Reassessment on fresh adverse material is valid, but assessments fail where undisclosed third-party evidence breaches natural justice.
Reopening of a completed assessment is not barred where reassessment is founded on fresh adverse material and reports not examined in the earlier proceeding; mere change of opinion does not arise in that situation. A reassessment is not invalid merely because departmental or technical material was available, provided the assessing officer independently considers the record and applies his own mind rather than acting mechanically on a superior's dictate. However, where adverse material such as vigilance reports, third-party books or seized documents is used against an assessee, it must be disclosed and, where necessary, the affected parties must be confronted and given a fair opportunity of cross-examination. Failure to do so vitiates the assessment for breach of natural justice.
Issues: (i) Whether the completed assessment was reopened by mere change of opinion; (ii) Whether the assessing officer passed the reassessment order on the dictate of a higher authority and on the basis of the SION method; (iii) Whether the assessment order was passed in violation of the principles of natural justice.
Issue (i): Whether the completed assessment was reopened by mere change of opinion.
Analysis: The earlier audit assessment had been completed without using the adverse material later relied upon in the reassessment. Reopening on a mere change of opinion is impermissible only where the same material has already been examined and accepted earlier. Here, the reassessment was founded on fresh adverse material and reports not considered in the earlier exercise.
Conclusion: The challenge on the ground of mere change of opinion fails and is against the assessee.
Issue (ii): Whether the assessing officer passed the reassessment order on the dictate of a higher authority and on the basis of the SION method.
Analysis: The reassessment record showed that the assessing officer considered the materials placed before him, applied his own mind, examined the returns and documents, and then initiated reassessment. The mere fact that departmental reports and external technical material were available did not establish abdication of statutory function or mechanical obedience to a superior's direction.
Conclusion: The allegation that the order was passed on dictate of a higher authority was not established and is against the assessee.
Issue (iii): Whether the assessment order was passed in violation of the principles of natural justice.
Analysis: The assessment relied on adverse material from vigilance reports, third-party books and a seized slip, all of which were used to draw conclusions of suppression of sales. Such material, when relied upon against the assessee, had to be disclosed and, where necessary, third parties had to be confronted and made available for cross-examination. The assessee was denied effective opportunity to meet the adverse material, and the conclusions were also drawn on unproved inferences from the slip and on a technical formula without adequate procedural fairness.
Conclusion: The assessment order was vitiated for breach of natural justice and is in favour of the assessee.
Final Conclusion: The writ petition succeeds to the extent that the reassessment and demand cannot stand in their present form, and the matter must be reconsidered afresh after following due process and affording a proper opportunity to the assessee.
Ratio Decidendi: Any material proposed to be used against an assessee in assessment must be disclosed with a fair opportunity to rebut it, and where third-party material is relied upon, confrontation or cross-examination must be allowed if necessary to ensure natural justice.