INCOME TAX ACT, 1961

Section 68

Income from undisclosed source - Addition under section 68 - No opportunity of cross-examination was provided to assessee -

M/s. T had placed an order with assessee-company for a gangsaw…..?? machine and paid advance against the order. After receiving the advance, assessee manufactured the machine and after completion, informed M/s. T for checking of machine and to make balance payment. However, T did not respond to it and that's why the said amount was shown as advance received from customer against the machine by the assessee in its books of accounts. AO issued a notice under section 133(6) to M/s. T to provide the details of balance outstanding of assessee. M/s. T submitted to AO that against the advance given to assessee for machinery was received back from assessee. Assessee submitted to AO that it had not paid any amount and submitted various documents evidencing that the cheques were not related to assessee. Matter travelled to ITAT where ITAT set aside the assessee's case to the assessing officer for de nova and it was directed that reasonable opportunity of being heard was given to the assessee before deciding the case in accordance with law. AO had again passed an order without following the direction of the ITAT. The AO had not provided any opportunity for cross-examination of T and had grossly violated the directions of the ITAT. Held: It was a case of set-aside proceedings and the matter was earlier set-aside by Tribunal with a specific direction to provide cross-examination of M/s. T to assessee company. Both lower authorities having acknowledged this fact have failed to follow the specific direction and thus, it was not just a case of judicial indiscipline but also a violation of principles of natural justice where liability was fastened on assessee merely based on confirmation filed by a concern without providing an opportunity of cross-examination. Assessee had already written off the said amount in its financial statements and had offered the amount to tax in its return of income. Therefore, addition so made was directed to be deleted.

REFERRED : Bank of Baroda v. H.C. Shrivatsava & Anr. (2002) 122 Taxman 330 (Bom.) : 2002 TaxPub(DT) 0501 (Bom-HC) M/s. Vikram Electro Chemicals & Industries (P) Ltd. v. ITO [ITA No. 707/JP/2011, dt. 27-8-2012]

FAVOUR : In assessee's favour

A.Y. : 2005-06

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