Natural justice in assessment requires supply of adverse investigative material before reliance, failing which the assessment is unsustainable.

An assessment founded entirely on an adverse investigative report cannot be sustained unless the assessee is supplied a copy of that material and given a fair opportunity to rebut it. The Court found that the best judgment assessment was made on the basis of the SIB report without considering the books of account produced by the assessee, contrary to natural justice. The assessment order, appellate order and Tribunal order were therefore set aside, and the matter was remitted for fresh assessment after supplying the SIB report and allowing a reply.

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Issues: Whether the assessment and consequential appellate and tribunal orders were vitiated because the assessee was not supplied a copy of the SIB report on which the best judgment assessment was founded, and whether a fresh assessment was required after giving an opportunity to meet that material.

Analysis: The assessment was based entirely on the SIB report, while the books of account produced by the assessee were not considered in the impugned orders. The Court applied the settled principle that where an adverse report is proposed to be relied upon in assessment proceedings, a copy of that report must be supplied to the assessee so that an effective defence can be made. In the absence of such supply, the assessment process is contrary to natural justice and the best judgment assessment cannot be sustained. As the Tribunal had also remitted parts of the controversy to the assessing authority, the Tribunal order could not stand.

Conclusion: The assessment order, appellate order, and Tribunal order were set aside, and the matter was remitted to the assessing authority for a fresh assessment after supplying the SIB report and granting opportunity of reply.

Ratio Decidendi: An assessment founded on an adverse investigative report cannot be sustained unless the report is supplied to the assessee and a fair opportunity is given to meet it; failure to do so vitiates the assessment.

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