Cross-examination denial in income-tax search proceedings was not fatal where the action rested on seized documents, not witness statements.

Proceedings under the Income-tax Act were challenged on the ground that the assessee was denied cross-examination of a witness whose statement was recorded during search. The Madras HC noted that the assessment and penalty action rested on seized loose sheets recovered in the search, not on the witness statement, which was not relied upon against the assessee. On that basis, denial of cross-examination was not treated as a breach of natural justice or a procedural defect warranting interference, and no perversity was found in the orders on that ground.

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Issues: Whether the impugned assessment and penalty orders under the Income-tax Act were liable to be set aside on the ground that the petitioner was denied cross-examination of the person whose statement was recorded during search proceedings and allegedly formed the basis of the action.

Analysis: The request for cross-examination was held to be unsustainable because the proceedings were founded on the seized loose sheets recovered in the search and not on the statement of the concerned witness. The statement was treated as not having been relied upon against the petitioner, and the same approach had been adopted in earlier proceedings concerning the searched person. Since the material basis of the action was the seized document and not the witness statement, denial of cross-examination did not amount to a violation of natural justice or a procedural irregularity warranting interference. The Court also found no perversity in the assessment or penalty orders on this ground.

Conclusion: The challenge based on denial of cross-examination failed, and the writ petitions were dismissed as against the assessee.

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