2018 (12) TMI 464 - HC - Income Tax

Addition applying the provisions of Section 41(1) and Section 68 - failure to grant an opportunity to cross-examine the creditors - accepting the statements of the creditors who had not been examined and without giving opportunity for cross-examination - denial of natural justice - Held that - In the facts of this case, no such request was made to cross-examine the creditors. In the absence of any request being made, the question of granting an opportunity would not arise for consideration. In fact, the assessee requested for copies of the sworn statement and the confirmation letters obtained by the Department from the creditors. All of them were furnished to him. No objections were raised by him. Thus the plea of the assessee that accepting the statement of the creditors without granting an opportunity to the assessee to cross-examine is incorrect. Therefore, we are of the view that the Tribunal was justified in upholding the impugned additions by applying the provisions of Section 41(1) and Section 68 - That the statement of the creditors were accepted, after granting substantial opportunity to the assessee, wherein the assessee has not made any request to cross-examine the witnesses and therefore, cannot contend that no opportunity was given to cross-examine the creditors. Decided in favour of the Revenue

Issues:
1. Assessment of income based on discrepancies in sundry creditors' balances.
2. Invocation of Sections 41(1) and 68 of the Income Tax Act.
3. Opportunity for cross-examination of creditors.

Analysis:

*Issue 1: Assessment of income based on discrepancies in sundry creditors' balances*

The assessee, engaged in trading, failed to produce complete books of accounts during a survey under Section 133-A of the Income Tax Act. Discrepancies arose in the sundry creditors' balances, with confirmed amounts differing significantly from the figures provided by the assessee. The Assessing Officer issued a show-cause letter, seeking explanations for the discrepancies. The assessee contended that the amounts in question did not pertain to the relevant assessment year and should not be added to the income. Despite objections raised, the Assessing Officer added back certain amounts to the returned income, leading to subsequent appeals.

*Issue 2: Invocation of Sections 41(1) and 68 of the Income Tax Act*

The appellant challenged the application of Sections 41(1) and 68 by the Revenue, arguing that the provisions were incorrectly invoked. The appellant relied on a previous judgment to support the claim that cessation of liability must be legally established for Section 41(1) to apply. The respondent, however, contended that the facts of the case differed from the precedent cited, emphasizing that creditors had confirmed balances and provided necessary details. The court concluded that the cited judgment did not align with the present case's circumstances, supporting the Revenue's application of the provisions.

*Issue 3: Opportunity for cross-examination of creditors*

The appellant sought an opportunity for cross-examination of the creditors, citing a Supreme Court judgment where such a request was denied. The respondent argued that the creditors' responses were not sworn statements and no formal request for cross-examination was made by the assessee. The court noted that the assessee did not request to cross-examine the creditors and was provided with copies of relevant documents. As no formal request was made, the court upheld the decision not to grant an opportunity for cross-examination, concluding that the impugned orders were valid.

In conclusion, the court dismissed the appeal, upholding the additions made to the income based on the discrepancies in the sundry creditors' balances. The court found the application of Sections 41(1) and 68 justified and ruled that no opportunity for cross-examination of creditors was required in this case, as no formal request was made by the assessee.

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