Case Law Details
EKK Infrastructure Limited Vs ACIT (Kerala High Court)
The Kerala High Court has dismissed a writ petition filed by EKK Infrastructure Limited challenging the denial of its request to cross-examine witnesses in an Income Tax Act, 1961 proceeding. The company had sought to contest Exhibit-P3 and Exhibit-P4 notices and Exhibit-P7 communication, arguing that cross-examination was crucial to its defense. The dispute arose from an Income Tax Department search conducted on November 16, 2023, which led to proceedings under Section 142(1) of the Act for the assessment years 2017-18 and 2023-24. Despite the petitioner’s objections, the assessing authority rejected the cross-examination request, citing that the individuals involved were its own Directors and employees, rather than third parties requiring cross-examination.
During the hearing, the petitioner’s counsel relied on the Supreme Court ruling in C.D.S Limited vs. Commissioner of Income Tax (2021) 15 ITR OL 281 (SC) to argue that cross-examination is a necessary element of fair proceedings. However, the court noted that the judgment does not mandate cross-examination in every case and that its applicability depends on specific facts. The court also referred to precedents in M.K. Thomas vs. State of Kerala [40 STC 278] and State of J&K vs. Bakshi Ghulam Mohammad [AIR 1967 SC 122], where it was held that statements from company Directors and employees do not automatically require cross-examination.
Considering the circumstances, the court found no grounds to interfere with the tax proceedings at this stage, stating that the writ petition was premature. It ruled that the petitioner retains the right to raise cross-examination objections in the future, particularly if an adverse tax order is issued. The decision reinforces the principle that cross-examination in tax cases depends on the nature of witnesses and procedural context rather than being an absolute right.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Petitioner challenges Exhibit-P3 and Exhibit-P4 notices and Exhibit-P7 communication. Petitioner also seeks for a declaration that it is entitled to cross-examine the witnesses as requested in Exhibit-P5 and Exhibit-P6.
2. Petitioner is a company registered under the Indian Companies Act, 2013 and engaged in contract works. On 12.01.2018, petitioner was converted into a Public Limited Company. Pursuant to a search under Section 132 of the Income Tax Act, 1961 (for short, ‘the Act’) conducted by the Income Tax Department on 16.11.2023, proceedings have been initiated by the respondents, and notices were issued as Exhibits-P3 and P4 under Section 142(1) of the Act for the assessment years 2017-18 and 2023-24. Petitioner filed its objection as Exhibit-P5. In the meantime, petitioner filed an application as Exhibit-P6 requesting to cross-examine four persons mentioned therein. However, by Exhibit-P7, the said request was declined, pointing out that the persons sought to be cross-examined are the Directors and employees of the petitioner itself and not a third party warranting cross-examination. It is at this juncture petitioner has approached this Court.
3. I have heard Sri. M. V. Pandalai, the learned counsel for the petitioner as well as Sri. Jose Joseph, the learned Senior Standing Counsel for the respondents.
4. Exhibit-P3 and Exhibit-P4 notices have been issued under Section 142(1) of the Act in respect of two assessment years for which the proceedings have been initiated. Petitioner could not point out any specific reason warranting an interference by this Court under Article 226 of the Constitution of India at this stage with the said notices. Those are statutory notices initiating proceedings, and hence interference is warranted in this writ petition.
5. As far as the request of cross-examination is concerned, the learned counsel relied upon the decision in C.D.S Limited vs. Commissioner of Income Tax and Another (2021) 15 ITR OL 281 (SC). However, no proposition has been laid down in the said decision that in all instances, opportunity to cross-examine must be granted. It depends on the facts of each case.
6. One of the persons who is requested to be cross-examined has, according to the petitioner, retracted his statement, and therefore, cross-examination is essential. On a consideration of the circumstances, it is noticed that the request for cross-examination has been rejected, pointing out that two of the persons mentioned in Exhibit-P6 are Directors themselves and the remaining two persons are employees. Since in the decision in M.K. Thomas vs. State of Kerala [40 STC 278] and in State Of Jammu And Kashmir and Others vs. Bakshi Ghulam Mohammad and Another [AIR 1967 SC 122], Supreme Court has observed that the statement of the Directors or employees of company need not be subjected to cross-examination, I am of the view that the impugned order does not warrant any interference at this stage. The decision relied upon by the petitioner in I.C.D.S. Limited’s case (Supra) stands on a different footing. Further, it is too premature to conclude that the denial of request for cross-examination should warrant any interference with the order proposed to be passed.
7. Having regard to the aforesaid circumstances, I am of the view that there is no merit in this writ petition and it is dismissed.
Needless to mention, since I have already observed that it is too premature a stage for considering its request, petitioner’s liberty to raise these contentions subsequently, in case any adverse orders are issued against him, shall not stand foreclosed.
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