2021 (11) TMI 626 - AT - Income Tax

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

Smt. Meenakshi Prakash Jadhav Versus Income Tax Officer-21 (2) (3), Mumbai

Smt. Meenakshi Prakash Jadhav Versus Income Tax Officer-21 (2) (3), Mumbai - TMI 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.