Undisclosed income addition fails where alleged cash payment is unsupported by corroboration and rests on retracted statements.

An addition for undisclosed income based on alleged cash payment for share purchase was held unsustainable where the witnesses were not eye-witnesses, their search-time statements were later retracted, and their later statements consistently denied seeing any cash payment. The balance consideration was paid by cheque, and the search yielded no incriminating receipt or other corroborative material. The majority therefore treated the addition as founded on suspicion and conjecture rather than cogent evidence and directed deletion. The dissent accepted the surrounding circumstances and initial witness statements as sufficient to indicate cash over and above cheque payments and would have sustained part of the addition.

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Issues: Whether the addition of Rs.90,93,600 as undisclosed income on the basis of alleged cash payment for purchase of shares was justified.

Analysis: The majority found that the two witnesses to the agreements were not eye-witnesses to any cash payment, their search-time statements were later retracted, and their later statements consistently stated that no cash was seen being paid in their presence. The record also showed that the balance consideration was subsequently paid by cheque, while no incriminating receipts or material evidencing the alleged cash payment were found during the search. The majority held that the addition rested on suspicion and conjecture rather than cogent evidence and that the surrounding circumstances did not establish undisclosed cash payment by the assessee.

Conclusion: The addition was not sustainable and was directed to be deleted.

Dissenting Opinion: The Judicial Member held that the surrounding circumstances, the initial statements of the witnesses, and the conduct of the parties supported a finding that cash had passed over and above cheque payments, and therefore a part of the addition was to be sustained.

Ratio Decidendi: In a block assessment, an addition for undisclosed income cannot be sustained merely on suspicion or retracted hearsay statements where no corroborative search material proves the alleged cash payment.

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