9911796707
TMI Blog1977 (3) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... were not accounted for in the books of account maintained by the assessee. The assessee applied to the Sales Tax Officer for affording him an oppor- tunity to cross-examine Haji Usmankutty in regard to the correctness of his accounts, but this opportunity was denied to him and the Sales Tax Officer proceeded to make a best judgment assessment under section 17, sub-section (3) of the Kerala General Sales Tax, 1963. The assessee ap- pealed but without success and this was followed by a revi- sion application to the High Court. The High Court took the view that the assessee was entitled to an opportunity to cross-examine Haji Usmankutty before any finding could be arrived at by the Sales Tax Officer that the returns filed by the assessee were incorrect and incomplete so as warrant the making of 'the best judgment assessment and since no such opportunity had been given to the assessee, the High Court quashed the order of the Sales Tax authorities and remanded the case to the Sales Tax Officer for making fresh assessments according to law after giving an opportunity to the assessee to cross-examine Haji Usmankutty. The facts in Civil Appeal No. 575 of 1972 are almost identical, save ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no man should be: condemned unheard. It is indeed a re- quirement of the duty to act fairly which lies on all quasi judicial authorities and this duty has been extended also to the authorities holding administrative enquiries involving civil consequences or affecting rights of parties because, as pointed out by this Court in A.K. Kraipak and Ors. v. Union of India [1970] 1 S.C.R. 457. the aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice and justice, in a society which has accepted socialism _as its article of faith in the Constitu- tion, is dispensed not only by judicial or quasi judicial authorities but also by authorities discharging administra- tive functions. This rule which requires an opportunity to be heard to be given to a person likely to be affected by a decision is also, like the genus of which it is a species, not an inflexible rule having a fixed connotation. It has a variable content depending on the nature of the inquiry, the framework of the law under which it is held, the constitu- tion of the authority holding the inquiry, the nature and character of the rights affected and the consequenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsection (3) being satisfied, the Sales Tax Officer can, after making such inquiry as he may consider necessary and after taking into account all relevant materials gathered by him, proceed to make the best judgment assessment and in such a case, he would be bound under the proviso to give a reasonable opportunity of being heard to the assessee. But in the other case, where a return has been submitted by the assessee, the Sales Tax Officer would first have to satisfy himself that the return is incorrect or incomplete before he can proceed to make the best judgment assessment. The decision making process in such a case would really be in two stages, though the in- quiry may be continuous and uninterrupted: the first stage would be the reaching of satisfaction by the Sales Tax Officer that the return is incorrect or incomplete and the second stage would be. the making of the best judgment assessment. The first part of the proviso which requires that before taking action under sub-section (3) of section 17, the assessee should be given a reasonable opportunity of being heard would obviously apply not only at the second stage but also at the first stage of the inquiry, because the bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. Here, in the present case, the return filed by the assessee appeared to the Sales Tax Officer to be incorrect or incomplete because certain sales appearing in the books of Hazi Usmankutty and other wholesale dealers were not shown in the book's of account of the assessee. The Sales Tax Officer relied on the evi- dence furnished by the entries in the books of account of Hazi Usmankutty and other wholesale dealers for the purpose of coming to the conclusion that the return filed by the assessee was incorrect or incomplete. Placed in these circumstances, the assessee could prove the correctness and completeness of his return only by showing that the entries in the books of account of Hazi Usmankutty and other whole- sale dealers were false, bogus or manipulated and that the return submitted by the assessee should not be disbelieved on the basis of such entries, and this obviously, the assessee could not do, unless he was given an opportunity of cross-examining Hazi Usmankutty and other wholesale dealers with reference to their accounts. Since the evidentiary material procured from or produced by Hazi Usmankutty and other wholesale dealers was sought to be relied upon for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t accounted for in the assessee's book's of account. The Sales Tax Officer, after hearing the assessee, made an assessment to the best of his judgment under s. 17(3) of the Act read with r. 15 made under the Act. The Sales Tax Officer thus rejected the accounts of the assessee as they did not re- flect the goods said to have been purchased by Haji P.K. Usmankutty. The assessee sought an opportunity to cross- examine Haji Usmankutty with respect to the correctness of his accounts which were relied upon by the Sales Tax Offi- cer, but this opportunity was refused to him by the Sales Tax Officer as also the other appellate authorities. Simi- larly in the case of the respondent Nallakandy Yusuff, in Civil Appeal No. 575 of 1972, the return filed by the asses- see was rejected by the Sales Tax Officer on the ground that certain transactions shown in the accounts of some wholesale dealers were not reflected in his books of account and the opportunity asked for by the assessee for cross-examining the said wholesale dealers was refused to him. The order of the Sales Tax Officer was confirmed by the Appellate Author- ities under the Act. Both the assessees then filed a revi- sion ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment assessment, Lord RuSsell of Killowen in delivering the judgment of the Privy Council in Income-tax Commissioner v. Badridas Ramrai Shop, Akola (1937) 64 IA. 102, 114-115.observed as follows: The Officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying informa- tion. He must not act dishonestly or _vindic- tively or capriciously, because he must exer- cise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him. in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. These observations were quoted with approval by this Court in Raghbar Mandal Harihar Mandal v. State of Bihar 8 S.T.C.770. Mr. Gupte learned counsel for the appellant submitted that the main object of the best judgment assessment was to pena- lise the assessee for either not filing a retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. In these circumstances, therefore, we do not agree with Mr. Gupte that merely because the technical rules of evidence do not strictly apply, the right of crossexamination cannot be demanded by the assessee in a proper case governed by a particular statute. This Court further fully approved of the four proposi- tions laid down by the Lahore High Court in Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab (1944) 12 I.T.R. 393. This Court was of the opinion that the Taxing Authorities had violated certain fundamental rules of. natural justice in that they did not disclose to the asses- see the information supplied to it by the departmental representatives. This case was relied upon by this Court in a later decision in Raghubar Mandal Harihar Mandal's case (supra) where it reiterated the decision of this Court in Dhakeswari Cotton Mills Ltd.'s case (supra), and while further endorsing the decision of the Lahore High Court in Seth Gurmukh Singh's case( ) pointed out the rules laid down by the Lahore High Court for proceeding under sub-s. (3) of s. 23 of the Income-tax Act and observed as follows: The rules laid down in that decision were these: (1 ) Whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the manner in which the assessee can rebut those materials and the facts and circumstances of each case. It is .difficult to lay down any hard and fast rule of universal application. We would, therefore, first try to interpret the ambit of s. 17(3) and the proviso thereof in order to find out whether a right of cross-examination of witnesses whose accounts formed the basis of best judgment assessment is conferred on the assessee either expressly or by necessary intendment. Section 17(3) of the Act runs thus: If no return is submitted by the dealer under subsection (1) Within the prescribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing author- ity shall, after making such enquiry as it may consider necessary and after taking into account all relevant materials gathered by it, assess the dealer to the best of its judgment: Provided that before taking action under this sub-section the dealer shall be given a reasonable opportunity of being heard and, where a return has been submitted, to prove the correctness or completeness of such re- turn. An analysis of this provision would show that this sub- se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or due to animus or business rivalry or such other reasons which can only be established when the persons who are responsible for keeping the accounts are brought before the authorities and allowed to be croSs-examined by the assessees. This does not mean that the assessing authority is bound to examine the whole- sale dealers as witnesses in presence of the assessees: it is sufficient if such wholesale dealers are merely ten- dered by the sales-tax authorities for cross-examination by the assessees for whatever worth it is. In view of the express provision of the second part of the proviso, we are fully satisfied that the respondents had the undoubted right to crosS-examine the wholesale dealers on the basis of whose accounts the returns of the assessees were held to be incor- rect and incomplete. We are fortified in our view by a decision of this Court in C. Vasantilal and Co. v. Commis- sioner of Income-tax, Bombay City (1962) 45 I.T.R. 206, 209. where this Court observed as follows: The Income-tax Officer 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 us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nity would extend to such a right would depend upon the facts and circumstances of each case. We feel that the correct law on the subject has been laid down by a Division Bench of the Orissa High Court in Muralimohan Prabhudayal v. State 07 Orissa 26 S.T.C. 22. where the High Court, while adumbrating the 4th proposition, namely, as to how the assessee was to rebut the.., material used by the Department against him, observed as follows: It is the amplitude and ambit of this fourth proposition which needs examination. There cannot be any controversy that the assessee can adduce independent evidence of his own to disprove the particulars proposed to be used against him . A third party's accounts are proposed to be used against the assessee and if such accounts are relied on, the assessee's accounts are to be discarded If the assessee gets an opportunity by cross-examination, he can establish that the accounts of the third party are wrong and manipulated to suit the interest of the third party, or that they were intended to be adversely used against the assessee with whom the third party had inimical rela- tionship. It is difficult to accept the contention in such a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to the assessee to prove the correctness or complete- ness of the return submitted by him. Thus the requirement of the second part of the proviso to s. 17(3) is reiterated in r. 15. We understand that such a provision in the Act is peculiar to the Kerala Act and is not to be found in other sales-tax statutes which provide for best judgment assess- ment. Thus on a true interpretation of s. 17(3), the proviso thereto and r. 15, the inescapable conclusion would be that the assessee has been given stationary right to prove the correctness of his return by showing that the materials on the basis of which his return is found to be incorrect or incomplete are wrong and if for this purpose the assessee makes an expire prayer for cross-examining the wholesale dealers whose accounts formed the sheet- anchor of the notice issued to the assesee, he is undoubted- ly entitled to cross-examine such wholesale dealers. In view of the language in which the Rules are couched it seems to us that a determinative issue arises in this case--the Department taking the stand that the returns filed by the assessees are incorrect and incomplete, whereas the assessees contend that the 17--240SCI/77 retur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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