2021 (11) TMI 626 - AT - Income Tax

Tribunal upholds assessment order, invalidates undisclosed investment addition due to lack of cross-examination.

The Tribunal partly allowed the appeal, dismissing challenges to the validity of the assessment order and corrigendum. However, the Tribunal invalidated ... Validity of reopening of assessment u/s 147 - whether corrigendum passed by the assessing officer is bad in law and beyond period of limitation? - HELD THAT:- After considering the corrigendum passed by the assessing officer we notice that there is no material change as far as conclusion of the assessment order. AR relied in the case of Lionbridge Technologies Ltd [2018 (12) TMI 764 - BOMBAY HIGH COURT] to submit that corrigendum issued beyond time to pass the assessment order is bad in law. We notice that in the above case the issue was the final assessment order was passed without issuing draft assessment order. Subsequently the corrigendum was passed to rectify the above mistake. In the above case, the issue of jurisdiction is involved and the Courts have held that in the case of issues involving jurisdiction, they interpreted the law literally and strictly. Whereas in the given case, the assessing officer has merely rectified the apparent mistake in his order which has no impact on the conclusion of the assessment order. Therefore, we do not see any reason to entertain the claim of the assessee. Accordingly, these grounds are dismissed. Mistake in the reasons recorded to reopen the assessment - We notice that the reasons were communicated to the assessee and the assessee also understood and participated in the assessment proceedings. Once again the assessing officer has made the typographical error in the concluding para of the notice. It does not change any material outcome, as long as it communicates the reasons for reopening the assessment, mere typographical error without having any material impact on the assessment, these can be considered as simple mistakes and rectifiable. Addition merely on the basis of statement of third parties and rejecting the appellant's request to provide opportunity of cross examination of said parties - HELD THAT:- It is requirement of the principles of natural justice to give a proper opportunity to the assessee for cross examination before making any addition or completing the assessment. In the given case we notice that assessee was consistently requesting the assessing officer for the opportunity. But the assessing officer only insisted upon the assessee to bring the parties before him. Assessee has expressed inability to bring the parties before the assessing officer considering the fact that the assessee is too small to make such request to the officers of SHPL. It is fact on record the contentions of the assessee is right that she cannot compel the SHPL officials to appear before the AO. From the record it is clear that assessing officer has made the addition without giving a proper opportunity for cross examination. The Courts have held that completing the proceedings without giving proper opportunity for cross examination to the other party is against the principles of natural justice and accordingly it is bad in law. In turn, the AO can issue show cause notice to SHPL officials and make them appear. In that process, he could have given opportunity to the assessee for cross-examination. We are in agreement with the submissions of the Ld. AR and by relying on the ratios of Hon’ble Supreme Court in the case of Andaman Timber Industries [2015 (10) TMI 442 - SUPREME COURT] we are inclined to conclude that the assessment order passed by the assessing officer is bad in law. Issues Involved:1. Validity of the assessment order and corrigendum.2. Legality of reopening the assessment.3. Addition of Rs. 10,00,000 as undisclosed investment.4. Principles of natural justice and opportunity for cross-examination.Issue-wise Detailed Analysis:1. Validity of the Assessment Order and Corrigendum:The assessee challenged the validity of the assessment order dated 27/12/2017 and the subsequent corrigendum received on 29/01/2018, arguing that it was beyond the limitation period under section 153(1). The assessee contended that the Assessing Officer (AO) has no power to review his order after the limitation period. The Tribunal noted that the corrigendum was issued to rectify a typographical error and did not materially change the conclusion of the assessment order. The Tribunal referenced the case of Lionbridge Technologies Ltd., where jurisdictional issues were strictly interpreted, but distinguished it from the present case, concluding that the corrigendum was a rectifiable error and did not affect the assessment's outcome. Thus, the Tribunal dismissed these grounds.2. Legality of Reopening the Assessment:The assessee argued that the reopening of the assessment was based on borrowed satisfaction without tangible material, merely relying on third-party statements. The Tribunal examined the reasons recorded for reopening, which were based on statements from the managing director and senior accountant of Shah Housecon Private Limited (SHPL) indicating cash payments. The Tribunal found that the reasons for reopening were communicated to the assessee, who participated in the proceedings. Despite a typographical error in the notice, the Tribunal held that it did not materially impact the assessment, thus upholding the reopening of the assessment.3. Addition of Rs. 10,00,000 as Undisclosed Investment:The AO added Rs. 10,00,000 to the assessee’s income as undisclosed investment based on statements from SHPL officials during a survey, which indicated cash payments for the purchase of a flat. The assessee denied making any cash payments and requested cross-examination of SHPL officials, which was not facilitated by the AO. The CIT(A) upheld the addition, relying on the evidentiary value of statements recorded during the survey. However, the Tribunal noted that the AO did not provide the assessee with a proper opportunity for cross-examination, violating principles of natural justice. Consequently, the Tribunal concluded that the assessment order was bad in law and allowed the assessee's appeal on this ground.4. Principles of Natural Justice and Opportunity for Cross-Examination:The assessee consistently requested an opportunity to cross-examine SHPL officials, which the AO did not provide. The Tribunal emphasized the importance of adhering to principles of natural justice, which require giving the assessee a proper opportunity for cross-examination before making any addition. The Tribunal referenced the Supreme Court’s decisions in Kishanchand Chellaram v. CIT and Andaman Timber Industries v. Commissioner of Central Excise, which underscore the necessity of cross-examination. The Tribunal found that the AO’s failure to facilitate cross-examination rendered the assessment order invalid.Conclusion:The Tribunal partly allowed the appeal, dismissing the grounds related to the validity of the assessment order and corrigendum but upholding the ground related to the lack of opportunity for cross-examination, thereby invalidating the addition of Rs. 10,00,000 as undisclosed investment. The order was pronounced in the open court on 12/10/2021.