Case Law Details
RELEVANT PARAGRAPH
13. We have heard the parties and considered the rival submissions. We have considered the various judgments cited by both the parties. It is a matter of record that the assessee had not been allowed the cross examination of the party whose statement has been used against him in making the assessment the addition us thus in violation of principles of natural justice. Not allowing cross examination is a defect of procedural in nature. It is to be allowed in order to make the assessment by using the principal statement, the examination in chief tested on cross examination. It is only a procedural requirement to be complied with before making the assessment under the Act in view of the decision in the cases of Pooran Mall & Sons 96 ITR 390 (SC). Not following the procedural provisions like allowing cross examination will not make an assessment null and void. At best it could be an irregularity liable to be cured and in such a case the assessment could be set aside, to be redone. An addition made does not cease to be an addition merely by reasons of want of cross examination. It will be a proceeding liable to be challenged and corrected.
14. The order of the Assessing Officer though was vitiated by an illegality which supervened, not at the initial stage of the proceedings, but during the course of it and therefore assessment cannot be annulled nor the addition can be deleted because of that illegality or irregularity; the matter requires to be set aside to be reprocessed and restart from that stage of illegality/ irregularity in the light of the Supreme Court in the case of Guduthur Bros. 40 ITR 298 (SC). In this case, a penalty was levied u/s 28(1)(a) of the 1922 Act without affording a hearing to the assessee as required by sub-section (3) of section 28 of the Income-tax Act. the matter was taken up in appeal and the AAC held that the order was defective and, therefore, set aside that order and directed to refund of penalty if it had been recovered. No further direction to pass an order afresh was given. The Assessing Officer, however, issued a further notice calling upon the assessee to appear before him so that they might be given an opportunity of being heard. It was challenged before the High Court by way of writ which was dismissed in limine by the High Court holding that the contention raised by the assessee perhaps may be raised before the income-tax authorities. The matter then came up before the Supreme Court by way of SLP. The Supreme Court held that the notice issued to the assessee t show cause as to why penalty should not be imposed on them did not cease to be operative because the AAC pointed out the illegality which vitiated proceedings after it was lawfully initiated and the notice having been remained to be still disposed of. The proceedings now started can be described as during the course of assessment proceedings, because the action will relate back to the time when the first notice was issued.
24. From the discussion above it is evident that merely by reasons of want of cross examination the addition cannot be deleted. It will be an addition liable to be challenged and corrected. An omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging sections). Any such omission or defect may render the order made irregular depending upon the nature of the provision not complied with but certainly not void or illegal. At the worst, they are defective proceedings or irregular proceeding liable to be cured. An addition made on the basis of a statement not tested by cross examination is invalid and it is vitiated, but the invalidity is not, however, of such a nature, which goes to the root of the proceedings. It could be set aside for being re-done de novo. The CIT (A) should not have upheld the addition on the basis of such a statement.
25. The omission to allow cross examination merely prevents the ITO from making an addition and can be corrected by allowing the cross examination and the Assessing Officer can be directed to proceed further to the examine the matter afresh on the basis of cross examined statement. The power of setting aside the order of assessment, where it is illegal, is inherent in any appellate Court his order would be perfectly legal order in directing the ITO to issue notice to the assessee before making an assessment because he was not satisfied regarding the correctness of the assessee’s return. The Tribunal/CIT (A) had ample jurisdiction to give directions to the ITO to comply with the requirements of law. It has inherent power to set aside illegal order of assessment and direct ITO to comply with requirements while making de novo assessment. In 1960 the Supreme Court in Guduthur Bros.’ case (supra) almost in the same factual background, held that the ITO had jurisdiction to continue the proceedings from the stage at which the illegality had occurred
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