2017 (3) TMI 201 - HC - Income Tax

Registration granted u/s 12AA(3) - denial of natural justice - ITAT allowed claim as CIT-A not allowed an opportunity to cross examine the witnesses whose statements were relied against the assessee - Held that - While we find no fault to the reasoning given by the Tribunal to set aside the order of the Commissioner of Income Tax for reason of violation of principles of natural justice, the conclusion reached by the Tribunal to set aside that the order in entirety is wholly unjustified inasmuch as it was necessary in such facts to allow the assessee an opportunity to cross examine the witnesses relied upon by the department and to direct the petitioner to pass a fresh order in accordance with law, thereafter. It was also the case of assessee that the statements relied upon by the department are contradictory inasmuch as those persons had given statements adverse to the assessee before the Ludhiana authority, in their original assessment proceedings but had got recorded statements favourable to the assesse before the Meerut authority. The cross examination of such witnesses was therefore even necessary for this reason also. Accordingly we the answer reframed question in favour of department and against the assessee. The matter is remanded to the Commissioner of Income Tax for passing a fresh order in accordance with observations made above.

Summary

Issues:
1. Violation of principles of natural justice by the Commissioner of Income Tax.
2. Correctness of the Tribunal's decision to set aside the order under Section 12AA(3) of the Act.
3. Cross-examination of witnesses and contradictory statements.

Analysis:

The appeal before the Allahabad High Court stemmed from the department challenging the Tribunal's decision to reverse the Commissioner of Income Tax's order cancelling the registration granted to the assessee under Section 12AA(3) of the Income Tax Act. The Commissioner had relied on statements of three individuals without allowing the assessee to cross-examine them, leading to a violation of natural justice principles. The Tribunal, while acknowledging this violation, erred in setting aside the order entirely instead of remanding the matter for proper cross-examination.

The primary legal questions raised in the appeal were whether the Tribunal was correct in cancelling the withdrawal of registration due to alleged bogus donations and if the Tribunal erred in doing so without considering the final assessment orders presented to the assessee. The High Court reframed the issue to determine whether the Tribunal was justified in setting aside the Commissioner's order solely based on the lack of cross-examination opportunity for the assessee.

The High Court, after hearing arguments from both sides, found fault with the Tribunal's decision to set aside the Commissioner's order entirely. The Court emphasized that while the violation of natural justice principles was established, the appropriate course would have been to allow the assessee to cross-examine the witnesses and then for the Commissioner to pass a fresh order. The Court noted the contradictory statements of the witnesses and stressed the necessity of cross-examination in such circumstances.

Consequently, the High Court ruled in favor of the department and against the assessee, remanding the matter back to the Commissioner of Income Tax for a fresh order in compliance with the Court's observations. The Court directed the expeditious completion of this process within six months and instructed the parties not to seek unnecessary adjournments during the proceedings. Ultimately, the appeal was allowed in favor of the department.