Block assessment limitation and cross-examination rights: notice to the other person governs time limit, but undisclosed material requires fresh adjudication.
In a block assessment against an "other person" under the search provisions, limitation was held to run from the notice issued to that person, so the assessment was not time-barred. A challenge based on absence of a hearing before the Commissioner's approval also failed, as audi alteram partem was not extended beyond the statute. However, additions founded on third-party statements and search material could not stand without disclosure of the relied-upon material and a fair opportunity to rebut it. The assessment was therefore set aside for fresh adjudication after supplying the material and allowing cross-examination where the statements were used.
Issues: (i) whether the block assessment was barred by limitation under the search and other-person assessment provisions; (ii) whether the assessment was vitiated for want of opportunity of hearing before grant of approval by the Commissioner; and (iii) whether the assessment of undisclosed income required to be set aside for fresh consideration because the additions were made without making the relied-upon material available to the assessee and without allowing effective cross-examination.
Issue (i): whether the block assessment was barred by limitation under the search and other-person assessment provisions.
Analysis: The search was authorised only in respect of the searched person, and proceedings against the assessee were initiated as an other person under the block assessment scheme. For such a case, the period for completion of assessment was governed by the provision prescribing one year from the end of the month in which notice was issued under Chapter XIV-B to the other person. On the facts, the notice under the block assessment provisions was issued on 23 July 1997 and the assessment order was passed on 30 July 1998.
Conclusion: The assessment was not time-barred and this objection failed.
Issue (ii): whether the assessment was vitiated for want of opportunity of hearing before grant of approval by the Commissioner.
Analysis: The challenge was based on the contention that approval by the Commissioner was granted without hearing the assessee. The governing principle applied was that the rule of audi alteram partem cannot be extended beyond what the statute specifically provides. A prior Tribunal view rejecting an identical challenge was followed.
Conclusion: The assessment was not invalid on this ground.
Issue (iii): whether the assessment of undisclosed income required to be set aside for fresh consideration because the additions were made without making the relied-upon material available to the assessee and without allowing effective cross-examination.
Analysis: The additions were founded substantially on statements and material collected in the course of search, including the statement of a person who was not a partner of the firm. The assessee's objections to the estimates of development cost and sale price were not properly dealt with, and the relied-upon material was not effectively confronted. In the circumstances, the assessment required fresh verification of investments and income after supplying the material and permitting cross-examination of witnesses whose statements were used against the assessee.
Conclusion: The assessment was set aside for fresh assessment in accordance with law.
Final Conclusion: The limitation and approval-based challenges failed, but the assessment was sent back for fresh adjudication with a direction to furnish the material relied upon and afford a reasonable opportunity of cross-examination and rebuttal.
Ratio Decidendi: In a block assessment on an other person under the search provisions, limitation runs from the notice issued to that other person, and additions based on third-party statements must be preceded by disclosure of the material and a fair opportunity of rebuttal, including cross-examination where relied upon.
TaxTMI 
AI Drafter ✕
TaxTMI 
