2005 (7) TMI 94 - HC - Income Tax

Validity of Reassessment proceedings taken u/s 147 - No opportunity for cross-examination to witness relied upon - Violation Of Principles of natural justice - HELD THAT - Learned counsel for the applicant submitted that as Sri Bhagirath Prasad Jakhodia arbitrator and Sri Rameshwar Prasad Jain director of the appellant-company did not appear in respect of the summons issued u/s 131 of the Act and the remaining two persons namely Sri Kishori Lal Garg arbitrator and Sri Banarsi Das director had died the facts regarding extra profit outside the books of account cannot be taken as a ground for reopening of the assessment and subjecting it to tax in the three assessment years. The submission is misconceived. It is to be noted that the applicant is a private limited company and is not a natural person. It appears that in a dispute amongst two groups of directors regarding earning of secret profits the matter was referred to arbitration and there was an award that a sum was an extra profit which was not reflected in the books of account. It is however not in dispute that the award had become final. As the award had become final it would be taken that the board of directors had accepted the factum of earning of secret profits not reflected in the books of account which is also binding on the company. On the question that one of the arbitrators and one of the directors did not appear in respect of the summons issued u/s 131 of the Act we find that it would not make any difference to the assessment order. Accordingly the reassessment made in the present case was valid. The question is answered accordingly. However there shall be no order as to costs.

Summary

Issues involved:
Validity of reassessment based on principles of natural justice.

Analysis:
The Income-tax Appellate Tribunal referred a question of law under section 256(2) of the Income-tax Act, 1961, regarding the validity of reassessment made without providing the witness for cross-examination to the assessee. The case involved assessment years 1959-60, 1960-61, and 1961-62. The dispute arose when a note book containing certain transactions was found during a search operation at the residential premises of an individual, leading to a claim of extra profit outside the books of account. The first appellate authority set aside the reassessment due to lack of opportunity for cross-examination. The fresh assessment proceedings were initiated, but some key persons were unavailable for cross-examination, leading to additions in the income of the company based on the unaccounted profit.

In the subsequent appeals before the Commissioner of Income-tax and the Tribunal, the validity of proceedings under section 147 was upheld. The Tribunal found no infirmity in the initiation of proceedings under section 148. The applicant's arguments challenging the authenticity of the profit claim and lack of opportunity for cross-examination were dismissed by the Tribunal. The appeals were ultimately dismissed, upholding the decision of the first appellate authority.

In the final judgment, the High Court considered the argument that key individuals did not appear for cross-examination, leading to the claim of extra profit outside the books of account. The court noted that the award confirming the extra profit had become final, indicating acceptance by the board of directors. The non-appearance of some individuals for cross-examination did not affect the validity of the reassessment. Therefore, the reassessment made in the case was deemed valid, and the question was answered accordingly. No costs were awarded in the matter.