Natural justice requires disclosure of third-party material and cross-examination before an adverse assessment can stand.

An assessment based on third-party statements and records cannot be sustained when the assessee is not furnished the relied-upon material and is denied an opportunity to cross-examine the persons whose statements are used against it. The court held that such adverse material must be disclosed and the assessee must be allowed a fair chance to test and rebut it, especially where the request for disclosure and cross-examination is raised in objections before finalisation. On that ground, the assessment was vitiated for breach of natural justice, the writ petition succeeded, the assessment order was set aside, and the matter was remitted for fresh consideration after supplying the materials and permitting cross-examination.

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Issues: Whether the assessment was sustainable when it was completed on the basis of third-party statements and records without furnishing those materials to the assessee or affording an opportunity to cross-examine the persons concerned.

Analysis: The assessment was founded on statements recorded from third parties and the records collected from them. The assessee had specifically sought copies of the relied upon materials and an opportunity to cross-examine the persons whose statements were used against it. Such material, when relied upon as adverse evidence, could not be used to the detriment of the assessee without first disclosing it and allowing a fair opportunity to test its correctness. The request for disclosure and cross-examination was part of the interim objections and could not be ignored while finalising the assessment. The failure to deal with that request separately and the consequential reliance on undisclosed material rendered the assessment procedurally defective.

Conclusion: The assessment was vitiated for violation of the principles of natural justice and was unsustainable.

Final Conclusion: The writ petition succeeded, the assessment order was set aside, and the matter was remitted for fresh consideration after granting the assessee access to the materials and an opportunity of cross-examination.

Ratio Decidendi: An adverse assessment based on third-party statements or records cannot be sustained unless the assessee is furnished the relied upon material and given a fair opportunity to cross-examine and rebut it.

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