Brief of the case
In the case of /s R.W. Promotions P. Ltd vs. ACIT Bombay High Court held that AO must gives an opportunity to cross examine the witnesses whose statement is relied upon by the revenue , violation of this right is clearly a breach of principles of natural justice.
Facts of the case
1. The appellant is engaged in the business of advertisement, market research and business promotions for its clients. During the subject Assessment Year 200708, the appellant had engaged services of M/s Inorbit Advertising and Marketing Services P. Ltd. (‘Inorbit’) and M/s Nupur Management Consultancy Pvt. Ltd. (‘Nupur’) to enable them to carryout promotional and advertisement activities. The amounts of Rs.1.15 crores paid to them was treated as expenditure to arrive at its profit while filing its return of income.
2. This was accepted by the Assessing Officer u/s 143(1) of the Act. Thereafter on 4 February 2010, the Assessing Officer issued a notice u/s 148 of the Act seeking to reopen the assessment for the Assessment Year 200708. This on the ground that the expenditure claimed of Rs.1.15 crores was bogus as evidenced by statement of representatives of M/s Inorbit and M/s Nupur. The appellant objected to reopening.
3. During the course of the assessment proceedings, the appellant called upon the Assessing Officer to make available to them the statement recorded of the representatives of M/s Inorbit and M/s Nupur which were allegedly adverse to them. Thereafter the appellant sought cross examination of the deponents of the statements made on behalf of M/s Inorbit and M/s Nupur. In spite of the above request, the Assessing Officer passed an assessment order dated 24 December 2012 under Section 143(3) r/w 147 of the Act disallowing the expenditure of Rs.1.15 crores.
4. In appeal, the Commissioner of Income Tax (Appeals) (the ‘CIT (A)’) upheld the order of the Assessing Officer. In particular holding that disallowance of expenditure incurred for receiving services from M/s Inorbit and M/s Nupur called for no interference.
5. On further appeal, The Tribunal by the impugned order after accepting the fact that the cross examination sought by the parties was not given by the Assessing Officer proceeded to uphold the order of lower authorities. Notwithstanding the above, the impugned order holds that it is a final fact finding authority and it could direct cross examination in case it felt that material relied upon by the Assessing Officer to disallow expenses was required to be subjected to the cross examination. In view of the above, the impugned order held that denial of cross examination of the representative of M/s Inorbit and M/s Nupur has not led to breach of principle of natural justice and thus confirmed the orders of the lower authorities
Aggrieved by the decision of Tribunal, assessee-company filed appeal before High Court.
Whether Tribunal erred in law by not providing the appellant an opportunity to cross examine the parties on basis of whose statement the reopening of assessment was done and disallowance of Rs.1,15,41,044/was sustained.
1. The statements relied upon were general in nature and also subjecting the statements to cross examine could assist in bring out the truth.
2. That in an identical fact situation where two parties involved herein M/s Inorbit and M/s Nupur had alleged to have rendered services to one M/s Satellite Cable TV Network, the Tribunal had set aside the order adverse to M/s Satellite Cable TV Networks for failure to made available representatives of M/s Inorbit and M/s Nupur for cross examination. In this case the expenses claimed as payments to M/s Inorbit and M/s Nupur was disallowed by the authorities on the basis of their statements while making them unavailable for cross examination. Tribunal set as side order of CIT(A) and AO and restored issue back to AO to pass fresh order after providing assessee therein to cross .
3. It is submitted that the facts are identical and the same test/measure as applied in case of M/s Satellite Cable TV Network Ltd should be applied in this case also.
4. The appellant on coming to know of aforesaid order dated 23 May 2012 in M/s Satellite Cable TV Network of the Tribunal filed an application for rectification. However the same was dismissed by order dated 12 June 2015 of Tribunal holding that entertaining such an application would amount to review.
High Court decision / observations
1. The appellant was entitled to cross examine them before any reliance could be placed upon them to the extent it is adverse to the appellant. This right to cross examine is a part of the audi altrem partem principle and the same can be denied only on strong reason to be recorded and communicated.
2. The impugned order holding that it would have directed cross examination if it felt it was necessary, is hardly a reason in support of coming to the conclusion that no cross examination was called for in the present facts. This reason itself makes the impugned order Vulnerable.
3.Moreover, in the present facts, the appellant had also filed affidavit of the representatives of M/s Inorbit and M/s Nupur which indicates that they had received payment from the appellant for rendering of services to the appellant. These affidavits also have not been taken into account by any authority including the Tribunal while upholding the disallowance of the expenditure.
4. Thus the appellant was not given an opportunity to cross examine the witnesses whose statement is relied upon by the revenue and the evidence led by the appellant has not been considered. Therefore, clearly a breach of principles of natural justice. In view of the above, we set aside the order of the Tribunal and restore the issue to the Assessing Officer for fresh disposal after following the principles of natural justice and in accordance with law.