Third-party ledger entries alone cannot justify penalty without corroboration or cross-examination; penalty was deleted.

Penalty under section 270A(9)(e) of the Income-tax Act could not be sustained where it rested only on entries in a third party's software ledger and statements of persons linked to that third party. The assessee's books, invoices, bank records and reconciliation, together with demonstrated discrepancies in the disputed ledger, undermined the Revenue's case. Material seized from the searched person carried a statutory presumption only against that person and was not conclusive against the assessee. In the absence of independent corroboration and effective cross-examination of the relied-upon witnesses, the third-party entries were unsafe to found penal liability on, and the penalty was deleted.

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Issues: Whether penalty under section 270A(9)(e) of the Income-tax Act, 1961 could be sustained on the basis of entries found in a third party's software ledger, where the assessee denied the unaccounted transactions and pointed out inconsistencies in the ledger and absence of corroborative material.

Analysis: The penalty was founded on a ledger extracted from the searched person's software and on statements recorded from persons connected with that searched person. The assessee produced its own books, invoices, banking records and reconciliation, and also demonstrated discrepancies in the third-party ledger. The material seized from the searched person carried the statutory presumption only against that searched person and could not, by itself, be treated as conclusive against the assessee. In the absence of independent corroboration and without affording effective cross-examination of the persons whose statements were relied upon, the Revenue could not fasten penal liability merely on the basis of the disputed third-party entries. The entries were found to be unreliable and unsafe as a foundation for penalty.

Conclusion: The penalty under section 270A(9)(e) was not sustainable and was deleted in favour of the assessee.

Ratio Decidendi: Third-party seized material and statements cannot, without independent corroboration and opportunity of cross-examination, be treated as conclusive proof for levy of penalty on an assessee.

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