Assessment Invalid if Material Not Shared or Cross-Examination Denied: ITAT Mumbai Reaffirms Natural Justice Rule
In a Significant ruling reinforcing taxpayer rights during assessment proceedings, the Mumbai Bench of the Income Tax Appellate Tribunal has held that any addition made by the Assessing Officer without supplying adverse material to the assessee and without granting an opportunity for cross-examination violates settled principles of natural justice.
In Ramesh Deora vs DCIT (ITA No. 6377/Mum/2025, AY 2016-17, order dated 27.01.2026), the Tribunal emphasised that tax proceedings must adhere to fairness and transparency, especially when the department relies on third-party statements or investigation material.
The ruling reiterates that procedural fairness is not optional — it is a legal requirement.
Background of the Case
In the assessment proceedings, the Assessing Officer made additions based on certain information and material allegedly adverse to the assessee.
However, the assessee contended that:
• The material relied upon by the department was never supplied
• Statements or documents used against him were not disclosed
• No opportunity was given to cross-examine the persons whose statements were relied upon
Despite these objections, the additions were sustained, leading the assessee to challenge the order before the Tribunal.
Issue Before the Tribunal
The central question before the ITAT was:
Can an addition survive where the department relies on material not shared with the assessee and denies the opportunity of cross-examination?
The Tribunal answered this in favour of the taxpayer.
Tribunal’s Observations
The ITAT held that the right to know the evidence relied upon and the right to cross-examine adverse witnesses are fundamental components of natural justice in tax proceedings.
The Bench noted that:
• Any material used against the assessee must be disclosed
• Opportunity to rebut evidence must be provided
• If statements of third parties are relied upon, cross-examination must be allowed
• Failure to provide these safeguards renders the addition legally unsustainable
The Tribunal emphasised that fairness in procedure is not a technical formality but a substantive right.
Legal Principle Reaffirmed
The ruling reinforces a well-settled doctrine:
No person can be condemned on the basis of evidence he has not been allowed to see or challenge.
This principle has repeatedly been upheld by courts, particularly in cases involving:
• Accommodation entry allegations
• Investigation wing reports
• Third-party statements
• Search or survey findings
• Information received from other agencies
Where the department relies on such material, procedural safeguards become essential.
Why This Ruling Matters in Practice
Additions based on investigation reports or third-party statements are increasingly common in scrutiny assessments.
This decision highlights that:
• Reliance on undisclosed material is impermissible
• Cross-examination is not discretionary where statements are used against the assessee
• Violation of natural justice can invalidate additions irrespective of merits
• Procedural defects can be stronger than factual defences
For litigation strategy, this often becomes a powerful ground at appellate stages.
Practical Takeaways for Taxpayers and Professionals
The ruling underscores the importance of asserting procedural rights during assessment itself.
Professionals should ensure that:
• Written requests are made for supply of adverse material
• Cross-examination requests are formally recorded
• Objections are documented if the AO refuses
• Appellate grounds specifically mention violation of natural justice
Creating a proper procedural record can significantly strengthen the case at higher forums.
Conclusion
The ITAT Mumbai ruling in Ramesh Deora vs DCIT sends a clear message that tax administration must operate within the framework of fairness.
Where additions are made without sharing evidence or granting cross-examination, the assessment becomes legally vulnerable.
In tax litigation, correctness of evidence matters — but fairness in using that evidence matters even more.
Ramesh Deora vs. Deputy Commissioner of Income Tax (DCIT)
Citation: I.T.A. No. 6377/Mum/2025 (Assessment Year: 2016-17), decided on 27.01.2026.
The copy of the order is as under:
