1993 (12) TMI 26 - HC - Income Tax

Tax authority cannot rely on contradictory departmental witness affidavit without supplying particulars or allowing cross-examination before reassessment

Commissioner Of Income-Tax Versus Eastern Commercial Enterprises

HC held that the Department relied on an unreliable departmental witness whose affidavit and deposition conflicted; the assessee was entitled to ... Reduction of the gross profit rate - right to cross-examine a witness - inflated and bogus purchases were debited to suppress profits - Onus to prove the genuineness of the purchases - difference between the book results and the estimates called for an addition - business of oils of various descriptions and grades - Tribunal referred to the affidavit, affirmed by Shri Sukla where he testified that his sales of lubricant oils to the assessee were correct and genuine and payments for such sales were received by account payee cheques - HELD THAT:- It has been contended on behalf of the Revenue that the affidavit affirmed by the witness, Shri Sukla, on February 16, 1988, is not a reliable evidence as Shri Sukla is supposed to have obliged the assessee by making the affidavit. Emphasis was laid on the deposition of Shri Sukla, proprietor of Imperial Oil Co., denying having made the sales to the assessee. It is true that Shri Sukla has proved to be a shifty person as a witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be attached to what he stated either in his affidavits or in his examination by the Assessing Officer. As a matter of fact, the right to cross-examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the corner-stones of natural justice. Here Shri Sukla is the witness of the Department. Therefore, the Department cannot cut short the process of taking oral evidence by merely having the examination-in-chief. It is the necessary requirement of the process of taking evidence that the examination-in-chief is followed by cross-examination and re-examination, if necessary. It is trite law that cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied the contents of all such evidence, both oral and documentary, so that he can prepare to meet the case against him. This necessarily also postulates that he should cross-examine the witness hostile to him. The first thing is that which of the statements of Shri Sukla is correct, is anybody's guess. Therefore, it is necessary to delve out the truth from him and for that matter a cross-examination is necessary. Secondly, if the statement of Shri Sukla as a witness against the adverse party, the assessee, is relied upon as truthful, still remains the question of estimation of the profit. The assessee no doubt has given a comparative instance of gross profit rate but it is also necessary for the Department to come to a finding as to the norm of the gross profit on the basis of comparative cases. Therefore, it is the duty of the Assessing Officer to counter the comparative statement cited by the assessee before he can have the option to estimate the gross profit. Again, it is the comparative instance that alone can be the foundation of such estimate in case the accounts are really found to be unreliable and requiring to be rejected. Therefore, in the interest of justice for both the parties, the assessee and the Revenue, it is necessary for us to direct the Tribunal to remand the case to the Assessing Officer for reconsidering the whole matter in the light of the observations made by us in the foregoing and redo the assessment accordingly. All opportunities should be given to the assessee in order to lead any evidence that the assessee may feel necessary to rebut the case against him. As a result we decline to answer the question. Issues Involved:1. Whether the reduction of the gross profit rate from 30% as determined by the Assessing Officer to 7% by the Tribunal is based on any relevant material and/or otherwise perverseRs.2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in not confirming the gross profit rate of 30% as determined by the Assessing OfficerRs.Summary:Issue 1: Reduction of Gross Profit RateThe Tribunal reduced the gross profit rate from 30% to 7% based on the evidence presented. The Assessing Officer had concluded that the purchases shown by the assessee were inflated and bogus, leading to a suppression of profits. This conclusion was primarily based on the oral statement of Shri Ram Sevak Sukla, who confessed that the sales to the assessee were not genuine. However, the Tribunal found that the Income-tax Officer erred in preferring oral evidence over documentary evidence, such as the affidavit dated February 16, 1988, affirmed by Shri Sukla, which testified that the sales were genuine and payments were made by account payee cheques. The Tribunal also compared the gross profit rates of previous years, which were significantly lower than 30%, and concluded that the estimate by the Assessing Officer was arbitrary. Therefore, the Tribunal reduced the gross profit rate to 7%.Issue 2: Justification for Not Confirming 30% Gross Profit RateThe Tribunal was justified in not confirming the 30% gross profit rate determined by the Assessing Officer. The Tribunal noted that the assessee was not given an opportunity to cross-examine Shri Sukla, which is a cornerstone of natural justice. The Tribunal also considered the comparative instance of Reliance Oil Mills, which had a gross profit rate of 6.42%, similar to the rate shown by the assessee. The Tribunal found that the purchases by the assessee were fully vouched for and genuine, corroborated by various documents and vouchers seized during the search. The Tribunal concluded that the Assessing Officer's reliance on the oral statement of Shri Sukla, without allowing cross-examination, was unjustified. Therefore, the Tribunal's decision to reduce the gross profit rate to 7% was based on relevant material and was not perverse.Conclusion:The Tribunal's decision to reduce the gross profit rate from 30% to 7% was based on relevant material and justified in law. The case was remanded to the Assessing Officer for reconsideration, with directions to allow the assessee to cross-examine witnesses and present additional evidence. The Tribunal's order was found to be in line with the principles of natural justice.