TMI Blog1995 (2) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... es, and advertisement expenses alleged to be used out of secret bank accounts. The assessee being aggrieved of the assessment order, preferred appeal thereagainst before the CIT(Appeals). The claim of the assessee was rejected by the CIT(Appeals). The assessee Preferred appeal against that order before the Tribunal. The validity of the order was assailed, inter alia, on the ground of natural justice. The assessee disputed the additions on merits also. 3. At the outset, both the parties requested that the first decision be rendered on the preliminary issue concerning the observance of the principles of natural justice while framing the order of assessment. On merits, it was requested that the case may be heard after the deliverance of decision on the preliminary issue. The appeal was, therefore, heard apropos the grounds concerning the canons of natural justice, 4. Briefly the facts - The assessee is engaged in the business of manufacturing of cigarettes. The factories are situated at Bombay and Baroda. Tobacco processing units are at Guntur and Hyderabad. It also gets the cigarettes manufactured through a number of jobs working units. Its popular brands are sold under the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es) (-) Rs. 20,59,57,913 ------------- --------------------------------------------------------------- 7. The above said analysis thus germinated the seed of suspicion in the mind of the Assessing Officer. He, therefore, proceeded further to find out the truth. The results were again viewed from a different angle, it came out that the invoice price of the cigarettes as reflected by the assessee in its record was less than the manufacturing cost. The element of excise duty was included while working the manufacturing cost. The working as done by the Assessing Officer is reproduced here as under: - --------------------------------------------------------------- Sale price of cigarettes(as per annual statement of accounts) Rs. 1,52,80,40,371 Materials cost 22,49,29,508 Manufacturing expenses 11,79,70,764 Excise duty 1,26,12,53,572 ---------------- Rs. 1,60,41,53,844 ------------------ Difference (-) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etail price per Excise duty 1000 cigarettes --------------------------------------------------------- Upto Rs. 60 Rs. 42 Rs. 61 to Rs. 170 Rs. 125 Rs. 171 to Rs. 300 Rs. 225 Rs. 501 to Rs. 550 Rs. 400 Rs. 551 and above Rs. 600 --------------------------------------------------------- w.e.f. 1-3-1987, the basis of charge of excise duty has been shifted to the length of the cigarettes, whether filter or non-filter cigarettes. 9. The Assessing Officer studied the system in the light of the material available. He did investigation of his own. It was observed by him that in reality the law was defined. The power to enforce the act vested with the State Government. In the absence of adequate machinery, malpractices prevalent in trading could not be controlled. To support this viewpoint, reliance was placed on the following observation of the technical Study Group of Central Excise Tariff, 1985: "The motivation was provided by the heavy incidence of duty which worked out to between 70 per cent 77 per cent of the retail price and from 230 per cent to 340 per cent on the assessable.........af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of twin branding was started during the period 1981-82 when e.g. Panama Virginia having ex-factory price of Rs. 85.11 per m. and retail price or Re. 1 per packet of 10 cigarettes was replaced by Panama Virginia Special having ex-factory price of Rs. 60.87 and a retail price of 0.75 per packet of 10 cigarettes, and panama Filter Kings having an ex-factory price of 173.46 per m. and retail price of Rs. 1.85 per packet of 10 cigarettes was replaced first by Panama Filter Kings Special having ex-factory price of Rs. 121.43 per m. and retail price of Rs. 1.45 per packet of 10 cigarettes and retail price of 1.45 per packet of 10 cigarettes and then by Panama Filter Kings Premium having an ex-factory price of Rs. 94.16 per m and a retail price of Rs. 1.10 per packet of 10 cigarettes. 11. It was observed by the Assessing Officer that the twin brands were introduced with some purpose. Packets were of identical designs and colour scheme. The change in the brand nomenclature was subtle. It was not easily detectable. The Assessing Officer reproduced the photographs of packets in the order of assessment. There is a famous Chinese saying that a picture is equivalent to thousand words. We ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilter Kings Special:" was introduced in the market with an ex-factory price of Rs. 145 per m and a printed price of Rs. 1.65 (later revised to Rs. 90 and Rs. 1.05 w.e.f. 7-8-1993. Both brands were sold to the trade as one brand and one price, the lower priced brand entailing premium on it. 13. Whenever on a future date, the assessee sought to increase its realisation on sale of a brand, the same was invariably done at the cost of Central Excise revenue. Here another sub-brand having a different permutation or combination of suffixes like 'Premium', 'Special', 'Standard', 'Regular', etc. to the generic name of a brand introduced at an even lower printed price, but was once again available to the consumer at the price of a higher priced brand bearing the same generic name, which was being marketed simultaneously, or else which after having set a standard for the market price of the brand of that generic name was withdrawn. Example may be given here of the withdrawal of "Panama Special Virginia" (ex-factory price of Rs. 88 per m. and a printed price of Re. 1.00) by "Panama Virginia" (ex-factory price of Rs. 72 per m. and a printed price of Rs. 80) w.e.f. June 1984. 14. Briefly, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was explained to be through WBs only on principal to principal basis. Once the goods sold out, assessee had no interest in it. A bleak awareness was admitted as to the charge of premium. It was attributed to the greed of the retailers. The charging of premium by WBs was said to be not within the knowledge of the assessee. It was stated that the assessee was monitoring advertisement and other expenses incurred by WBs for the sake of negotiating the consideration. 17. Apropos, the package designs and blended formula, it was stated that the twin brands got approved by the Central Excise Authorities. The blend specifications of the twin brand were different. The chemical analyses reports obtained by the assessee from Etta Laboratories Pvt. Ltd. for Panama Virginia and Panama Virginia Special and Panama Special Virginia was relied upon. The Assessing Officer did'nt accept this report because the samples for testing were given by the assessee. These were not drawn by the Central Excise Authorities. Apropos the twin brand theory, it was contended before the Assessing Officer that smokers are very choosy about the brand and they know the difference. The word 'Twin Brand' according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearly revealed that these were incurred on behalf of the assessee; (vii) The donation to Methodist Church out of transfer of funds from account of H.K. Patel revealed that the same was made by the assessee; (viii) The donation given by Shri Sanjay Dalmia, President-cum-Director General of the company to the 'Festival of India Committee' out of transfer of accounts from Associates also support the view that the 'secret accounts' belongs to the assessee. (ix) The address of the account of Moonlight Finances given to Punjab Sind Bank, Scindia House Branch, New Delhi, which is B-72, Himalaya House, 7th Floor, 23, Kasturba Gandhi Marg, New Delhi (C.A. No. 787) which is the specific office address of Mr. Umesh Khaitan, Sitting Director of GTC, once again establishes the nexus of the assessee. (x) The bogus commission receipts and profit on trading of goods other than cigarettes and tobacco shown by the assessee reveals that the assessee had access to large sums of unaccounted money which was brought to it books, in the guise of income. 19. On the conspectus of these facts and considering the totality of circumstances, Assessing Officer held that the assessee was the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in Income-tax proceedings also, the case was adjourned to 21-10-1994. Both the parties desired discussion. On 21-10-1994, Mr. Irani, Authorised Representative for the assessee appeared before the Tribunal. Mr. Desai on behalf of the revenue fairly stated that in view of High Court order dated 5-9-1994, it would be proper to hear the parties on preliminary issue. Though, on query, he stated that the revenue had enough material in possession to prove revenue's case even if evidence as collected from three persons as mentioned in High Court order dated 5-9-1994 is ignored. The case was adjourned to 21-11-1994. It was heard on that day and it continued on 22nd November, 1994. It further continued on 29th and 30th November, 1st December, 5th, 6th, 7th and 8th December, again from 12th to 15th December, 19th, 21st and 22nd December, 1994. The arguments were concluded by both the parties. Finally the case was argued by Shri S.E. Dastur, Shri S. Ganeshan and Shri F.V. Irani. The revenue was represented by Sri R.C. Desai, Sri R.H. Toprani and Sri Rajkumar Lachhiramka. On 6-1-1995 written arguments were filed on behalf of the assessee. The revenue also filed written arguments. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B M/s. Federal and Rashmi Kant for the Petitioners. Mr. R.V. Desai for Respondents. 1. Rule. Returnable forthwith. Respondents waive service. 2. Ordered that the adjudicating authority viz. Respondent No. 3 shall not rely or upon or take into account for passing the adjudication order the statements of any witness who is not tendered for cross-examination by the Petitioners." 24. Shri Dastur also invited our attention on the letter dated 14-12-1994 and 5-1-1994 addressed to the Commissioner of Income-tax (Appeals). These letters are at pages 126-158 and 162-207 of the Paper Book hereinafter referred to as "PB" bearing No. 12. It was submitted that the assessee made a request for cross-examination of all the witnesses. The assessee also asked for the disclosure of all the materials, which may be relied upon against him. It was further submitted that the said letter should be read along with the appellant's subsequent letter dated 5-1-1994 and the general request for disclosure and cross-examination contained in the letter dated 16-2-1988 addressed to the Assessing Officer. It is not correct to say that the assessee did not complied with certain notices and letters issued to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is also in line with the decision of the Supreme Court in the case of CWTv. Vimlaben Vadilal Mehta [1984] 145 ITR 11/[1983] 5 Taxman 20 wherein the Apex Court has held that the appellant proceedings constitutes continuation of the assessment proceeding. The Assessing Officer has specifically stated in the order that the assessee had asked for cross-examination of all witnesses, but that he had not granted the same on the ground that "secondary support was being taken from their statements". Even with regard to Alok Dhandhania, the Assessing Officer granted the right of cross-examination only to Ashish Trading without issuing notice to them and without even giving them a copy of Dhandhania's statement and merely permitted the assessee to put certain questions afterwards. These restrictions rendered the entire exercise meaningless. Ashish Trading had no interest whatsoever in the cross-examination of Alok Dhandhania, as no addition was being made to their assessment and it was the assessee who was sought to be made liable on account of Dhandhania's statement. 27. Proper opportunity aspect was stated to be provided in order to ensure that a just decision be given on the dispute i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation which the authority imposes on itself in the interest of a fair and proper decision. 28. The correct principles and legal position regarding natural justice in a quasi-judicial assessment proceedings were summarised by Sri Dastur as under: (a) "The assessee has a right to know and rebut all material relied upon by the revenue against the assessee; (b) If the material consists only of circumstances as opposed to the say of persons, this should be disclosed to the assessee so that he can rebut the same; (c) If the material consists of the say of persons, which may be in the form of statements or letters, the assessee has a right to cross-examine the persons concerned. The principles of law of evidence recognise a distinction only between circumstantial evidence and the statement of witnesses. The former is described as indirect and the letter as direct evidence. The Tribunal in the assessment year 1984-85 considered this distinction. There is no distinction within the sphere of statements of witnesses between direct and indirect witnesses. All witnesses who deposed to relevant facts and whose statements are relied upon by the revenue have to be offered for cross-e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person, from the point of view of allowing cross-examination. In K.T. Shaduli Grocery Dealer's case, cross-examination was allowed of the dealers when their accounts were relied upon by the S.T. Department, though they had not made any statements as such. 31. Learned counsel further stated that reliance on the Tribunal order for the assessment year 1984-85 cannot be placed for the following reasons: (a) The extent of disclosure and compliance with natural justice required in a particular proceeding is not a point of law. It is basically and essentially a matter of fact depending on the extent and nature of the material relied upon by the authority in the proceeding. One has to consider the proceedings and materials for the relevant year of assessment on their own. (b) The Income-tax Department's own case is that the assessment order for the assessment year 1985-86 is based on further investigations and additional materials as compared to assessment year 1985-86. (c) The very fact that the department seeks to rely on the materials and evidence relied upon in the order for the assessment year 1985-86 in the hearing of the appeal for the assessment year 1984-85 speaks for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not involved in the transactions, directly affect the appellant. Similarly, the statements of persons who were allegedly instrumental in collection of premium are the very basis of the case of the department. Haji Umer and Chitalangis, who deposed the collection of premium were directed by the Tribunal to be offered for cross-examination. The statement/materials of bank managers and employees of wholesale buyers, to the effect that the drafts were purchased by them and bank accounts were operated by persons, having a nexus with GTC's wholesale buyers directly affect the appellant. Therefore, the witness mentioned in the statement filed before the Tribunal in the letter dated 3-8-1992 and 14-12-1993,23-12-1993 and 5-1-1994 addressed to the CIT(Appeals), should be allowed to be cross-examined and all the materials allegedly gathered and relied upon in the assessment order need to be disclosed before passing the orders. 33. Without prejudice to the above, that it was prayed that in case the view is taken as per the decision of the Tribunal for the assessment year 1984-85, that the assessee is not entitled to cross-examination, ad hoc genus omne, the matter should be tested on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable apprehension of bias in the mind of the assessee, the order is to be set aside. It is not necessary to prove the actual bias on the part of the adjudicating officer. Learned counsel relied on the following precedents. 1. Manak Lal v. Dr. Premchand Singhvi AIR 1957 SC 425-429. 2. Institute of Chartered Accountants of India v. L.K. Ratna [1987] 164 ITR 1/28 Taxman 654 at. pp. 14-15. 3. R. Arunagiri v. C. Ranganathan [1987] (Supp. SCC 48). 37. On 4-12-1994, Sri Dastur produced before us a chart. The chart was alleged to have been prepared on the basis of chronology of relevant dates in order to demonstrate patent bias and mala fides on the part of the Assessing Officer. A perusal of the said chart reveals that the first show-cause notice was issued on 23-2-1988. On 14-3-1988, the case was attended, some requisition was made and the case adjourned to 18-3-1988. On that day, the GTC's advocate attended the office of the ITO and handed over a notice to the Inward Clerk of the ITO's office informing the ITO that assessee is moving before the High Court. On 21-3-1988 (9.30 AM) ITO completed the assessment. 38. BIAS was apprehended on the basis of the following: (i) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to pass any orders against us since. We have been given a right to send a reply to your notices of 14-3-1988 on or before 18th March, 1988, 18th March is a holiday in Bombay, 19th March, is a Saturday and 20th March is Sunday and therefore, the earliest we could give a reply will be 21st March, 1988. After giving a reply, we would like to be heard on 22nd March. 1988 and thereafter. We also desire to obtain clarification about our request for transfer of our assessment to any other ITO. We hope that in the interest of justice and fair play the hearing will be given as requested. Yours faithfully, For GTC Industries Limited." 40. Learned counsel submitted that the area of compliance, with the rules and principles of natural justice, is so wide that there is no alternative except to set aside the assessment orders and remand the matter to the Assessing Officer so that the assessment could be completed, de novo, in compliance with the canons of natural justice. It was stated that apart from numerous witnesses whose statements were relied upon by the revenue there is also considerable material which must be disclosed to the assessee and which on disclosure could lead to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The dhoti-clad man is yet to be traced. Meanwhile the vigilance department has found that the officer was not guilty and sent a report accordingly to the CBDT. But income-tax sources say that only a police inquiry will help catch the persons behind this scheme to frame Mr. Kar. They say that the MP hailing from Uttar Pradesh who brought the bank pay-in-slips should now identify the complaint. A request has been made to the MP to reveal the identity of the person who supplied the slips. Further action has awaited from Delhi. Mr. Kar had, after thorough investigation of the GTC affairs, established tax evasion of Rs. 20 crores for the assessment year 1984-85. About 70 bogus accounts were opened to receive the premium sent by GTC dealers back to the manufacturers, according to the income-tax department, but GTC disowned these accounts. Colleagues of Mr. Kar fear that his life also could be threatened and several attempts had been made to remove him from the post. But, Mr. Kar, with a good service record, continues his investigation into the affairs of the company." 42. Shri Desai referred to the assessee's denial in the News item of "Times of India" dated 27-11-1987. This is repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellate authorities and to defame us in the eyes of the public at large. P.P. Bhandari President . Director-General, GTC Industries Limited." 43. Shri Desai pointed out that besides the assessee-company, and one other cigarette manufacturing company, certain WBs of assessee were also assessed by Sri Gautam Kar, (ITP). It is not known who is at the root of opening the alleged bank account. The opening of account is a fact. This fact was investigated. It was made abundantly clear that attempt was made to tarnish the reputation of Shri Gautam Kar. But at no point of time Sri Kar made any allegation against the assessee. From this newspaper report, it cannot be concluded that Sri Kar developed bias against the assessee. The news report was not given by Sri Kar. It was not at the behest of the department. How it has come to the newspaper is best known to the press only. According to Sri Desai, the assessee's contention, apropos the bias in without any merit. It is merely based on bare allegation without any iota of evidence even to suggest that there was reasonable ground for assuming possibility of bias. Shri Desai referred to the subsequent conduct of the assessee and st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s official duty. He had absolutely no bias against the assessee. In the assessment order also at page A-4 Sri Gautam Kar has stated as under: "...All that the undersigned would like to clarify is that the assessee has written a letter marked 'Strictly Confidential' dated 17-3-1988. The allegations made by the assessee about the conduct of the undersigned in the said letter is not correct. The investigation history and various other related issues in this case is being diarised separately in the form of an office note and kept in a sealed cover marked 'Y' and is being appended to the office copy of the assessment order. This is for the review of the appellate authorities. Further the undersigned apprehends sinister motives on the part of the assessee in the letter marked 'Strictly Confidential' dated 17-3-1988, the undersigned understands that the Central Excise authorities at Baroda have already issued show-cause notice to the assessee for evasion of a few hundred crores of rupees during the period under review. Since crores of rupees of revenue by way of income-tax is also involved, the undersigned is of the opinion that in public interest, the assessment order for this and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessees could have set a trap for the ITO. The GTC had strongly denied it alleged involvement in the episode. The GTC also denied its links with the alleged bogus accounts detected by the Income-tax Department. The same Officer had passed an order against the GTC for the year 1984-85 establishing undisclosed income of Rs. 33 crores. The company earned about Rs. 23 crores by way of premium and about Rs. 10 crores by suppressing production, he held. The company has challenged this order before the Appellate Commissioner. The company had earlier filed writ petitions challenging the ITO's order of imposing a penalty of 150 per cent on this disputed amount of income. On February 23, another writ petition was filed by the company accusing the department of illegally withholding income-tax refund of Rs. 78 lakhs due for the earlier years. The department filed an affidavit saying that the company had agreed to adjust the refund towards the fresh tax dues and there was no illegality of withholding the refund. A spokesman for the department said though the company served notice yesterday, the matter was not on the Board and the Government counsel was unaware of the petition. The order was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interim injunction ignoring mandatory provision in section 80(2) of the CPC without first issuing notice to Defendants. ITO was concerned with time barring assessment. He was very much concerned with the interest of revenue. He did thorough investigation over a period of two years in the matter. The matter was about to be barred by limitation on 31-3-1988. According to Sri Desai, the ground apropos bias was not tenable before the Hon'ble High Court that is how the assessee withdrawn the suit. 49. Coming to the aspect of haste in making assessment, Sri Desai argued that it was not unusual for the Government Officer to put the time of making the order on the order itself. It was explained that in the instant case ITO had to take the most elementary precaution of not only mentioning the date as normally done, but also to indicate the time to avoid any possibility of any charge for having flouted the High Court's order. 50. Sri Desai distinguished the case laws relied upon by the counsel for the assessee. He placed reliance on the following precedents: (i) Duncan Agro Industries Ltd. v. Union of India 1989 (.39) ELT 211 (Delhi) (ii) ITC Ltd. v. Union of India AIR 1989 Cal. 294. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 257/[1981] 7 Taxman 344 (Delhi) 3. Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 (SC) 4. K.T.M.T.M. Abdul Kayoom v. CIT [1962] 44 ITR 689 (SC). 5. CIT v. K. Ramakrishnan [1993] 202 ITR 997 (Ker.) 6. CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.) 53. Our attention was further invited on the prescriptions of section 142(3). This section reads as under: "The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any enquiry under sub-section (2) or any audit under sub-section (2A) and proposed to be utilised for the purpose of the assessment." It was submitted that the section does not provide for cross-examination. Had it been the intention of Legislature to provide for cross-examination in all cases, it would have expressly stated so in this provision and would not have used the words "an opportunity of being heard". Without prejudice to the above, Sri Desai submitted on facts that the Tribunal is required to follow its decision tendered for the assessment year 1984-85. For this, Sri Desai relied on the decision rendered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bank accounts with the assessee. Therefore, no purpose will be served by allowing the assessee to cross-examine the witnesses; (iii) No witness has made any statement in support of the ITO's presumption that the transaction in which the assessee-company received commission were not genuine transaction but were havala transactions. Hence, no purpose will be served by allowing cross-examination. Sri Desai emphasised that demand for cross-examination had been made in respect of commission income and not other incomes for rendering services etc. 56. Regarding statements/letters of various persons referred to in the statements filed Sri Desai submitted that they were not primary evidence but were "supporting statements/evidence" and were not directly against the assessee. Sri Desai raised the fundamental issue as to whether the assessee could claim right of cross-examination in respect of witnesses whom it should have produced in proof of other receipts of income merely because ITO examined them to satisfy himself. The assessee cannot take advantage of its deliberate omission to examine them. In fact, the assessee should have examined them as its witnesses. 57. Sri Desai read o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment is pending." 59. On 5-12-1994 and again on 30-12-1994, the counsel for the assessee filed the list of statement/inform at ion /material for the first time and all material relied upon but not furnished, witnesses not offered for cross-examination. Sri Desai objected the revision of lists. Sri Desai pointed out that the list finally given on 30-12-1994 does not bear even the signature of the competent person. Even the written submissions are signed by some person without any designation. Whether he is authorised to sign. From the scribbles it is difficult to find out even the name of the signatory. 60. Sri Desai dealt with Sr. Nos. 1 to 4 of item-A regarding the alleged hawala income of the said list as given on 5-12-1994 and pointed out that all items regarding bank accounts and premium arising from the assessment year 1984-85 were considered by the Tribunal and no cross-examination was allowed. Sri Desai strongly refuted the assessee's contention that cross-examination of Shri Alok Dhandhania was not allowed though the ITO held that he would allow Dhandhania's cross-examination. Apropos the same Sri Desai referred to ITO's letter dated 25-2-1988 whereby the ITO fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ians, the power to license persons to practise medicine in London. Amount the powers granted was the power to fine and imprison any one who practiced medicine without obtaining permission of the Royal College. The fine levied by the College was to be shared equally between the King and the College. Thomas Bonham, who was a Doctor of Medicine of Cambridge University, ignored the Royal College of Physicians and set up practice in London without taking the required certificate from the College. Dr. Bonham fined by the College and was imprisoned. A suit for false imprisonment was filed by him. Chief Justice Coke gave judgment in favour of Dr. Bonham and stated: "The Censors (of the Royal College) cannot be judges, ministers and parties; Judges to give sentence or judgment, ministers to make summons and parties to have the moiety of the forfeiture; and one cannot be judge an attorney for any of the parties." 63. This case did not propound for the first time the principles of natural justice. It only limelighted a principle of Roman Law which is embodied in the dictum: Nemo Judex in Causa Sua. This rule was accepted under the common law also. Thus though this rule judicially noted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a man. A judge of the Supreme Court of the United States of America, said "Procedural fairness and regularity are indisputable essence of liberty..... substantive laws can be endured if they are fairly and impartially applied". He went on to say "that it might be preferable to live under Russian Laws applied by common law procedures" than under the common law, enforced by the Russian procedures. Another Judge observed: "The history of liberty is largely been the history of observance of procedural safeguards. 65. The basic principles of natural justice are - (i) that the parties should be giver) fair hearing; (ii) the hearing must be before an impartial judge; (iii) the judge should have no bias i.e., pecuniary bias, or personal bias; and (iv) the decision given must be reasoned one and therefore, the decision must be proceeded by a speaking order, which enumerates the reason for coming to a particular conclusion. The "American Due Process of Law" postulates: - (a) notice, (b) opportunity to be heard; (c) an impartial tribunal; and (d) an orderly course of procedure. 66. The concept of 'natural justice' is comprised of many colours and shades and many forms and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relative, friend or business associate of a party or he may be personally hostile as a result of an event occurring either or before or during the course of trial. Official bias, may arise when the judge has a general interest in the subject- matter. In the instant case only personal bias was alleged against the ITO. 69. We have heard Shri Gautam Kar also against whom the bias was alleged. It was stated by him that he had absolutely no personal bias against the assessee. He only discharged his duty in conformity with the canons of law. 70. Sri Dastur adumbrated the existence of BIAS on the basis of the following facts: (i) news items in the Times of India dated 21-11-1987; (ii) sequence of events leading to the passing of the assessment order go to show that the ITO had bias against the assessee; (iii) conduct of the ITO in declining to disclose material and prayer of cross-examination reflects bias; (iv) the conduct of the ITO in allowing cross-examination only to Alok Dhandhania and that too in a restricted manner shows bias; (v) commencement of dictation of assessment order without being waiting for the assessee to reply for the show-cause notice dated 14-3-1988; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs out of which the misconduct proceedings arose." 73. Reading the facts of the case, we find that the observation: "justice should not only be done but should be seen to have been done", was made contextually. It is important that no room be left for causing any doubt or suspicion, while discharging the judicial functions. Judges like Ceasor's wife should be above suspicion. If son of a judge appears before him to plead a case as an advocate, it is not always necessary that the judge will bestow favour to him. A judge of integrity will remain impartial. But the mere proximity of relationship may create doubt in the minds of the people. They may think that the scale of justice tilted because of the closeness or kinship; and the case was decided not on the basis of case law but face law. In the background of like situation the Apex Court laid down, that a reasonable apprehension of existence of bias vitiates an order. It is important that assessee must have sufficient grounds to conceive such apprehension. He cannot put such a grave charge in a light manner. We now come to the various aspects dealt with at the time of hearing concerning the apprehension of bias. First we come of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind no merit in this argument of the assessee. 75. We now come to the chronology of relevant dates, which according to Sri Dastur, demonstrate 'patent bias'. It is to be kept in mind that matter was getting time-barred on 31st day of March, 1988. The Assessing Officer was given exclusive jurisdiction, of the assessment of cigarette manufacturing units, having their registered office at Bombay. Necessary infrastructure was provided to him to enable him to conduct investigation in an organised and systematic manner. The result of investigation we find is reflected in the order also. In this case we find that some problem cropped up in the preceding year, when on the basis of material supplied by the Excise authorities, revenue proceeded investigation against the assessee. For the relevant assessment year, show-cause notice was issued on 23-2-1988. On 14-3-1988, ITO given the letter to the assessee. The assessee did not give any reply as to the desired informations. Instead by letter dated 17-3-1988, he alleged 'BIAS' against the ITO, on the basis of newspaper report. We find nothing wrong in asking for the details. These details were asked on the basis of some informations. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pendse. We have reproduced the copy of the judgment at para 23. Admittedly, the judgment was rendered in the context of Excise Writ Petition No. 1805 of 1994. It transpires from the perusal of the order that it did not set out the facts of the case, question arising in the case, reasons for the decision. The tests laid down by the Apex Court in the case of Arun Mahadeorao Danuka was not satisfied. 79. The Hon'ble Bombay High Court in the case of Thana Electricity Supply Ltd followed the following observation of the Apex Court in Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai AIR 1976 SC 1455: "It is trite, going by Anglophonic principles, that a ruling of a superior court is binding law. It is not of scriptural sanctity but is of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value of the decision exalting the doctrine of precedents into a prison-house of bigotry, regardless of varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting those mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llow from it. 83. We are reminded of the who said: "You never go down the same river twice." What the great philosopher said about time and flux can relate to law as well. Scriptural sanctity but is of ratiowise luminosity within the edifice of facts where the judicial lamp plays the legal flame. It is important to note that the decision of justice Pendse was rendered in the context of Excise laws. Not in the context of Income-tax Act, facts are not discussed in the order. Reasons are not given. It is binding on the Excise authorities. Its scope cannot be elongated so as to include the I.T. Authorities also. 84. We now deal with the dictum: "Audi Alterm Partem". While arguing the 'opportunity' aspect, Shri Dastur stated that the principles of natural justice have been was not given to the assessee. To support this the learned counsel relied on precedents. We examine the applicability of the same in the facts of the present case. 85. In the case of Vasanji Ghela Co. the Court held: "The rules of natural justice do require that normally speaking, if the statement of a person is intended to be used as evidence against a party, it must be made available to the party aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issal was set aside by the trial Court and the decision was upheld by the Court. Thereafter, the State filed appeal for the certificate. The Apex Court held that: "Unless the previous statements of witnesses are supplied the dismissed person will not be able to have an effective and useful cross-examination and therefore, it is unfair to deny the Government servant copies of the earlier statements of witnesses. Synopsis of the statements will not satisfy the requirements of reasonable opportunity to show cause against the action proposed to be taken." We now come to the cases relied upon by the revenue. 89. In the case of Mohanlal Jitamalji Porwal. It was held as under: "Ends of justice are not satisfied only when the accused in a criminal case is acquitted. The Community acting through the State and the Public Prosecutor is also entitled to justice. The cause of the Community deserves equal treatment at the hands of the Court in the discharge of its judicial functions. The Community of the State is not a persona-non-grata whose cause may be treated with disdain. The entire Community is aggrieved if the economic offenders who ruin the economy of the State are not brought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs. If the copies of the letters containing the price offered were handed over to the petitioner with a slip pasted on the name of the intended importer. From this material, it was for the petitioners to establish that the value quoted in these quotations was not the proper value and in case the Department is compelled to give the name or to produce such intending importers for cross-examination in departmental proceedings, it will well-nigh be impossible together any material in future. Therefore, it cannot be said that there was violation of natural justice specially when the name of the exporter sending the quotations was disclosed to the petitioner." 92. In the case of Kanungo Co. It was held: ". . . The complaint of the appellant now is that all the persons from whom enquiries were alleged to have been made by the authorities should have been produced to enable it to cross-examine them." In our opinion, the principles of natural justice do not require that in matters like this the persons who have been given information should be examined in the presence of the appellant or should be allowed to be cross-examined by them on the statement made before the Custom Authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not rigid rules, they are flexible and their application depends upon the setting and background of statutory provision, nature of the right which may be effected and the consequences which may entail its application depends upon the facts and circumstances of each case. It was stressed that natural justice is mistress and not the master of justice. It is used to support the cause of justice. It can never be used to defeat the cause of justice. Sri Dastur pointed out that the Apex Court in K.T. Shaduli Grocery Dealer's case made it clear that cross-examination, if asked for, must be granted. In the case of Hira Nath Mishra v. Principal, Rajendra Medical College AIR 1973 SC 1260, the Supreme Court came across with an unusual situation which demanded a highly particular approach. The Court was concerned with the complaints regarding molestation of girl students. In exceptional cases the requirement may be waived. The case of the assessee does not fall in the category of exceptional cases. In the light of cases discussed hereinbefore, it was pleaded that great injustices given to the assessee. We have perused the decisions cited before us. The judicial climate on this point is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wholesale 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 showing that the return submitted by the assessee was incorrect and incomplete the assessee was entitled to an opportunity to have Hazi Usmankutty and other wholesale dealers summoned as witnesses for cross-examination. It can hardly be disputed that cross-examination is one of the most efficacious methods of establishing truth and exposing falsehood. Here, it was not disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... element was introduced, namely of procedural reasonableness because the main objective of the requirement of rule of natural justice is to promote justice and prevent its miscarriage." 102. In the case of Mahendra Electricals Ltd., it was held that: "The opportunity to cross-examine the witness who has made adverse report should not be denied, to the opposite party." 103. The concept and contents of natural justice go on changing. Natural justice is a living organism, advanced from time to time. Courts are giving new dimensions to the principles of natural justice. The principles embodied reflect the value of the society accepted for time being. The change is a fact of life. Every living thing takes new shape, new dimension with the flux of time. Hon'ble Supreme Court has observed in 44 STC 61 (sic): "It must be remembered that law is not a mausoleum. It is not an antique to be taken down, dusted, admired and put back on the shelf. It is rather like and old but vigorous tree, having its roots in history yet continuously taking new grafts and putting out new sprout and occasionally dropping dead words. It is essentially a social process, the end product of which is justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the present case, we find that the Assessing Officer made addition on account of the clandestine premium alleged to have been received by the assessee on the sale of cigarettes. The factum of the premium collection is mainly based on the edifice of the following facts: - (i) Analysis of the assessee's finance results revealed that the assessee sustained "Loss From Sale of Cigarettes", to the tune of Rs. 20,59,57,913. (ii) Invoice price of the cigarettes as reflected by the assessee in its record was less than the manufacturing cost; (iii) Impact of Excise Duty on the trade, and the observation of the Technical Study Group of Central Excise Tariff, 1985; (iv) Twin Branding System. 107. It is relevant to see that how the amount of premium was calculated. On what basis it was worked out. We find that the entire calculation [as given on page No. G-22A, of the assessment order] is based on the 'Twin Branding Principle'. First the difference between the ex-factory price of a particular brand and its high price twin was worked out. Amount so arrived at was multiplied by the volume. Resultantly came the figure of Rs. 29,11,68,078. Out of that Rs. 2,91,16,807 [10 per cent] go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thered by the DRI in the course of search which was passed on the Income-tax Department given the clue. Assessing Officer made independent investigation. The analysis of the financial results revealed that the assessee sustained loss from the sale of cigarettes to the tune of Rs. 20,59,57,973. Besides the invoice price of the cigarettes as reflected in the records was less than the manufacturing cost. These facts were examined with reference to the observation of the Technical Study Group of Central Excise Tariff, 1985. The impact of the Excise Duty on the trade was considered. The outcome of the enquiry indicated that the premium was generated by the use of the 'Twin Branding System'. The basis of addition was the difference between the ex-factory price of a particular brand and its high price twin. There was no addition on account of alleged bogus income shown from commissions, trading and supervision charges. Similarly advertisement expenses found outside the books were not considered for the purpose of addition. These amounts were considered for the purpose of deduction from the so-called clandestine commission. In short, the case of the revenue is, that the assessee-company by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s requested that the case may be heard after the deliverance of decision on the preliminary issue. The appeal was, therefore, heard apropos the grounds concerning the canons of natural justice. 3. We have heard the rival submissions in the light of the materials placed before us and the precedent relied upon. It was stated that principles of natural justice were violated inasmuch as, cross-examination of three persons, viz. (i) Pandian, (ii) Sanchaiti, and (iii) GEQD was not allowed. 4. We have examined the facts. We have discussed in detail the principles in our order for the assessment year 1985-86. Having regard to the precedent available on the point, we have taken a view that adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature. We have also taken a view that right to cross-examine the witness, who made adverse reports is not an invariable attribute of the requirement of the dictum, 'audi alteram partem'. 5. Considering the totality of facts, we find that the statement of Pandian and Sanchaiti and also the report of GE ..... X X X X Extracts X X X X X X X X Extracts X X X X
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