Addition based on third person statement without giving any opportunity to cross examine is untenable

Acme Chem Limited Vs DCIT (ITAT Kolkata)

ITAT Kolkata held that addition based on such retracted statement of third person and that too without giving any opportunity of cross examination to the assessee deserves to be deleted.

Facts- The assessee is a limited company engaged in the business of manufacture and sale of rubber chemicals. Income of Rs. 8,22,97,170/- declared in the e-return filed on 28.09.2012 pertaining to AY 2012-13. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. Assessment u/s 143(3) of the Act completed on 24.03.2015 after making various additions/disallowances and income assessed at Rs. 10,19,05,350/-. The additions made by ld. AO were challenged by the assessee but he failed to get any relief from ld. CIT(A). Aggrieved, the assessee is now in appeal before this Tribunal.

Conclusion- With regard to disallowance of bad debts claimed of Rs. 27,90,726/- for alleged non-submission of the proof, it is held that major amount of bad debts is on account of final account reconciliation and certain deductions/rebate given to the buyers of the assessee which mainly include MRF Ltd., CEAT Ltd. Birla Tyres Ltd. and various small amounts below Rs. 50,000/- amounting to Rs. 2,15,883/-. Since the sales have been duly accounted for and certain portions of the sundry debtors which could not be recovered have been claimed to be bad debts and this claim of the assessee is allowable. We are inclined to hold that the assessee has made a justified claim of bad debts u/s 36(1)(vii) of the Act and the same deserves to be allowed.

With regard to addition of unexplained income u/s 68, it is held that No opportunity of cross examination was provided to the assessee by ld. AO and also the said statement was retracted within ten days by Shri Rajkumar Kothari and therefore, making the addition based on such retracted statement and that too without giving any opportunity of cross examination to the assessee in whose case addition has been made on the basis of a statement of a third person deserves to be deleted and, thus, the legal issue raised by the assessee challenging the impugned addition is allowed.

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