Best judgment assessment upheld where disclosed inspection report and book discrepancies supported rejection of accounts.

Adverse material in tax assessment may be used to reject accounts and sustain a best judgment assessment if it is disclosed to the assessee and a fair opportunity to explain is given. The inspecting officer's report recording stock shortages and excesses was part of the record, had been confronted to the assessee, and no request for cross-examination was made; reliance on that report therefore did not breach natural justice. The assessment authorities also had additional recorded material indicating manipulation in the books, so the Tribunal erred in finding no basis for estimation. The rejection of the books and the best judgment assessment were upheld.

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Issues: (i) Whether the assessee's books could be discarded and a best judgment assessment sustained without examining the inspecting officer whose report recorded stock shortages and excesses. (ii) Whether the Tribunal was right in holding that there was no material on record to support the best judgment assessment.

Issue (i): Whether the assessee's books could be discarded and a best judgment assessment sustained without examining the inspecting officer whose report recorded stock shortages and excesses.

Analysis: In assessment proceedings the strict rules of evidence do not apply, but materials adverse to the assessee that are intended to be used against him must be disclosed and he must have a fair opportunity to meet them. The report of the inspecting officer was an official act and formed part of the record. It had been disclosed to the assessee, who offered an explanation but never asked to cross-examine the officer. In those circumstances, the absence of the officer's oral evidence did not invalidate reliance on the report, and the principles of natural justice were not breached.

Conclusion: The books could be discarded without examining the reporting inspector, and the assessment on that basis was valid.

Issue (ii): Whether the Tribunal was right in holding that there was no material on record to support the best judgment assessment.

Analysis: The assessment authorities relied on the inspecting officer's report, the detected stock discrepancies, and subsequent entries in the books indicating manipulation. Those materials were available on record and had been confronted to the assessee. The Tribunal's view that there was no material to justify rejection of accounts and estimation was therefore unsustainable.

Conclusion: The Tribunal was not right in holding that there was no material on record to support the best judgment assessment.

Final Conclusion: The reference was answered in favour of the revenue by upholding the rejection of the assessee's books and the best judgment assessment founded on disclosed adverse material.

Ratio Decidendi: In tax assessment, adverse material may be relied upon if it is disclosed to the assessee and he is given a reasonable opportunity to explain it; where no demand for cross-examination is made, reliance on an official inspection report does not violate natural justice.

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