Third-party search material and defective notice service cannot sustain unexplained investment addition or reassessment reopening.

An addition for alleged on-money payment and unexplained investment in flats could not be sustained where it rested only on third-party search material and a statement, without direct corroborative evidence linking the assessee to any cash payment and without allowing cross-examination. Documentary evidence showing cheque payments, allotment letters and transfer of allotments supported the assessee's case. Reopening of assessment was also invalid because notice under section 148 was issued to an old address despite updated records, and effective service was not established. Mere issuance of notice was insufficient, so the reassessment could not stand.

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Issues: (i) Whether the addition towards alleged on-money payment for purchase of flats as unexplained investment could be sustained on the basis of seized loose papers and a third-party statement without direct clinching evidence and cross-examination; (ii) Whether the reopening of assessment was valid where notice under section 148 was issued to an old address despite updated records and service was not established.

Issue (i): Whether the addition towards alleged on-money payment for purchase of flats as unexplained investment could be sustained on the basis of seized loose papers and a third-party statement without direct clinching evidence and cross-examination.

Analysis: The addition was founded on material found in search of a third party and on a statement recorded from that third party. The assessee produced allotment letters, bank entries showing cheque payments, and evidence that the allotments were transferred during the year. The projected cash payment was found inconsistent with the documented payment schedule and the state of construction. The statement relied upon by the Assessing Officer was not furnished to the assessee and no opportunity for cross-examination was granted. In the absence of corroborative evidence connecting the assessee with any cash payment, the addition could not rest on presumption or surmise.

Conclusion: The addition for alleged on-money and unexplained investment was not sustainable and was rightly deleted.

Issue (ii): Whether the reopening of assessment was valid where notice under section 148 was issued to an old address despite updated records and service was not established.

Analysis: The record showed that the assessee had changed its registered address, the PAN database had been updated, and earlier assessment orders had been passed on the basis of the new address. The Revenue failed to establish effective service of the notice under section 148 at the correct address. In such circumstances, mere issuance of notice was insufficient and the reopening could not be sustained.

Conclusion: The reopening was invalid for want of proper service of notice.

Final Conclusion: The addition was deleted and the reassessment was held invalid on the service issue, resulting in relief to the assessee on the principal monetary dispute and partial relief on the jurisdictional challenge.

Ratio Decidendi: An addition based on third-party search material cannot survive without direct, corroborated evidence linking the assessee to the alleged transaction and without affording cross-examination where the statement is relied upon; reopening is invalid if notice under section 148 is not duly served at the correct address.

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