2021 (10) TMI 1020 - HC - Income Tax

Assessment u/s 153A - denial of natural justice - no opportunity of cross examination of the persons whose statements are relied upon by the respondent for making additions or disallowance - argument of violation of the principles of natural justice, arbitrary, mechanical and without any independent application of mind and also stating that the Income Tax Department has not discharged the burden of proof, proving that the income determined and sought to be taxed were not from the materials seized during the time of search - HELD THAT - As petitioners have sought for copies of panchanamas in the 63 places searched, but however, the department had admittedly not given all the panchanamas to the petitioners even though they accepted that the petitioners are entitled to the same in the counter filed. The stand taken by the department now by way of counter of non furnishing of panchanamas cannot be accepted. It is also not explained as to which are the concern, the respondent department concluded as belonging to the other group and what was the basis for such conclusion when the petitioners in its communication dated 28.07.2021 has explained their interest in every concern. Non furnishing of the panchanama to the assessee is a violation of the principles of natural justice as it disables the petitioners from having knowledge of the seized materials and the alleged incriminating materials relied upon by the respondent department. Refusal of cross examination of the persons whose statements were recorded during the time of search under Section 132(4) - The person against whom a statement is used, should be given opportunity to counter and contest the same. We are unable to accept the contention of the learned Senior Counsel that since the statements recorded were of persons who were employees of the assessee and therefore the assessee cannot seek for cross examination of them. The basic principles of jurisprudence governing the law of evidence can in no way interfered and could not be by the Income Tax Act provisions and neither the authorities functioning under the Income Tax Act has any discretion in such matters. In view of the violation of the principles of natural justice and also due to the non compliance of Section 65(B) of the Indian Evidence Act, this Court feels that it is a fit case for setting aside the assessment orders. The alternative remedy under the statute is in the case of violation of principles of natural justice should be an effective one capable of remedying the violations by providing afresh, but however, it remains the fact that after amendment to Section 251(1)(a) of the Income Tax Act on 01.06.2001, the CIT(Appeals) does not have the power of remand. Therefore, in the facts and circumstances of the case, since the petitioners have made out a clear case of violation of principles of natural justice and the statute, this Court feels that it is a fit case for interfering with the impugned orders. In such circumstances, plea of alternative remedy which is also an effective one to undo the violations committed by the respondent, cannot be sustained. This Court is well within its power to set aside the impugned orders and remand back the same for fresh consideration.

Issues Involved:
1. Violation of Principles of Natural Justice
2. Non-compliance with Section 65B of the Indian Evidence Act
3. Denial of Cross-Examination Rights
4. Non-furnishing of Panchanamas
5. Mechanical and Arbitrary Assessment Orders
6. Alternative Remedy and Maintainability of Writ Petitions

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioners contended that the impugned orders violated the principles of natural justice. They argued that the assessment orders were arbitrary, mechanical, and lacked independent application of mind. Furthermore, the Income Tax Department did not discharge the burden of proof to show that the income determined was based on materials seized during the search. The petitioners emphasized that no incriminating materials were seized during the search, making the assessment orders bad in law. The court found that the non-furnishing of panchanamas disabled the petitioners from knowing the seized materials and alleged incriminating materials relied upon by the department, which is a violation of natural justice.

2. Non-compliance with Section 65B of the Indian Evidence Act:
The petitioners argued that the entire assessment was based on secondary evidence of electronic records such as Excel sheets and emails, without complying with the mandatory requirements of Section 65B of the Indian Evidence Act. The court agreed, stating that non-compliance with Section 65B renders the documents inadmissible in the eye of law, as held by the Supreme Court in Anvar P.V. vs. P.K. Basheer.

3. Denial of Cross-Examination Rights:
The petitioners contended that they were deprived of the opportunity to cross-examine individuals whose statements were recorded under Section 132(4) of the Income Tax Act, which were used for making additions/disallowances. The court held that the basic principles of jurisprudence governing the law of evidence cannot be interfered with by the Income Tax Act provisions. The court cited the Supreme Court judgment in Kishan Chand Chellaram, which mandates that the person against whom a statement is used should be given an opportunity to counter and contest the same.

4. Non-furnishing of Panchanamas:
The petitioners argued that they were handicapped in defending the proposals of additions and disallowances due to the non-furnishing of copies of the panchanamas. The court found that the department's refusal to provide all the panchanamas, despite admitting the petitioners' entitlement to them, was unjustifiable. The court emphasized that the department's stand of not furnishing the panchanamas was an after-thought and violated the principles of natural justice.

5. Mechanical and Arbitrary Assessment Orders:
The petitioners pointed out that the assessment orders were mechanical, arbitrary, and a cut-and-paste job from the predetermined show-cause notice. The court agreed, noting that the specific objections raised by the petitioners were not considered, and the statements in the assessment orders were false, demonstrating a mechanical approach.

6. Alternative Remedy and Maintainability of Writ Petitions:
The respondents argued that the writ petitions were not maintainable due to the availability of an alternative remedy under the statute. However, the court held that in cases of violation of principles of natural justice, the alternative remedy cannot be a bar. The court cited the Supreme Court judgment in Maharashtra Chess Association vs. Union of India, which states that the existence of alternative forums does not create a legal bar on the exercise of the writ jurisdiction by a High Court.

Conclusion:
The court set aside the assessment orders and remanded the matter back to the assessing officer for a de novo assessment. The court directed the respondent officer to:
a) Afford an opportunity for cross-examination of individuals whose statements are relied upon.
b) Provide details and copies of all seized materials.
c) Comply with Section 65B of the Indian Evidence Act for electronic documents.
d) Exclude statements of the other group unless cross-examination is allowed.
e) Proceed under Section 153C if relying on materials or statements from the other group's premises.

The writ petitions were allowed with these observations and directions, and no costs were imposed.

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