Admissible evidence in assessment must be heard and rebuttable by the assessee; private enquiries cannot supply the evidential basis.

Assessment under the income tax evidence provision must be founded on admissible evidence heard in proceedings where the assessee can meet it; informal private enquiries, rumours or unproduced statements do not constitute evidence for such assessments. Preliminary administrative enquiries are permissible, but their results cannot be used as the evidential basis in assessment proceedings unless placed before the assessee and rebuttable at the hearing. An assessment partly based on admissible matters (book concealments, prior assessments) and partly on inadmissible private enquiries is unsustainable to the extent it relies on the latter and must be re determined excluding impermissible material.

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Issues: (i) Whether the Assistant Commissioner's estimate of eleven lakhs as capital invested by the assessee for the assessment year 1929-30 was based on evidence he was legally empowered to act upon; (ii) Whether the Assistant Commissioner was authorised under Section 13 of the Income-tax Act or otherwise to make private enquiries and to take the result of such enquiries into account in making the assessment.

Issue (i): Whether the estimate of 11 lakhs as capital invested was based on evidence legally admissible for the purposes of assessment under Section 23(3) of the Income-tax Act, 1922.

Analysis: Section 23(3) requires the Income Tax Officer to assess "after hearing such evidence as such person may produce and such other evidence as the Income Tax Officer may require"; the provision contemplates assessment based on evidence rather than mere conjecture. Assessments under Section 23(4) (best judgment) may rest on less formal material, but a previous year's best-judgment estimate does not convert conjecture into evidence for a Section 23(3) assessment. Informal enquiries made in the absence of the assessee (rumour, unproduced statements) do not amount to "evidence" within Section 23(3). However, properly recorded facts such as concealments discovered in the books, prior regular assessments in the officer's possession, and admissible particulars taken in the presence of or available to the assessee can supply evidential material. In the present case the Assistant Commissioner relied partly on: (a) omissions and irregularities in the assessee's books and concealments discovered; (b) prior assessments and records; and partly on (c) informal private enquiries and unproduced statements from local persons. The appellate officer later explained reliance on the previous year's estimate and on omissions, but some of the basis relied upon consisted of enquiries and information obtained without the assessee's knowledge or opportunity to meet them.

Conclusion: The estimate of eleven lakhs was based partly on evidence the Assistant Commissioner was legally empowered to act upon (admissible matters such as concealments, prior assessments and the other circumstances of the case) and partly on evidence he was not empowered to act upon (private informal enquiries and unproduced statements obtained behind the assessee's back).

Issue (ii): Whether the Assistant Commissioner was authorised under Section 13 of the Income-tax Act, 1922 or otherwise to make private enquiries and to take the result of such enquiries into account in making the assessment.

Analysis: Section 13 permits the tax authority to adopt a different method of accounting where the assessee's method is rejected; Section 23(3) contemplates that evidence relied upon in assessment should be heard in a proceeding where the assessee has opportunity to meet it, and Section 37 empowers compulsion and oath-taking before the officer. Private enquiries as an administrative investigatory step prior to issuing notice are permissible. However, where proceedings under Section 23(3) have commenced and an assessment is to be made subject to appeal, materials collected by private enquiries behind the assessee's back, of which no record was placed and which the assessee had no opportunity to rebut at the hearing, cannot properly be taken as the evidential basis for assessment. Natural justice requires that the assessee be permitted to meet evidence relied upon.

Conclusion: The Assistant Commissioner was not authorised to take the results of private enquiries made behind the assessee's back into account in making the assessment without giving the assessee an opportunity to meet such material; private enquiries as preliminary investigation are permitted but their results cannot be used as evidence in assessment proceedings under Section 23(3) unless the assessee is afforded an opportunity to meet them.

Final Conclusion: The overall legal effect is that the Assistant Commissioner's assessment at 11 lakhs is partially supported by admissible evidential material and partially vitiated by reliance on inadmissible private enquiries; consequently the assessment cannot stand to the extent it is founded on information the assessee had no opportunity to meet, and the Assistant Commissioner must determine whether the estimate can be sustained excluding that impermissible material.

Ratio Decidendi: For assessments made under Section 23(3) the assessing authority must base the assessment on evidence within the meaning of that subsection; conjecture, rumour or private enquiries conducted without notice to the assessee do not constitute admissible evidence and cannot be used as the basis of an assessment unless the assessee is given a fair opportunity to meet such material.

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