Third-party statement evidence cannot support an addition when disclosure and cross-examination are denied.

An addition for unexplained investment based on a third-party statement recorded during search could not be sustained because the assessee was denied the adverse material and a requested opportunity to cross-examine the declarant. The statement was used to allege on-money payment, but it was neither supplied to the assessee nor tested through cross-examination, preventing effective rebuttal. Since material relied upon against an assessee must be disclosed and capable of challenge, the addition was deleted.

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Issues: Whether the addition of Rs. 8,75,000 as unexplained investment on the basis of a third-party statement recorded during search could be sustained without furnishing the statement to the assessee and without allowing cross-examination.

Analysis: The addition was founded on a statement recorded under section 132(4) of the Income-tax Act, 1961 from the developer. The assessee specifically denied payment of any on-money, sought a copy of the adverse statement, and requested cross-examination of the person whose statement was being used against him. The statement was neither supplied nor was the declarant produced for cross-examination. Material used against an assessee must be disclosed and capable of rebuttal, and a third-party statement cannot be relied upon to make an addition when the assessee is denied an effective opportunity to meet it.

Conclusion: The addition was unsustainable and was deleted in favour of the assessee.

Ratio Decidendi: An addition based on a third-party statement cannot be sustained unless the statement is disclosed to the assessee and an opportunity of cross-examination is afforded where demanded.

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