Natural justice in fiscal findings requires disclosure of adverse material and a fair chance to cross-examine third-party witnesses.

An adverse fiscal finding based on a third party's statement, letter, and account entries cannot stand unless the assessee is given the underlying material and a real opportunity to rebut it. Where the assessee had sought to cross-examine the maker of the adverse statement, and that request was not effectively abandoned, mere disclosure of the gist was insufficient. The authority was required to fairly test the evidence before reversing an earlier allowance. Failure to disclose the adverse material and denial of cross-examination breached natural justice, and the unexplained rejection of the assessee's books, declarations, and affidavits also rendered the finding perverse.

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Issues: Whether the finding that the sales made to a named purchaser were not genuine was vitiated by breach of natural justice, arbitrariness, perversity, and illegality, and whether the assessee was denied a fair opportunity by not being furnished the adverse material and by not being allowed to cross-examine the maker of the adverse statement.

Analysis: The adverse conclusion rested substantially on a statement made by the purchaser, a letter said to have been written by him, and entries in his rojmel, while the assessee relied on its books of account, declarations signed by the purchaser, and supporting affidavits. The assessee had earlier sought permission to cross-examine the purchaser, and that request was never effectively given up. The material used against the assessee was not properly disclosed, and only the gist of the information was conveyed. In a proceeding where a prior allowance was sought to be reversed, fairness required disclosure of the adverse material and a real opportunity to meet it. Denial of cross-examination in these circumstances amounted to breach of natural justice. The finding was also held to be perverse because the authority did not fairly sift the evidence and rejected the assessee's evidence without proper scrutiny.

Conclusion: The finding was held to be vitiated by breach of natural justice and perversity, and the question was answered in the affirmative, in favour of the assessee.

Final Conclusion: The reference succeeded, the adverse finding could not stand, and the assessee obtained relief with costs.

Ratio Decidendi: Where an adverse fiscal finding is founded on a third party's statement or undisclosed material, and the assessee has sought to test that material, the authority must disclose the material and afford a fair opportunity of cross-examination and rebuttal; failure to do so vitiates the decision as contrary to natural justice.

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