Natural justice bars addition based on third-party statement when cross-examination and copy of the statement are denied.

An addition based on a third-party statement cannot be sustained where the assessee requested a copy of the statement and an opportunity to cross-examine, but no such opportunity was provided. The Tribunal held that reliance on adverse material without furnishing the statement or allowing cross-examination violates natural justice. Since the request was not addressed at assessment or in first appeal, the addition lacked procedural fairness and was deleted.

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Issues: Whether the addition sustained in assessment could stand when it was based on the statement of a third party without supplying the statement or granting the assessee an opportunity to cross-examine that person.

Analysis: The addition was founded on the statement of a third party, yet the assessee had specifically sought copies of the statement and an opportunity to cross-examine. The request was not dealt with at the assessment stage or in first appeal. In such circumstances, reliance on the third-party statement without affording cross-examination offended the principles of natural justice. The Tribunal followed the settled law that where an adverse statement is used as the basis of an addition, denial of cross-examination renders the action unsustainable.

Conclusion: The addition was deleted and the assessee's appeal was allowed.

Ratio Decidendi: An addition based on a third-party statement cannot be sustained unless the assessee is supplied the statement and given a real opportunity to cross-examine the maker of the statement when so requested.

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