Section 69C addition fails on retracted statement, denied cross-examination, and lack of independent corroboration.

Addition under section 69C could not be sustained where the Revenue relied on a retracted third-party statement and WhatsApp chats without affording cross-examination and without independent corroboration. The Tribunal applied the rule that a retracted statement needs supporting evidence, and that denial of cross-examination violates natural justice. It also held that section 69C applies only when expenditure is first shown to have been incurred; that foundational fact was not proved on the record. The deletion of the addition was upheld in favour of the assessee.

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Issues: Whether the addition made under section 69C of the Income-tax Act, 1961 and taxed under section 115BBE of the Income-tax Act, 1961 could be sustained on the basis of a third-party statement and WhatsApp chats, without cross-examination of the witness and without independent corroboration.

Analysis: The Revenue's case rested mainly on the statement of a third party and digital chats allegedly recovered from his mobile phone. The statement had been retracted, and no opportunity of cross-examination was afforded to the assessee despite a specific request. The material was also found to be uncorroborated by any independent evidence linking the assessee to the alleged cash or foreign remittance transaction. The Tribunal applied the settled rule that a retracted statement requires corroboration, and that denial of cross-examination offends natural justice. It further held that section 69C applies only where expenditure is first shown to have been incurred and, on the facts, the Revenue had not established that foundational fact.

Conclusion: The addition was unsustainable and was rightly deleted; the issue was decided in favour of the assessee.

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