An assessment addition made under Section 69 of the Income Tax Act based solely on third-party digital data without independent corroborative evidence or the opportunity for cross-examination is legally unsustainable, as it violates the principles of natural justice.

O R D E R

Per:Anikesh Banerjee (JM):

The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2019-20, date of order 02.02.2026. The impugned order emanated from the order of the Ld. Income Tax Officer-27(2)(1), Mumbai (for brevity the ‘Ld. AO’) order passed under section 147 r.w.s. 144 of the Act date of order 27.03.2024.

2. The brief facts of the case is that the assessee filed the return by declaring total income Rs.5,46,200/- as per the information available with the Department the assessee had made the cash payment of Rs.7,38,000 for purchase of flat. Accordingly, proceeding in this case were initiated u/sec. 147 of the Act and accordingly notice u/sec. 148 of the Act was served. The assessment was completed u/sec. 147 r.w.s. 144 of the Act and the income was assessed amount of Rs.12,84,200/- against the return income of Rs.5,46,150/- by making addition of Rs.7,38,000/- by invoking of provision of section 69 of the Act. The aggrieved assessee filed an appeal before the Ld. CIT(A). But the Ld. CIT(A) uphold the impugned assessment order. Being aggrieved assessee filed an appeal before us.

3. The Ld. AR contended that a search and seizure action under section 132 of the Act was conducted in the case of M/s. City Corporation Ltd., its Directors, and related entities on 15.02.2023. During the course of the search action at the residential premises of Shri Chetan Ram Borawake, who was working as an office boy in the office of City Corporation Ltd., a hard drive was found and seized as Item No.14 of “Annexure A” by Search Party No. XR-09. From the Excel sheets extracted from the seized hard drive, it was observed that the said sheets contained information relating to sub-contractors who had allegedly received cash payments. Further verification in this regard was stated to be under progress. The information allegedly pertained to payments made in cash to sub-contractors/vendors/employees by M/s. Kelzai Eco Reserves Pvt. Ltd. (in short “KERPL”). Such transactions were allegedly acknowledged by Shri Swapnil Vijay Paranjape, Assistant Manager (Administration) of KERPL, and Shri Tarique Kalimulla Pathan, Senior Officer (Accounts) of Kothrud City Project LLP, a group concern of City Corporation Ltd., in their respective statements recorded under section 132(4) of the Act during the course of search proceedings. It was further submitted that in response to Question Nos. 16 and 30 of their respective statements, the aforesaid persons admitted that cash payments had been made to various concerns. From the Excel sheet, the name of the assessee was also found appearing therein and, after due mapping by the internal auditor of the City Group, it was alleged that the PAN of the assessee corresponded to three transactions amounting to Rs.3,82,000/-, Rs.2,00,000/-, and Rs.1,56,000/- dated 19.01.2019, 07.02.2019, and 15.02.2019 respectively, aggregating to Rs.7,38,000/-. The Ld. AR vehemently opposed the invocation of section 69 of the Act merely on the basis of the allegation that the assessee had received cash. The Ld. AO made observations in paragraph No.8 of the assessment order with regard to the aforesaid transactions aggregating to Rs.7,38,000/-, which are reproduced below:

“8. From the above, it is clear that the assessee has made the payment in cash of Rs.7,38,000/-, However the same has not been offered for the taxation and the source of cash payment remained unexplained/ unverified. The