Natural justice in assessments requires disclosure of adverse material and cross-examination before reliance on third-party statements.

An assessment based on seized incriminating material and adverse third-party statements must be supported by a fair opportunity to inspect the material and, where relied upon, to cross-examine the makers of those statements. Where the revenue proceeds without first establishing a clear link between the materials and the assessee's business, and completes the assessment despite a reasonable request for adjournment and fresh inspection, the procedure is vitiated for breach of natural justice. The Court therefore treated the assessment process as procedurally defective and emphasised that adverse material cannot be used without effective disclosure and confrontation.

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Issues: Whether the best judgment assessment was vitiated for breach of natural justice in that the incriminating material and third-party statements were not effectively made available to the assessee and an opportunity of cross-examination was not afforded.

Analysis: The assessment was founded on materials seized by the police and later used by the revenue without first establishing a clear connection between those materials and the assessee's business. The assessee was asked to inspect the records, but when a reasonable adjournment and a fresh date for inspection were sought, the assessment was completed without accommodating that request. The Court held that where an assessment is proposed on the basis of allegedly incriminating material and third-party statements, fairness requires that the material be shown to the assessee and, if relied upon, the persons making adverse statements be produced for cross-examination. The procedure adopted did not satisfy the requirements of natural justice.

Conclusion: Yes. The assessment procedure was held to be vitiated by violation of natural justice, and the assessee was entitled to a fresh and fair appellate consideration with inspection of the material and cross-examination of third parties, if relied upon.

Final Conclusion: The challenge succeeded only to the extent of securing procedural safeguards before the appellate authority, while the writ relief itself was declined in view of the pending statutory appeal.

Ratio Decidendi: An assessment based on incriminating material and adverse third-party statements cannot be sustained unless the assessee is given a fair opportunity to inspect the material and, where relied upon, to cross-examine the persons whose statements are used against him.

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