Right of Cross Examination under Income Tax Act,1961

If someone makes an allegation against you, will you plainly accept it? Won’t you be interested in knowing the basis on which such allegations are made?

You would be interested….Right….

The other day i was handling an income tax case. The Assessing Officer made certain additions on the basis of statement of some 3rd person. Further to my dismay, the A.O didn’t allow me to cross-examine this 3rd person. I was pissed off.

So, i browsed through all the tax journals and other tax related sites to look for a case study that supports my case. Now can u guess what?? I found not just one but many case rulings in favour of my case.

Here I am discussing the latest case ruling by Bombay HC in case of CIT vs. Ashish International. So next time if you are also in the same boat like me, just quote this case study in your submissions.

Facts of the Case:

1. Assessee, M/s Ashish International made some purchases from Agro Supplies Pvt Ltd.

2. A.O just to check genuineness of such purchases, inquired from director of Agro Supplies Pvt Ltd.

3. The director of Agro Supplies affirmed that no purchases were made from his company and that such purchases were accommodative entries done by Ashish International.

4. A.O made additions holding such purchases as bogus purchases by relying on the statement of director of Agro Supplies.

Question of Law:

1. Whether A.O was justified in make such additions without first allowing assessee to cross examine the witness used by the A.O?

Bombay HC held:

1. That A.O should have given an opportunity to the assessee to cross examine the witness.

2. That veracity of the information can be determined only when assessee is offered an opportunity to cross examine the person providing information to the A.O.

3. That if cross examination is not provided, then it will clearly amount to breach of principle of natural justice.

My 2 Liner Crux:

1. There is no doubt that as per this ruling, A.O is required to disclose all the information to the assessee that he intends to use in the assessment order. This judgement further upholds the principle of Natural Justice.

2. But there is one defence that can be used by the A.O. Disclosing the name of person from whom A.O collected evidence will amount to breach of confidentiality. So, if A.O promised confidentiality to those who provided evidence, such cross examination will amount to breach of trust & confidentiality.

What do you think about this case law? Principle of Natural Justice shall prevail or Principle of Confidentiality?

Continue the discussion at comments section.

P.S: There is also one Apex Court decision that provides opportuntity to assessee to cross examine the evidence before assessing officer passes his order. Read the analysis of judgement here.