R.G. Bandari and Company vs Joint Commercial Tax Officer

Ramaprasada Rao, J.—The petitioner who is the sole proprietor of a business concern M/s. R. G. Bandariand Company carrying on

business at No. 11/2, Narayana Mudali Street, Madras-1, seeks for the issue of a writ of certiorari to quash the order of the respondent dated

28th February, 1965, which by itself is an order of assessment, no doubt, based on the best judgment method. The facts are as follows :

The petitioner besides having a business premises at No. 11/2, Narayana Mudali Street, Madras-1, is said to have been residing at No. 7,

Kalappa Achari Street, Madras (Park Town) till 30th June, 1964. Thereafter, he left Madras and he had no residence of his own excepting his

business premises. On the 2nd July, 1965, the special police establishment searched both the business premises and the residential premises at No.

7, Kalappa Achari Street, Madras, apparently under the impression that the petitioner continued in the said premises even after 30th June, 1964. It

is common ground that on the date of search the petitioner was not in the premises but one Mr. Valchand. The police recovered certain materials

from both the premises searched by them and this information was apparently made available to the commercial taxes department. The respondent

after having been apprised of such a search and seizure by the police establishment, contacted the concerned officials and took extracts relating to

the business of the petitioner and proceeded to complete the assessment for the year 1964-65 on the strength of information obtained by the

police, but which information was made available to the commercial taxes department. On the foot of such extracts made by one of the officers of

the department, a notice of pre-assessment was given on 23rd November, 1965, and the petitioner was called upon to file his objections against

the proposal. It is stated in the pre-assessment notice that the residential premises of the petitioner was searched along with his business premises

and certain records were seized by the police and based on such reports obtained by the commercial taxes department the respondent proposed

to add a turnover of nearly Rs. 14 lakhs to the returned turnover of only Rs. 85,870.94. On receipt of this pre-assessment notice, the petitioner

requested the respondent to furnish him with certified copies of the documents on which the proposal to assess is based, as by then, he was

emphatic that he was not residing in No. 7, Kalappa Achari Street on 2nd July, 1965, when the premises was searched by the police department.

The respondent replied on 2nd December, 1965, that he could go over to the respondent''s office as arrangements have been made to cause an

inspection of the incriminating material in the office of the Commissioner of Police. From the records it is seen that the commercial taxes

department took steps to see that the records seized by them and on which their proposal to assess was based were made available to the

assessee during working hours. The petitioner was called upon to go over to the office of the respondent on 23rd February, 1966. The petitioner

sought an adjournment on that day through his Advocate and he requested not only for a postponement of the date of inspection but also to

arrange for such inspection of the documents on any date in the month of March, 1966. To this counsel''s reply dated 25th February, 1966, no

answer was given and the impugned order of assessment was made on 28th February, 1966. The impugned order reflects the quantum of tax,

penalty etc. payable by the petitioner and practically repeats what the provisional assessment notice contains. But in the final order of assessment

the respondent disbelieved the contention that the petitioner has ceased to be a tenant of No. 7, Kalappa Achari Street, Madras-1, on and after

30th June, 1964. It is also common ground that the petitioner has filed an appeal against the order sought to be quashed in these proceedings and

the appeal is still pending before the Appellate Assistant Commissioner concerned.

Mr. Srinivasan, learned Counsel for the petitioner, says that this is a case in which there is an open violation of the principles of natural justice.

The department did not secure the incriminating material by any overt act on their part or by a search or seizure contemplated u/s 41 of the Madras

General Sales Tax Act. They purport to rely upon some materials alleged to have a nexus or connection with the business of the petitioner and if

they do intend relying upon such material seized from a totally unconnected department, namely, the police, it is the duty of the revenue before they

could assess on such material to establish reasonably a connection between the material or the records so seized and the business of the petitioner.

This contention is well founded. No doubt, the revenue is entitled to rely upon information, upon material and also upon records seized by a

department like the police department with which absolute co-ordination is essential for proper administration of the State and for the due

safeguarding of the State revenues. But that does not mean that the revenue, and in this case the commercial taxes department, can take it for

granted that the material seized by the police department from a premises, which according to the petitioner was not his residential premises, can

be the basis for a best judgment assessment without taking any effort to connect the material so seized with the petitioner and his business. It is not

even stated that the revenue has taken all steps to verify stitch material by taking statements from the parties concerned, and that the assessee who

is the aggrieved person was given the opportunity to cross-examine such persons who were prepared to depose against him. Natural justice is not

a vague theory or a theoretical abstraction. It is based on practical principles and has to be visibly and demonstrably seen as not having been

violated from the records themselves and cannot be attributed to mental reservations and the subjective satisfaction of the tax department. If the

revenue intends to exercise their power to assess the assessee on the best judgment method basing its conclusion on alleged incriminating material

secured by them, either by themselves or through other means, such material should, in the first instance, be made available to the aggrieved

person. If the material is further processed through by the revenue and strengthened by statements given by third parties, which again would

certainly be prejudicial to the assessee, these statements by themselves cannot be the foundation for action, unless the aggrieved assessee is given

an opportunity to cross-examine such persons reasonably, though not as envisaged under the Evidence Act. If this is not the reasonable formula

which has to be observed by the revenue for invoking the ""theory of best judgment method"" in the circumstances stated above, then it may lead to

anomalous results for the assessee has to suffer the tax and penalty without himself being given an effective or adequate opportunity to canvass the

propriety or correctness of the incriminating material which forms the basis of the assessment and without even having the opportunity to cross-

examine those persons who were prepared to speak against him. In the instant case, the commercial taxes department and the police department

exchanged their records, and the revenue is said to have enquired some persons behind the back of the assessee and ultimately all such materials

which were screened from the petitioner formed the basis of the so-called ""final assessment"". In these circumstances, I am of the view that there

has been a violation of the principles of natural justice. The procedure adopted by the revenue not only offends the principle of audi alteram partem

but also if accepted would give the go-by to the well-known rule that a person to be charged with anything which is not normal should be given an

effective opportunity to explain the projected charge. In the instant case, he was asked to be present in the office of the respondent for purposes of

inspecting the material or records in the office of the Commissioner of Police on 23rd February, 1966. Promptly there was a request for

adjournment through counsel. A fair request is also made for a fresh arrangement of inspection of the documents in March, 1966. This letter is

dated 25th February, 1966; but a few days later, the impugned order was passed without conceding the reasonable request made; by the assessee

through his counsel. The completed assessment, following the rule of best judgment, is thus vitiated. As I have already given my reasons, I am of

the view that the impugned order suffers from an error apparent and it has to be corrected.

In the case before me, the petitioner has already filed an appeal and has availed himself of the statutory remedy under the Madras General Sales

Tax Act. The appeal is now said to be pending before the Appellate Assistant Commissioner. In this state of affairs, which was voluntarily chosen

by the petitioner himself, I, in my own discretion, instead of issuing the rule nisi as prayed for, prefer to make the following directions in the

alternative.

The Appellate Assistant Commissioner shall give every reasonable opportunity to the petitioner who is now before me to cause inspection of the

incriminating material on which the assessment is based and thereafter give the petitioner an opportunity to explain the records as well. If the

department intends to rely upon any statement made by third parties then such persons shall be produced by them before the Appellate Assistant

Commissioner for the purpose of cross-examination so that not only the records can be complete but justice can be said to have been done. No

further directions are necessary.

In the peculiar circumstances of this case, wherein an addition of a turnover of nearly 14 lakhs was made by the revenue, without following the

essential principles of natural justice, the Appellate Assistant Commissioner shall proceed with the enquiry as directed above without demanding

the tax which would flow from the impugned order in question.

Writ Petition No. 605 of 1966.--In view of my order in W.P. No. 604 of 1966, the only order that can be passed is to direct the respondent to

keep the file relating to the assessment year 1965-66 pending until the appeal for the year 1964-65 is disposed of by the appellate authority and

thereafter deal with it in accordance with law. There is no necessity to issue a writ of prohibition as such, excepting the direction as above. No

further orders are necessary. The writ petition is dismissed. No costs.