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Issues: (i) Whether reassessment could be validly reinitiated under section 21 on the basis of material already in the department's possession after the earlier reassessment notice had been set aside only for procedural irregularity; and (ii) whether reliance on third-party seized material required compulsory production of the third party for cross-examination in the facts of the case.
Issue (i): Whether reassessment could be validly reinitiated under section 21 on the basis of material already in the department's possession after the earlier reassessment notice had been set aside only for procedural irregularity.
Analysis: The earlier reassessment proceedings had been annulled only because the first notice was issued during pendency of the original assessment and not because the material on record had been adjudged insufficient on merits. The material collected in the survey of the third party had not been considered in the original assessment or in the earlier reassessment proceedings. Where turnover has escaped assessment because relevant material was not taken into account, reassessment is permissible even if the material was already available with the department. The case falls within the distinction between a mere omission or inadvertent non-consideration of material and a true change of opinion on an issue already decided on merits.
Conclusion: Reinitiation of reassessment proceedings was valid and the Tribunal was wrong in holding otherwise.
Issue (ii): Whether reliance on third-party seized material required compulsory production of the third party for cross-examination in the facts of the case.
Analysis: The governing rule is that tax authorities must follow natural justice, but its content depends on the facts. Third-party material can be used if the assessee is informed of the nature of the material and given a fair opportunity to rebut it. Compulsory production of the third party for cross-examination is not an inflexible requirement in every case. Here, the dealer was served with a show-cause notice, the seized entries were disclosed, no specific demand for production or cross-examination was made, and the factual basis adopted by the Tribunal was itself unsupported by the record. The Tribunal also failed to apply the correct distinction between a case where cross-examination is sought and one where no such request is made.
Conclusion: The third party was not required to be compulsorily produced for cross-examination on these facts, and the reassessment could be sustained on the disclosed material.
Final Conclusion: The Tribunal's order was unsustainable in law and on facts, and the departmental reassessment was restored with costs.
Ratio Decidendi: Reassessment is permissible where escaped turnover is founded on material not earlier considered on merits, and third-party material may be relied upon if the assessee is given notice of the material and a fair opportunity to rebut it, cross-examination not being an invariable requirement in every case.
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