Unexplained expenditure under section 69C cannot rest on untested third-party material without corroboration or cross-examination.

Third-party search material and statements were insufficient to sustain an addition as unexplained expenditure under section 69C when the assessee was not given the incriminating material or cross-examination of the deponents. The record also failed to establish that any purchase was actually incurred by the assessee, whether the alleged amount was wholly unrecorded or partly recorded, or even the concern to which the transaction related. In the absence of corroborative evidence directly linking the assessee to the expenditure, section 69C could not be invoked. The addition was deleted.

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Issues: Whether the addition of Rs. 14,40,000 as unexplained expenditure under section 69C of the Income-tax Act, 1961, based on search material and statements of a third party, was sustainable.

Analysis: The addition rested on material found in the search of a third party and on statements recorded from persons of that group, but the assessee was not shown the incriminating material and was not afforded cross-examination of the persons whose statements were relied upon. The record did not clearly establish whether any purchase was actually incurred by the assessee, whether the amount represented a fully unrecorded purchase or a partly recorded transaction, or even the specific concern to which the alleged transaction related. In the absence of corroborative evidence linking the assessee to the alleged expenditure, third-party material by itself was insufficient to invoke section 69C.

Conclusion: The addition under section 69C was not sustainable and was deleted.

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