessing authorities heavily relied on statements of witnesses Chimman Lal Phool Chandra and Nagar Das Dayal Bhai, who proved account books suggesting suppressed profits of Rs. 85,000. The court referred to precedents emphasizing that assessment proceedings are judicial in nature, requiring observance of all incidents of judicial proceedings. The Supreme Court's rulings in relevant cases highlighted the applicability of natural justice principles in Income-tax Act proceedings. The court found that the Income-tax Officer's reliance on witness statements without providing copies or substance for cross-examination denied the assessee an effective opportunity to defend against the allegations. The court concluded that the proceedings were vitiated by the violation of natural justice principles, leading to a negative answer in favor of the assessee on the issue of adequate opportunity to meet the case set up by the department.

In light of the above analysis, the court ruled in favor of the assessee, emphasizing the importance of upholding natural justice principles in assessment proceedings. The unanswered second question became irrelevant due to the judgment on the first issue. The court awarded costs to the assessee and assessed the fee of the learned counsel for the department at the same amount.