2015 (1) TMI 808 - HC - VAT and Sales Tax

Opportunity of being heard Incriminating material intended to be used supplied to petitioner or not - Whether a dealer is entitled to be supplied with the materials intended to be used against him in the assessment proceeding for his rebuttal Held that - It is shocking to see as to how very casually an order of escaped assessment u/s 43 of the OVAT Act has been passed raising huge demand of ₹ 8,34,77,727/- utilizing various allegations against the dealer without confronting the same to the dealer - in C. Vasantlal and Co. v. Commissioner of Income-tax, Bombay City 1962 (2) TMI 7 - SUPREME Court and observed that the ITO is not bound by any technical rules of the law of evidence - It is open to him to collect materials to facilitate assessment even by private enquiry - But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it - an assessing authority is entitled to collect the materials behind the back of the assessee - all the materials so collected by the assessing authority need be confronted to the assessee - only those materials which the assessing authority intends to utilize against the assessee during assessment are bound to be disclosed to the assessee - a dealer is entitled to be supplied with the materials intended to be used against him in the assessment proceeding for rebuttal and the dealer's explanation with regard to those materials is bound to be considered by the AO in the assessment order either accepting or rejecting the same. Stage at which the copy of the seized documents should be supplied to the petitioner dealer - Should it be supplied before or after production of books of account for verification by the assessing officer Held that - In order to plug the leakage of revenue, the fiscal statutes provide various measures to be taken by the departmental officers including surprise visit to the place of business, audit visit, establishment of check-post, inspection of goods in transit, etc. - Pursuant to such provisions, very often departmental officers used to pay surprise visit to the business premises of the dealer to find out whether all the transactions effected by a dealer in his day-to-day business are recorded in his regular books of account maintained for the purpose of paying tax - The inspecting officers while conducting inspection at the place of business of the dealer, invariably try to trace out such duplicate accounts - If any such account comes to their possession, they cross-verify the same with regular books of account maintained by the dealer and submit their verification report to the assessing officer alleging suppression of purchase and/or sale, if any, found on such verification - no opportunity of hearing has been afforded to the petitioner before passing the impugned order of assessment - the incriminating materials utilized against the petitioner in the assessment order have not been supplied to the petitioner to which the petitioner is entitled to thus, the order passed u/s 43 is set aside and the matter is remitted back to the AO for fresh assessment Decided in favour of petitioner.

Summary

Issues Involved:
1. Reasonable opportunity of hearing
2. Supply of incriminating material
3. Right to rebuttal in assessment proceedings

Issue-wise Detailed Analysis:

1. Reasonable Opportunity of Hearing:
The petitioner argued that the assessment order dated 26.11.2013 was passed without affording a reasonable opportunity of hearing. The petitioner claimed that the allegations in the fraud case report were not confronted to them, and no reasonable opportunity was given to submit an explanation against the allegations. The court observed that the assessment order did not reveal that the allegations were confronted to the petitioner. The court emphasized that the principles of natural justice were not followed, as the petitioner was not given a chance to rebut the adverse materials used against them. The court cited several precedents, including the Supreme Court's rulings in C. Vasantlal and Co. v. Commissioner of Income-tax and State of Kerala v. K. T. Shaduli Yusuff, which underscored the necessity of informing the assessee of the materials used against them and providing an opportunity to explain.

2. Supply of Incriminating Material:
The petitioner contended that the incriminating materials used in the assessment were not supplied to them. The court found that neither the order sheet nor the statement recorded from the petitioner indicated that the incriminating materials were confronted to the petitioner. The court highlighted that it is essential for the assessing authority to disclose the materials intended to be used against the assessee for rebuttal. The court referred to the Supreme Court's decision in Kishinchand Chellaram v. Commissioner of Income-tax, which held that materials collected behind the back of the assessee must be produced before them for rebuttal.

3. Right to Rebuttal in Assessment Proceedings:
The court reiterated that a dealer is entitled to be supplied with the materials intended to be used against them in the assessment proceeding for rebuttal. The court emphasized that the assessing officer must consider the dealer's explanation regarding those materials in the assessment order, either accepting or rejecting the same. The court cited its own decision in J.S. Refineries Ltd., which held that any material sought to be utilized against the dealer must be brought to their notice. The court further clarified that the stage at which the copy of the seized documents should be supplied to the petitioner is crucial. The court noted that part of the report containing allegations and the materials on which such allegations are based must be disclosed to the dealer for rebuttal if the assessing officer intends to use them against the dealer.

Conclusion:
The court concluded that no opportunity of hearing was afforded to the petitioner before passing the impugned order of assessment. The court also held that the incriminating materials utilized against the petitioner were not supplied to them. Consequently, the court quashed the assessment order dated 26.11.2013 and remanded the matter to the Assessing Officer to make a fresh assessment after confronting the adverse materials to the petitioner and considering their explanation. The entire exercise was directed to be completed within eight weeks. The writ petition was allowed to the extent indicated, with no costs.