ACIT Vs El Dorado Biotech Pvt. Ltd. (ITAT Ahmedabad)
In the case on hand, the AO has relied on statement of Shri Partik R Shah for drawing adverse inference against the assessee but without providing the opportunity of cross-examination despite it was demanded by the assessee during the assessment proceedings. As such the AO has considered the request made by the assessee for the cross examination as very vague and beyond belief. The relevant finding of the AO reproduced as under:
“The assessee instead of complying with the department’s query for producing the above persons for cross examination has put the responsibility on the epartment to produce the above persons in front of the assessee for cross examination, which is very vague and beyond belief.”
From the above there remains no ambiguity that no opportunity was provided by the Assessing Authority to rebut the material on the basis of which the assessing authority intended to proceed.
In brief, if AO intends to rely, for the purposes of making addition to the total income of the assessee, on the statement of the third party as a witness, then he has to summon such witness, record his statement, offer that witness to the assessee for cross examination. In this regard, it may be noted that it is the AO who is duty bound to provide opportunity of cross-examination of the witness, if he relies on the statement of such witness to decide against the assessee, particularly when it is demanded by the assessee at the AO stage. The illegality creeps in, the moment request for cross-examination is denied or is not accepted to.
Hon’ble Apex Court in the case of Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC), wherein the Hon’ble Apex Court observed as under-
“6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority, though the statements of those witnesses were made the basis of the impugned order, is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. ” From the above judgment it flows that when statements of witnesses are made the basis for the addition but without allowing assessee to cross-examine such witnesses, then the illegality creeps in which makes the order nullity, as it amounts to violation of principles of natural justice.”
In other words where AO wants to rely on the statement of a witness (such as statement of entry operator recorded by investigation wing) to hold that share application money received by the assessee is not genuine but is only an accommodation entry then he has to provide copy of such statement to the assessee. Where the AO does not provide the copy of the statement of the witness then it is violation of principle of natural justice, and entire addition solely based on such statement is likely to be deleted.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The appeal has been filed by the Revenue for A.Y. 2009-10 which is arising from the order of the CIT(A)-2,Ahmedabad dated 18.05.2017, in the proceedings under Section143(3) r.w.s. 147of the Income Tax Act, 1961 (in short “the Act”).
2. The Revenue has raised the following grounds of appeal:
“1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 29,82,89,600/- under Section 68 of the Act, without properly appreciating the facts of the case and the material brought on record.
2. The Ld. CIT(A) failed to appreciate that violation of natural justice, if any, cannot render the order a nullity, but can at best be a ground to set aside the impugned order to be done de-novo.
3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.”
3. The issue raised by the Revenue is that Learned CIT-(A) erred in deleting the addition made under Section 68 of the Act for Rs.29,82,89,600/- on the ground of violation of natural
4. Briefly stated facts are that the assessee in the present case is a private limited The assessee in the year under consideration has issued 106532 equity shares having face value at Rs.10 and premium of Rs.2790/- per share aggregating to Rs.29,82,89,600/- only. The details of the companies which subscribed the shares of the assessee stand as under:
