Uncorroborated diary entries and retracted statements cannot sustain an undisclosed income addition without a proven nexus to the assessee.

Uncorroborated diary entries, a retracted third-party statement and retrieved electronic material were found insufficient to sustain an addition as undisclosed income where there was no proven nexus with the assessee and no specific identification of any alleged payment. The material did not show the date, mode or manner of payment, and the witness later denied making any payment to the assessee in cross-examination. The note also records that electronic evidence must meet the admissibility requirements under section 65-B of the Indian Evidence Act, 1872. On that basis, the addition was deleted.

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Issues: Whether the addition of Rs. 5 lakh, made on the basis of diary notings, a third-party statement and retrieved electronic material, was sustainable in the absence of a proven nexus with the assessee and without reliable corroboration.

Analysis: The addition rested only on seized diary entries, the statement of the Vice President (Finance) of the searched concern, and electronic data retrieved from a seized computer server. The record did not show any specific payment to the assessee, nor did it identify the date, month, year or manner of any alleged payment. The statement relied upon was retracted and, in cross-examination granted during appellate proceedings, the witness denied making any payment to the assessee. The material was therefore treated as unsupported by corroboration and insufficient to establish undisclosed income. The requirement of admissible electronic evidence under section 65-B of the Indian Evidence Act, 1872 was also noted.

Conclusion: The addition of Rs. 5 lakh was not sustainable and was deleted in favour of the assessee.

Ratio Decidendi: Uncorroborated diary entries or third-party statements, particularly when retracted and not linking the assessee to any identified payment, cannot by themselves justify an addition as undisclosed income; electronic material must also satisfy the requirements of admissibility.

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