2026 (3) TMI 808 - AT - Income Tax

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 ... Addition u/s 69B based on third party seized document - denial of principle of natural justice - assessee was not given an opportunity to cross-examine the person from whose possession the document was seized - Whether the addition u/s 69B based on a document seized from a third party could be sustained when the assessee was not afforded an opportunity to cross examine the seized person and the document did not expressly record a cash payment? - HELD THAT: - The Tribunal found that the sole basis for the addition was a loose sheet seized from third parties which did not expressly mention the word 'cash' (see reproduced seized document). The assessee was not given an opportunity to cross examine the person from whose premises the documents were seized. Relying on the ratio in Andaman Timber Industries Vs. Commissioner of Central Excise [2015 (10) TMI 442 - SUPREME COURT] the Tribunal held that proceeding to sustain an adverse order based on statements or documents from third parties without permitting cross examination is a violation of the principles of natural justice. Because the document lacked an express reference to cash payment and no corroborative statement was recorded or tested by cross examination, the addition under Section 69B could not be upheld. [Paras 6, 7, 9] Addition made u/s 69B deleted for breach of principles of natural justice and for lack of corroborative material showing a cash payment. Final Conclusion: The Tribunal partly allowed the appeal by deleting the addition sustained u/s 69B, holding that the assessment was vitiated by denial of opportunity to cross examine the third party and by absence of corroboration that the payment was in cash. 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.