Natural justice in tax assessment requires disclosure of adverse third-party statements and a chance to cross-examine before reliance.

Adverse third-party statements cannot be relied on against an assessee unless they are furnished for rebuttal and the assessee is given a proper opportunity to cross-examine the makers. Where the assessment is made on material recorded behind the assessee's back without effective hearing, the assessment suffers from breach of natural justice. That defect is not cured merely because the matter reaches the first appellate authority or the Tribunal. The proper course is to set aside the assessment and remit the matter for fresh assessment after giving a reasonable opportunity of hearing.

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Issues: Whether the assessment order and the appellate order were liable to be set aside and the matter remanded for fresh assessment on account of reliance on third-party statements without furnishing them to the assessee and without affording cross-examination or proper opportunity of hearing.

Analysis: The material relied upon by the Assessing Officer consisted of statements of third parties recorded behind the back of the assessee. Such material, when adverse to the assessee, could not be used without confronting the assessee with the same and providing an opportunity to cross-examine the makers of the statements. The record showed that no effective opportunity was given and the assessment was made in breach of natural justice. In such circumstances, the deficiency at the assessment stage could not be cured by proceedings before the first appellate authority or the Tribunal, and the proper course was to set aside the assessment and remit the matter for fresh consideration after giving a reasonable hearing.

Conclusion: The assessment order and the appellate order were set aside and the matter was remanded to the Assessing Officer for de novo assessment after granting the assessee a proper opportunity of hearing.

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