During Income tax proceedings, often statement of a person is used to catch hold of prospective tax evading assessees. But, it is trite that the statement of such a person cannot be allowed to be used against the assessee without even providing an opportunity of cross examining such person. Now the Income tax department having pan India presence, can have the statement of any person located in any part of the country recorded and then use it against the assesse in some other distant part of the country. The question often arises in such situation that:
a) To what extent the Income tax department is equipped to do so and
b) What is the protection available with the assesse in such a situation.
c) Whether the assesse shall lose his right to cross examine a witness sitting at a distant place for the reason that he is not opting for cross examination at the place of the location of the witness, but seeking the witness to be produced before his own adjudicating officer.
d) Whether the assesse shall lose his right to cross examine the witness sitting at distant place for the reason that the place of witness and locus of court are not directly connected by means of transport.
e) Whether the assessee needs to explain the reasons before undertaking cross examination of the witness.
While the law has its own limitation in providing for each and every situation, the Judicial system of India has often been playing its salutary duty of resolving the impasse, using the principles of natural Justice. Recently ITAT Amritsar in “M/s. Apeejay Education Society” ITA 712/ASR/2014, pronounced on 12-08-2016, had an occasion to deal a with similar issue in 158 paged duly indexed judgment being adumbrated below :
The assessee, an educational institution, installed an expensive ERP software to run its various activities. However, the promoter of the company supplying the software denied the fact of having supplied the software and stated that only accommodation entries were provided. At the same time, the said promoter kept on changing its stance in various statements recorded by the department. The department, however, wished to use the statement of the promoter as witness against the assessee.
While the said witness was at Pune, the assessee’s case was being assessed at Jalndhar. The distance between Pune and Jalandhar is 1828 Kms.
The assessee sought production of the witness during the assessment proceedingsat Jalandhar for cross examination, and expressed willingness to defray the expenses for the same, while the department emphasized that the witness may be examined at Pune.
As per the provisions of Order XVI, Rule 19 of the CPC, the persons with in 500 Kms from the court can only be called upon to give evidence. However where the place where the court is situated and the place of the person to be examined as evidence are beyond 500 Kms. but are connected by air transport, the attendance of the witness can be ordered by defraying the air fare between the two places.
The AO, however, contended that Jalandhar and Pune are not directly connected by Air and that the witness can be cross examined only at Pune, where he resides.
Held by ITAT Amritsar:
a) Under section 131(1)(b) of the Income Tax Act the assessing officer has power to enforce the attendance of any person.
b) As per S.2(7A), it is the assessing officer who is the one vested with relevant jurisdiction by virtue of directions or orders u/s 120(1)
c) As per Section 124(1), where, by virtue of any direction or order issued u/s 120(1),the AO has been vested with jurisdiction over any area, within the limits of such area, he shall have the jurisdiction in respect of any person carrying on a business or profession, if the place of such business or profession is situate within the area, and in respect of any other person residing within the area.
d) From the above provision, it is evident that the AO of an area has jurisdiction over the persons either carrying on business or profession within such area, or residing therein. Such AO, as the designation itself suggests, assesses the income of the residents of his area. Therefore, he (AO) is the Adjudicating Authority of his area. For such adjudication, the AO would require the attendance of persons, for examining them as witnesses. It is for enforcing such attendance of witnesses, that the AO has been vested with the same powers as are vested in a Court under the Code of Civil Procedure, when trying a suit.
e) In accordance with the above, it is the adjudicating AO who has the power to enforce the attendance of witnesses in matters pending before him, in a manner similar to the powers vested in a Court under the Code of Civil Procedure, when trying a suit.
f) Since, It was the AO at Jalandhar who was the adjudicating AO qua the assessee, it was only the AO at Jalandhar,before whom, the cross examination of department’s witness ought to have been allowed to have been undertaken by the assessee.
g) As per the proviso to Order XVI, Rule 19, C.P.C., if there is air connectivity between the place of residence of the witness and the locus of the Court, then a witness can be called, even if the distance between such two places is more than five hundred kilometers. This provision of the law is, obviously, to facilitate the attendance of witnesses before the Court even where the witness is located at a place far away from the Court
Non Existence of Airport at the place of Adjudicating Officer
a) Further held by ITAT that non-existence of an airport at Jalandhar was not detrimental to the claim of the assessee for cross examining the department’s witness at Jalandhar. The connecting airport is situated at Amritsar
In ‘Surana Industries Ltd. Vs. Surindra Engineering and Trading (P&H), decided on 10-07-2012, in similar circumstances, it has been held that Chennai and Khanna have an air-link; and that the Sahnewal Airport being 30 kilometers away from Khanna, there is provision of transportation by way of air. Obviously, therefore, it is nowhere there quirement of law that there should be an airport in each and every city.What is required is that the catering airport must be within reasonable reach, as is the case with the Amritsar Airport, so far as regards Jalandhar (Amritsar being about 80 km away or, at a stone’s throw, so to say, from Jalandhar).
Then, once the cross-examination of the department’s witness was disallowed to the assessee, his statement could not in law have been utilized against the assessee, as has wrongly been done, transgressing the natural justice principle of audialterempartem.
Whether assessee needs to explain the reasons to cross examine witness
The Hon’ble ITAT quoted ‘Andaman Timber Industries vs. Commissioner of Central Excise’, order dated 02.09.2015, passed in Civil Appeal No.4228/2006, where the Hon’ble Supreme Court held, inter-alia, that: “It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.”
ITAT Amritsar relying upon the above proposition of law laid down by the Apex Court held that in the circumstance of the case, despite that the reason given by the assessee to ask for the cross examination of witness at Jalandhar being not happily worded, the department does not get absolved of its onus to produce the witness before the assessment proceedings by the adjudicating officer at Jalandhar.
Conclusion: Under the Income tax law, the onus lies on the assessee to produce the evidence in support of his return of income and whatever claim he makes. So, whether it will be fair play if the assessee is also compelled to take the toll to prove wrong the assertions made against him. To a logical mind, the answer is arrant “No”. So, the decision of ITAT Amritsar shall there-fore be hailed by people advocating the application of principles of natural justice in taxation laws.
(Author :CA Vinamar Gupta, 53-E, Dayanand Nagar-II, Lawrence Road, Amritsar, Mob: 9356048001, email@example.com)