2020 (9) TMI 820 - AT - Income Tax

Reopening of assessment u/s 147 - denial of natural justice - whether the assessee has been granted the opportunity to cross examine Sri.Moideen Koya and his brother Sri.Valiyil Moosa and such persons whose statements have been used to draw adverse inference against the assessee? - HELD THAT - The order of the learned CIT(A) records that the seller Sri.Moideen Koya has not filed any return of income admitting the income in his sworn statement. The Revenue has not produced any evidence to show whether Sri.Valiyil Moosa has admitted any income from the said transaction. This stand of the Revenue as to whether the said on-money which has been allegedly admitted by Sri.Valiyil Moosa has led to an assessment of higher capital gain tax or whether the said amount has been assessed under any other heads is also not known. These are evidences which would go to lay down the facts properly. As admittedly there has been violation of principles of natural justice also, we are of the view that the issues in this appeal must be restored to the file of the A.O. for re-adjudication after granting the assessee adequate opportunity. A.O. shall provide all such persons whose statements are being used against the assessee for his cross-examination. The presence of the assessee shall not be insisted upon for the purpose of cross-examination. The Authorized Representative shall be permitted to cross-examine the witnesses. Any and all such evidences which are proposed to be used by the A.O. against the assessee shall be given to the assessee and adequate time granted to him to rebutt the same. The principles of natural justice are to be complied with. As the issues in the appeal are restored to the file of the A.O. for re-adjudication after granting adequate opportunity to the assessee, the issues raised by the assessee in his cross objection are also restored to the file of the A.O. - Appeal filed by the Revenue and the cross objection filed by the assessee are partly allowed for statistical purposes.

Summary

Issues:
Appeal filed by Revenue against CIT(A) order - Addition of unexplained income invested in property purchase based on on-money transaction - Cross objection by assessee challenging reopening of assessment and denial of opportunity for cross-examination.

Analysis:

Issue 1: Addition of unexplained income based on on-money transaction:
The case involved the Revenue's appeal against the CIT(A) order deleting the addition of unexplained income invested in property purchase due to an alleged on-money transaction. The A.O. issued notice u/s 148 based on discrepancies in land purchase by the non-resident assessee. The A.O. contended that the purchase cost was inflated, leading to unexplained income addition. The CIT(A) deleted the addition citing lack of direct evidence and non-filing of income tax returns by the seller. The Revenue argued that valid reasons supported the addition, emphasizing the evidences presented. However, the Tribunal noted the absence of opportunity for the assessee to cross-examine crucial witnesses, highlighting a violation of natural justice principles. Consequently, the Tribunal ordered the issues to be remanded to the A.O. for re-adjudication, ensuring the assessee's right to cross-examine and rebut evidences, thereby upholding principles of natural justice.

Issue 2: Cross objection challenging reopening and denial of cross-examination:
The assessee's cross objection raised concerns regarding the reopening of assessment and denial of the opportunity for cross-examination. The authorized representative strongly supported the CIT(A)'s order, arguing against adverse inferences without proper evidence. The Tribunal observed discrepancies in the A.O.'s claim of providing cross-examination opportunities, noting the absence of the assessee during key proceedings. The Tribunal emphasized the importance of natural justice, citing the necessity for fair procedures in tax proceedings. As a result, the Tribunal directed the issues raised in the cross objection to be remanded to the A.O. for proper consideration, ensuring compliance with principles of natural justice.

In conclusion, the Tribunal partly allowed the appeal and cross objection for statistical purposes, emphasizing the need for fair procedures, including the right to cross-examination and rebuttal, in tax assessments. The judgment underscored the significance of upholding natural justice principles in tax matters, warranting a re-examination of the issues with due regard to procedural fairness.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by the parties, and the Tribunal's decision emphasizing the principles of natural justice in tax assessments.