Documentary evidence in tax proceedings must be properly examined before rejecting a cash-deposit explanation and making an addition.

Cash deposits explained through an Agreement to Sell and supporting affidavit could not be rejected without examining the underlying facts, including ownership, actual sale, transferee identity, and the consideration realised. A signed document could not be discarded casually, and any dispute about authenticity or signatures required proper enquiry, including forensic verification where necessary. The affidavit also could not be ignored without dealing with its contents and recording reasons. As the lower authorities had not made findings on the assessee's business or the surrounding circumstances, the addition was not sustained and the matter was remanded to the first appellate authority for fresh adjudication after proper enquiry and a reasonable opportunity of hearing.

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Issues: Whether the addition made on account of cash deposits in the bank account could be sustained without proper examination of the Agreement to Sell and the affidavit filed by the assessee, and whether the matter required fresh adjudication after enquiry.

Analysis: The explanation of the cash deposits rested on an Agreement to Sell said to evidence receipt of sale consideration, but the material questions of ownership, actual sale, identity of the transferee, and the price realised were not examined by the lower authorities. A document signed by the parties could not be discarded casually, and if its authenticity or signatures were disputed, proper enquiry, including forensic verification where necessary, was required. The principles underlying documentary evidence, including the best evidence rule and the exclusion of unsupported oral evidence, were relevant to the tax proceeding. The alternate explanation by affidavit also could not be rejected without discussion of its contents or without recording reasons. The absence of findings on the nature of the assessee's business and on the surrounding facts rendered the approach of the lower authorities unsustainable.

Conclusion: The addition was not affirmed and the matter was set aside to the first appellate authority for fresh adjudication after proper enquiry and after granting a reasonable opportunity of hearing.

Ratio Decidendi: Where a taxpayer's explanation is supported by a written document or affidavit, the revenue authorities must examine the material facts and record a reasoned finding before rejecting it, and unsupported oral denial cannot displace a signed document without proper enquiry.

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