Section 68 cash-credit additions need corroboration; contractual commission accrues only on realization despite mercantile accounting.

Additions for unsecured loans could not be sustained under section 68 where they rested only on survey statements and an inspector's report, because the assessee had produced confirmations, returns, bank statements, audited accounts, and replies to notices, while the adverse material was not properly confronted and identity, genuineness, and creditworthiness were not displaced by cogent evidence. Commission on export sales was also allowable only on realization of sale proceeds where the agreement so provided; the mercantile system did not accelerate accrual contrary to the contract. The article therefore states that both the loan addition and commission disallowance failed on the stated facts and legal principles.

---

---

Issues: (i) Whether additions towards unsecured loans could be sustained solely on the basis of a survey statement and an inspector's report without corroborative evidence or proper confrontation of adverse material, and whether the assessee had discharged the burden under section 68; (ii) Whether commission on export sales was allowable in the year of realization of sale proceeds under the agreement, notwithstanding the mercantile system of accounting.

Issue (i): Whether additions towards unsecured loans could be sustained solely on the basis of a survey statement and an inspector's report without corroborative evidence or proper confrontation of adverse material, and whether the assessee had discharged the burden under section 68.

Analysis: The additions were based on statements recorded during survey and on an inquiry report obtained from the Investigation Wing, but the assessee had filed confirmations, income-tax returns, bank statements, audited accounts, and replies received in response to notices issued to the lenders. The adverse inquiry material was not effectively confronted to the assessee, and the reported non-service at old addresses did not, by itself, establish that the lenders were non-existent. The retraction affidavit was not treated as the sole basis of relief; rather, the appellate finding rested on the documentary evidence and the failure of the department to dislodge the assessee's explanation with cogent material. In these circumstances, the principles of natural justice and the settled rule that a cash-credit addition under section 68 requires proper examination of identity, genuineness, and creditworthiness, were applied.

Conclusion: The additions towards unsecured loans were not sustainable; the issue was decided in favour of the assessee.

Issue (ii): Whether commission on export sales was allowable in the year of realization of sale proceeds under the agreement, notwithstanding the mercantile system of accounting.

Analysis: The commission agreement expressly made the agent's entitlement contingent upon realization of the sale proceeds. On that contractual footing, the liability to pay commission did not accrue merely when services were rendered or when export invoices were raised. The mercantile system did not override the contract, because where the agreement fixes the point of accrual, the liability arises only upon the event stipulated by the parties. The appellate finding that the commission became payable only on realization was therefore upheld.

Conclusion: The disallowance of commission was not justified; the issue was decided in favour of the assessee.

Final Conclusion: The revenue's challenges to both the loan additions and the commission disallowance failed, and the connected cross-objections did not survive independently.

Ratio Decidendi: A statement recorded during survey cannot, without corroborative evidence and fair confrontation of adverse material, sustain an addition under section 68; and where a contract makes commission payable only on realization, the liability accrues on realization even under mercantile accounting.

---