Natural justice in tax assessments: third-party statements without cross-examination cannot sustain an unexplained-money addition.

Unexplained-money addition could not be sustained where the assessee supported the loan transaction with income-tax returns, audited financial statements, confirmations and bank statements, and also repaid the principal with interest in the same year. Reliance on a third-party statement without granting the assessee requested cross-examination offended natural justice, and that evidentiary defect undermined the addition. Minor discrepancies in address details were treated as insufficient to override the documentary trail and the repayment record. The addition was therefore deleted in favour of the assessee.

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Issues: Whether the addition made as unexplained money could be sustained when the assessee had produced documentary evidence of the loan transaction, repaid the amount with interest in the same year, and the statement relied upon by the Revenue was used without granting cross-examination.

Analysis: The assessee furnished income-tax returns, audited financial statements, confirmations and bank statements to support the transaction. The addition was founded mainly on the statement of a third party, but no opportunity of cross-examination was given despite a specific request. Such reliance, without affording confrontation of the witness, was held to offend the principles of natural justice. The repayment of the full amount with interest within the same financial year, together with the documentary trail, further supported the genuineness of the transaction. Minor discrepancies in address details were treated as insufficient to displace the substantive evidence on record.

Conclusion: The addition was unsustainable and was deleted, in favour of the assessee.

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