2023 (4) TMI 637 - HC - Income Tax

Validity of proceedings u/s 153C - Disclosure of material which was 'relevant' to the subject matter of the proceedings - non furnishing of statements relied upon by the Department - Selective supply of the documents - denial of principles of natural justice - HELD THAT - The primary premise upon which an assessment must be formulated is bearing in mind the principles of natural justice. The submission of the Revenue that the necessary documents, as intended to be relied upon have been supplied and that they would suffice, is unacceptable seen in light of the observations of the Apex Court in two judgments T.Takano v Securities And Exchange Board of India and another 2022 (2) TMI 907 - SUPREME COURT and (ii) Reliance Industries Limited v Securities and Exchange Board of India and others 2022 (8) TMI 423 - SUPREME COURT Selective supply of the documents would be unfair simply for the reason that the petitioners must know the entire context in which the statement has been made. Apart from that, there may be other portions of the statement that might well support the assessee that it must not be denied. Typically, seizures give rise to several issues for consideration in the assessment of a searched entity. Not all of them would have relevance to a third party in respect of whom also, incriminating material might be found. The Scheme of the Income- Tax Act provides for two modes of assessment in such situations; an assessment under Section 153A in the case of the searched person and Section 153C in the case of the third party. In the present case, the petitioner was in receipt of notices under Section 153C and has filed returns. The status as a third party to the search assessment is not in dispute. Thus, and in these circumstances, it is incumbent upon the authorities to handover such allegedly incriminating materials that have been found by the Revenue in the course of the search and which have been handed over by the Assessing Officer of the searched entity to the assessing officer of the third party. These materials that are the basis of the Section 153 proceedings themselves and thus the assessee must have the benefit of the entirety of the material in order to formulate its defence against the proceedings. Entirety of the statements as recorded from Mr.Rajendra Kothari and Mr.Suresh Khatri must be supplied to the petitioner. Revenue protest, stating that the petitioner has chosen to approach this Court at the eleventh hour, knowing fully well that the limitation for completion of the assessments is imminent. This contention is not acceptable for the reason that the show-cause notices were issued only on 11.03.2023. Issuance of a show-cause notice is a sine qua non for completion of assessment. Thus mere mention of the issues in the questionnaires under Section 142(1) or notices under Section 142(3) would not suffice as only the proposals contained in the show-cause notices can ultimately fructify into an order of assessment. Thus, and since the show-cause notice have been issued only on 11.03.2023 proposing reliance on the statements, and the petitioner having made its request for the same on 20.03.2023, there is no delay in the institution of the present writ petitions.The statements shall be handed over within one week from today and an opportunity to cross-examine shall be provided thereafter.

Summary

Issues Involved:

1. Request for documents and opportunity to cross-examine.
2. Relevance and necessity of providing full statements.
3. Adherence to principles of natural justice and disclosure obligations.

Summary:

1. Request for Documents and Opportunity to Cross-Examine:

The petitioner sought a mandamus directing the respondent to dispose of a request dated 20.03.2023 for various documents and an opportunity to cross-examine Mr. Rajendra Kothari and Mr. Suresh Khatri. The court noted that the petitioners had received some requested materials but disputed whether the entirety of the statements had been supplied. The court emphasized that all statements recorded from the two individuals must be supplied in full to the petitioner.

2. Relevance and Necessity of Providing Full Statements:

The court referenced Supreme Court judgments in T.Takano v Securities And Exchange Board of India and Reliance Industries Limited v Securities and Exchange Board of India, which underscored the necessity of disclosing all relevant material for adjudication. The principles established include the duty of a quasi-judicial authority to disclose relied-upon material and the irrelevance of the authority's assertion that certain materials are not relied upon if they are relevant to the action taken. The court concluded that selective disclosure is unfair and that the petitioner must know the entire context of the statements, which might support their defense.

3. Adherence to Principles of Natural Justice and Disclosure Obligations:

The court stressed that assessments must adhere to the principles of natural justice. The petitioner's status as a third party to the search assessment under Section 153C necessitates the provision of all allegedly incriminating materials found during the search. The court rejected the respondent's argument that the petitioner approached the court at the eleventh hour, noting that the show-cause notices were issued only on 11.03.2023, and the request for statements was made on 20.03.2023. The court ordered that the statements be handed over within one week and allowed an opportunity for cross-examination, with assessments to be completed by 31.05.2023.

Conclusion:

The writ petitions were disposed of with the court directing the respondent to provide the entirety of the statements and allow cross-examination, ensuring the assessments are completed by the specified deadline. No costs were imposed, and connected miscellaneous petitions were closed.