Natural justice in best judgment assessment requires a real hearing before demand notices can validly proceed.

A pre-assessment notice issued in best judgment assessment was held to require a real and effective opportunity to object. Although the assessee filed objections, the hearing was not meaningful because the account books and seized records needed to answer the proposal remained with the department for a substantial period. The HC treated a merely formal chance to reply as an empty formality and held that a quasi-judicial taxing authority must give the affected person a fair opportunity to meet the material relied on. The later demand notices could not stand, and a fresh opportunity to object was required before further action.

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Issues: Whether the assessee was given a real and effective opportunity to object to the pre-assessment notice issued in the course of best judgment assessment.

Analysis: The assessee had objected to the proposed assessment, but his objection could not be meaningfully met because the account books and seized records necessary to answer the proposal were still with the department for a substantial period. In such circumstances, a mere formal opportunity to reply was not treated as a genuine hearing. A taxing authority, acting quasi-judicially, must ensure that the person affected has a fair and effective chance to meet the materials used against him, and not merely an empty formality. The later demand notices, therefore, could not stand on an assessment process that had proceeded without such effective opportunity.

Conclusion: The assessee's challenge succeeded on the ground of violation of natural justice, and a fresh opportunity to object to the proposed assessment was required before further action could be taken.

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