The tax authorities have their own network of collecting information and gathering evidence. Efforts in this regard have been intensified in the past few years based on better field techniques and using cutting edge technology. Extensive computerisation of the tax administration has also been helpful.

Once the information is obtained and evidence is gathered, it is mandatory for the authorities to place some evidence before the assessee against whom it is to be used. He has to be given the opportunity to rebut the evidence gathered. Based on the objectives of the assessee, the tax department may finalise the assessments and make such additions to the taxable income as may be justified by the evidence which is collected.

An interesting judgment on this point has been given by the Allahabad High Court in Moti Lal Padampat Udyog Ltd v CIT (293 ITR 565). The facts in this case were that the assessee supplied vegetable oil to the traders including V. A cash book at the time of search in the premises of G showed that the assessee had received on-money of Rs1,25,559 from V. The assessing officer held the amount Rs 1,25,559 to be part of the receipt of the sale price of vanaspati oil which was sold by the assessee and treated the ?on-money? as its income. This was upheld by the tribunal.

Before the high court, it was submitted by the tax payer that in its letter dated June 13, 1977, addressed to the assessing officer, the assessing officer was requested to summon the partners of M/s Vishwakarma Oil Traders, Kanpur, and afford an opportunity to the assessee to cross-examine each of them. As no such opportunity had been provided, the rough cash book and the statements of the persons could not be used against it. He submitted that any evidence that is sought to be used against the assessee, which has not been recovered from the assessee?s premises, but instead is based on the statements given by the third person, can be used against the assessee only when an opportunity to controvert the same is given to the assessee, and not otherwise.

The opportunity to controvert also includes an opportunity to cross-examine such person. As in the present case the opportunity to cross-examination was not afforded, the assessing authority was not justified in drawing an adverse inference against the assessee on the basis of the entries found in the account books and the statements of the partners of M/s Vishwakarma Oil Traders. In support of this view, reliance was placed upon a decision of the apex court in Kishinchand Chellaram v CIT (125 ITR 713). On the other hand, the counsel for the tax department submitted that the assessee was having regular business transactions with M/s Vishwakarma Oil Traders and, therefore, the entries in the rough cash book of M/s Vishwakarma Oil Traders could not have been disbelieved particularly when it was seized during the search operation. A number of entries were found to have been recorded in the regular books of the assessee, which showed that it was a genuine piece of evidence.

After considering the arguments on both sides, the high court observed that it is not in dispute that the adverse material which was found by the income tax authority during the course of search in the business premises of M/s Vishwakarma Oil Traders had been placed before the assessee. The assessee was having regular business dealing with the firm. Some of the entries recorded in the rough cash book seized during the search operation, tallied with the entries recorded in the regular books of account of the assessee as also that of M/s Vishwakarma Oil Traders. The assessee was issued a copy of the rough cash book as also the statements of Gopal Das, Kanhaiya Lal and Badri Prasad. It had submitted its reply by letter dated June 13, 1977, and August 12, 1977. The explanation furnished by the assessee had been disbelieved. In the letter dated June 13, 1977, opportunities to cross-examine the partners and the employees of M/s Vishwakarma Oil Traders was sought for in the event their statements have not already been recorded with a request that they may be summoned and their statements on oath be recorded in the presence of the assessee.

This request was made in the event the statements had not already been recorded earlier. As the statement had already been recorded, the opportunity to cross-examine the persons did not arise. The assessee had ample opportunity to explain his case.

In Kishinchand Chellaram v CIT (125 ITR 713 (SC)), the facts were that the assessee had two offices- one at Bombay and the other at Madras. Some information was received by the assessing authority that the assessee had remitted a sum of Rs 1,07,350 by two telegraphic transfers from Madras to Bombay through bank. Enquires were made vide letters dated January 14, 1955, and February 10, 1955. The manager of the bank, vide letter dated February 18, 1955, replied that the telegraphic transfer of Rs 1,07,350 sent by the assessee from Madras was received by the bank at Bombay on October 16, 1946, and the amount was paid to an employee of the assessee on the same day.

This letter was not disclosed to the assessee. The application for telegraphic transfer was signed by a person giving the address as ?c/o the assessee?. Another letter dated March 9, 1957, was addressed by the bank to the assessee wherein it was stated by the manager that the bank had received a telegraphic transfer from the Madras office on October 16, 1946, favouring the same employee and this was remitted by the assessee through the Madras office. In this letter, there was endorsement referring to a summons dated March 5, 1957, issued by the assessing officer. This letter was also not disclosed to the assessee. The tribunal relied upon the two letters dated February 18, 1955, and March 9, 1957, and held that the sum of Rs 1,07,350 was the undisclosed income of the assessee.The apex court, on these facts, held that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, even without calling the manager of the bank to prove this letter, it could be taken into account as evidence. However, before the income-tax authorities could rely on it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it.

In the case of Moti Lal Padampat Udyog Ltd, the high court found that the copies of the rough cash book and the statements of the partners of M/s Vishwakarma Oil Traders which were recorded had been provided to the applicant and, in fact, the applicant had also submitted its reply. The court held that the applicant had proper opportunity to controvert the material gathered by the assessing authority and used against it. This was adequate compliance with the principles of natural justice.

Thus, the court rightly concluded that the additions made by the assessing officer were in conformity with the provisions of the Act and that the principle of natural justice as applicable to tax laws was fully complied with. Further, it was not necessary that the assessee should be given the opportunity of cross-examination. Under the tax law, it is enough if the assessee has the opportunity to rebut the evidence gathered by the tax officers on the basis of which the assessment is made.

The author is advocate, Supreme Court