Natural justice and section 144 preconditions must be met before relying on third-party material for assessment.

An assessment based on third-party statements and documents cannot be sustained unless the assessee is supplied the relied-upon material and given a fair opportunity to rebut it, including cross-examination where necessary. Where appellate directions specifically require disclosure of such material and cross-examination, failure to comply renders the assessment vulnerable on natural justice grounds. The record must also show valid non-compliance with statutory notices before invoking best judgment assessment; adjournment requests alone do not establish default. A section 144 assessment is invalid unless its mandatory preconditions, including the required show-cause process, are satisfied.

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Issues: Whether the assessment was liable to be quashed for breach of natural justice and non-compliance with the appellate directions and the mandatory requirements for invoking section 144.

Analysis: The assessment was founded on statements of third parties and documents collected from them, yet the assessee was not supplied those materials and was not afforded an opportunity to cross-examine the witnesses whose statements were relied upon. The appellate authority had earlier set aside the original assessment and specifically directed supply of the statements and documents and an opportunity of cross-examination, but those directions were not carried out. The record also did not establish valid non-compliance with the notices under section 143(2), as adjournment requests were made and there was nothing to show that they were rejected. Further, the conditions for making a best judgment assessment under section 144 were not satisfied, and the mandatory show-cause requirement under the first proviso to section 144 was not shown to have been met.

Conclusion: The assessment was invalid and was rightly quashed for violation of natural justice, non-observance of binding appellate directions, and failure to comply with the mandatory requirements of section 144.

Ratio Decidendi: An assessment based on third-party material cannot be sustained unless the assessee is supplied the relied-upon material and given a fair opportunity to rebut it, including cross-examination where necessary, and a best judgment assessment under section 144 cannot be made without compliance with its mandatory preconditions.

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