Reasonable opportunity to produce evidence: failure to allow time or disclose third-party information mandates reference under Section 66(2).

Whether the assessee was given a reasonable opportunity to produce books and rebut the department's case is a question of law: notices to produce under Sections 23(2) and 22(4) must secure practical time and disclosure so the taxpayer can be heard. Immediate or next-day demands or reliance on undisclosed third party information defeat that protective purpose and deny a reciprocal opportunity to explain. The issue is answered for the assessee; the Appellate Tribunal erred in not referring the legality of the assessments for the stated years under the statutory reference procedure.

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Issues: Whether the assessee was afforded a reasonable opportunity to produce books of account, to produce evidence in support of the returns and to rebut the case set out by the Income-tax Department; and if not, whether the assessments for the years 1947-48, 1948-49 and 1949-50 are liable to be set aside.

Analysis: The statutory scheme requires that notices under Section 23(2) and Section 22(4) of the Income-tax Act, 1922 be used to secure production of evidence and accounts and thereby to afford the taxpayer an opportunity to be heard before a tax liability is fixed. A demand to produce documents the next day or an immediate call for evidence at a single hearing, where practical impossibility exists to comply, defeats the protective purpose of these provisions. Reliance on information obtained from third parties to form assumptions about the assessee's transactions, without disclosing that information and affording an opportunity to explain or rebut, deprives the assessee of a reciprocal opportunity to meet the case against him. Questions whether the time given was so short as to be unreasonable and whether the assessee was thereby denied a fair opportunity are questions of law appropriate for reference under Section 66(2) of the Income-tax Act, 1922.

Conclusion: The matter specified in the Issue is answered in favour of the assessee; the Appellate Tribunal erred in refusing to refer the question whether the assessments were made without affording a reasonable opportunity to the assessee. The Appellate Tribunal is to be requested to state and refer the question under Section 66(2) of the Income-tax Act, 1922.

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