2015 (11) TMI 1910 - AT - Income Tax

Assessee's appeal allowed as denial of cross-examination opportunity violated natural justice under Section 147

Smt. Dhanwant Kaur Versus The ITO, Ward IV (1), Ludhiana

Smt. Dhanwant Kaur Versus The ITO, Ward IV (1), Ludhiana - TMI ISSUES: Whether the invocation of Section 148 of the Income-tax Act for reopening the assessment was valid.Whether additions of Rs. 1,05,000 and Rs. 13,100 as income from undisclosed sources were justified and sustainable.Whether the assessee was entitled to cross-examine the departmental witness whose statement formed the basis of the addition.Whether interest under Sections 234A and 234B was rightly charged.Whether penalty proceedings under Section 271(1)(c) were rightly initiated. RULINGS / HOLDINGS: Regarding the additions of Rs. 1,05,000 and Rs. 13,100 as income from undisclosed sources, the Court held that the addition was not sustainable as the assessee was denied opportunity to cross-examine the departmental witness whose statement was the sole basis for the addition.The Court upheld the principle that if evidence used against the assessee is not shown to them and an opportunity to controvert it is not given, such evidence shall not be admissible in support of the addition.The Court declined to decide the validity of reopening under Section 148, as the appeal was allowed on merits regarding the additions, rendering the issue academic.The interest charged under Sections 234A and 234B was held to be consequential and not separately adjudicated upon due to the allowance of the appeal on merits.Penalty proceedings under Section 271(1)(c) were not specifically addressed in the judgment. RATIONALE: The Court applied the principle established in the Supreme Court decision in Kishan Chand Chelaram vs. CIT, 125 ITR 713, that income tax authorities must provide the assessee an opportunity to cross-examine witnesses whose statements are used against them; failure to do so renders such evidence inadmissible.The Court relied on precedent from the ITAT Delhi Bench which held that denial of cross-examination of a departmental witness whose statement formed the sole basis of an addition invalidates the addition.The Court found the facts analogous to a prior ITAT Chandigarh Bench decision where similar additions based on the same departmental witness's statement were deleted due to lack of opportunity for cross-examination.The Court recognized that the additions were based solely on the unchallenged statement of the departmental witness and that no other independent evidence supported the addition.The Court exercised judicial restraint by not deciding the reopening validity issue, as the appeal was allowed on substantive grounds related to evidence and procedural fairness.