Reliance by the AO on statements of third parties without giving the assessee an opportunity of cross-examination is a gross failure of the principles of natural justice and renders the assessment order a nullity -ITAT Delhi

The additions made merely on the statement of the third party and without providing an opportunity of being heard and cross examine the basis of addition to the assessee made the order null and void as the same is against the principle of natural justice.

Facts of the case:

1. The assessee filed its return electronically for the assessment year 2014-15 declaring total income of Rs. 6,26,250/-.
2. The case of the assessee is selected for scrutiny through CASS for reason ” Suspicion long term capital gain or shares”.
3. During the assessment proceedings, the Ld. AO made an addition on the basis of the statement of a third party.
4. Further, the assessee in its reply has requested AO to kindly allow the assessee to cross examine that third party on the basis of which addition is being made.
5. But the assessment order is passed without providing the opportunity to the assessee to cross examine.
6. The Ld. CIT(A) also dismissed assessee’s plea without considering the facts on the record.

Discussion:

1. The addition has beenmade only on the statement of Sh. Vikrant Kayan without providing the copy of statement of Sh. Vikrant Kayan and without providing any opportunity to the assessee to cross examine the same, which is in violation of principle of natural justice.
2. It was further noted that exactly on the similar facts and circumstances the ITAT, SMC, Delhi Bench vide its order dated 06.11.2018 passed in ITA No. 3510/Del/2018 (AY 2014-15) in the case of Smt. Jyoti Gupta vs. ITO wherein, the SMC Bench has considered the statement of Vikrant Kayan and has held that since the impugned addition was made on the statement of Sh. Vikrant Kayan without providing any opportunity to the assessee to cross examine the same and Ld.CIT(A) has not considered the same ground, which is in violation of principle of natural justice and against the law laid down by the Hon’ble Supreme Court of India in the case of Andaman Timber vs. CIT decided in Civil Appeal No. 4228 of 2006.
3. Reproducing the relevant portion of the ITAT, SMC, Delhi Bench vide its order dated 06.11.2018 passed in ITA No.3510/Del/2018 (AY 2014-15) in the case of Smt. Jyoti Gupta vs. ITO as under:-
   “13. Merely on the strength of statement of third party i.e. Shri Vikrant Kayancannot justify the impugned additions. Moreso , when specific request was made by the assessee for allowing cross examination was denied by the Assessing Officer. The first appellate authority also did not consider it fit to allow cross examination. This is in gross violation of the principles of natural justice and against the ratio laid down by the Hon’ble Supreme Court in the case o f Andaman Timber Vs. CIT…..

To download the complete order, Anubhav Jain & Ashish Jain (ITA 4565 & 4566 of 2018)