2008 (3) TMI 347 - AT - Income Tax

Summary

Issues Involved:
1. Rectification of Tribunal's order regarding the addition of speed money as undisclosed income.
2. Opportunity for cross-examination of Shri S. Srinivasan.
3. Levy of surcharge on the assessed income.

Issue-wise Detailed Analysis:

1. Rectification of Tribunal's order regarding the addition of speed money as undisclosed income:

The assessee filed miscellaneous applications seeking rectification of the Tribunal's common order dated 25th Aug., 2006, which had treated the speed money of Rs. 83,29,518 as undisclosed income under s. 158BC of the IT Act, 1961. The Tribunal initially upheld this addition based on the Explanation below s. 37(1) and the retrospective amendment by the Finance Act, 2002. However, upon reconsideration, it was noted that the speed money was recorded in the regular books of account and was not found to be false or untrue. The Tribunal acknowledged the distinction between "unlawful expenses" and "false expenses" and concluded that the speed money, although inadmissible under s. 37(1), could not be treated as undisclosed income under s. 158B(b). Consequently, the Tribunal rectified its earlier order and deleted the addition of Rs. 83,29,518 from the undisclosed income.

2. Opportunity for cross-examination of Shri S. Srinivasan:

The assessee contended that the Tribunal had erred in rejecting its ground for cross-examination of Shri S. Srinivasan, whose deposition was relied upon by the AO to make the addition of speed money. The Tribunal had initially rejected this ground, stating that the assessee did not request cross-examination at the assessment stage. However, the assessee argued that the AO had not informed them of the intention to use Srinivasan's deposition. The Tribunal did not delve into this issue further, as the rectification of the speed money addition rendered it moot.

3. Levy of surcharge on the assessed income:

The Tribunal had initially deleted the levy of surcharge based on the decision of the Hyderabad Special Bench in Merit Enterprises vs. Dy. CIT. However, the Supreme Court's decision in CIT vs. Suresh N. Gupta clarified that the proviso to s. 113 is clarificatory and retrospective, thereby justifying the levy of surcharge. Recognizing this, the Tribunal corrected its earlier order to uphold the levy of surcharge, provided there was any tax demand in the modified order.

Conclusion:

The Tribunal allowed the assessee's miscellaneous application to the extent of deleting the addition of Rs. 83,29,518 as undisclosed income and upheld the levy of surcharge in light of the Supreme Court's ruling. The issue of cross-examination was not further examined due to the rectification of the primary issue. The Tribunal's rectified findings were incorporated into the original order dated 25th Aug., 2006.