TaxTMI 
TaxTMI 
TaxTMI 
1995 (2) TMI 94
X X X X Extracts X X X X
X X X X Extracts X X X X
....be reintroduced by means of hawala entries, and advertisement expenses alleged to be used out of secret bank accounts. The assessee being aggrieved of the assessment order, preferred appeal thereagainst before the CIT(Appeals). The claim of the assessee was rejected by the CIT(Appeals). The assessee Preferred appeal against that order before the Tribunal. The validity of the order was assailed, inter alia, on the ground of natural justice. The assessee disputed the additions on merits also. 3. At the outset, both the parties requested that the first decision be rendered on the preliminary issue concerning the observance of the principles of natural justice while framing the order of assessment. On merits, it was requested that the case may be heard after the deliverance of decision on the preliminary issue. The appeal was, therefore, heard apropos the grounds concerning the canons of natural justice, 4. Briefly the facts - The assessee is engaged in the business of manufacturing of cigarettes. The factories are situated at Bombay and Baroda. Tobacco processing units are at Guntur and Hyderabad. It also gets the cigarettes manufactured through a number of jobs working units. Its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Officer. He, therefore, proceeded further to find out the truth. The results were again viewed from a different angle, it came out that the invoice price of the cigarettes as reflected by the assessee in its record was less than the manufacturing cost. The element of excise duty was included while working the manufacturing cost. The working as done by the Assessing Officer is reproduced here as under: - --------------------------------------------------------------- Sale price of cigarettes(as per annual statement of accounts) Rs. 1,52,80,40,371 Materials cost 22,49,29,508 Manufacturing expenses 11,79,70,764 Excise duty 1,26,12,53,572 ---------------- Rs. 1,60,41,53,844 ------------------ Difference (-) Rs. 7,61,13,473 --------------------------------------------------------------- 8. The result of the enquiry was considered in the light of the materials gathered by the Excise Authorities also. The impact of excise duty on the trade was studied. Upto 28-2-1983, the basis of charge of excise duty on cigarettes was ad valorem. In 1982, the rate of excise duty was approximately 33 per cent of the assessable value. In 1983 budget the duty on cigarettes was converted to specific ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tral Excise Tariff, 1985: "The motivation was provided by the heavy incidence of duty which worked out to between 70 per cent & 77 per cent of the retail price and from 230 per cent to 340 per cent on the assessable.........aforesaid provisions could invite penal action, but only against the petty retailer who in situations where the sale price to him itself was at a price equal to or higher than the printed price leaving him no or inadequate margin, would be virtually helpless, and the wholesaler or the manufacturer who may have been privy to, or an abettor in, such infringement and indirectly its ultimate beneficiary would not get touched under this law." 10. It was alleged that the Assessee-company devised clever contrivances to cause generation of premium on the sale of cigarettes. The word 'clever contrivances" was borrowed from the report of Technical Study Group of Central Excise Tariff, 1985. Such contrivances were alleged to be used to cause additional generation of premium by exploiting the market situation. The WB/dealers were found to be privy to such transaction. The contrivance was catalysed. It was cognized under the nomenclature "Twin Branding System". The modus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clature was subtle. It was not easily detectable. The Assessing Officer reproduced the photographs of packets in the order of assessment. There is a famous Chinese saying that a picture is equivalent to thousand words. We are also reminded of the well-known dictum of law "Res IPSA Loquitur" (the things speaks for itself). We, therefore, reproduce the pictures along with the observation of the Assessing Officer as given in the order, vide Annexure. 12. Delving deep into the design of the "Twin Brand Theory" the Assessing Officer found that with the change in regard to the basis of the charge of excise duty [with effect from 1-3-1983], the prices of all existing brands were required to be revised upwards, e.g. the price of Panama Virginia Special had to be revised upwards from an ex-factory price of Rs. 60.87 and a printed price of 0.75 to an ex-factory price of Rs. 102 and a printed price of Rs. 1.25. No premium was charged from the trade for the sale of Panama plain cigarettes marketed to them under the brand name "Panama Virgina Special' during the period commencing from 1-3-1983. However, the moment the revised prices were accepted by the trade and the consumers, the assessee ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al of "Panama Special Virginia" (ex-factory price of Rs. 88 per m. and a printed price of Re. 1.00) by "Panama Virginia" (ex-factory price of Rs. 72 per m. and a printed price of Rs. 80) w.e.f. June 1984. 14. Briefly, while making the addition on account of 'premium on sale of cigarettes', Assessing Officer considered the following facts: (i) assessee-company is a leading manufacturer of cigarettes in the country, from the scrutiny of the financial results it appears that the assessee sustained loss on the sale of cigarettes; (ii) the invoice price of cigarettes is lower than the direct manufacturing cost; (iii) the high incidence of excise duty - the basis of charging of excise duty was the printed price of cigarettes, it was therefore, convenient for the assessee to under invoice the product; (iv) the assessee adopted a "dubious market strategy" by introducing the "Twin Branding System." 15. The aforesaid factors were alleged to be the bedrock for making addition. In order to fortify the foundation, the Assessing Officer relied on various documents, evidence and material. It was concluded that the twin branding system was contrivance, which was used for the generation of cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Authorities. Apropos the twin brand theory, it was contended before the Assessing Officer that smokers are very choosy about the brand and they know the difference. The word 'Twin Brand' according to the learned counsel was a misnomer. Actually the brands were different. Not the same brand. Besides on well-known consumer products charge of premium is a universal phenomena. Manufacturer cannot be held responsible for that. 18. In order to buttress the existence of the twin branding theory, Assessing Officer relied, inter alia, on the following facts: (a) the reduction of price of newly introduced one was never announced, (b) the brand was always been advertised by general particulars, viz. (i) Panama is a good cigarettes good to the last puf; (ii) Panama - mondy selection Gold Medal winning good to the last puf; (c) the prices on packages were illegibly imposed without ink. Accordingly, it was concluded that the distinction of brands on the basis of specific names like Special, Premium, etc. was only an eye wash for evasion of taxes. Assessing Officer conducted enquiry. He received information from Excise Authorities. Affairs of the assessee-company were looked into and invest....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s brought to it books, in the guise of income. 19. On the conspectus of these facts and considering the totality of circumstances, Assessing Officer held that the assessee was the beneficiary of the remittances of the drafts by its WBs. The concept of principal to principal basis for sale of goods or the operation of the bank accounts by persons outside the employment of the company were just legal facades used by the assessee to mask its clandestine operations. The assessee was thus the ultimate beneficiary of the premium generated on the 'twin branding principle', Assessing Officer on that basis made addition in its income. As in the preceding assessment year, a deduction of 10 per cent of the total generation was being left untaxed as the share of WBs, who were privy to such clandestine operations. Thus the clandestine premium on the sale of cigarettes amounting to Rs. 26,20,51,000 was added to the income of the assessee for the relevant year of assessment. 20. The case was heard at length. On 4th July, 1994, Shri Salve, appeared on behalf of the assessee. The case was argued on 4th, 5th, 6th, 7th, 12th and 13th July, 1994 by Shri Salve. He argued the case for the assessment y....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y Sri R.C. Desai, Sri R.H. Toprani and Sri Rajkumar Lachhiramka. On 6-1-1995 written arguments were filed on behalf of the assessee. The revenue also filed written arguments. In view of the same the case was again fixed. Finally the hearing was concluded on 30-1-1995. 21. The learned counsel for the assessee vehemently argued that the additions made by the Assessing Officer to the appellant's assessable income in respect of alleged clandestine premium on sale of cigarettes are in gross breach of the principles of natural justice as they are based on: (a) Statement of witnesses, copies of which were not even given to the Appellant prior to the passing of the assessment order; (b) In fact some of the statements relied upon by the department have not been furnished even as of now; (c) Statements of witnesses which were not offered for cross-examination though asked for by the Appellant; (d) Materials which were not intimated to the appellant prior to passing of the assessment order but copiously used in support of the conclusion reached in the order. In fact, some of these materials have not been communicated to the appellant till this date. It was submitted that none of these ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ay that the assessee did not complied with certain notices and letters issued to it by the Income-tax Department. On this ground cross-examination of witnesses and disclosure of materials cannot be denied. Sri Dastur said that the proceedings were effectively started by the Assessing Officer only in December 1987 (as per record these were started in March 1987) and most of the notices were issued in January /February 1988. 25. According to Sri Dastur the Assessing Officer denied cross-examination to the assessee only on the ground that the "conclusions have been arrived at mainly on the basis of documentary evidence and the fact of remittance of demand drafts in fictitious names by WBs of the assessee" and that "secondary support is being taken from the statement of witnesses". It was argued that reasons given by the Assessing Officer have no substance. The Assessing Officer's concept of documentary evidence is misconceived and is directly contrary to the judgment of the Supreme Court in Shaduli's case. 26. The learned counsel stated that the CIT(Appeals) justified non-grant of cross-examination on entirely different grounds, which were never raised or applied or even contemplate....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provided in order to ensure that a just decision be given on the dispute in hand. It relates to the correctness and fairness of the decision-making process. It does not depend on the view taken by the authority on the merits of the case. A litigant is entitled to natural justice even if the authority is of the view that the litigant has no case at all. For this proposition reliance was placed on the decision of the Apex Court rendered in the case of S.L. Kapoor v. Jagmohan [1984] 4 SCC 379,392, we reproduce the portion read before us from the said judgment: "19. Megarry, J. discussed the question in John v. Res. He said - 'It may be that there are some who would decry the importance which the courts attach to the observance of the rules of natural justice. When something is obvious, they may say, 'why force everybody to go through the tiresome waste of time involved in framing charges and giving an opportunity to be heard? The result is obvious from the start. Those who take this view do not, I think, do themselves justice. As everybody who has anything to do with the law, well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents are relied upon by the revenue have to be offered for cross-examination. The Apex Court in the case of K.T. Shaduli Grocery Dealer made it clear that cross-examination has to be afforded were the statement/materials relied upon form an integral part of the materials on the basis of which the order by the taxing authorities has been passed. 29. Coming to the judgment of Bombay High Court given in the assessee's own case by Justice Pendse, the learned counsel submitted that this judgment directly covers the present case. It is important to note that the judgment - (a) is of jurisdictional High Court; (b) is in the appellant's own case; (c) deals with the same allegations; and (d) is concerned with the same witnesses. 30. It was further stated that revenue cannot rely on certain statements or materials to bolster or strengthen its case against the assessee and seek to contend at the same time that the statements or materials only indirectly support the department's case, and the assessee has no right to cross-examination or inspection. No principle of law and not a solitary judicial decision supports the approach of the revenue. The correct and settled rule is that if a sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the appeal for the assessment year 1984-85 speaks for itself. If the factual position and the record were the same in these two assessment years, then there would be no need to consider the record of the assessment year 1985-86 for deciding the appeal for the assessment year 1984-85. Further, the department should then agree to; (i) the appeal for the assessment year 1984-85 being decided on the record for that assessment only; (ii) the decision for the assessment year 1984-85 is concluding and covering subsequent years as well; (iii) in the said order of the Tribunal paras 1 to 50 show that the Tribunal considered payments made to certain alleged fictitious accounts and withdrawals therefrom for meeting of expenses allegedly by GTC and alleged collection of premium, the Tribunal did not consider the case of the department, as in the present appeals, which is built, inter alia, on statements of Bank Managers concerned payments into these accounts and operations of these accounts, the Tribunal found upon examination of persons who spoke about the generation of premium and payments from these accounts; (iv) in the assessment year 1984-85, the department did not make out any ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hoc genus omne, the matter should be tested on the touchstone of the ratio laid down by the Courts in several decisions relied upon. These decisions were not available before the Tribunal for the assessment year 1984-85. 34. Sri Dastur pointed out those cases where an absolute right of cross-examination cannot be claimed by the subject: {a) where the statement of the witness relates to general trade opinions on some general matters concerning the trade or industry as a whole and does not concern the assessee specifically. Manindra Nath Chatterjee v. CCE [1977] Tax LR 175. (b) where it is known that giving cross-examination would expose the witness to a danger to life or limb (as in the case of Rajendra Medical College); (c) where it should not be granted for the reason that the sources of information would otherwise cease to exist as in the case of Satellite Engg. Ltd. v. Union of India [1983] EIT 2177 Bom. (d) where the cross-examination asked for is meaningless, as for example, where the assessee does not dispute the fact deposed to by the witness (as in Kishanlal Agarwal v. Collector of Land Customs AIR 1967 Cal. 80; (e) where the assessee had not asked for cross-examinati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e basis of the following: (i) the contents of the news report of November 1987 and March 1988. The conduct of the Assessing Officer in declining to disclose material and permit cross-examination. (ii) the conduct of the Assessing Officer-allowing cross of examination only of Alok Dhandania and that too in convoluted and restricted manner so that in effect it is rendered meaningless. (iii) commencement of dictation ol assessment order without even waiting for the assessee to reply to the show cause dated 14-3.1988. (iv) passing of assessment order at 9.30 A.M. on 21-3-1988 and posting the same by insured and registered post notwithstanding the notice served on him by the appellant's advocate regarding High Court suit. These facts according to Sri Dastur are objective factors which created reasonable apprehension of bias in the mind of any reasonable person. 39. Our attention was also invited on the letter dated 17th March, 1988. This letter reads as under: "Extremely confidential Bombay, 17th March, 1988. To Shri Gautam Kar, ITO, Central Circle-IX Range-II, Bombay-400 020. Sir, We wish to place on record as under: 1. Since a few months' prior to November 1987, when a fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....could lead to the need for further cross-examination of witnesses. It was, therefore, submitted that this is not a case where a remand report can be called for by the Tribunal or where the matter can be sent to the CIT(Appeals) or where the Tribunal itself can record evidence and offer cross-examination. 41. Shri R.C. Desai, learned standing counsel for the revenue appeared along with Shri R.H. Topparani. The relevant documents and papers were filed. First Sri Desai dealt with the point apropos the existence of 'BIAS'. Our attention was invited on the news item in the Times of India dated 21-11-1987. This is reproduced here as under: "The Times of India, dated 22nd November, 1987. By. S. Kumar Bombay, November 21. An Income-tax Officer probing corporate tax evasion in finding himself in trouble. Someone is alleged to have forged his signature, opened a bank account in his name and deposited Rs. 9 lakhs. The pay-in-slips were promptly supplied to a Member of Parliament who complained to the Union Finance Minister. The episode came to light last week Mr. Gautam Kar, the ITO in the Central Wing, lives in Bhandup. The two companies exclusively under his charge are Golden Tobacco Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....This is reproduced as under "The Times of India, Bombay, Friday November 27. 1987. Bombay, False Charges Sir - Our attention has been drawn to your news item (November 22/23) in which a reference is purported to have been made by your correspondent to a statement attributed to a cigarette distributor of GTC Industries Limited saying that he was introduced to a dhoti-clad individual by a person purported to be a wholesale buyer of GTC for opening an account in a bank in the name of an Income-tax Officer having exclusive assessment jurisdiction over GTC and Godfrey Philips India Limited. The item has also made a reference to alleged tax evasion by GTC Industries Limited in respect of the assessment year 1984-85. Neither your correspondent nor anybody from your editorial desk cared to get in touch with us to cross-check the correctness or otherwise of these serious allegations against our company. We state that the items casts aspersions on and implicates GTC in the reported incident and is totally devoid of any truth and is designed to malign and defame our company. We reiterate that our company has nothing to do in any manner with the alleged opening or operation of any bank ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d stressed that had there been the slightest possibility of bias, the assessee would have immediately asked for transfer of the case and would not have allowed the proceedings to continue without any contention of bias being raised. In this connection, following documents were produced before us: (i) Letter dated 19-12-1987 wherein the assessee stated as under: "We wish to bring to your notice the fact that the show-cause notice F. No. V/PI/15-6/86/B-II, dated 4-4-1986 forms part of adjudicating proceedings which are sub-judice and our parting with the copy is likely to cause prejudice to our hearing before the various authorities. As such kindly do not insist on us to provide you the copy of the above show-cause notice." (ii) Letter dated 20-1-1988 This was not given in reply to show-cause notice dated 30-12-1987. (iii) Letter dated 4-2-1988 This is reproduced here as under: "The ITO, Central Circle-I" X, Range-II, Old CGO Bldg., Annexure, M.K. Road, Bombay-400 020. Dear Sir: Kindly refer to your show cause letter No. CC-IX/Show Cause/ 87-88 dated 12-2-1988 received by us in the late hours of 15-1-1988. The material furnished in the aforesaid letter is directly connected wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng year for which assessment proceedings have been taken up simultaneously should be passed expeditiously." 45. Shri Desai also invited our attention on the letter dated 23-3-1988 to CIT. Our attention was also invited on the report appeared in the Times of India dated 23-3-1988. This reads as under: "Times of India dated 23-3-1988. HC stay comes too late in I.T. case By S. Kumar Bombay, March 22 Hours before the Bombay High Court restrained the assessment of income of the Golden Tobacco Company (GTC) by an Income-tax Officer (ITO), the Officer concerned completed the assessment here yesterday and held that the company had concealed income of about Rs. 52 crores in two years. The dramatic developments in the case resemble the proverbial tale of the hare and the tortoise. The proceedings between the Income-tax Department and the GTC regarding assessments for the years 1985-86 and 1986-87 began a year ago and the ITO sought a reply from the company on some pending issues. The reply was to be filed before March 18. The company sent a letter on March 17 seeking extension of time till March 21 as March 18 was a state holiday. Also the company has been pressing for the transfer of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e." 46. Sri Desai contended that there is absolutely no material on record to impute bias against the ITO. The assessee contended on the baseless assumption that there was reasonable apprehension in its mind about the fairness of the administrative justice. One cannot imagine things which do not exist and then make it a foundation for its apprehension. Sri Desai vehemently contended that if it is left to litigant to imagine bias in the mind of the judge without any proof and if he complains of apprehension about the fairness of justice, it would be impossible for a judge to render justice, in that eventuality, a judge who is not favourable will be termed as a biased judge. 47. Coming to the suit proceedings vide advocates note dated 18-3-1988, Sri Desai submitted that Assessing Officer was not legally bound to take cognisance of suit proposed to be filed by the assessee, as the same was barred by section 293 of the Income-tax Act, 1961. The section reads as under: "Section 293. No suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act, and no prosecution, suit, or other proceedings, shall lie against the Government or an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rgued that there was absolutely no ground whatsoever either on facts or in law for alleging bias on the part of the ITO and the assessee's contention in this regard was baseless and untenable. 51. Apropos, the applicability of the dictum 'Audi Altarm Paltram', Shri Desai submitted that right of cross-examination does not come within the ambit of the rules concerning the natural justice. This right depends upon the facts and circumstances of each case. Shri Desai distinguished the cases relied upon by Sri Dastur on this aspect and submitted that there is no force in the contention that ratio of the decision cited supra, support the view that right of cross-examination is part of natural justice. Sri Desai relied on the following precedents: 1. State of Gujarat v. Mohanlal Jitamalji Porwal [1987] (29) ELT 483 (SC) 2. Kishanlal Agarwalla's case 3. Satellite Engg, Ltd.'s case 4. Kanungo & Co. v. Collector of Customs [1983] ELT 1486 (SC) 5. Union of India v. Tulsiram Patel AIR 1985 SC 1416 6. DCW Ltd v. CCE [1990] (46) ELT 233 (Mad.) 52. In regard to the applicability of Justice Pendse's order dated 5-9-1994 in Excise matter, writ petition No. 1805 of 1994 Sri Desai submitted th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....160 ITR 417 (Punj. & Har.) and M.K. Mohammad Kunhi v. CIT [1973] 92 ITR 341 (Ker.) It was stated that the assessee was evading cross-examination of its WBs. In reply to CIT(Appeals)'s notice dated 3rd March, 1992, the assessee selected only 2 WBs out of 100 WBs for cross-examination. The first one from Bombay (Uma Maheshwari) was not traceable. The other Tobaccowalla of Lucknow, had dissolved its firm and was not having books of account for the relevant periods. The assessee merely made a show of comply with the said notice. Shri Desai also referred to the ITO's notice dated 18-3-1987 to show that the assessee did not file affidavits which it had agreed to file in support of its claim that no premium was being generated or charged on sale of cigarettes. Sri Desai also invited our attention on assessee's letter dated 3/6th August, 1992 addressed to the CIT(Appeals). "Further, since it has all along been the case of the assessee that the cigarettes manufactured by it were sold at a premium as alleged and further that no part of such premium ever came back to the assessee, the assessee would like to adduce evidence both oral and documentary in support of its defence before your goods....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Haria (who did not cross examine V. Sunder). Sri Desai also dealt with each of the items given in the list. He read out the statements/letters of Pawan Bhartya, Ramchandra Bhambhid Mittal, Sunil Bubna and Mukesh Agarwal, which were part of assessment proceedings for the assessment year 1984-85. 58. Sri Desai explained that it was not possible for the revenue to trace credits or drafts to Bank Accounts because of several factors, such as them was considerable time gap between the date of purchase of drafts and their deposit, there were accounts in the same name in different branches or banks, the drafts were often discounted and were deposited in bunches. Referring to the list filed by the assessee concerning the violation of principles of natural justice, Sri Desai invited our attention on- (a) ITO's notice dated 13-3-1987 (b) Copies of 265 drafts handed over to Mr. Kamdar (c) ITO's notice dated 16-2-1988 in regard to income from re-distribution of liquor. Sri Desai also invited our attention on letter dated 12-1-1988, given by the ITO. The said letter is reproduced here as under: '11. In ground No. 18 of your grounds of appeal before CIT(Appeals), Central-I, Bombay, for Asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Neither the assessee nor Ashish Trading Co. appeared on 3-3-1988 though Mr. Dhandhania was present, in response to ITO's summons. ITO on his own accord, provided a second opportunity to the assessee by fixing date for cross examination on 10-3-1988, by his letter. Even on that date neither assessee nor Ashish Trading Co. appeared for cross-examining Mr. Dhandania, who had appeared before the ITO. It was only on the following date that the assessee raised untenable objection that ITO had not issued notice to Ashish Trading Co. to remain present for cross-examination of Mr. Dhandhania. It was pointed out by Sri Desai that assessee claimed that Ashish Trading Co. was its pucca adatiya and all the transactions of purchase and sales were carried by Ashish Trading Co. in its own name. It was submitted that in these circumstances, it was possible on the part of assessee to enforce the presence of Ashish Trading Co. for the conduct of cross-examination of Mr. Dhandhania on his behalf. ITO was under no obligation to call upon Ashish Trading Co. in these circumstances. 61. Sri Desai vehemently contended that principles of natural justice cannot be used to the advantage of person who wants ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lteram Partem had to wait for judicial notice till 1723. One Dr. Bentley was served with an originating process from the University of Cambridge. He not only ignored the process but went even to the extent of suggesting that the Vice-Chancellor acted like a fool. Without hearing Mr. Bentley in his defence the University straightaway deprived him of his degrees. Thereupon, Dr. Bentley sought redress in the Court of Justice. The Court of Kings Bench declared the action of the University a nullity on the ground that they had failed to give Dr. Bentley an opportunity of appearing before the University and presenting his case. The principle of Audi Alteram Partem was enunciated with religious refinement by Fortescue, J. in these terms: "The laws of God and man both give the party an opportunity to make his defence if he has any. I remember, to have heard it observed by very learned man upon such an occasion, that even God himself did not pass sentence upon Adem, before he was called upon to make his defence. Adam (says God) where art thou? Has thou not eaten of the tree, whereof I commanded thee that thou should not eat? And the same question was put to Eve also. (R.V. The Chancellor, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rue that the concept of natural justice is not very clear and, therefore, it is not possible to define it; yet the principles of natural justice are universally accepted and enforced. As against criticism of vagueness of concept of natural justice, Lord Reid in the historic decision of Ridge v. Baldwin 1964 AC 40 observed: - "In the modern times opinions have sometimes been expressed to the effect that natural justice is so vague as to be practically meaningless. But I would regard these as tainted by the perennial fallacy that because something cannot be cut and dried or nicely weighed or measured, therefore, it does not exist......" 67. We now proceed to decide the issue apropos the existence of BIAS as alleged by the assessee against Shri Oautam Kar (ITO). The first maxim of natural justice "Nemo Judex in Causa Sua" is based on three principles: (i) no man shall be a judge in his own cause; (ii) justice should not only be done but manifestly and undoubtedly be seen to be done; (iii) judges, like Ceasor's wife should be above suspicion and, therefore, anything which tends or may be regarded as tending to cause such a person to decide a case otherwise than on evidence must be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and registered post notwithstanding the fact that the notice was served on him by the appellant's advocate-regarding High Court suit; (vii) the contents of the news report of March 1988 showing that the Assessing Officer went to the press. 71. Sri Dastur placed strong reliance on the decisions rendered by the Apex Court in the case of L.K. Ratna and Manak Lal's case. According to Sri Dastur, these decisions laid down the general proposition that reasonable apprehension of the existence of bias, vitiates order. The bias need not arise only because the adjudicating authority had previously participated in the proceedings. In the case of L.K. Ratna, the Apex Court observed thus: - "The nature of the function discharged by the Council in rendering its finding is quasi-judicial, and we are reminded of the observations of this court as far back as Manak Lal v. Dr. Premchand [1957] SCR 575 at pp. 580 & 581; AIR 1957 SC 5 at page 429: It is well settled that every member of a Tribunal that is called upon to try issues in judicial or quasi-judicial proceedings must be able to act judicially; and it is of the essence of judicial decisions and judicial administration that judges should b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... news item was given by Sri S. Kumar. He is not connected with the assessee. The news item describes that someone opened a bank account in the name of Sri Gautam Kar and deposited Rs. 9 lakhs. Complaint was made with the Minister Shri N.D. Tiwari, against the Officer. Investigation made against Officer revealed that Sri Gautam Kar was innocent. The signature of Sri Kar was forged by some dhoti clad man. It is not known who did this mischief. ITO did not make any allegation against the assessee. The matter left to be investigated by the due procedure of law. Sri Desai relied on the case of Duncan Agro Industries Ltd. wherein it was held that mere possibility of bias is not enough to disqualify Director (Audit) to function as adjudicating Officer - strong probability required for disqualification when institutional bias alleged. This judgment was rendered in the context of reward scheme. In the case of ITC Ltd the Calcutta High Court has held: "Ordinarily an authority is disqualified from adjudicating whenever circumstance points to a real likelihood that he will have a bias, by which is meant an operative prejudice whether conscious or unconscious in relation to a party or issue ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arred. 76. In regard to the contention that bias can be apprehended because ITO declined to disclose material and permit cross-examination and allowed cross-examination of Alok Dhandhania in a restricted manner, we are of the opinion that this does not prove the existence of bias. 77. Apropos the cognizance of suit, proposed to be filed by the assessee, our attention was invited on the decision of the Punjab and Haryana High Court in the case of Kashmir Singh Bhullar. In this case it was held that mere allegations of mala fide cannot confer jurisdiction on a court which it otherwise lacks. Section 293 of the Income-tax Act, 1961, specifically bars the jurisdiction of civil courts in proceedings under the Income-tax Act and hence, an allegation of mala fides, on the part of the authorities, will not invest the civil court with jurisdiction to try such a suit. We have also noted that suit proceedings vide advocate's note dated 18-3-1988, were not initiated in the Court or filed in the Court. No suit number was mentioned on the notice. Provisions of section 81 of the Civil Procedure was not complied with. Mandatory leave of the Court, as required under section 82 of the CPC, was not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ations and subsilentio determinations must be judiciously read by courts of co-ordinate jurisdiction." 80. In the case of K. Ramakrishnan it was held that: "A case is a precedent for what it explicitly decides and nothing more. The words used by judges are not to be read as if they are words used in an Act of Parliament. These words are not used after weighing the pros and cons of all conceivable situations that may arise. They constitute ajust the reasoning of the judges in the particular case, tailored to a given set of facts and circumstances. What is made relevant and binding is only the ratio decidendi and no more. The careful drafting-perhaps with reference to analogous statutes-the multiple reading in the Legislature and the discussions which go behind the making of a statute inject a certain degree of sanctity and definiteness of meaning to the words used by the Legislature. The same cannot be said of a judgment which deals only with the particular fact situation on hand. It will be too much to ascribe and read precise meaning to words in a precedent which the judges who wrote them may not have had in mind at all. Equally, it is not possible to impute an intent to render ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould amount to fair opportunity would depend upon the facts and circumstances of each case. If such a party makes a request to be allowed to cross-examine the person, who made the statement, for the purpose of meeting the statement or with a view to commenting thereon, such a request cannot, save in exceptional or special cases, be denied without violating the principles of natural justice." 86. In the case of V.K. Batcha Mohideen v. Joint Commercial Tax Officer [1971] 28 STC 450 (Mad.) the Court held: "The principles of natural justice have a very wide and extensive field for action. They enfold within their net the activities of the revenue in problems of taxation as well. They are not circumscribed to civil actions, since their arms can extend even to correct errors committed by taxing authorities in exercise of statutory powers under the taxation laws of the State." 87. Shri Desai in this connection invited our attention on the ratio of T. Devasahaya Nadar v. CIT[1964] 51 ITR 20 (Mad.), wherein it was held: "It cannot be laid down as a general proposition of law that the Income-tax Department cannot rely upon any evidence which has not been subjected to cross-examination. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National interest." 90. In the case of Kishanlal Agarwalla. The Court held: "Ordinarily the principle of natural justice is that no man shall be a Judge in his own cause and that no man should be condemned unheard. This letter doctrine is known as audi alteram partem. It is on this principle that natural justice ensures that both sides should be heard fairly and reasonably. A part of this principle is that if any reliance is-record must be placed on evidence or record against a person then that evidence or record must be placed before him for his information, comment and criticism. That is all that is meant by the doctrine of, audi alteram partem. That no party should be condemned unheard. No natural justice requires that there should be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t read the impugned order as having wrongly placed the burden on the appellant. What the impugned order does is that it refers to the evidence on the record which militates against the version of the appellant and then states that the appellant had not been able to meet the inferences arising therefrom. In our opinion, the High Court was right in holding that the burden of proof had shifted on to the appellant after the Custom Authorities had informed appellant of the results of the enquiries and investigations. 93. In the case of Tulsiram Patel. The Apex Court has held that: "So far as the 'audi alteram partm' rule is concerned, both in England and in India, it is well-established that where a right to a prior notice and an opportunity to be heard before an order is passed would obstruct the taking of prompt action, such a right can be excluded. This right can also be excluded where the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provisions warrant its exclusion; nor can the audi alteram partem rule be invoked if importing it would have the effect of paralysing the administrative process or where the need for promptitude or t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al Agarwallaa, "the danger of confusion has become real and natural justice is on the misleading road of sentimental potentiates." We recollect the famous saying of Justice Bernard Botein: "The law will never be entirely clear to any judge, just as a beautiful woman is always a bit of mystery to her lover. Were it otherwise each would lose part of her charm. But the wise judge, like the wise lover, will be the master of his true love, although he may not understand her completely and though she is sometimes too difficult for him." - Trial Judge 96. The appellant's basic contention is that the statement of witnesses and materials which are relied upon by the Assessing Officer in the assessment order to reach the conclusions and findings which are adverse to the assessee should be disclosed to the appellant and the witnesses should be offered for cross-examination. Supreme Court in the case of Suraj Mall Mohta & Co. laid down: "the assessee ordinarily has the fullest right to inspect the records and all documents and materials that are to be used against him. Under the provisions of section 37 of the Indian Income-tax Act the proceedings before the Income-tax Officer are judicial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion but his application was turned down by the STO. This act of the STO in refusing to summon Hazi Usmankutty and other wholesale dealers for cross-examination by the assessee clearly constituted infraction of the right conferred on the assessee by the second part of the proviso and that vitiated the orders of assessment made against the assessee." 98. It is pertinent to note that in the case of M.K. Thomas, it was held that the decision in K.T. Shaduli Grocery Dealer's case, cannot be understood as recognising a right of cross-examination as an invariable attribute of the requirements of reasonable opportunity. The Apex Court has stated the rule with sufficient elasticity and amplitude as to make the right depend on the terms of the statute, the nature of the proceedings or of the function exercised, the conduct of the party and the circumstances of the case. 99. "Whether in a particular case the particular party should have the right to cross-examine or not depends upon the facts and circumstances of a particular case. This is so, because the right to cross-examine is not necessarily a part of reasonable opportunity." This view was taken by the Calcutta High Court in the case ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l cease to have legitimacy." 104. 'No riddle is more difficult to solve, none has more persistently engaged the attention of thoughtful mind', says Allen, than the problem of the natural sense of justice. We have carefully considered the profile of the subject in the light of the latest developments. Principles of justice prohibit, determination without hearing. [Terminer sans over] Similarly, hearing without determination [Over sans Terminer] is also interdicted by the finer norms of justice. That all is required is impartial and fair hearing, and determination of disputes with utmost promptitude. The question whether or not any rules of natural justice had been contravened, should be decided not under any preconceived notions but in the light of the statutory rules and provisions. The violation or otherwise of any rule of natural justice must be a matter of substance not of mere form. It is important to keep in mind the caveat issued by the Apex Court AIR 1977 SC 965 that unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. 105. In our opinion right to cross-examine the witness who made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded off to Rs. 26,20,51,000 added in the total income. 108. To support the addition on account of premium recourse was made to the Pricing and Marketing Policies, adopted by the assessee and other incidental details. Modus operandi was examined. It was found that- (i) Large amount was remitted by different unrelated and unconnected WB's, in the form of demand drafts, in fictitious names to Bombay, Calcutta, Delhi, etc., and these demand drafts were encashed either through bank account standing in the same name as that of the payees or else were discounted. (ii) The advertisement expenses of the assessee-company were incurred through these secret bank accounts. (iii) Assessee-company donated the funds out of these secret bank accounts, viz., donation to Methodist Church out of transfer of funds from the a/c. of H.K. Patel (in assessment year 1984-85) and donation to the Festival of India Committee out of transfer of funds from the a/c. of Shree Associated [current A/c. No. 1724 in Indian Overseas Bank, Bandra West]. This amount was given at the behest of Sri Sanjay Dalmia, President-cum-Director-General of the Company. (iv) One of such bank a/c. was in the name of Moonlight Fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....diture, viz., advertisement, donation, etc. Some amount was re-introduced in the assessee's account by means of havala entries and reflected as commission and trading income. 110. From the aforesaid discussion, it is clear, that addition was not made merely on the basis of findings given apropos the secret bank account's, disbursement made out of such account's or on the strength of havala entries, by which the bogus commission and trading income said to have been reintroduced in the books of the assessee. These aspects are only secondary, subordinate and were used to buttress the main matter connected with the amount of addition. The violation or otherwise of any rule of natural justice must be a matter of substance not of mere form. Natural justice should always be used for the furtherance of the cause of justice. The palladium of justice requires, that law suits be not protracted, otherwise treat oppression might be done under the colour and pretence of law [interest republica ut sit finis litum]. These loafty principles which are harbinger of justice cannot be used for dragging the justice in the labyrinth. We have already indicated that adverse evidence and material, relied u....