Section 68 Addition Based On a Third-Party Slip Stood Vitiated

Section 68 Addition Based On a Third-Party Slip Stood Vitiated Due To Denied Cross-Examination

Issue

Whether an assessment order making an addition under Section 68 is legally sustainable when it relies entirely on a seized slip and a statement from a third party without providing the assessee a fair, reasonable opportunity to cross-examine that third party.

Facts

During a search operation conducted on a third party, Mr. Sehgal, the tax department recovered a loose slip (Kachchi Parchi) containing the handwritten figure “10,000”.
The Assessing Officer (AO) presumed that three zeroes had been omitted from the slip, notionally scaling the figure up to treat it as ₹1 crore.
The seized slip did not correctly state or record the name of the assessee.
Mr. Sehgal alleged in a statement to authorities that he had given the said amount to the assessee to construct a farmhouse.
The assessee completely denied any acquaintance with Mr. Sehgal, denied receiving or owning the money, and stated that he was not involved in the construction business.
One day before passing the assessment order, the AO sent an email notice under Section 131 requiring the assessee to appear the next morning at 10:30 AM to produce evidence and cross-examine Mr. Sehgal.
Due to the extremely short timeline, the assessee was unable to attend or effectively conduct the cross-examination.
The AO completed the assessment on March 31, 2026, adding ₹1 crore to the assessee’s income under Section 68 based solely on the third-party statement and the ambiguous slip.

Decision

Assessment Order Vitiated: Held, yes. Since the entire ₹1 crore addition was based exclusively on an ambiguous loose slip and a statement taken from a third party, passing the order without allowing a meaningful defense violates the principles of natural justice and vitiates the assessment.
Matter Remanded for Fresh Hearing: Held, yes. The addition is set aside, and the matter is remanded back to the Assessing Officer with a directive to fix a proper hearing date, grant the assessee a real opportunity to cross-examine Mr. Sehgal, and pass a fresh assessment order thereafter.

Key Takeaways

Right to Cross-Examination: Relying on third-party statements or documents to make an addition without granting the taxpayer an active, practical opportunity to cross-examine that party violates the core principles of natural justice.
Illusory Opportunity is No Opportunity: Issuing a critical cross-examination notice via email less than 24 hours before a scheduled hearing is considered a mere formality that fails the legal test of providing a “reasonable opportunity of being heard.”
Presumptions on Loose Slips: The Revenue cannot make major additions by arbitrarily decoding loose sheets or multiplying scribbled numbers (such as adding zeroes to “10,000”) unless they possess corroborative, independent material linking the document directly to the taxpayer.

HIGH COURT OF DELHI

Baleshwar Sharma

Deputy Commissioner of Income-tax, Central

Dinesh Mehta and Vinod Kumar, JJ.

W.P. (C) No. 5921 of 2026
CM APPL. Nos. 29077 & 29078 of 2026

APRIL 30, 2026

Vivek Malik and Tushar Jarwal, Advs. for the Petitioner. Ruchir Bhatia, SSC, Anant Mann and P. Gupta, JSCs. for the Respondent.

ORDER

1. By way of the present writ petition, the petitioner has challenged the assessment order dated 31.03.2026 passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’), whereby the respondent no.1 has raised a demand against the petitioner essentially based on a slip (Kachchi Parchi) recovered from one Mr. Pradeep Kumar Sehgal in which a sum of Rs.10,000/- (-10,000/-)was written.

2. Learned counsel contended that only on the basis of such slip, which does not even correctly record the petitioner’s name, the Assessing Officer (AO) has presumed that the amount of Rs.10,000/- written on Kachchi Parchi meant Rs.1,00,00,000/- (Rs.1 crore) as three zeroes were omitted. He argued that the AO has added the entire amount in petitioner’s hands even though in his reply and during the assessment proceedings, the petitioner denied not only the knowledge of or acquaintance with such person, but has also pleaded ignorance about the belongingness of the said amount.

3. It is further submitted that said Mr. Pradeep Kumar Sehgal, in his statement has allegedly stated that he had given the said amount to the petitioner for construction of a farm house, whereas the petitioner is not at all in construction business.

4. Learned counsel for submitted that the petitioner was issued a notice dated 30.03.2026 under Section 131 of the Act of 1961 through email, requiring him to appear at 10:30 am on 31.03.2026 to produce evidence and cross examine said Pradeep Kumar Sehgal but this opportunity was just an eyewash inasmuch as within such short time, neither the petitioner nor his authorized representative could have mentally prepared themselves for the cross examination. He submitted that without the cross examination, the respondent has passed assessment order and inflicted a huge demand of tax which is otherwise not substantiated.

5. Mr. Anant Mann, learned Junior Standing Counsel for the respondent, on the other hand argued that petitioner has rushed to this Court against an assessment order in spite of the fact that the statute provides efficacious statutory remedy in the form of appeal before the Commissioner of Income Tax (Appeals). He further submitted that the arguments which have been advanced by learned counsel for the petitioner are in the realm of appreciation of evidence, which this Court in its extraordinary jurisdiction cannot indulge.

6. Having heard learned counsel for the parties, we are of the view that out of all the other arguments, which learned counsel for the petitioner has advanced, the argument in relation to infraction of principles of natural justice calls for our attention and intervention in petitioner’s favour.

7. Since the edifice of the entire addition made in petitioner’s hands is, the slip, which was recovered during the search of Mr. Pradeep Kumar Sehgal, the petitioner ought to have been provided an opportunity of cross examination. On perusal of the proceedings, we find that such opportunity was only a farce or eyewash. An assessee or his representative cannot be expected to come on the very next day at 10:30 am to cross examine a person, who is not a formal witness for obvious reasons, the petitioner could not cross examine said Pradeep Kumar Sehgal and resultantly the AO has taken the slip and his statement to be a gospel truth, which is to the detriment of petitioner’s right.

8. We, therefore, set aside the assessment order dated 31.03.2026, which essentially hinges upon the seized document (Kachchi Parchi) and the statement of the said Mr. Pradeep Kumar Sehgal for want of opportunity of cross examination. Because, since the entire addition is edified on the statement and slip recovered from Pradeep Kumar Sehgal.

9. The AO shall fix any date of hearing between 18.05.2026 to 20.05.2026 and inform the petitioner at least 7 days in advance and provide an opportunity to cross-examine Pradeep Kumar Sehgal. It shall be incumbent upon the AO to ensure that said Pradeep Kumar is available for cross-examination at the time of hearing so fixed and after the crossexamination being so done, the AO shall pass a fresh assessment order in accordance with law, giving due regard to the cross-examination.

10. Apart from the principles of natural justice, we have not dilated upon any of the arguments advances by the petitioner and therefore, the petitioner shall be free to raise all other arguments before the Appellate Authority in accordance with law, if he is required to file an appeal.

11. The writ petition along with the pending application is disposed of.