Natural justice and electronic evidence rules barred reliance on untested statements and unproved records in assessment.

An assessment based on third-party statements and seized material could not be sustained where the assessee was denied copies of relied-upon material, a personal hearing, and cross-examination of the witnesses whose statements formed the basis of additions; the denial breached natural justice and invalidated the dependent penalty orders. Electronic records such as pen drives and excel sheets also could not be relied on without compliance with Section 65B and the required statutory safeguards, so that material was not duly proved for assessment purposes. The impugned assessment and penalty orders were set aside and the matter was remitted for fresh assessment after disclosure of material, cross-examination, compliance with electronic evidence requirements, and hearing.

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Issues: (i) Whether the assessment and consequential penalty orders could be sustained when the assessee was denied copies of relied-upon material, personal hearing, and cross-examination of witnesses whose statements formed the basis of additions; (ii) Whether reliance on electronic records such as pen drives and excel sheets without compliance with Section 65B rendered the assessment unsustainable.

Issue (i): Whether the assessment and consequential penalty orders could be sustained when the assessee was denied copies of relied-upon material, personal hearing, and cross-examination of witnesses whose statements formed the basis of additions?

Analysis: The assessment proceeded on statements of employees and seized material, but the assessee specifically sought the statements and requested cross-examination. No effective opportunity of personal hearing or cross-examination was afforded, and the assessment was completed shortly after the last reply. Where an adverse order rests on third-party statements, fairness requires that the assessee be permitted to test their veracity. Denial of that opportunity vitiates the process and amounts to breach of natural justice.

Conclusion: The issue is answered in favour of the assessee. The assessment and the dependent penalty orders could not be sustained on this ground.

Issue (ii): Whether reliance on electronic records such as pen drives and excel sheets without compliance with Section 65B rendered the assessment unsustainable?

Analysis: The additions were also founded on electronic data said to have been seized during search. In the absence of the required certificate and the statutory safeguards governing electronic records, such material could not be treated as duly proved secondary evidence for the purpose of the assessment.

Conclusion: The issue is answered in favour of the assessee. The electronic material could not be relied upon without compliance with Section 65B.

Final Conclusion: The impugned assessment and consequential penalty orders were set aside, and the matters were remitted for fresh assessment after furnishing the relied-upon material, permitting cross-examination, complying with the requirements governing electronic evidence, and granting a personal hearing.

Ratio Decidendi: An assessment founded on untested witness statements and electronic records not proved in accordance with the statutory requirements cannot be sustained where the assessee is denied a fair opportunity to meet the material relied upon.

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