Denial of Opportunity to Cross-Examine Official Authors

Denial of Opportunity to Cross-Examine Official Authors and Examine Buyers’ Witnesses Violates Principles of Natural Justice

Issue

Whether the rejection of an assessee’s request to cross-examine official reporting officers and the refusal to record statements of buyer witnesses produced by the assessee during reassessment proceedings under Section 69A read with Section 148 constitutes a violation of natural justice, rendering the reassessment orders liable to be quashed.

Facts

Search and Reassessment: Following search operations on the assessee’s premises, reassessment proceedings were initiated under Section 148 for Assessment Years 2016-17 to 2022-23 regarding unaccounted cash and transactions.
Explanation of Agricultural Income: The assessee claimed that the cash/transactions represented genuine agricultural income derived from sales of pineapples and other produce, furnishing the names of five buyer entities.
Reliance on Adverse Official Reports: The Assessing Officer (AO) rejected the agricultural income claim based on reports from the Agricultural Officer and Village Officer stating the land was rocky and unsuitable for cultivation.
Denial of Cross-Examination: The AO denied the assessee’s specific request to examine or cross-examine these two officers, reasoning that no oral statements were recorded from them and that their inputs were submitted solely in their official capacity.
Refusal to Record Produced Witnesses: Unserved notices were returned for the five buyers, prompting the AO to ask the assessee to produce witnesses. Although the assessee requested time up to March 15, 2024, and produced two witnesses on March 14 (whose statements were taken) and two more on March 15, the AO refused to examine the March 15 witnesses on the ground that the extended deadline (March 14) had expired, without passing a formal order rejecting the extension request.

Decision

Denial of Cross-Examination Unlawful: Held that since the AO relied directly on the reports of the Agricultural Officer and Village Officer to reject the assessee’s explanation, denying the opportunity to cross-examine these officers violated the principles of natural justice, regardless of whether formal oral statements were recorded.
Arbitrary Refusal of Witnesses: Held that the AO’s refusal to examine the two witnesses produced on March 15, 2024, was unjustified and breached natural justice, as there was no formal order rejecting the extension request or restricting time strictly to March 14.
Orders Quashed and Remanded: The High Court/Tribunal quashed the impugned reassessment orders and consequential penalty orders, remanding the matter back to the Assessing Officer for fresh consideration after granting proper opportunities to cross-examine the official reporters and record the buyer witnesses’ statements.

Key Takeaways

Right to Cross-Examine Official Authors: An assessing authority cannot rely on adverse reports or inputs from government officers to make tax additions without affording the taxpayer an opportunity to cross-examine those officers.
Absence of Oral Statements Irrelevant: The absence of a formally recorded oral statement does not exempt the Revenue from allowing cross-examination if the officer’s written report forms the basis of an adverse finding.
Procedural Fairness in Witness Examination: Refusing to record statements of witnesses produced by an assessee based on hyper-technical or implicit deadlines, without a formal rejection order, constitutes a fatal procedural flaw violating principles of natural justice.

HIGH COURT OF KERALA

Roy Kurian

Principal Commissioner of Income-tax

ZIYAD RAHMAN A.A., J.

WP(C) NO. 16952, 37127, 37143, 37195, 37198, 37255 and 37268 OF 2024

JUNE 17, 2026

P.J. Anil Kumar, Balasubramaniam R., Smt. G. mini, P.S. Sree Prasad, Advs. and A. Kumar, Sr. Adv. for the Petitioner. Navaneeth N. Nath, Adv. and Smt. Susie B. Varghese, CGC for the Respondent.

JUDGMENT

1. All these writ petitions are filed by a single person, an assessee under the provisions of the Income Tax Act. The challenge raised in these writ petitions are against the assessment orders passed under Section 147 of the Income Tax Act, pertaining to the assessment years 2016-2017 to 2022-2023. The said assessment proceedings were initiated based on a search conducted in the premises of the petitioner on 05.01.2022. (W.P.C.No.16952 of 2024 is taken as the leading case and hereinafter, the description of the parties and Exhibits shall be as described in the said writ petition).

2. After several communications as part of the enquiry based on such search, Ext.P8 show cause notice was issued to the petitioner, where the explanations offered by the petitioner for the unaccounted cash/transactions detected during the course of search was examined and rejected. One of the main explanations offered by the petitioner as to the unaccounted transaction was that, those were the income generated from the agricultural activities carried out by the petitioner in the property having an extent of 147 acres as claimed by the petitioner (about 40 acres as per the assessment order).

3. In Ext.P8 show cause notice, the assessing officer relied on the reports of the Agricultural Officer and the Village Officer concerned, to arrive at the finding that, the property referred to by the petitioner is a rocky land, which is not suitable for cultivation. The title deeds produced by the petitioner and the descriptions of the land contained therein, were also relied on while arriving at the said conclusion. Apart from the above, in Ext.P8, it was also observed that, even though the petitioner has furnished the names of the five entities, to whom, the petitioner had transactions in relation to the sale of Pineapple and other agricultural products, the presence of those persons could not be secured for examination, even after issuance of notices to them. It was observed in Ext.P8 that, those notices were returned, as not served. It was on the basis of the aforesaid observations, the assessment was finalized through Ext.P8 order.

4. In response to Ext.P8, Ext.P9 reply was submitted by the petitioner, wherein, the petitioner specifically requested for an opportunity to examine/cross examine the Agricultural Officer and the Village Officer, who have given the reports to the Income Tax Authority with regard to the agricultural activities carried out by the petitioner in the properties referred to by him. It appears from the documents that, the petitioner also requested for an opportunity to produce the persons, with whom the petitioner had transactions and against whom, the notices sent by the Officer concerned were returned as not served. The said fact is evident from Ext.P10 notice issued under Section 142(1) by the Assessing Officer.

5. Acting upon the petitioner’s request, the petitioner was allowed time to produce the witnesses on 12.03.2024 by 11AM. According to the petitioner, in response to Ext.P10, the petitioner submitted Ext.P11, explaining certain circumstances which prevented the petitioner from producing the witnesses on 12.03.2024 and therefore, he sought time till 15.03.2024. With regard to the request made by the petitioner to cross examine the Village Officer and the Agricultural Officer, in Ext.P10 itself, the same was rejected on the reason that, no statements of the said officers were recorded, as part of the proceedings and they had submitted their reply in their official capacity only. Thereafter, the assessment was finalized after Ext.P18 order passed on 25.03.2024, wherein, it is mentioned that, the time to produce the witnesses were granted up to 14.03.2024 and on that day the petitioner had produced two persons out of five witnesses. After evaluating the statements of the said witnesses, the assessing authority found that those statements cannot be accepted, as no reliable documents were produced to substantiate that, those witnesses had transactions with the petitioner in relation to the sale of agricultural products. With regard to the other witnesses, it is specifically observed in Ext.P18 that, the petitioner produced two other witnesses on 15.03.2024 and since the time granted was only upto 14.03.2024, the statements of those witnesses were not recorded. Thus, Ext.P18 happened to be passed by the assessing officer, finalizing the assessment, by rejecting the contentions and explanations offered by the petitioner, as to the unaccounted transaction detected in the inspection dated 05.01.2022.

6. These writ petitions are filed by the petitioner, in such circumstances, challenging the assessment order, which is produced as Ext.P18 in W.P.C.No.16952 of 2024 that relates the assessment years 2016-2017. In W.P.C.No.37198 of 2024 Ext.P16 assessment order was passed pertaining to the assessment year 2017-2018, in W.P.C.No.37127 of 2024 Ext.P14 assessment order for the assessment year 2018-2019, in W.P.C.No.37143 of 2024 Ext.P13 assessment order for the assessment year 2019-2020, in W.P.C.No.37255 of 2024 Ext.P13 assessment order for the assessment year 2020-2021, in W.P.C.No.37268 of 2024 Ext.P13 assessment order for the assessment year 2021-2022 and in W.P.C.No.37195 of 2024 Ext.P12 assessment order for the assessment year 2022-2023 are challenged.

7. A detailed statement has been submitted by the learned standing counsel on behalf of the respondents 1 and 2, controverting the averments contained in the writ petitions. Entire procedure that was followed by the assessing officer while finalizing the assessment order as evidenced by Ext.P18 in W.P.C.No.16952 of 2024 and other assessment orders impugned in the writ petitions were also incorporated. In some of the writ petitions, the petitioner is also challenging the penalty proceedings initiated against him consequent to the assessment orders impugned are passed.

8. I have heard Sri.A.Kumar, learned Senior Counsel, assisted by Smt.G.Mini and Sri.Navaneeth N.Nath, learned standing counsel for the respondents.

9. The specific challenge raised in these writ petitions is against the assessment orders issued by the assessing officer, and the penalty proceedings in some cases, mainly on the ground that the petitioner was denied an opportunity to cross examine some of the witnesses, and thus, the assessing officer had violated the principles of natural justice.

10. On the other hand, the learned standing counsel stoutly opposes the reliefs sought in these writ petitions, by pointing out that, the petitioner was granted all the required opportunities to contest the matter effectively and with regard to the cross examination, it is contended that the same cannot be claimed by the petitioner, as of right. The learned standing counsel contended that, in the facts and circumstances of these cases, there was no necessity to afford an opportunity to cross examine the Agricultural Officer and the Village Officer concerned, as no statements of the said witnesses were recorded and relied on. With regard to the opportunity to examine the witnesses with whom the petitioner claimed to have had transactions, it is the case of the learned standing counsel that, even though the petitioner was required to produce the said witnesses on 12.03.2024, on the request of the petitioner the time was extended up to 14.03.2024. On that date, the petitioner produced only two witnesses and their statements were recorded, evaluated and found to be not reliable. With regard to the other witnesses, the petitioner produced two witnesses on 15.03.2024 and since the time granted to the petitioner was only up to 14.03.2024, the statements of the said witnesses were not recorded. Thus, it is the specific case of the learned standing counsel that, reasonable opportunities were extended to the petitioner, to have a proper contest and the assessment order was passed after referring to all the contentions raised by the petitioner, with supporting reasons as well. Therefore, it is not necessary that an interference to be made by this Court under Article 226 of the Constitution of India, particularly since the impugned assessment orders are appealable before the First Appellate Authority.

11. To substantiate the contention, learned senior counsel placed reliance upon the decisions rendered by this Court in Joint Commissioner, Central Tax and Central Excise v. Nishad K.U. 97 GSTL 223 (Kerala)/[2025(2) TMI 1247] andX L Interiors v. Deputy Commissioner (Intelligence), SGST Department (Kerala)/[(2025) 34 Centax 361 (Ker.)]. From the side of the respondents, the learned standing counsel relied on the decisions rendered by the Honourable Supreme Court in ITO v. M. Pirai Choodi [2012] [2011] 334 ITR 262 (SC)], the decisions rendered by the Madras High Court in T. Devasahaya Nadar v. CIT [1963] 50 ITR (SH. N.) 45 andM. Vivek v. Dy. CIT 432 ITR 53 (Madras)].

12. I have carefully gone through the records and examined the contentions raised by both the parties. When it comes to the question of denial of examination of the Agricultural Officer and Village Officer, it is to be noted that, the relevancy of the said statements is not disputed. The fact that, in the show cause notice as well as the assessment orders issued by the assessing officer, the reports of the said officers are relied on, is evident. One of the crucial contentions raised by the petitioner as explanation of the unaccounted transactions detected in the search was that, those amounts were generated through agricultural operations from the property of the petitioner. To substantiate the same, the petitioner had produced the title deeds of the properties and according to the petitioner the income was generated from the agricultural products such as Pineapple cultivation and other cultivations carried out in the said property. According to the petitioner, the sales were affected in favor of five entities specifically named by the petitioner.

13. At first, the assessing officer came to the conclusion that, the properties in which the petitioner claimed to have been carried out agricultural operations, were not fit for agricultural activities, as those properties were referred to in their respective title deeds as rocky land. Apart from the above, to arrive at the conclusion that no agricultural activities, as claimed by the petitioner, were possible in those properties, the assessing officer relied on the reports of the Agricultural Officer as well as the Village Officer concerned. In addition to that, it is stated in the show cause notice as well as the assessment order that, some of the field officers of the Income Tax Department had also conducted inspection, with the help of the Agricultural Officer and Village Officer, to find out whether, the properties referred to by the petitioner were fit for agricultural purposes. Besides, it was also found that, as per the reports of the Agricultural Officer and the Village Officer, the properties were cultivated with rubber, and agricultural activities like pineapple cultivation referred to by the petitioner was not possible. It was in these circumstances, the contentions of the petitioner were declined by the assessing officer and assessment was completed.

14. The challenge raised by the petitioner, as against the assessment order, is mainly because of the reason that, the petitioner was denied the opportunity to examine/cross examine the Agricultural Officer and the Village Officer concerned, whose reports were relied on by the assessing officer. In this regard, the learned standing counsel for the respondents, relied on the decision of the Honourable Supreme Court in M.Pirai Choodi (supra) to show that, as far as the right to cross examine the witnesses in a proceedings is concerned, it is not absolute. The observations made by the Hon’ble Supreme Court in the said decision were also relied upon to substantiate the contention of the respondents that, even in a case involving denial of crossexamination, the petitioner could have invoked the statutory remedies, and that the Appellate Authority is equally competent to consider the contentions of such a nature.

15. However, on carefully going by the observations of the Honourable Supreme Court in the aforesaid decision, it can be seen that, it was passed in a case in which, the High Court set aside the assessment order as such, on the reason that, no proper opportunity to cross examine a witness was granted. While setting aside the judgment of the High Court, it was clearly observed by the Honourable Supreme Court that, at the highest, the High Court should have directed the Assessing Officer to grant an opportunity to the assessee to cross-examine the concerned witness. Therefore, since the challenge in that case was against the setting aside of an order, on the ground that an opportunity for cross-examination had not been afforded and that the proceedings ought not to have been conducted without such cross-examination, the said decision cannot be construed as one laying down the proposition that no opportunity for crossexamination need be provided to the assessee. With regard to the observations regarding the alternate remedy, it is to be noted that, it was just an observation, which cannot be treated as a conclusive finding, touching upon issue of cross examination and the denial of it.

16. When it comes to the question of observations made in T. Devasahaya nadar (supra), which is rendered by the Madras High Court, the same is distinguishable on facts. In that case, request for cross-examination was rejected in respect of the person, who gave statement against the assessee to the effect that he, along with the assessee was engaged in a partnership business and had shared the income of the business. In the factual circumstances referred to in the said decision, the petitioner therein had admittedly accepted the partnership between the petitioner and the said witness and it was in these circumstances, denial of opportunity to cross examine the said witness was upheld by the High court of Madras. As far as the observations made in by the High Court of Madras in M.Vivek (supra) is concerned, that is given by relying upon the observations of the Honourable Supreme Court in M.Pirai Choodi (supra), which I have already referred to above. The factual circumstances in which the said decision was rendered, as well as the grounds on which the Assessing Officer declined the request for cross-examination, are entirely different from those involved in the present cases.

17. When the factual circumstances referred to in this case are taken into account, one crucial aspect to be noticed is that, as observed above, there is no dispute with regard to the relevance of the reports submitted by the Village Officer and the Agricultural Officer concerned, in the matter of considering the explanation offered by the petitioner, as to the activities carried out by the petitioner in the properties. Of course, it is true that in the assessment order, apart from the reports of the Agricultural Officer as well as the Village Officer, some other materials were also relied on, which are the title deeds produced by the petitioner and also the inspection reports of the field officers of the Income Tax Department. Therefore, it was contended that, even apart from the reports of the Agricultural Officer and the Village Officer, there are other materials and therefore, the denial of cross examination of the Village Officer and the Agricultural Officer is not very crucial.

18. Upon examining the other materials on record, it can be seen that, the recitals contained in the title deeds regarding the nature of the property cannot, by themselves, constitute a conclusive proof of the physical character of the property, the nature of the activities being carried on in the property, including whether they are agricultural or otherwise. Those aspects can be ascertained, only through a physical inspection of the property. Therefore, a determination in that regard cannot be made solely on the basis of the description of the properties contained in the title deeds. With regard to the reports relied on by the assessing officer made by the field officers of the Income Tax Department, it is discernible from the observations in the show cause notice and the assessment order that even while arriving at a finding that the nature of the properties was not conducive for agricultural operations, assistance of the Village Officer and the Agricultural Officers were sought and reports were also apparently relied on. Therefore, it is evident from the observations in the assessment order that, the basic documents which were relied by the assessing officer were, the reports of the Agricultural Officer and the Village Officer concerned. As noted above, since the true nature of the properties can be ascertained only through a physical inspection, the question whether the reports submitted by the concerned Village Officer and Agricultural Officer were based on such physical inspection and time as well as the manner in which such inspections carried out, assumes considerable significance. The manner in which the inspection was conducted, the date on which the inspection was conducted and also as to whether, the inspection was conducted with notice to the petitioner and the other affected parties, are crucial matters for evaluating the contents of the said report. Therefore, in order to examine and verify those aspects, examination/cross examination of those witnesses are absolutely necessary. Merely because, no statement was recorded from that officers, the opportunity to examine/cross examine the witnesses referred to above cannot be denied. This is particularly because, as mentioned above, the reports of the Village Officer and the Agricultural Officer formed the basis of the finding that, the petitioners were not involved in any agricultural activities in the properties referred to above.

19. Of course, as rightly contended by the learned Standing Counsel for the respondents, the right to crossexamination in assessment proceedings is not an absolute right of the assessee and in all cases it need not be extended,even if it is asked for. However, it is well settled that, the denial of the right of cross-examination in appropriate cases, where such crossexamination is necessary to afford a fair opportunity to the assessee, amounts to a violation of the principles of natural justice. This Court has already held in Nishad K.U (supra), observed in paragraph No.15 as follows:

“15. As regards the contention of the appellants that it is not the requirement of law to provide an opportunity to cross-examine the witnesses since it is not an integral part of the principles of natural justice, we cannot but disagree with the stand of the appellants. It is now settled law that in every quasi-judicial proceedings, the rule of natural justice has to be followed. The rule of natural justice is the tenet of every adjudication proceedings, a violation of which renders the proceedings void. When courts are called upon to decide the validity of quasi-judicial proceedings on the ground of violation of principles of natural justice, it cannot shut its eyes and adopt a pedantic approach and hold that unless the said principle is specifically extended under plenary legislation or the rules framed under it, the insistence of the principles is not mandatory.”

20. Thus, after carefully going through the records, I am of the view that, since the report of the Agricultural Officer and the Village Officer were clearly relied on by the assessing officer, while rejecting the explanation offered by the petitioner, the petitioner ought to have been granted an opportunity to examine/cross examine those witnesses and denial of the same amounting to violation of principles of natural justice.

21. The learned standing counsel for the respondents pointed out that, even if there is violation of principles of natural justice, those contentions can be considered by the appellate authority, and the petitioner should have been relegated to invoke the appellate remedy. However, even though these questions can be considered by the appellate authority, the fact that the petitioner would be losing a forum in the hierarchy, on account of the denial of opportunity, if the petitioner is relegated to the appellate remedies is a fact, which cannot be ignored. Even otherwise, it is well settled that, even though the right to cross examination is not specifically provided in the statute relating to the assessment, by a series of judgments of the Honourable Supreme Court and this Court, the same has been read into the relevant provisions, in the light of the principles of natural justice. It is also well settled that, when there is violation of principles of natural justice, this Court can invoke the powers under Article 226 of the Constitution of India, irrespective of the existence of alternate statutory remedies. Therefore, I find that this is a case in which, an interference is required, as it is clearly found that the denial of opportunity to examine/cross examine the Agricultural Officer and the Village Officer violated the principles of natural justice.

22. The next aspect is related to the denial of opportunity to produce the witness. Of course, it is true that, in the statement submitted and also in the assessment order, it is specifically stated that the petitioner was granted an opportunity to produce the witnesses, with whom the petitioner had transactions on 12.03.2024. Later, on the request of the petitioner, time was extended up to 14.03.2024, on which date, the petitioner produced only two witnesses, even though production of five witnesses were asked for. It is also discernible from the assessment order that, on the very next day, on 15.03.2024, the petitioner produced two witnesses, but they were not examined on the reason that, the time was extended only up to 14.03.2024. While considering these aspects, the crucial fact to be noted is that, even though the time is claimed to have extended up to 14.03.2024, there is no order to that effect. The same is having relevance because, in Ext.P11, which is a request made by the petitioner, he had specifically sought time up to 15.03.2024 and admittedly the petitioner had produced two witnesses on 14.03.2024 and the other two witnesses were produced on 15.03.2024. Therefore, in the absence of any specific reference of any specific order declining the request in Ext.P11 or limiting the extension of time only upto 14.03.2024, I am of the view that the petitioner could have been permitted to examine the two witnesses produced on 15.03.2024. Moreover, I have already found that, the assessement order requires re-consideration as the same was issued in violation of the principles of natural justice, since the petitioner was denied an opportunity to cross examine the Agricultural Officer and the Villege Officer concerned. Therefore, when the matter is reopened, it is only proper that the petitioner may be permitted to adduce evidence relating to the witnesses referred to above in the said process as well.

In such circumstances, these writ petitions are disposed of quashing Ext.P18 in W.P.C.No.16952 of 2024 as well as the similar assessment orders impugned in the other writ petitions and the consequential penalty orders. The assessing officer shall reconsider the matters, by giving the petitioner an opportunity to examine/cross examine the Village Officer and the Agricultural Officer concerned, whose reports were relied on; i.e., the persons who, in their capacity as the Village Officer and Agricultural Officer, had conducted the inspection of the petitioner’s properties, as well as the witnesses whom the petitioner was permitted to be produced, before the Assessing Officer. Since proceedings are already ordered to be reopened, it shall be open for the petitioner to adduce further evidence in support of his contentions. It is ordered that, this shall be finalized within a period of three months from the date of receipt of a copy of this judgment.