Adverse view on evidence without opportunity to cross examine witness by the assessee is wrong – ITAT

Adverse view taken on evidence without opportunity to cross-examine

It is settled proposition of law that whenever the AO intends to take adverse view against the assessee on the basis of any evidence, he is required to confront the same to the assessee and if the assessee desires, he may allow the assessee to cross-examine the witnesses – ITAT

ABCAUS Case Law Citation:
986 2016 (08) ITAT
AY: 2009-10
Date/Month of Judgment/order: August 2016

Brief Facts of the Case:
A substantial cash deposit was found in the appellant assessee’s bank account. In order to verify the source of deposits in the assessee’s bank account, a show cause notice was issued. In response to the show cause, the assessee explained  that he had entered into MoU with two individuals and through this MoU, the assessee had received Rs. 2.5 crores from these parties, out of which cash was deposited in the bank account. During the course of assessment proceedings, the AO made enquiry from one party who denied to have given any money in cash to the assessee. His letter of denial was confronted to the assessee and assessee in response thereto, requested the AO to summon the said party u/s 131 of the Income Tax Act. However, the AO did not issue summoned and not allowed assessee the opportunity to cross-examine the said party. The assessment was completed by making additions u/s 68.

Contentions of the Assessee:
The assessee has contended that since the AO took cognizance of the letter of the party without allowing the assessee to cross-examine , the addition made were not sustainable in the eyes of law. 

It was further contended that it is settled position of law that wherever the AO intends to take cognizance of any evidence against the assessee, that evidence should be confronted to him and the assessee should be allowed to cross-examine that person if he expresses desire.

The assessee placed reliance upon the judgment of Hon’ble Supreme Court in the case of Manoharan v. Sivarajan & Ors., Civil Appeal No.10581 of 2013.

The assessee also contended that both AO and CIT(A) erred in making and sustaining the addition u/s 68 for the credits in the Bank Pass Book not in the Books of Accounts, as for the relevant financial year the assessee had not maintained the Books of Accounts as there was no income during the said financial year.

Observations made by the ITAT:
The Tribunal observed that it was evident from the record that the assessee had written to the Assessing Officer to summon the party and allow him to cross-examine it, but the AO did not allow the assessee to cross-examine the party by summoning him.

The Tribunal concurred with the assessee in that it is settled proposition of law that whenever the AO intends to take adverse view against the assessee on the basis of any evidence, he is required to confront the same to the assessee and if the assessee desires, he may allow the assessee to cross-examine the witnesses.

The Tribunal held that the AO was wrong in taking cognizance of the letter written by the party, without affording the assessee an opportunity to cross-examine the party. The case was restored to the Assessing Officer with direction to readjudicate afresh after allowing the assessee an opportunity to cross-examine the party.

Regarding additions u/s 68, the Tribunal opined that whenever cash deposits are found in the bank account, addition can be made u/s 69, if not u/s 68 of the Income Tax Act.