Natural justice in tax assessments requires disclosure of third-party material and cross-examination before liability is fastened.

Assessment and penalty based on undisclosed third-party records could not be sustained where the material was neither furnished to the assessee nor tested through cross-examination. The court held that fastening liability on the assessee by requiring it to disprove alleged transactions placed an improper burden to prove a negative and violated fair procedure. As the revision of assessment and consequential penalty were founded on material withheld from the assessee, the impugned orders were quashed for breach of natural justice.

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Issues: Whether the revision of assessment and levy of penalty based on third-party records, without furnishing those records to the assessee or affording an opportunity to cross-examine the third party, was sustainable.

Analysis: The assessment was founded on documents seized from a third party and not on any inspection in the assessee's premises. The material relied upon was not furnished to the assessee, and no opportunity was given to test its veracity by cross-examination. The authorities nevertheless proceeded to fasten liability by expecting the assessee to disprove the alleged transactions, thereby placing the burden on the assessee to prove a negative. In these circumstances, the assessment process was found to be contrary to the requirements of fair procedure and natural justice.

Conclusion: The revision of assessment and consequential penalty could not be sustained and were liable to be set aside.

Final Conclusion: The tax cases succeeded, and the impugned orders of the authorities were quashed on the ground of violation of natural justice.

Ratio Decidendi: An assessment based on undisclosed third-party material, without supplying the material to the assessee and without affording cross-examination where reliance is placed on such material, violates natural justice and cannot be sustained.

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