2008 (2) TMI 71 - HC - Income Tax

Order of assessment - witnesses was not summoned in spite of the request made by the assessee u/s 131 validity of assessment order reasonable opportunity of being heard not given - statement of third party can t be relied upon against assessee if assessee is not given the opportunity to cross-examine that witness (third party) violation of principle of natural justice hence addition in the order of assessment made on the basis of the statement of third party are not justified

Summary

Issues Involved:
1. Whether the evidence recorded behind the back of the assessee without an opportunity to cross-examine the witness can be used against the assessee.
2. Whether the assessment is vitiated in law due to the failure to summon the witnesses as requested under Section 131 of the Income Tax Act, 1961, and the failure to consider the affidavit of the witness.

Detailed Analysis:

Issue 1: Use of Evidence Recorded Behind the Back of the Assessee
The primary issue is the use of evidence recorded behind the back of the assessee without providing an opportunity for cross-examination. The search conducted by the Income-tax Department resulted in the seizure of silver ornaments not recorded in the books of account. The assessee claimed the silver was purchased from Rashid & Co. However, the Revenue did not accept this explanation as the silver was not recorded at the time of the search, and the proprietor of Rashid & Co., Mohd. Rashid, was found to be a person of humble means. The assessing officer examined Mohd. Rashid without the presence of the assessee, who later requested to cross-examine him under Section 131 of the Act. This request was denied, and the assessment was based on the statement of Mohd. Rashid.

The court noted that the principles of natural justice require that a statement recorded behind the back of the assessee should not be used without giving an opportunity for rebuttal. The court referred to precedents where it was held that denying the opportunity to cross-examine a witness whose statement is used against the assessee violates the principles of natural justice. It was emphasized that the rules of natural justice are meant to advance the cause of justice and help those who genuinely want to defend themselves.

Issue 2: Vitiation of Assessment Due to Failure to Summon Witnesses and Consider Affidavit
The second issue concerns whether the assessment is vitiated due to the failure to summon the witnesses as requested under Section 131 and the failure to consider the affidavit of Mohd. Rashid. The court observed that the assessing officer heavily relied on the statement of Mohd. Rashid, who later retracted his statement through an affidavit. The assessing officer ignored this affidavit and based the assessment on the initial statement without allowing the assessee to cross-examine the witness.

The court highlighted that Section 131 empowers the assessing officer to enforce the attendance of any person and examine him on oath. When the statement of Mohd. Rashid was used against the assessee, and an affidavit was filed contradicting the statement, it was obligatory for the assessing officer to allow cross-examination to comply with the principles of natural justice. The court referred to various judgments where it was held that denying the opportunity to cross-examine a witness whose statement is used against the assessee vitiates the order of assessment.

Conclusion:
The court concluded that the evidence of Mohd. Rashid could not be used against the assessee without summoning him for cross-examination, as requested under Section 131 of the Act. The failure to provide a reasonable opportunity of being heard by summoning the witness vitiated the assessment order. Consequently, the court answered the reference in favor of the assessee and against the Revenue, holding that the assessment order could not be sustained due to the violation of the principles of natural justice.