2019 (3) TMI 1670 - AT - Income Tax

Tribunal Invalidates Reassessment for Lack of Application of Mind, Upholds Principles of Natural Justice

HIGHTECH CONSTRUCTION P. LTD. Versus ITO, WARD 1 (3), FARIDABAD

HIGHTECH CONSTRUCTION P. LTD. Versus ITO, WARD 1 (3), FARIDABAD - TMI Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income Tax Act.2. Violation of principles of natural justice due to lack of cross-examination of witnesses.Detailed Analysis:1. Validity of Reopening the Assessment under Section 147:The primary issue raised by the assessee was the validity of the reopening of the assessment under Section 147 of the Income Tax Act. The assessee argued that the reasons recorded for the reopening were vague, lacked coherence, and were based on incorrect facts. Specifically, the reasons recorded by the Assessing Officer (AO) mentioned an incorrect amount of Rs. 2.93 crores as the alleged income escapement, which was later found to be Rs. 1.75 crores. The AO also incorrectly noted that the assessee had not filed a return, which was factually incorrect as the return was filed on 30.09.2011.The Tribunal found merit in the assessee's arguments, noting that the reasons recorded were based on borrowed satisfaction without independent application of mind by the AO. The reasons were found to be non-communicative and lacked a live nexus between the material facts and the belief of income escapement. The Tribunal cited several precedents, including the Delhi High Court's decision in Signature Hotels (338 ITR 51), which emphasized the necessity of a live link between the material and the belief of income escapement.The Tribunal observed that the approval by the Principal Commissioner of Income Tax (PCIT) was mechanical and lacked due diligence. The Tribunal concluded that the reasons recorded by the AO did not meet the legal requirements and thus quashed the reopening of the assessment.2. Violation of Principles of Natural Justice:The second issue raised was the violation of principles of natural justice due to the lack of cross-examination of witnesses whose statements were heavily relied upon by the AO. The assessee argued that the statements of Mr. Himanshu Verma, which were used to draw adverse inferences under Section 68 of the Act, were provided at the fag end of the assessment proceedings, and no opportunity for cross-examination was given.The Tribunal agreed with the assessee, noting that the AO failed to provide a fair opportunity for cross-examination, which is a fundamental aspect of natural justice. The Tribunal highlighted the Income Tax Department's office manual, which mandates offering cross-examination before relying on any statement against the assessee. The Tribunal found that the lack of cross-examination constituted a fatal infirmity in the assessment proceedings.Conclusion:The Tribunal quashed the reassessment proceedings on both counts: the invalidity of the reopening under Section 147 due to non-application of mind and borrowed satisfaction, and the violation of principles of natural justice due to the lack of cross-examination. The orders of the lower authorities were canceled, and the appeals of the assessee were partly allowed.