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

HC held that the Department relied on an unreliable departmental witness whose affidavit and deposition conflicted; the assessee was entitled to cross-examine that witness and to be supplied full particulars of the adverse case. The Court found that before making an estimate of gross profit the AO must confront and counter the assessee's comparative instances and allow the assessee to lead rebuttal evidence. The matter was remanded to the AO for fresh consideration and reassessment in accordance with these directions; the Court declined to answer the posed question.

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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 Rate
The 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 Rate
The 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.

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