IT Queries and Their Answers 5
(Cross Examination-II)
Q. 6 Why does the denial of cross-examination in income-tax proceedings amount to illegality? Explain with reference to judicial precedents where additions made solely on the basis of third-party statements, without affording cross-examination, were held to be invalid.
Answer:
Introduction:
The right to cross-examination is a cornerstone of natural justice, particularly under the audi alteram partem principle, which ensures that no one is condemned unheard. In income-tax proceedings, when the Assessing Officer (AO) bases an addition solely on the statement of a third party, without granting the assessee an opportunity to cross-examine that individual—especially when a specific demand for such cross-examination is made—the defect is not procedural but substantive. It amounts to illegality and not merely an irregularity. Such additions have consistently been held to be unsustainable by various courts and tribunals across India.
I. Judicial Basis: Illegality, Not Irregularity
Even prior to the landmark ruling in Andaman Timber Industries v. CCE (2015) 62 taxmann.com 3 (SC), courts had recognized that reliance on untested third-party statements, without granting the assessee a chance to cross-examine, violated principles of natural justice. The Supreme Court in Andaman Timber laid down unequivocally that denial of cross-examination is a serious flaw in adjudication, and such reliance renders the proceedings invalid in law.
This view has been consistently reflected in multiple High Court and Tribunal rulings. When additions are based solely on oral depositions of third parties, without corroborative material or without testing the credibility of the statement through cross-examination, courts have held the addition to be illegal and liable to be quashed.
II. Important Judicial Precedents on Illegality of Denial
Kripa Shanker Sharma Case: The Assessing Officer made an addition solely on the statement of Shri Kripa Shanker Sharma, who was not produced for cross-examination despite repeated requests from the assessee. The Tribunal held that the addition could not stand, as it was based entirely on an untested oral assertion. The reliance on this statement, without allowing the assessee a fair opportunity to question the witness, amounted to illegality, warranting deletion of the addition.
VDT (Diamond Sales) Case: In a case involving alleged bogus sale of diamonds, the AO relied upon the statement of one "VDT" without furnishing a copy of the statement to the assessee or providing cross-examination rights. The Court noted that the failure to supply such evidence and the denial of cross-examination were not mere technical oversights but fatal procedural lapses. Accordingly, the entire addition was quashed.
Mohanlal R. Daga v. ITO [2005] 147 Taxman 28 (Mum.)(Mag.): Here, reassessment proceedings were initiated based solely on a third-party deposition. The assessee specifically demanded cross-examination, but the revenue failed to produce the deponent. The Court ruled that it was mandatory for the revenue to allow the assessee to test the veracity of the witness through cross-examination. In the absence of such an opportunity, the reassessment itself was declared unjustified and invalid.
These cases establish a consistent jurisprudence that if a third-party statement is the sole basis of an addition, and cross-examination is not provided despite request, the addition cannot be sustained in law.
III. Nature of Defect: Illegality vs. Irregularity
It is crucial to distinguish between an illegality and an irregularity.
Illegality is a fundamental defect—it attacks the very foundation of the proceeding and renders the outcome void or unsustainable.
Irregularity, on the other hand, is a curable lapse—a procedural shortcoming that can be remedied through remand or supplementary action.
In the context of cross-examination, where the assessee requests cross-examination during the assessment and the AO fails or refuses to allow it, the defect is not curable. It is a gross violation of procedural fairness and amounts to illegality. Courts have clarified that CIT(A) cannot rectify such illegality by simply remanding the matter—it is too late to cure the foundational lapse.
IV. Conclusion: Cross-Examination is Non-Negotiable
Where the AO relies solely on a third-party statement to make an addition and denies the assessee an opportunity to cross-examine the witness, such action is legally untenable. Courts have uniformly held that reliance on untested statements violates the principles of natural justice, and the resultant additions are not sustainable in law.
Therefore, in all cases where the credibility of the statement affects the outcome of assessment or reassessment, cross-examination is not just a procedural requirement—it is a constitutional safeguard. Its denial, when specifically sought, transforms the defect into an illegality, vitiating the entire proceeding and mandating deletion of the addition. The doctrine laid down in cases such as Andaman Timber Industries, Mohanlal R. Daga, and others remains a guiding principle for both taxpayers and adjudicating authorities.
Case laws which can be referred-
CIT v. Pradeep Kumar Gupta [2008] 303 ITR 95 (Delhi); Prakash Chand Nahta v. CIT [2008] 301 ITR 134/170 Taxman 520 (MP); Heirs & LR of Late Laxmanbhai S. Patel v. CIT [2010] 327 ITR 290/[2008] 174 Taxman 206 (Guj.); CIT v. Gani Silk Palace [1988] 37 Taxman 295 (Mad.); CIT v. Ashwani Gupta [2010] 322 ITR 396/ 191 Taxman 51 (Delhi); CIT v. Dharam Pal Prem Chand Ltd. [2007] 295 ITR 105 /[2008] 167 Taxman 168 (Delhi); CCE v. Gujarat Cypromet Ltd. [2013] 34 taxmann.com 249 (Gujarat); CTO v. Haryana Dal Mill [1993] 90 STC 519 (Raj.); CIT v. Indrajit Singh Suri [2013] 33 taxmann.com 281 (Gujarat); CIT v. SMC Share Brokers Ltd. [2007] 159 TAXMAN 306 (DELHI); CIT v. Geetanjali Education Society [2008] 174 TAXMAN 440 (RAJ.); Sri Krishna Educational & Social Trust v. ITO [2013] 40 taxmann.com 7 (Madras); CIT v. Independent Media (P.) Ltd. [2012] 25 taxmann.com 276 (Delhi); CIT v. Supertech Diamond Tools (P.) Ltd. [2014] 44 taxmann.com 460 (Rajasthan); PCIT v. Hadoti Punj Vikas Ltd. [2023] 157 taxmann.com 193 (SC)
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Q. 7 Under what circumstances does the failure to provide cross-examination in income tax proceedings constitute an irregularity rather than illegality? Discuss with reference to judicial precedents and explain n how appellate authorities address such situations.
Answer:
Introduction:
Cross-examination is a vital facet of the principles of natural justice, especially under the doctrine of audi alteram partem ("hear the other side"). In income tax assessments, particularly when an addition is made based on a third-party statement, the assessee has a right to be provided with that statement and afforded an opportunity to cross-examine the deponent. While the denial of cross-examination is often regarded as illegality rendering the addition unsustainable, there are instances where courts and tribunals have treated the lapse as a procedural irregularity rather than a fatal flaw, especially prior to the Supreme Court’s decision in Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC).
In such cases, the remedy is not outright deletion of the addition but a remand to the Assessing Officer (AO) to cure the defect by providing the opportunity for cross-examination.
I. Legal Basis: When Is It an Irregularity?
Not providing cross-examination is treated as an irregularity, and not illegality, when the assessment is not solely based on the third-party statement, but is supported by other corroborative material on record. In such cases, the courts consider the lapse curable and capable of being remedied at the AO level. The assessment is not struck down, but the matter is remitted back for compliance with principles of natural justice.
This approach is supported by various precedents where the presence of alternative evidence diluted the absolute reliance on the witness’s statement, thus reducing the gravity of procedural violation.
II. Judicial Precedents Treating Non-Cross-Examination as Irregularity
Use of Alternative Evidence for Estimating Gross Profit: In certain cases, the AO used a third-party statement to estimate gross profit. However, since other evidence, such as the past history of the assessee’s business, was also available for making such estimation, the courts held that cross-examination was desirable but not critical to the validity of the addition. Thus, the omission was treated as an irregularity.
Survey Material Supporting Profit Estimation: Where profit was estimated based on materials found during survey, in addition to a third-party statement, it was held that the statement was not the sole basis. Therefore, the failure to allow cross-examination was not fatal. The Tribunal remanded the case to the AO for providing cross-examination but did not annul the assessment.
Statement of Employee Used Without Cross-Examination – Addition Set Aside and Remanded: In a case where the AO made an addition of ₹3.34 lakh based on a statement by ‘P’, an employee of the assessee, the court noted that the statement was recorded behind the assessee’s back, and the request for cross-examination was ignored. The addition was not upheld, but instead of deletion, the matter was remanded to the AO for fresh consideration after giving the assessee the opportunity to cross-examine the witness.
Supreme Court View in ITO v. M. Pirai Choodi (2011) 334 ITR 262 (SC):
The Hon’ble Apex Court clarified that failure to grant cross-examination does not automatically vitiate the entire assessment. The correct course is to remand the matter and allow the assessee to cross-examine the witness, rather than annulling the entire assessment. This case became a significant precedent distinguishing curable procedural lapses from substantive legal errors.
III. Principle Emerging from Precedents
The Courts have consistently maintained that the remedy for irregularity is correction and compliance, not cancellation. Therefore:
If multiple pieces of evidence are available and the third-party statement is not the exclusive basis for the addition, the denial of cross-examination is a curable irregularity.
In such situations, remand to the AO is appropriate to provide the assessee the opportunity of cross-examination, followed by a fresh decision.
The distinction lies in whether the entire addition hinges solely on the untested third-party statement, or if it is collaborated with independent material. If the latter, then non-provision of cross-examination is an irregularity and not a fatal flaw.
IV. Conclusion
While cross-examination is a critical procedural right, the impact of its denial depends on the facts and evidence of each case. Courts recognize that not every denial amounts to illegality. When the addition is based partly on other substantive evidence, the omission is classified as an irregularity, which does not vitiate the assessment. In such cases, the appellate authorities prefer remanding the matter to the AO for fresh adjudication after granting cross-examination, rather than outright deletion of the addition.
This balanced approach upholds the rights of the assessee while maintaining the integrity of assessment proceedings, ensuring that procedural lapses are corrected, but substantive justice is not compromised.
Case laws which can be referred:
CIT v. Eastern Commercial Enterprises [1994] 210 ITR 103 (Cal.); Rameshwar Lal Mali v. CIT [2002] 256 ITR 536/[2003] 132 Taxman 629 (Raj.); Ashok Lalwani v. ITO [2010] 328 ITR 272/[2011] 196 Taxman 82 (Mag.)(Delhi); CIT v. Land Development Corporation [2009] 316 ITR 0328-(Kar); R.W. Promotions (P.) Ltd. v. ACIT [2015] 61 taxmann.com 54 (Bombay); Ponmani Suresh v. DCIT [2020] 120 taxmann.com 207 (Madras)
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Q. 8. Why is it important for the assessee to demand cross-examination at the assessment stage itself in income-tax proceedings? Discuss with reference to judicial precedent and consequences of delayed invocation of the right to cross-examine.
Answer:
The right to cross-examination is a fundamental procedural safeguard embedded in the principles of natural justice, particularly under the doctrine of audi alteram partem—the right to be heard. However, the timing of asserting this right is equally important. Courts have consistently held that cross-examination must be demanded at the stage of assessment, and failure to do so may preclude the assessee from raising such a plea at the appellate stage.
This principle was firmly articulated by the Calcutta High Court in Hindusthan Tobacco Co. v. CIT [2012] 211 Taxman 111/27 taxmann.com 155 (Cal.), where the assessee challenged an addition made on the basis of a third-party statement, claiming it was not afforded an opportunity to cross-examine the witness. The Court dismissed the contention, stating that the assessee had ample opportunity to seek cross-examination at the assessment stage, but failed to do so. As a result, the belated plea raised for the first time in appeal was held to be untenable in law.
The Court observed that if the assessee felt that cross-examination of any person was necessary to establish its case, it was incumbent upon the assessee to request it during the assessment proceedings. A party that fails to act at the appropriate time cannot later claim violation of natural justice. The right must be affirmatively asserted, and silence or inaction at the crucial stage amounts to waiver.
This approach has been affirmed in numerous other cases, where courts have upheld additions made by the Assessing Officer based on third-party statements when the assessee did not seek cross-examination at the assessment level, even though the evidence was disclosed. The rationale is clear: the opportunity was available but not utilized. Thus, appellate authorities are not bound to entertain such objections raised at a later stage, unless the denial of cross-examination was absolute and despite a specific demand.
Importantly, if an assessee fails to make the request at the appropriate time, appellate bodies treat the matter as a procedural irregularity, not an illegality. In such cases, the burden falls on the assessee to demonstrate prejudice, which is often difficult if no objection was raised at the assessment stage.
Conclusion:
Cross-examination, while a valuable right, must be timely asserted. As judicial precedent like Hindusthan Tobacco Co. (supra) demonstrates, delayed invocation at the appellate stage is legally unsustainable. If the assessee considers a witness’s statement prejudicial, the correct course is to demand cross-examination during the assessment proceedings. Failure to do so may result in forfeiture of the right and validation of additions based on such untested statements. Therefore, procedural diligence and timely assertion of rights are critical in income-tax proceedings.
Case laws which can be referred-
Suresh Kumar T. Jain v. ITO [2019] 101 taxmann.com 164 (Karnataka); Roger Enterprises (P.) Ltd. v. CIT [2016] 67 taxmann.com 344 (Delhi); Malik Bros. (P.) Ltd. v. CIT [2007] 162 Taxman 43 (Delhi); Hoshiarpur Roller Flour Mills v. ITO [2005] 97 ITD 595 (Asr.)
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Q. 9 What is the role of cross-examination by the Assessing Officer (AO) in cases where an assessee retracts a previously admitted statement through an affidavit? Discuss with reference to judicial precedents the implications of the AO failing to cross-examine the deponent in such cases.
Answer:
In income-tax proceedings, retraction of an earlier statement, especially one made under oath during search or survey (such as under Section 132(4)), presents a complex evidentiary scenario. Often, an assessee who has made an admission may later file an affidavit retracting the original statement, claiming it was made under coercion, misunderstanding, or incorrect facts. In such cases, the Assessing Officer (AO) plays a critical role in determining the veracity of the retraction, and cross-examination of the deponent becomes essential.
Where the assessee retracts an earlier statement by way of a sworn affidavit, the AO is obligated to test the truthfulness of that retraction by conducting cross-examination. If the AO fails to do so, the contents of the affidavit remain unchallenged, and the retraction is presumed to be valid. This principle was firmly established by the Supreme Court in Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 (SC), where it was held that when the Revenue does not cross-examine the deponent of an affidavit, it cannot later dispute its truth.
In Mehta Parikh, the affidavits submitted by the assessee were neither disbelieved nor tested through cross-examination. The Court ruled that failure of the department to cross-examine the assessee’s evidence renders it binding, and no adverse inference could be drawn based on the initial untested admission. The ruling thus underscores that affidavits have evidentiary weight unless rebutted.
Supporting this, in L. Sohan Lal Gupta v. CIT [1958] 33 ITR 786 (All.) and Malwa Knitting Works v. CIT [1977] 107 ITR 379 (MP), the courts reiterated that an affidavit cannot be rejected without cross-examination, and once accepted without challenge, it must be acted upon. Likewise, in Smt. Gunwantibai Ratilal v. CIT [1983] 146 ITR 140 (MP), the court emphasized that the burden lies with the AO to disprove a retraction, and failure to probe its authenticity invalidates the AO’s reliance on the original statement.
However, a retracted affidavit is not automatically accepted as truth. The AO can still discredit it by leading contrary evidence or pointing to inconsistencies with other materials on record. If the retraction is belated, unsubstantiated, or contradicted by documented facts, it may be dismissed even without cross-examination, provided the surrounding material convincingly disproves it.
But where the retraction is prompt, made soon after the original statement, and is duly supported by an affidavit, the AO must actively confront the deponent through cross-examination. Failing to do so leaves the affidavit unchallenged, and any attempt to rely on the original statement is legally unsustainable.
Conclusion:
Cross-examination by the AO is indispensable in the case of a retraction by affidavit. If the AO relies on the original statement while ignoring or dismissing the retraction without cross-examining the assessee, it amounts to a violation of procedural fairness. Judicial precedents clearly hold that uncontroverted affidavits must be accepted, and their rejection without cross-examination is impermissible. Thus, to uphold the validity of an addition in such cases, the AO must exercise his right and duty to cross-examine the deponent, failing which the retraction will stand and the original statement cannot form the basis for assessment.
Case laws which can be referred-
Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 (SC);Smt. Gunwantibai Ratilal v. CIT [1984] 146 ITR 140 (MP); L. Sohan Lal Gupta v. CIT [1958] 33 ITR 786 (All.); Malwa Knitting Works v. CIT [1977] 107 ITR 379 (MP)
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Q. 10. What is the significance of the Supreme Court’s judgment in Andaman Timber Industries v. CCE in relation to the right of cross-examination in income tax proceedings? Explain its impact on the legal interpretation of whether failure to allow cross-examination renders an assessment order a nullity or a curable irregularity.
Answer:
The Supreme Court’s judgment in Andaman Timber Industries v. CCE [(2015) 62 taxmann.com 3 (SC)] is a landmark ruling that has decisively settled a long-standing controversy in tax jurisprudence concerning the denial of the right to cross-examine witnesses whose statements are relied upon by tax authorities for making additions or passing adverse orders.
Prior to this ruling, there was ambiguity in judicial interpretations regarding whether failure to provide the opportunity of cross-examination to an assessee was a mere procedural irregularity—curable by remand—or a substantive illegality that invalidates the entire assessment. The Andaman Timber judgment conclusively held that denial of cross-examination is not a mere irregularity but a fundamental violation of the principles of natural justice (PNJ), thereby rendering the resulting order a nullity.
In this case, the Revenue relied solely on the statements of two dealers to issue a Show Cause Notice and pass an adjudication order. Despite the assessee’s explicit request to cross-examine the witnesses, the Adjudicating Authority refused to grant this opportunity and the Tribunal also upheld the denial, arguing that cross-examination would not yield any useful information beyond what the assessee already knew.
The Supreme Court rejected this reasoning, stating unequivocally in paragraph 6 of the judgment:
“Not allowing the assessee to cross-examine the witnesses... is a serious flaw which makes the order a nullity, inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected.”
The Court further clarified that it is not open to the Tribunal or AO to presume what the assessee intends to extract from cross-examination. The truthfulness and credibility of the witness statement can only be determined through cross-examination, and where the statement is the sole basis for adverse action, denial of this right vitiates the entire order.
The impact of this judgment has been far-reaching. Following this precedent, several High Courts and Tribunals have held that any addition based solely on third-party statements, without offering an opportunity of cross-examination, cannot be sustained. For instance:
In Addl. CIT v. Miss Lata Mangeshkar [1974] 97 ITR 696 (Bom.), the court criticized the Revenue's reliance on third-party records without granting the assessee an opportunity to rebut the evidence.
In Amarjit Singh Bakshi (HUF) v. ACIT [2003] 86 ITD 13 (Delhi) (TM), additions based on the statement of a third party (N), who later retracted, were held to be invalid due to lack of cross-examination.
The principle is now well-established: the right to cross-examine is integral to fair adjudication. The Andaman Timber judgment elevates this right from a procedural courtesy to a substantive legal safeguard, ensuring that no addition or adverse inference can be drawn solely based on untested statements.
Thus, the ruling not only reaffirms the ‘audi alteram partem’ rule—the right to be heard—but also strengthens the rule of law in revenue adjudication, compelling authorities to uphold procedural fairness and transparency in all evidentiary matters.
Case laws which can be referred-
Amitabh Bansal v. ITO [2019] 102 taxmann.com 229 (Delhi - Trib.); Pratik Suryakant Shah v. ITO [2017] 77 taxmann.com 260 (Ahmedabad - Trib.); Smt. Madhu Killa v. ACIT [2018] 100 taxmann.com 264 (Kolkata - Trib.); Ramprasad Agarwal v. ITO [2018] 100 taxmann.com 172 (Mumbai - Trib.); H.R. Mehta v. ACIT [2016] 72 taxmann.com 110 (Bombay); Meghraj Singh Shekhawat v. DCIT [2019] 103 taxmann.com 374 (Jaipur - Trib.); CCE v. Shyam Traders 2016 (333) ELT 389 (All.); P.R. Rolling Mills (P.) Ltd. v. DCIT [2018] 96 taxmann.com 185 (Jaipur - Trib.); Fateh Chand Charitable Trust v. CIT [2017] 83 taxmann.com 33 (Lucknow - Trib.); ITO v. Karsan Nandu [2017] 77 taxmann.com 275 (Mumbai - Trib.); ITO v. Softline Creations (P.) Ltd. [2017] 81 taxmann.com 139 (Delhi - Trib.); Mohan Meakin Ltd. v. ACIT [2017] 87 taxmann.com 171 (Delhi - Trib.); Fancy Wear v. ITO [2017] 87 taxmann.com 183 (Mumbai - Trib.); Pavitra Realcon (P.) Ltd. v. ACIT [2017] 87 taxmann.com 142 (Delhi - Trib.); Apeejay Education Society v. ACIT [2017] 81 taxmann.com 289 (Amritsar - Trib.); ITO Vs. Shreedham Construction Pvt Ltd (ITAT Mumbai) [ITA No. 2948/Mum/2017]; PCIT v. Kanubhai Maganlal Patel [2017] 79 taxmann.com 257 (Gujarat); Obulapuram Mining Company (P.) Ltd. v. DCIT [2016] 72 taxmann.com 73 (Bangalore - Trib.); Smt. Jyoti Gupta Versus The I.T.O, Delhi - 2018 (11) TMI 1353 - ITAT NEW DELHI; DCIT v. Laboratories Griffon (P.) Ltd. [2018] 93 taxmann.com 29 (Kolkata - Trib.); Dr. B.G. Memorial Trust v. CIT [2017] 87 taxmann.com 225 (Kolkata - Trib.); Pratik Suryakant Shah v. ITO [2017] 77 taxmann.com 260 (Ahmedabad - Trib.); Mohan Meakin Ltd. v. ACIT [2017] 87 taxmann.com 171 (Delhi - Trib.); P.R. Rolling Mills (P.) Ltd. v. DCIT [2018] 96 taxmann.com 185 (Jaipur - Trib.); Pratik Suryakant Shah v. ITO [2017] 77 taxmann.com 260 (Ahmedabad - Trib.); H.R. Mehta v. ACIT [2016] 72 taxmann.com 110 (Bombay)
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Q. 11. Can an addition under the Income Tax Act be sustained merely on the basis of a third-party statement without providing the assessee the opportunity for cross-examination? Discuss in light of judicial pronouncements and principles of natural justice.
Answer:
The sustenance of an addition made solely on the basis of third-party statements, without granting the assessee an opportunity for cross-examination, is a serious violation of the principles of natural justice (PNJ) and has consistently been held as unsustainable in law. Courts have repeatedly emphasized that where a statement is to be used against an assessee, the right to cross-examine the deponent is an essential safeguard embedded within the broader requirement of fair procedure under the audi alteram partem rule.
I. Principle of Cross-examination as Due Process
The cornerstone of this issue is the audi alteram partem principle, which mandates that no person should be condemned unheard. As reiterated by the Hon’ble Supreme Court in State of Kerala v. K.T. Shaduli Yusuff [1977] 39 STC 478 (SC), the duty to act fairly extends to all authorities, including those performing quasi-judicial or administrative functions. Cross-examination ensures that any evidence used against a person can be tested for its truthfulness, consistency, and reliability.
This was affirmed in CIT v. Eastern Commercial Enterprises [1994] 210 ITR 103 (Cal.), where the Calcutta High Court ruled that cross-examination is the sine qua non of the process of taking evidence, and no adverse inference can be drawn unless the party is given a chance to confront the evidence and the person behind it.
II. Statements Without Cross-examination: Not Admissible
Where the Assessing Officer (AO) proposes to make an addition based on the statement of an entry operator, creditor, broker, or third-party witness, he must first supply a copy of the statement to the assessee. Subsequently, if the assessee requests cross-examination, such opportunity must be granted. In absence of such opportunity, the addition made only on the strength of the statement is liable to be deleted. This has been established in numerous decisions:
Mahaveer Transport Co. v. ITO [1987] Vol. 23 ITD 206: Statements of lorry owners recorded during survey were used to disallow expenses. Since the assessee was denied the opportunity to cross-examine those witnesses, the addition was held to be in breach of natural justice.
PCIT v. Kanubhai Maganlal Patel [2017] 79 taxmann.com 257 (Gujarat): AO relied on statements of two farmers to make an addition under section 69B. Neither were the statements furnished to the assessee nor was cross-examination permitted, despite a specific request. The addition was held to be unjustified.
III. Role of Corroborative Evidence
Even if the assessee is not provided the opportunity for cross-examination, an addition may sometimes be sustained if corroborative evidence exists. However, no addition can be valid solely on the basis of an uncorroborated statement. The courts have made a distinction between statement-based evidence and material-based evidence. For example:
If the AO collects other independent material—bank statements, invoices, confirmations, digital records—that substantiate the statement, and the statement is only one link in the chain, the denial of cross-examination may be considered an irregularity but not an illegality.
But if the statement is the only evidence, its credibility must be tested through cross-examination.
IV. When Cross-examination is Not Mandatory
There are certain circumstances where cross-examination is not necessary, including:
(i) When the statement is not used as the basis of addition.
(ii) When the assessee’s own witness has deposed.
(iii) When the copy of the statement is supplied but no request for cross-examination is made.
(iv) When other evidence independently supports the addition, making the statement redundant.
(v) When the statement is not incriminating or does not implicate the assessee.
V. Judicial Endorsements of This View
Courts have repeatedly held that natural justice supplements statutory provisions and is intended to prevent miscarriage of justice, as underscored in Sahara India (Firm) v. CIT [2008] 14 SCC 151 (SC). Moreover, Kishanchand Chellaram v. CIT [1980] 125 ITR 713 (SC) laid down that even where proceedings are not strictly bound by the Evidence Act, the basic requirement of disclosure and confrontation of evidence is essential.
VI. Conclusion
The jurisprudence firmly establishes that no addition can be sustained solely on the basis of a third-party statement unless:
A copy of the statement is supplied to the assessee;
The assessee is given the opportunity to cross-examine the deponent; and
The statement is corroborated by other independent evidence.
Failure to fulfill these conditions will render the assessment procedurally deficient and legally untenable. The right to cross-examination is not a mere formality but a substantive safeguard, and its denial—especially when the statement forms the foundation of the addition—vitiates the assessment. Therefore, while statements may be relied upon by the AO, they cannot serve as the sole basis for addition without proper procedural adherence, including the inviolable right of cross-examination.