Case Law Details
Baleshwar Sharma Vs DCIT (Delhi High Court)
Delhi High Court Sets Aside Section 68 Addition Due to Denial of Cross-Examination; Assessment Order Set Aside as Third-Party Slip Was Relied Upon Without Fair Hearing; Delhi HC Rules Natural Justice Violated When Assessment Relied on Third-Party Statement; Section 68 Addition Based on Seized Slip Invalid for Lack of Effective Cross-Examination.
The Delhi High Court considered a writ petition challenging an assessment order dated 31.03.2026 passed under Section 143(3) of the Income Tax Act, 1961. The assessment had raised a tax demand against the petitioner primarily on the basis of a seized slip (Kachchi Parchi) recovered during the search of a third party, Mr. Pradeep Kumar Sehgal. The slip contained the figure Rs.10,000/-, which the Assessing Officer (AO) interpreted as Rs.1 crore on the assumption that three zeroes had been omitted.
The petitioner contended that the addition was made solely on the basis of the seized slip, which did not even correctly record his name. During the assessment proceedings, he denied any knowledge of or acquaintance with Mr. Pradeep Kumar Sehgal and also denied any connection with the amount mentioned in the slip. The petitioner further pointed out that Mr. Sehgal had allegedly stated that the amount had been paid to the petitioner for construction of a farmhouse, whereas the petitioner was not engaged in the construction business.
The petitioner also challenged the manner in which the opportunity for cross-examination was provided. According to him, the AO issued a notice under Section 131 by email on 30.03.2026, directing him to appear at 10:30 a.m. on 31.03.2026 to produce evidence and cross-examine Mr. Pradeep Kumar Sehgal. The petitioner argued that this was merely an eyewash, as such short notice did not provide a realistic opportunity for either him or his authorised representative to prepare for or conduct an effective cross-examination. Despite the absence of cross-examination, the AO proceeded to pass the assessment order and raise a substantial tax demand.
The Revenue objected to the maintainability of the writ petition, arguing that the Income Tax Act provided an effective statutory remedy by way of an appeal before the Commissioner of Income Tax (Appeals). It also submitted that the petitioner’s contentions related to appreciation of evidence, which should not ordinarily be examined by the High Court while exercising its extraordinary writ jurisdiction.
After hearing both sides, the High Court held that, among all the issues raised, the alleged violation of the principles of natural justice required consideration. The Court observed that the entire addition made against the petitioner rested upon the seized slip and the statement of Mr. Pradeep Kumar Sehgal. Since these formed the sole basis of the assessment, the petitioner ought to have been given a meaningful opportunity to cross-examine Mr. Sehgal.
The Court examined the circumstances surrounding the notice issued for cross-examination and concluded that the opportunity provided was merely a farce or eyewash. It held that an assessee or his representative could not reasonably be expected to appear the very next day at the specified time to cross-examine a person who was not a formal witness. As a result, the petitioner could not effectively cross-examine Mr. Sehgal, while the AO accepted the seized slip and Mr. Sehgal’s statement as conclusive, to the detriment of the petitioner’s rights.
Accordingly, the High Court set aside the assessment order dated 31.03.2026, holding that it essentially hinged upon the seized document and the third party’s statement without affording a proper opportunity for cross-examination.
The Court directed the AO to fix a fresh hearing on any date between 18.05.2026 and 20.05.2026, after giving the petitioner at least seven days’ advance notice. The AO was also directed to ensure the presence of Mr. Pradeep Kumar Sehgal for cross-examination on the scheduled date. After the cross-examination is completed, the AO was directed to pass a fresh assessment order in accordance with law, giving due regard to the outcome of the cross-examination.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. By way of the present writ petition, the petitioner has challenged the assessment order dated 31.03.2026 passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961), whereby the respondent no.1 has raised a demand against the petitioner essentially based on a slip (Kachchi Parchi) recovered from one Mr. Pradeep Kumar Sehgal in which a sum of Rs.10,000/- (-10,000/-)was written.
2. Learned counsel contended that only on the basis of such slip, which does not even correctly record the petitioner’s name, the Assessing Officer (AO) has presumed that the amount of Rs.10,000/- written on Kachchi Parchi meant Rs.1,00,00,000/- (Rs.1 crore) as three zeroes were omitted. He argued that the AO has added the entire amount in petitioner’s hands even though in his reply and during the assessment proceedings, the petitioner denied not only the knowledge of or acquaintance with such person, but has also pleaded ignorance about the belongingness of the said amount.
3. It is further submitted that said Mr. Pradeep Kumar Sehgal, in his statement has allegedly stated that he had given the said amount to the petitioner for construction of a farm house, whereas the petitioner is not at all in construction business.
4. Learned counsel for submitted that the petitioner was issued a notice dated 30.03.2026 under Section 131 of the Act of 1961 through email, requiring him to appear at 10:30 am on 31.03.2026 to produce evidence and cross examine said Pradeep Kumar Sehgal but this opportunity was just an eyewash inasmuch as within such short time, neither the petitioner nor his authorized representative could have mentally prepared themselves for the cross examination. He submitted that without the cross examination, the respondent has passed assessment order and inflicted a huge demand of tax which is otherwise not substantiated.
5. Anant Mann, learned Junior Standing Counsel for the respondent, on the other hand argued that petitioner has rushed to this Court against an assessment order in spite of the fact that the statute provides efficacious statutory remedy in the form of appeal before the Commissioner of Income Tax (Appeals). He further submitted that the arguments which have been advanced by learned counsel for the petitioner are in the realm of appreciation of evidence, which this Court in its extraordinary jurisdiction cannot indulge.
6. Having heard learned counsel for the parties, we are of the view that out of all the other arguments, which learned counsel for the petitioner has advanced, the argument in relation to infraction of principles of natural justice calls for our attention and intervention in petitioner’s favour.
7. Since the edifice of the entire addition made in petitioner’s hands is, the slip, which was recovered during the search of Mr. Pradeep Kumar Sehgal, the petitioner ought to have been provided an opportunity of cross examination. On perusal of the proceedings, we find that such opportunity was only a farce or eyewash. An assessee or his representative cannot be expected to come on the very next day at 10:30 am to cross examine a person, who is not a formal witness for obvious reasons, the petitioner could not cross examine said Pradeep Kumar Sehgal and resultantly the AO has taken the slip and his statement to be a gospel truth, which is to the detriment of petitioner’s right.
8. We, therefore, set aside the assessment order dated 31.03.2026, which essentially hinges upon the seized document (Kachchi Parchi) and the statement of the said Mr. Pradeep Kumar Sehgal for want of opportunity of cross examination. Because, since the entire addition is edified on the statement and slip recovered from Pradeep Kumar Sehgal.
9. The AO shall fix any date of hearing between 18.05.2026 to 20.05.2026 and inform the petitioner at least 7 days in advance and provide an opportunity to cross-examine Pradeep Kumar Sehgal. It shall be incumbent upon the AO to ensure that said Pradeep Kumar is available for cross-examination at the time of hearing so fixed and after the cross-examination being so done, the AO shall pass a fresh assessment order in accordance with law, giving due regard to the cross-examination.
10. Apart from the principles of natural justice, we have not dilated upon any of the arguments advances by the petitioner and therefore, the petitioner shall be free to raise all other arguments before the Appellate Authority in accordance with law, if he is required to file an appeal.
11. The writ petition along with the pending application is disposed of.
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