2017 (11) TMI 911 - AT - Income Tax

Addition u/s 68 - unexplained loans - not allowing Assessee to cross-examine witnesses by adjudicating authority - violation of principles of natural justice - Held that - To substantiate the loan transaction, assessee has filed confirmation with respect to the loan received through cheque. This loan was already repaid by cheque. Also found that AO has issued summon u/s.131 to the creditor who filed letter dated 28/02/2015 alongwith copy of ledger account, bank statement, rate of interest and proof of repayment of loan. Also found that Proprietor of M/s. Mayank Impex (Creditor) attended and his statement had also recorded u/s.131. Mr. Sanjay K, Choudhary, Proprietor of M/s. Mayank Impex in his statement stated that they were engaged in the business of import and trading of diamonds. Also found that assessee was not given any opportunity to cross-examine the lender party and was also not provided copy of statement / reports relied upon by the A O while making the addition. As per considered view denial of such opportunity goes to the root of the matter and strike at the very foundation of the assessment order. Not providing such opportunity amounted to violation of principle of natural justice, a serious flaw which makes the order nullity. Hon ble Supreme Court in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT has held that not allowing Assessee to cross-examine witnesses by adjudicating authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which made impugned order nullity as it amounted to violation of principles of natural justice. Thus no merit for the addition made by AO without allowing assessee an opportunity to cross examine the person on whose statement addition was made. - Decided in favour of assessee.

Summary

Issues:
- Addition of ?31,06,521 under section 68 of the Income Tax Act
- Validity of reassessment order without providing opportunity for cross-examination
- Compliance with principles of natural justice in assessment proceedings

Analysis:
1. Addition under Section 68:
The case involved an appeal against the addition of ?31,06,521 under section 68 of the Income Tax Act. The assessee, engaged in real estate development, received unsecured loans which were questioned by the Assessing Officer. The creditor confirmed the loan, but the AO made the addition without conclusive proof of wrongdoing by the assessee. The Tribunal noted that the loan transactions were genuine, supported by account payee cheques, TDS, and repayment evidence. The addition was based on conjectures and surmises from retracted statements, violating principles of natural justice.

2. Validity of Reassessment Order:
The appeal also challenged the validity of the reassessment order, citing lack of opportunity for cross-examination and violation of natural justice. The AO's reliance on statements recorded behind the assessee's back without providing a chance for cross-examination was deemed fatal. The Tribunal emphasized the importance of providing such opportunities, as denial amounted to a serious flaw making the order nullity. Legal precedents highlighted the necessity of allowing cross-examination to uphold principles of natural justice.

3. Compliance with Natural Justice:
The Tribunal stressed the significance of compliance with principles of natural justice in assessment proceedings. Citing judicial pronouncements, it emphasized the need for the assessee to cross-examine witnesses whose statements formed the basis of the order. Failure to provide this opportunity was considered a violation of natural justice, rendering the order null and void. The Tribunal referred to relevant cases where denial of cross-examination was deemed detrimental to the assessment process, leading to the allowance of the assessee's appeal based on these principles.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of providing opportunities for cross-examination and upholding principles of natural justice in assessment proceedings. The judgment highlighted the necessity of conclusive proof and adherence to procedural fairness to ensure the validity and integrity of the assessment process.