Natural justice in assessment: seized material and third-party statements require cross-examination before reliance against the assessee.

Seized papers and statements recorded under section 132(4) can be relied on against an assessee only after giving a fair opportunity to meet the material. Third-party book entries do not, by themselves, fasten liability on the assessee. Where cross-examination of the persons whose statements are used is specifically sought and denied, the assessment is vitiated for breach of natural justice. The proper course is to set aside the assessment and restore the matter for fresh adjudication after supplying the relied-upon material and allowing cross-examination and rebuttal.

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Issues: Whether the assessment, based on seized material and statements recorded behind the assessee's back, could be sustained when cross-examination and proper opportunity to rebut the evidence were not granted.

Analysis: The seized papers and the statements recorded under section 132(4) were treated as relevant material, but such material could be used against the assessee only after giving due opportunity to meet it. Entries in the books of a third party did not, by themselves, fasten liability on the assessee. Since the assessee had specifically sought cross-examination of the persons whose statements were relied upon, and that opportunity was denied, the assessment order suffered from a violation of natural justice. The proper course was not to terminate the proceedings but to set aside the order and restore the matter for fresh consideration after supplying the relied-upon material and allowing cross-examination.

Conclusion: The assessment order was vitiated for breach of natural justice and the matter was remanded to the Assessing Officer for fresh adjudication after granting cross-examination and opportunity to rebut the material.

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