Cross-examination and genuineness of commission payments: statements and surrounding evidence sustained the disallowance.

Statements of material witnesses in tax proceedings may be relied upon where the assessee had access to the material and declined to cross-examine an available witness; an earlier statement may also be used if the witness later becomes unavailable and the statement is substantially complete, reflecting the evidentiary principles noted in section 33 of the Indian Evidence Act, 1872. On genuineness of commission expenditure, cheques alone did not discharge the assessee's burden where surrounding material indicated a hawala arrangement and no real services were shown. The Tribunal sustained the disallowance, holding that the assessee failed to prove the expenditure was genuine.

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Issues: (i) Whether the reassessment and disallowance of commission were vitiated for breach of natural justice because one witness was not produced for cross-examination and another witness was not cross-examined by the assessee; (ii) Whether the assessee had discharged the burden of proving that the commission payments were genuine.

Issue (i): Whether the reassessment and disallowance of commission were vitiated for breach of natural justice because one witness was not produced for cross-examination and another witness was not cross-examined by the assessee.

Analysis: The statements of the two persons were treated as statements of material witnesses to the transaction. One of them was not available despite efforts by the Revenue, while the other was present for cross-examination but the assessee declined to cross-examine him. The proceedings had already afforded the assessee access to the material relied upon. The Tribunal applied the principle that where a witness is available and a party declines to test the statement by cross-examination, the statement may be read against that party, and where a witness recorded in earlier stages of the same proceedings becomes unavailable, his substantially complete statement may still be relied upon under the principles embodied in section 33 of the Indian Evidence Act, 1872.

Conclusion: The plea of violation of natural justice failed; the statements were validly relied upon against the assessee.

Issue (ii): Whether the assessee had discharged the burden of proving that the commission payments were genuine.

Analysis: The Tribunal found that the commission payments were supported only by cheques, while the surrounding material showed a hawala arrangement and no evidence of real services rendered by the recipient concerns. The onus remained on the assessee to establish the genuineness of the expenditure, and that burden was not discharged. The evidence indicated that the alleged commission entries were not genuine business payments.

Conclusion: The assessee failed to prove genuineness of the commission payments, and the disallowance was justified.

Final Conclusion: The appeals were rejected, and the disallowance of commission was sustained with costs.

Ratio Decidendi: In tax proceedings, statements of material witnesses may be relied upon where the assessee had a fair opportunity to cross-examine but declined to do so, and an earlier statement in the same proceedings may still be used if the witness later becomes unavailable and the statement is substantially complete; the assessee must independently prove the genuineness of an expenditure claimed as deduction.

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