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Issues: Whether additions made under section 69 of the Income-tax Act, 1961 on the basis of third-party material, pen-drive data and statements recorded in search proceedings could be sustained when the assessee was not supplied the adverse material and was denied cross-examination.
Analysis: The additions rested on material recovered from third-party premises and on statements of persons connected with the searched group. No independent documentary evidence was brought on record to show payment of cash by the assessee, and the assessee consistently denied any such payment. The adverse material was not furnished to the assessee for effective rebuttal, and the persons whose statements were relied upon were not produced for cross-examination. In these circumstances, the material remained untested and uncorroborated, and could not by itself form the sole basis for sustaining the addition. The absence of confrontation and cross-examination constituted a breach of the basic requirements of natural justice.
Conclusion: The addition was unsustainable and was deleted in favour of the assessee.
Ratio Decidendi: An addition based solely on third-party statements or third-party electronic material cannot be sustained unless the adverse material is confronted to the assessee, the witnesses are offered for cross-examination, and the material is independently corroborated by credible evidence linking it to the assessee.
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