Fair opportunity to meet external material is essential before an income-tax assessment can rely on comparable cases.

An income-tax assessment based on comparable cases or other external material cannot be sustained unless the assessee is first informed of the material and given a fair opportunity to explain or rebut it. Where the statement of the case did not show that the comparable cases relied on by the authorities had been disclosed before completion of assessment, the gross profit estimate founded on that material lacked fair procedure. The assessment was therefore unsupported on that basis, and the issue was answered in favour of the assessee and against the Revenue.

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Issues: Whether the Department could sustain an estimate of gross profit based on comparable cases without first disclosing the material to the assessee and affording an opportunity of explanation.

Analysis: The estimate of gross profit was founded on comparable cases relied upon by the Income-tax Officer and the Tribunal. The statement of the case did not show that those comparable cases had been put to the assessee before the assessment was completed. Where an assessment is based on material gathered from outside sources, fair procedure requires that the assessee be informed of the material and given an opportunity to rebut or explain it. Since the Department sought to rely on material not disclosed to the assessee, the assessment could not be supported on that basis.

Conclusion: The issue is answered in favour of the assessee and against the Revenue; the Department was not entitled to rely on the undisclosed material without first giving the assessee an opportunity to explain it.

Ratio Decidendi: An income-tax assessment founded on external material, including comparable cases, cannot be sustained unless the assessee is given a fair opportunity to know and meet the material relied upon.

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