Unexplained investment assessments based solely on third-party statements without cross-examination are quashed; additions deleted as unlawful

Unexplained investment assessments founded solely on a third-party statement recorded without affording the taxpayer an opportunity to cross-examine violate the principles of natural justice; such uncorroborated and untested evidence cannot support an addition and must be deleted. Where no independent documentary or reliable admissible material substantiates the alleged cash payment and the only witness was not open to cross-examination, the addition rests on presumption and suspicion, which cannot substitute for proof, rendering the impugned assessment unsustainable in law.

---

---

Issues: Whether the addition of Rs. 60,00,000/- as unexplained investment under Section 69, made solely on the basis of a third-party statement recorded under Section 131 without affording effective opportunity of cross-examination, is sustainable; and whether the same view applies to the connected assessment year.

Analysis: The issue implicates the legal framework governing reopening of assessments under Section 147, admissibility and evidentiary value of statements recorded under Section 131, and the requirements of the principles of natural justice, including the right to cross-examination where a statement forms the basis of an adverse finding. The analysis examines whether independent or corroborative material was produced to support the alleged cash payment and whether the procedural opportunity to test the statement was effectively provided. Established legal authorities hold that an addition based solely on an untested third-party statement, where cross-examination is denied or not effectively afforded, is vitiated for breach of natural justice and cannot stand. The analysis also considers whether any corroborative evidence (such as sale deed, banakhat, indemnity, stamp valuation, or seller's revised return) sufficiently supported the finding; where the documentary record reflects registered consideration through banking channels and no independent evidence substantiates the alleged cash component, reliance on the untested statement is unsustainable. The same legal considerations apply to the connected assessment year as the facts and basis of the addition are identical.

Conclusion: The addition of Rs. 60,00,000/- under Section 69, being founded solely on an uncorroborated and untested third-party statement recorded under Section 131 without effective cross-examination, is unsustainable and is deleted; the appeal is allowed for the connected assessment year as well, resulting in allowance of the appeals.

---