2019 (10) TMI 881 - HC - VAT and Sales Tax

Best Judgement assessment - rejection of books of accounts - assessee had been subjected to best judgment assessment on trading in wood/timber and manufacture and sale of packing boxes - opportunity of cross examination of the persons from whom the inquiries were made behind the back - HELD THAT - It is a settled principle in law that any adverse material that the assessing officer seeks to rely against the assessee must be first confronted to the assessee. In as much as, in the facts of the present case, that adverse material is in the shape of statements of third parties, the makers of the statement should have been first offered for cross-examination to the assessee - Even if the aspect of cross-examination is left aside for the moment, insofar as the inquiry that is sole basis of the adverse inference drawn against the assessee is found to have been conducted after the last date of the hearing in the assessment proceedings, no reliance whatsoever could have been placed on the same. The only course open to the assessing officer would have been to fix another date, in the assessment proceedings, and to allow the assessee time to respond to the adverse material that had been brought on record in the meanwhile. In absence of such course having been adopted, the assessment order that was based solely on such adverse material, could not be sustained - Revision allowed.

Summary

Issues:
Assessment proceedings based on best judgment assessment, denial of opportunity to cross-examine adverse witnesses, reliance on adverse material collected behind the back of the assessee, legality of dismissing the appeal without considering raised grounds and affording cross-examination opportunity.

Analysis:
The revisions filed by the assessee were against the order of the Commercial Tax Tribunal, which dismissed the appeals filed by the assessee and allowed the appeal by the revenue, restoring the assessment order for the assessment years 2003-04 and 2004-05. The assessee, initially disclosed as a job worker in sawing wood/timber, was treated as a trader in wood and manufacturer of packing boxes by the assessing officer. The Tribunal remitted the matter back to the assessing authority for proper inquiry to determine the actual activities of the assessee.

During the subsequent assessment proceedings, the assessing officer made inquiries behind the back of the assessee, which revealed that the assessee was engaged in the manufacture and sale of timber and packing boxes. The assessee raised objections regarding the denial of an opportunity to cross-examine the adverse witnesses, but both the first appeal and the Tribunal overlooked this crucial issue. The assessing officer failed to confront the assessee with the adverse material gathered during the remand assessment, leading to a lack of procedural fairness.

The High Court held that any adverse material relied upon by the assessing officer must be first confronted to the assessee, and the makers of such statements should be offered for cross-examination. Since some inquiries were conducted after the last hearing date, no reliance could be placed on such material. The Court found the reliance on a survey report to be perverse, as it did not support the claim of manufacturing packing boxes by the assessee.

While the Court would typically remit the matter for fresh assessment, considering the significant time elapsed since the assessment years and the collection of adverse material over a decade ago, it was deemed impractical to conduct meaningful proceedings at this stage. Therefore, the revisions were allowed, setting aside the Tribunal's order and directing the assessment to be completed on the returned turnover.

This judgment highlights the importance of procedural fairness in assessment proceedings, emphasizing the right of the assessee to confront adverse material and cross-examine witnesses. It also considers practicality in legal proceedings, balancing the need for justice with the feasibility of conducting assessments after a significant time lapse.