No opportunity to cross-examine persons on whose statement department is relying, Addition deleted by Chandigarh ITAT


No opportunity to cross-examine persons on whose statement department is relying, Addition deleted by Chandigarh ITAT



ITAT Chandigarh has recently held that no additions based on statements of ex-employees & dealers without allowing assessee to cross examine them.

The case detail is as under:

DSG Papers (P.) Ltd.



– [2023] 147 , 195 (Chandigarh – Trib.)

Let us have a short overview of the case:

Assessee was a private limited company, engaged in the business of manufacturing paper and paper products.

A search operation by the GST Intelligence was conducted on the business premises of the assessee along with the residential premises of the ex-president and ex-employees of the company.

During the search proceedings on the residential premises, evidence regarding unaccounted sales to third parties was recovered.

Also, statements from ex-employees of the assessee were recorded.

After receiving information, the Assessing Officer (AO) initiated reassessment proceedings under section 148 on account of alleged undisclosed sales by way of under-invoicing of the sales and made additions to the assessee’s income.

On appeal, the CIT(A) upheld the additions made by the AO.

Aggrieved-assessee preferred an instant appeal to the Chandigarh Tribunal.

The Tribunal held that the evidence for undisclosed sales was recovered from the residential premises of the ex-employees and not from the business premise of the assessee.

Except for the invoices, no other evidence was obtained.

Also, the assessee was not allowed to cross-examine such persons on whose statement AO relied.

AO proceeded to make the additions without giving the proper opportunity of hearing to the assessee.

With respect to the availability of invoices with the ex-president, a fact was brought to the notice that the assessee lodged an FIR against the ex-president alleging theft of documents of the company which evidenced that the ex-president was a disgruntled employee of the company indulged in some kind of malpractice to put the assessee into financial trouble.

Also, the FIR was lodged much before the time of the search operation.

Further, in their statement, the ex-employees contended that after the delivery of the undisclosed consignment sales invoices were destroyed.

This statement lies in contradiction with the availability of such invoices with the ex-president of the company.

Thus, the statements given by the ex-employees, the very foundation for making additions to the income of the assessee, are contradictory and therefore, stand demolished.

In addition, where the assessee was being adversely affected by the statement of a third party, denial of cross-examination by AO of such third party would not be justified.

Hence, additions made by the AO were liable to be deleted.