Adverse survey material and denial of cross-examination cannot sustain tax additions when factual findings support the assessee.

Tax, interest and penalty based on survey material and photocopies could not be sustained where the assessing authority failed to properly verify the material from the concerned persons and did not confront the assessee with adverse evidence or allow cross-examination. The appellate record showed concurrent factual findings that the assessee had explained the transactions through books of account, challans, bills and vouchers, and that the additions were not justified on the facts. As the challenge turned on appreciation of evidence and no legal infirmity was shown in the deletion, relief was granted and the impugned assessment and penalty were set aside.

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Issues: Whether the tax, interest and penalty could be sustained on the basis of survey material and photocopies relied upon by the assessing authority without proper enquiry, confrontation of material and opportunity of cross-examination.

Analysis: The assessing authority had proceeded on alleged discrepancies noticed during survey and on certain transactions said to be linked with third parties, but the material was not properly verified from the concerned persons. The record showed that the assessee was not confronted with the adverse material and was not afforded the opportunity to cross-examine the material witnesses. Both appellate authorities recorded concurrent findings that the assessee had explained the transactions with books of account, challans, bills and vouchers, and that the additions were not justified on the facts. Since the challenge turned on appreciation of evidence and the findings were factual, no legal infirmity was shown in the deletion of tax, interest and penalty.

Conclusion: The impugned assessment and penalty could not be sustained, and the assessee was entitled to relief.

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