The Delhi High Court has set aside an income tax assessment order involving a ₹1 crore addition, holding that once the Assessing Officer granted a fresh opportunity to cross-examine witnesses, the taxpayer’s failure to attend the earlier scheduled hearing could not subsequently be used against him.
However, the bench of Justice Dinesh Mehta and Justice Aditi Choudhary criticised the taxpayer for failing to attend the first hearing on time and directed him to pay ₹25,000 to each of the two witnesses when they appear for cross-examination. Payment of these costs was made a condition for conducting the cross-examination.
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The dispute originated from an assessment order dated March 31, 2026, passed under Section 143(3) of the Income Tax Act, 1961.
The addition was essentially based on a slip recovered from Pradeep Kumar Sehgal recording an amount of ₹10,000. According to the judgment, the Assessing Officer relied on Sehgal’s reported statement that the entry actually represented ₹1 crore and that three zeros had intentionally been omitted.
On that basis, the Assessing Officer added ₹1 crore to the assessee’s income despite his objections.
The assessee sought permission to cross-examine Sehgal, but the opportunity was refused. He consequently challenged the assessment before the High Court.
On April 30, 2026, the High Court set aside the original assessment because the addition rested on the seized document, described as a “Kachchi Parchi”, and Sehgal’s statement, without giving the taxpayer an opportunity to cross-examine him.
The Court directed the Assessing Officer to schedule a hearing between May 18 and May 20, 2026, give the taxpayer at least seven days’ advance notice, and ensure Sehgal’s presence.
A fresh assessment was to be passed after cross-examination, giving due regard to what emerged during that process.
Following those directions, the Assessing Officer issued a notice dated May 8, 2026, scheduling cross-examination for May 19 at 11:30 a.m.
The assessee contended that the taxpayer had to attend a High Court hearing that day and reached the Assessing Officer’s office at 12:20 p.m. By then, Sehgal had left at 12:10 p.m.
The taxpayer requested that the witness be called back, but the request was declined. He then made a representation to the Additional Commissioner.
Thereafter, the Assessing Officer scheduled another hearing for May 26, 2026, calling both Sehgal and another witness, Yogesh Jain. The assessee and his counsel attended at the appointed time, but the witnesses did not appear.
Following a change in the officer handling the assessment, the successor Assessing Officer declined to provide another opportunity. Taking the view that the earlier High Court directions had been complied with and that the assessee had failed to attend the May 19 hearing on time, the officer passed a fresh assessment order on September 22, 2026, raising an identical demand.
The assessee argued that the Assessing Officer had failed to implement the earlier judicial directions in their true spirit.
His counsel submitted that the taxpayer had reached the office only ten minutes after Sehgal’s departure and that the officer could have recalled the witness.
The taxpayer also disputed the evidentiary basis of the addition. His counsel argued that the slip recorded only ₹10,000, incorrectly mentioned his name, and was unsupported by any other incriminating material. The maintained that he did not even know Sehgal and that cross-examination was therefore essential before relying on his statement.
The Income Tax Department opposed the petition, submitting that sufficient advance notice had been given and that Sehgal had waited at the office before leaving.
The Department also argued that neither the assessee nor his counsel had informed the Assessing Officer that they would be late. It maintained that the officer had acted fairly by calling both Sehgal and Jain and alleged that the taxpayer was attempting to take advantage of the situation.
The High Court did not accept assessee’s explanation for missing the first hearing.
It observed that, after obtaining an order directing cross-examination, the taxpayer was required to pursue the proceedings with seriousness and ensure that he or his counsel was available.
The Bench noted that at least ten days’ advance notice had been provided. It described the explanation that the assessee was attending another High Court hearing as a “lame excuse” and observed that an assessee must prioritise his cases.
Nevertheless, the Court held that the Assessing Officer’s subsequent decision to schedule another hearing materially changed the position.
The decisive factor was that the Assessing Officer had accepted assessee’s request and issued fresh notices for May 26, 2026.
On that date, the taxpayer and his counsel attended, while the witnesses failed to appear. By granting that fresh opportunity, the officer had condoned the taxpayer’s earlier default, the Court held.
Consequently, the assessment could not subsequently proceed on the footing that assessee had failed to avail himself of the opportunity fixed for May 19.
The Bench held that the Assessing Officer could not backtrack after having granted another opportunity for cross-examination.
While allowing the petition, the Court emphasised that witnesses could not repeatedly be summoned to accommodate the taxpayer and that their time also had value.
It therefore directed the assessee to pay ₹25,000 each to Sehgal and Jain when they appear for cross-examination.
The taxpayer must keep separate pay orders or banker’s cheques ready in their names. Cross-examination will be permitted only upon payment of the prescribed costs to the respective witnesses.
The Court set aside the September 22, 2026 assessment order and directed the Assessing Officer to fix a suitable hearing date, preferably between November 16 and November 30, 2026.
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