Right of cross-examination required where third-party seized documents support an addition; absence resulted in deletion under Section 69B.

The central issue was whether an addition under Section 69B could stand when based solely on a document seized from a third party without affording the assessee opportunity to cross-examine that third party. The Tribunal applied the principle that reliance on third party statements or documents as the basis for an adverse order requires opportunity for cross examination and corroboration; citing Andaman Timber Industries, it found denial of that opportunity violated natural justice. In absence of corroborative evidence and cross examination, the addition under Section 69B was deleted in favour of the assessee.

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Issues: Whether the addition of Rs. 16,89,000/- made under Section 69B of the Income-tax Act, 1961 can be sustained where the sole basis was a document seized from a third party and the assessee was not given an opportunity to cross-examine the person from whose possession the document was seized.

Analysis: The Tribunal examined the seized papers relied upon by the Assessing Officer and upheld by the Commissioner (Appeals). The seized document did not expressly record any 'cash' payment and was recovered from a third party. The authorities proceeded to make the addition without allowing the assessee an opportunity to cross-examine the third party whose statement or corroboration could have confirmed or discredited the entries. The Tribunal applied the governing principle that reliance on statements or documents obtained from third parties, when made the basis of an adverse order, requires that the affected party be afforded the opportunity of cross-examination to test veracity and obtain corroboration. The Tribunal relied on the Supreme Court precedent (Andaman Timber Industries) holding that denial of opportunity to cross-examine witnesses whose statements form the basis of an order is a violation of principles of natural justice and vitiates the order. In the absence of corroborative evidence and without cross-examination of the person in whose possession the document was found, the addition under Section 69B could not be sustained.

Conclusion: The addition of Rs. 16,89,000/- under Section 69B of the Income-tax Act, 1961 is deleted; decision is in favour of the assessee.

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