1. In these two writ petitions the important question of law that arises for consideration relates to the nature, scope and ambit of the powers and duties of the Superintendent of Taxes in the matter of making an assessment under Section 9(3) of the Tripura Sales Tax Act, 1976. As the facts and questions of law involved in both the petitions are identical they are taken up together.

2. The petitioner is the proprietor of a business run under the name and style of Bijli House at Agartala and carries on the business of selling and supplying electrical goods, radios and parts thereof. He also undertakes works contracts. In respect of the aforesaid business, he is registered as a dealer under the Tripura Sales Tax Act, 1976 (shortly "the Act"). The petitioner submitted his returns of turnover from time to time showing turnover for each quarter and paid the sales tax due on the basis thereof. Returns were so submitted for the years ending March 31, 1978, March 31, 1979, March 31, 1980 and March 31, 1981. The years relevant for the present petitions are years ending March 31, 1980 and March 31, 1981. The Superintendent of Taxes did not take any action on the said returns submitted by the petitioner from time to time till August 25, 1981, when he issued notices under Section 9(2) of the Act asking the petitioner to appear and produce accounts and documents in support of the returns for all the four years. The date was extended to October 15, 1981. The petitioner produced the accounts and documents which were examined by the Superintendent of Taxes. He, however, wanted the petitioner to furnish certain statements on October 21, 1981, but as the assessments for four years were taken up together and it was difficult to prepare and furnish the same in such a short time, the petitioner prayed for time. The Superintendent of Taxes, did not allow the same, rejected the returns submitted by the petitioner, noted a few defects in the accounts and held that he was not inclined to accept the accounts and the returns as correct and complete. He specifically stated that he could not take any lenient view of the failure of the petitioner to furnish the informations asked for by him. He construed it "as tendency of evasion of taxes". With the aforesaid observation, the Superintendent of Taxes rejected the returns and determined the turnover of the petitioner "to the best of his judgment" for the years ending March 31, 1978 and March 31, 1979 at Rs. 50,000 per year ; and for the years ending March 31, 1980 and March 31, 1981, at Rs. 2,00,000 and Rs. 1,50,000 respectively and computed the tax payable and completed the assessments accordingly. Being aggrieved by the said assessments, the petitioner filed revision petitions before the Commissioner which were rejected. Review petitions against the same were also rejected. The petitioner finally moved this Court by filing the present writ petitions challenging the two orders of assessment for the years ending March 31, 1980 and March 31, 1981.

3. Mr. B. Das, the learned counsel for the petitioner, assails the impugned orders of assessment on the following grounds : (i) That the orders were passed without affording reasonable opportunity to the petitioner to adduce evidence required by the Superintendent of Taxes ; (ii) that the Superintendent of Taxes was not justified in estimating the turnover of the petitioner at Rs. 2,00,000 and Rs. 1,50,000 for the years ending March 31, 1980 and March 31, 1981, respectively without giving any material to justify the adoption of these figures. In other words, the contention of the learned counsel is that the estimation is based on no material or evidence and, as such, the impugned orders of assessment are liable to be quashed.

4. Section 9 of the Act deals with assessment. It reads :

"9. Assessment.--(1) At the close of a year or at the closure of the business during that year, if the Commissioner is satisfied that the returns furnished under Section 8 in respect of that year are correct and complete, he shall by an order in writing, assess the dealer and determine the tax payable by him on the basis of such returns.

(2) If the Commissioner is not satisfied that a return furnished under Section 8 is correct and complete, he shall serve on the dealer a notice requiring him, on the date, and at the hour and place specified therein, either to attend in person or to produce or cause to be produced any evidence on which he may rely in support of his return.

(3) On the day specified in the notice under Sub-section (2) or as soon afterwards as may be, the Commissioner, after hearing such evidence as the Commissioner may require shall, by an order in writing assess the dealer and determine the tax payable by him on such assessment.

(4) If a dealer fails to make a return as required by Sub-section (1) or Sub-section (2) of Section 8, as the case may be, or having made the return, fails to comply with all the terms of the notice issued under Sub-section (2) of this section, the Commissioner shall, by an order in writing, assess to the best of his judgment the dealer, and determine the tax payable by him on the basis of such assessment :

Provided that before making assessment the Commissioner may allow the dealer such further time as he thinks fit to make the return or comply with the terms of the notice issued under Sub-section (2) of this section."

The above provisions are similar to the provisions contained in Section 23 of the Indian Income-tax Act, 1922, Section 17 of the Assam Sales Tax Act, 1947 and Section 9 of the Assam Finance (Sales Tax) Act, 1956. Corresponding sections in the Income-tax Act, 1961, are Sections 143 and 144.

5. The scheme of Section 9 of the Act is clear from a plain reading of the section itself. An assessment under this section can be made on the basis of the return or on the basis of the evidence adduced or to the best of the judgment of the assessing officer. Sub-section (1) of Section 9 provides that if the Commissioner is satisfied that the returns furnished under Section 8 in respect of any year are correct and complete, he shall assess the dealer and determine the tax payable by him on the basis of such returns. For this purpose the presence of the dealer or production by him of any evidence in support of the returns is not necessary. Sub-section (2) provides for the contingency where the Commissioner is not so satisfied. In such a case, it requires the Commissioner to issue a notice on the dealer requiring him, on the date, and at the hour and place specified therein, either to attend in person or to produce or cause to be produced any evidence on which he may rely in support of his returns. Sub-section (3) provides for the procedure of making assessment after the dealer complies with the notice under Subsection (2) and produces evidence. The Commissioner in such a case is required to hear evidence that may be produced by the dealer or such evidence as may be required by him and considering the same, by an order in writing, assess the dealer and determine the tax payable by him on such assessment. Sub-section (4), however, deals with another contingency which gives him the power to assess a dealer to the best of his judgment and determine the tax payable on the basis of such assessment. This sub-section is attracted only in a case where the dealer fails to make a return or having made the return fails to comply with all the terms of the notice issued under Sub-section (2) of this section. It is not necessary for the purpose of deciding the questions of law involved in the present writ petitions to discuss at length the scope and ambit of power under Sub-section (4) and the nature of assessment made thereunder. Suffice it to say that such an assessment also cannot be arbitrary. Limits of such assessment are implicit in the expression "best of his judgment" used in Sub-section (4). Even in such cases, the assessing officer cannot make an assessment on speculation or on fanciful grounds. "Best judgment" does not negate the exercise of judgment on the part of the officer. The assessing officer who makes the best judgment assessment, has to make an intelligible, well-grounded estimate rather than launch on pure surmise. The question that arises for consideration in these cases and has to be answered, however, relates to the powers and duties of the Commissioner or in that matter the Superintendent of Taxes (to whom powers of assessment under Section 9 have been delegated), while making the assessment under Section 9(3) of the Act and we shall deal with it at length.

6. We shall first consider what is the nature of assessment proceeding. There was a time when the nature of the enquiry conducted by the assessing officer for the purpose of assessment was subject-matter of long-drawn debates and the decisions of the courts were not very clear and uniform. In some of these, the whole enquiry was. considered to be in the nature of judicial enquiry, in others it was emphasised that the proceedings were of a confidential nature. There were some who favoured the middle course and laid stress on the assessing authority conducting himself in accordance with the rules of justice, equity and good conscience. All these decisions with different shades of opinion were discussed by the Full Bench of the Lahore High Court in Seth Gurmukh Singh v. Commissioner of Income-tax [1944] 12 ITR 393. It was held :

"the proceedings.....cannot be characterised as judicial proceedings as we understand them, but..........he is required to proceed without bias and give sufficient opportunity to the assessee to place his case before him as well as to meet the case made out against him. In other words, he is bound to conduct himself in accordance with the rules of justice, equity and good conscience, even though he may not be compelled to observe all the formalities of a court of law"

.

The following rules were laid down :

(1) While proceeding to make an assessment, the assessing officer is not bound to rely on such evidence produced by the assessee as he considers to be false ;

(2) if he proposes to make an estimate in disregard of the evidence, oral or documentary, led by the assessee, he should in fairness disclose to the assessee the material on which he is going to found that estimate ;

(3) he is not, however, debarred from relying on private sources of information, which sources he may not disclose to the assessee ; and (4) in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilised to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and should further give him ample opportunity to meet it, if possible.

7. The aforesaid rule of law was approved by the Supreme Court in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax [1954] 26 ITR 775. It was-observed :

"As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends ; because it is equally clear that in making the assessment under Sub-section (3) of Section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under Section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab [ 1944] 12 ITR 393."

The assessment in the aforesaid case was found to be based on the result of private enquiries conducted behind the back of the assessee. The rate of gross profit was estimated at certain figures by the Income-tax Officer and the Tribunal. The Tribunal did not disclose the information supplied to it by the departmental representative. It did not give any opportunity to the assessee to rebut the material furnished to it by him and it declined to take all materials that the assessee wanted to produce in support of its case. It was held that the Tribunal violated fundamental rules of justice in reaching its conclusions. The assessee did not have a fair hearing. The estimate of gross rate of profits on sales both by the Income-tax Officer and the Tribunal was based on surmises, suspicion and conjectures. The Supreme Court, therefore, set aside the order of the Tribunal and remanded the case to it with a direction that

"it should give full opportunity to the assessee to place any relevant material on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere and it should also disclose to the assessee the materials on which the Tribunal is going to found its estimate and then afford him full opportunity to meet the substance of any private inquiries made by the Income-tax Officer if it is intended to make the estimate on the foot of those enquiries"

.

8. The aforesaid decision was followed in Raghubar Mandal Harihar Mandal v. State of Bihar [1957] 8 STC 770 (SC). In that case an assessment under Section 10(2)(b) of the Bihar Sales Tax Act, 1944 [identical to Section 9(3) of the Tripura Act], was assailed. The assessing officer in that case did not find the returns made by the assessee and the books of account filed by it correct. He gave reasons for his finding. Having rejected the returns and books of account the assessing authority proceeded to estimate the gross turnover. In so estimating the gross turnover, he did not refer to any materials at all. On the contrary, he indulged in a pure guess and adopted a figure without reference to any evidence or material at all. For example, in one of the assessment orders the officer said "I reject the dealer's accounts and estimate a gross turnover of Rs. 4,00,000. I allow a deduction at 2 per cent on the turnover and assess him on Rs. 3,92,000 to pay sales tax of Rs. 6,125.". The Supreme Court held : "These and similar orders do not show that the assessment was made with reference to any evidence or material ; on the contrary, they show that having rejected the books of account, the assessing authorities indulged in pure guess and made an assessment without reference to any evidence or any material at all. This the assessing authorities were not entitled to do under Clause (b) of Sub-section (2) of Section 10 of the Act."

It was observed :

"No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess ; but the estimate must be related to some evidence or material and it must be something more than mere suspicion. To use the words of Lord Russell of Killowen again, 'he must make what he honestly believes to be a fair estimate of the proper figure of assessment' and for this purpose he must take into consideration such materials as the assessing officer has before him, including the assessees' circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate. In the case under our consideration, the assessing officer did not do so, and that is where the grievance of the assessee arises"

.

The aforesaid principles laid down by the Supreme Court still hold the field and have been reiterated and followed in a number of subsequent decisions. We do not propose to multiply the authorities. The law in regard to assessment under taxing statutes is well-settled by now. The broad principles which have been well-accepted by the courts in this country and govern the field may be briefly stated as follows.

9. The assessing officer invested with the power to make assessment of tax discharges quasi-judicial functions and he is bound to observe the principles of natural justice in reaching his conclusions. The fact that he is not fettered by technical rules of evidence of pleadings and is entitled to act on material which may not be accepted as evidence in a court of law, does not absolve him from the obligation to comply with the fundamental rules of justice which have come to be known in the jurisprudence of administrative law. One of the rules which constitutes a part of the principles of natural justice is the rule of audi alteram partem which requires that no man should be condemned unheard. It requires an opportunity to be heard to be given to a person likely to be affected by a decision. But this rule is also not an inflexible rule having a fixed connotation. It has a variable content depending on the nature of the inquiry. The procedure required to be adopted in giving an opportunity to a person to be heard must necessarily depend on the facts and circumstances of each case.

10. The assessing officer cannot rely on any evidence or any fact in arriving at his conclusion without first pointing out the same to the assessee and giving him a reasonable opportunity of meeting the case which is sought to be made out in the assessment order. In other words, though the assessing officer can make such inquiries he considers necessary he must give an opportunity of being heard to the assessee in respect of any materials proposed to be used for the purpose of assessment. Even in cases where the assessing officer gets informations from private sources and does not want to disclose the source of information to the assessee, he shall have to communicate to the assessee the substance of such information if he proposes to use the result of such inquiry against the assessee. It is necessary in order to put the assessee in possession of full particulars of the case he is expected to meet. The assessee must be given full opportunity to meet objections raised by the assessing officer. If an assessment is based on materials which were not disclosed to the assessee, the order of assessment would be vitiated.

11. In this connection, it may be appropriate to mention that it is also settled by now that the assessee has a right to inspect the records and relevant documents before he is called upon to lead evidence in rebuttal. He has a right to inspect the statement recorded or orders passed by the assessing officer. In State Of Kerala v. K.T Shaduli Grocery Dealer Etc. [1977] 39 STC 478 (SC), where evidentiary material produced by a third party was sought to be relied upon for showing that the return submitted by the assessee was incorrect and incomplete, it was held that the assessee was entitled to have such person summoned as witness for cross-examination, inasmuch as cross-examination is one of the most efficacious method of establishing truth and exposing falsehood. As in that case the assessing officer refused to summon the said person for cross-examination, the Supreme Court held that the act of the assessing officer in refusing to summon the said person for cross-examination by the assessee clearly constituted infraction of the right conferred on the assessee and that vitiated the orders of assessment made against him.

12. At this stage, it may be pertinent to emphasise that the opportunity of hearing to the assessee, contemplated above, is not an empty formality or ritual or a pretence. It is a valuable right granted to the assessees and, in fact, is an important safeguard against arbitrary assessments. It cannot be taken lightly by the authorities. The opportunity must be real and reasonable. If an assessee, who is asked to furnish certain particulars or submit explanations within a specified time, prays for further time stating his difficulties and/or reasons, his prayer should be considered judiciously. Sometimes, as in the present case, hearings, for assessment for a number of years are taken up together and the assessee is asked to appear and produce evidence in support of his returns. On consideration of the evidence produced by the assessee the assessing officer might require some further particulars and/or information which it might not be possible for the assessee to submit instantaneously or at short notice. He may require reasonable time to furnish the same and pray for the same before the assessing authority. Such prayers cannot be rejected at the threshold without considering the ground given by the assessee merely because the assessing officer is hard-pressed to complete the assessment by a specified date or for administrative expediency. Such a rejection would amount to denial of reasonable opportunity of hearing to the assessee and vitiate the assessment.

13. The assessing officer, after making all inquiries and giving reasonable opportunity of hearing to the assessee, can definitely arrive at his own conclusion. However, the assessment made must have reference to some evidence or material on record. Having rejected the books of account or the evidence produced by the assessee the assessing authorities cannot act arbitrarily and on pure guess and make an assessment without reference to any evidence or any material at all. No hard and fast rule can be laid down to define the sort of material on which the assessing officer can base his assessment. It will depend on the facts of each case. In any event, the assessment order must disclose not only the reasons for rejecting the return and accounts but also the basis on which the assessment is made.

14. Applying the aforesaid principles of law to the facts of the present case we find force in the contention of the petitioner that he was denied reasonable opportunity to adduce evidence in support of his returns and that the Superintendent of Taxes made the assessment of the turnover for the years ending March 31, 1980 and March 31, 1981 at Rs. 2,00,000 and Rs. 1,50,000 respectively on pure guess and surmises without reference to any materials or evidence on record. To recapitulate the facts, the petitioner in this case was asked to furnish certain information for which he wanted time on the ground that assessments for four years were being taken up at a time and it was not possible on his part to furnish the same within a short period of 5 or 6 days. His prayer was rejected without considering the reasons given by him. Not only that, adverse inference was drawn against him for his so-called failure to furnish informations. The returns were rejected. Certain defects in the accounts were noted in the order of assessment. These were also not brought to the notice of the petitioner to enable him to explain or clarify the same. The petitioner was thus denied reasonable opportunity of hearing and on that score itself the impugned order of assessment cannot be sustained, the same being made in violation of principles of natural justice. However, we find that the assessments cannot be sustained on another ground also, namely, that they are based on pure guess and surmises. The Superintendent of Taxes after noting down the defects in the accounts, rejected the returns and proceeded to estimate the turnover. The relevant portion of the assessment order reads :

"Rejecting the returns, I would propose to determine the dealer's turnover to the best of my judgment as under :

15. It is evident that he did not refer to any materials at all in the orders of assessment. In the affidavit filed by the respondents there is no reference to any evidence or material on which the aforesaid estimate was based. No material is also available from the records of the case. It is, therefore, manifest that the Superintendent of Taxes having rejected the books of account made the assessment on mere guess and surmises without reference to any evidence or materials at all which he was required to do under the law. The impugned assessment orders, on this score also, are vitiated and cannot be sustained.

16. In view of what is stated above, the orders of assessment for the assessment years ending March 31, 1980 and March 31, 1981, impugned in the present writ petitions are set aside. Both the petitions are allowed. No order as to cost.