2016 (7) TMI 273 - HC - Income Tax

Reopening of assessment - non grant of opportunity to the assessee to meet the case against him - Held that - the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT (A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal on this very issue. - Decided in favour of assessee Relied on Delhi High Court ruling in the case of CIT v. Ashwani Gupta 2010 (2) TMI 42 (Del) wherein it was held that When seized material was not provided to an assessee nor was he permitted to cross examine a person on whose statement AO relied, it would amount to deficiency, amounting to a denial of opportunity and therefore violation of principles of natural justice.

Issues Involved:
1. Legitimacy of the addition of ?1,45,000/- and disallowance of interest of ?16,684/- to the appellant's income.
2. Applicability of the amended provisions of Sections 147 to 153 of the Income Tax Act, 1961, for the reassessment proceedings against the appellant for the Assessment Year 1983-84.

Issue-wise Detailed Analysis:

1. Legitimacy of the Addition and Disallowance of Interest:

The appellant challenged the addition of ?1,45,000/- and disallowance of interest of ?16,684/- made by the Assessing Officer (AO) on the grounds that the transaction was a bogus hawala loan from M/s. Nuwan Investment and Trading Co. Pvt. Ltd. The AO's contention was based on an appraisal report from Sewa Charitable Trust, leading to the issuance of a notice under Section 148 in July 1993. The appellant argued that the loan was genuine, supported by account payee cheques, and that the onus of proving otherwise lay with the revenue.

The appellant further contended that no proper opportunity was given to cross-examine the deponent whose statement was relied upon by the revenue. The appellant's request for copies of statements and other materials used against him was denied, which was a breach of natural justice. The court observed that the revenue failed to provide the necessary material or allow cross-examination, thus violating the principles of natural justice.

2. Applicability of Amended Provisions for Reassessment:

The appellant argued that the amended provisions of Sections 147 to 153, effective from 1st April 1989, were not applicable to the reassessment proceedings for the Assessment Year 1983-84. The court noted that since the appeal was allowed on the first issue, the second issue became academic and did not require further consideration.

Judgment:

The court held that the revenue was not justified in making the addition during reassessment without providing the appellant an opportunity to cross-examine the deponent and without furnishing the material used against him. This denial of opportunity was a fundamental flaw, rendering the orders of the CIT (A) and the Tribunal vulnerable. Consequently, the court answered the first question in favor of the appellant and deemed the second question academic.

Conclusion:

The appeal was allowed, and the court ruled in favor of the appellant, highlighting the importance of adhering to principles of natural justice in reassessment proceedings. No order as to costs was made.

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