INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Receipt of loans and advances - AO suspected extending such huge advances to assessee because of low profit margin of parties who had advanced money to assessee--Also AO relying on statement of third party without affording opportunity of cross-examination to assessee

Assessee carried on trading activities with certain parties from whom assessee claimed to have received loans and advances. AO suspected extending such huge advances to assessee. Because of low profit margin of parties who had advanced money to assessee. Also, AO took note of statement of one 'M' who who managed the affairs of trading parties, wherein he admitted that business activities, books of accounts, etc., in respect of those concerns were performed and maintained by assessee and they were used only for signing authorities and in lieu of signature they got commission from assessee. Accordingly, AO treated loan received by assessee as unexplained credit liable for addition under section 68.Held: The main reason for making addition in assessee's hands was that lending concerns were doing business with very low margin of profit. Suspicion, howsoever strong could not be reason for making additions and it could not replace evidence on record not suggesting that source of funds received from alleged parties was sourced by the assessee. More so, if AO desired to rely on any statement of third party, the same was required to be furnished to assessee and if assessee requested to cross-examine that party opportunity of cross-examination had to be given, which was not so done by AO in the instant case. Accordingly, AO was not justified in making addition under section 68, especially when third party had later retracted his statement.

Followed: P. Sunil Kumar, Sabari Quality Foods ITA Nos. 347/Coch/2017 & Ors..

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11 & 2011-12

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