Reassessment on subsequent material upheld, but loan addition failed where documentary proof was unrebutted and cross-examination was denied.

Reassessment under section 147(a) was upheld because a later statement from the creditor's secretary constituted relevant material supporting a reasonable belief of escapement, and the reopening was not treated as a mere change of opinion. The addition for the alleged loan and interest was deleted because the assessee had already produced primary documentary evidence showing the creditor's identity and payment through account payee cheques, while the adverse statement was not tested by cross-examination and no supporting circumstantial evidence rebutted the original record. The ratio is that reopening may rest on subsequent material, but an addition cannot stand where documentary evidence is unrebutted and fair opportunity to challenge adverse material is denied.

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Issues: (i) Whether the reassessment under section 147(a) of the Income-tax Act, 1961 was valid; and (ii) whether the addition of Rs. 1,05,000 comprising the loan of Rs. 1,00,000 and interest of Rs. 5,000 could be sustained.

Issue (i): Whether the reassessment under section 147(a) of the Income-tax Act, 1961 was valid.

Analysis: The reassessment was founded on a subsequent statement by the creditor's secretary that the assessee had received a bogus hawala loan. The assessee had already disclosed the loan particulars in the original assessment, including confirmation, full address, GIR number, payment by account payee cheques, and repayment through cheque. On those facts, the reopening could not be treated as a mere change of opinion, and the later statement furnished relevant material to form the requisite belief for reopening.

Conclusion: The reassessment under section 147(a) was valid and was upheld.

Issue (ii): Whether the addition of Rs. 1,05,000 comprising the loan of Rs. 1,00,000 and interest of Rs. 5,000 could be sustained.

Analysis: The assessee had discharged the initial burden by producing documentary evidence showing the identity of the creditor and the mode of transaction through account payee cheques. The adverse statement of the creditor's secretary was recorded later, but the assessee was not afforded an opportunity to examine him. No supporting circumstantial evidence was brought on record to rebut the original documentary material, and the conflicting material had to be resolved on the existing record in favour of the assessee.

Conclusion: The addition of Rs. 1,05,000 was deleted in favour of the assessee.

Final Conclusion: The reopening was sustained, but the addition on merits was set aside, resulting in relief to the assessee on the substantive tax addition.

Ratio Decidendi: Reassessment may be sustained on the basis of subsequent material giving rise to a reasonable belief of escapement, but an addition based on a later adverse statement cannot stand where the assessee has produced primary documentary evidence and is denied a fair opportunity to test that statement by cross-examination.

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