Calcutta High Court Remands Income Tax Reassessment Order Citing Denial of Right to Cross-Examine Witness: Upholds Principles of Natural Justice [Read Order]

The High Court of Calcutta has set aside an income tax reassessment order under Section 147(under the Old unamended Act) of the Income Tax Act, 1961 relating to assessment year 2017-18 on the ground of violation of principles of natural justice by denying the petitioner’s right to cross-examine a key witness. The court upheld the principles of natural justice and remanded the case back to the assessing officer for a fresh order.

The petitioner, Mr. Lakshman Prasad Garwal, represented by Mr. Pranit Bag and Mr. Anujit Mookherji, challenged the orders issued under Section 147 of the Income Tax Act, 1961 contending that the Income Tax Authority had violated the principles of natural justice by denying him the right to cross-examine a witness named Rajal Ashar, whose statement was relied upon by the authorities in passing the reassessment order.

The court observed that, in compliance with a prior order from a Division Bench of the High Court, the respondent revenue, the Income Tax Authority had provided the petitioner with all the requested documents before issuing the assessment order. However, it became apparent that the respondent had relied on the statement of witness Rajal Ashar, which was unfavourable to the petitioner. Despite this, the petitioner had not been allowed to cross-examine the witness, which, according to the court, violated the basic principles of natural justice.

The respondent revenue, represented by Mrs. Smita Das De, argued that since the order was appealable, the writ petition should not be entertained on the grounds of the availability of an alternative remedy.

However, the respondent failed to provide evidence to the court that the petitioner had been granted the opportunity to cross-examine the crucial witness, thus failing to establish the availability of an alternative remedy.

The court made a crucial distinction between cases under the old, unamended Act, like the present one, and cases under the newly amended Act that introduced Section 148A, which explicitly provided scope for cross-examination after an order had been passed. In the case under consideration, the court ruled that there was no such scope under the Old Act.

The court pointed out that this was not a case governed by the newly amended Act, where cross-examination was allowed after an order under Section 148A. In this case, under the Old Act, there was no such provision.

The respondent’s argument that the petitioner’s right to cross-examine the witness should not be considered because the witness resided more than 500 kilometres from the respondent’s office was deemed absurd by the court. In an era where electronic communication and internet facilities are readily available worldwide, the geographical distance of a witness was not a reasonable justification for denying the petitioner this fundamental right, the bench noted.

The bench disposed of the writ petition and set aside the reassessment order under Section 147 of the Income Tax Act, 1961. The court ordered the matter to be remanded back to the assessing officer for a fresh order, with a specific directive to provide the petitioner with the opportunity to cross-examine the witness, Rajal Ashar.

The bench clarified that the reassessment order was set aside solely on the grounds of the violation of principles of natural justice by denying the petitioner his right to cross-examine the witness and not based on the merits of the reassessment order itself.

The single bench of Justice Md. Nizamuddin concluded that the principles of natural justice must be upheld in all legal proceedings, including income tax assessments. The ruling did not delve into the merits of the assessment order itself, leaving the door open for a fair and just reassessment based on the principles of justice and due process.

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