Reasonable opportunity to produce evidence was denied, so the finding on an unexplained cash deposit was vitiated.

An assessment finding on the source of a cash deposit was vitiated where the assessee had sought time to produce supporting evidence and asked that notices be issued to the relevant parties, but the Income-tax Officer completed the assessment without deciding that request or allowing a reasonable opportunity to adduce evidence. The assessment procedure required the assessee to be heard and to produce evidence relied on in support of the return, and the refusal to summon or examine the evidence offered caused material prejudice. That prejudice also affected the Tribunal, as the relevant files were not shown to have been examined to the assessee's knowledge, so the finding on the unexplained deposit could not stand.

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Issues: Whether the Tribunal's finding regarding the nature and source of the cash deposit of Rs. 17,000 was legally vitiated because the assessee was not given a reasonable opportunity to produce and have examined the evidence offered in support of its explanation.

Analysis: The assessee had sought an opportunity to produce supporting evidence and had requested that notices be issued to the concerned parties under section 37 of the Indian Income-tax Act, 1922. The Income-tax Officer completed the assessment shortly thereafter without passing any order on that request and without allowing reasonable time for production of evidence. The statutory scheme under section 23(2) required the assessee to be given an opportunity to produce evidence relied upon in support of the return, and the refusal to afford that opportunity, coupled with the failure to summon and examine the evidence offered, materially prejudiced the assessee. The same prejudice extended to the Tribunal's disposal, as the relevant assessment files were not shown to have been examined to the assessee's knowledge.

Conclusion: The finding of the Tribunal on the nature and source of the deposit was legally vitiated, and the question was answered in the negative in favour of the assessee.

Ratio Decidendi: Where an assessee is entitled under the assessment procedure to produce evidence in support of its explanation, denial of a reasonable opportunity to adduce that evidence and failure to consider it vitiate the finding based on the unexplained deposit.

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