The Income-tax Officer examined witnesses behind my back and used their statements against me. Is that material evidence at all?
It can be, provided it is disclosed to you. The Supreme Court held that the Income-tax Officer is not bound by the technical rules of the law of evidence and may collect material to facilitate assessment even by private enquiry, but if he wishes to use it he must inform the assessee of the material and give an adequate opportunity to explain it. Here nothing showed the material had been withheld, and in any event the Appellate Assistant Commissioner had summoned the two witnesses and allowed cross-examination. The Tribunal was therefore free to rely on their earlier statements and to disbelieve the later ones.
Decided by the Supreme Court (Supreme Court of India - M. Hidayatullah and J.C. Shah, JJ (judgment delivered by Shah, J)) on 1962-02-07, reported as (1962) 45 ITR 206 (SC). It bears on section 66(2) of the Indian Income-tax Act, 1922, section 143(3), section 142(3), section 144 of the Income Tax Act 1961, in Evidence & Burden of Proof matters.
This is the case for both halves of the rule about material gathered outside the assessee's presence. The freedom - the officer may make his own enquiries and is not tied to the Evidence Act. The condition - what he collects must be put to the assessee with a real opportunity to answer it. It is also a clean statement of the limits of the reference jurisdiction: the High Court's role is advisory, it does not sit in appeal on the appreciation of evidence, and a finding of fact is open to challenge only if it rests on no evidence or is unreasonable and perverse. And it makes the practical point that once the defect of an ex parte examination is cured on appeal, the earlier statements remain material the Tribunal may prefer.
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The assessees were commission agents and brokers who also did forward business in cotton, bullion and other commodities. In the assessment for 1947-48 the Income-tax Officer noticed two entries in their books for Samvat 2002 showing payments of Rs 48,185 to Meghaji Kapurchand and Rs 1,45,706 to Bhimaji Motiji. A partner explained that these were constituents who had done speculative transactions through the assessees as brokers with Bhawanji Lakhmichand and Joitram Kedarnath, that the latter had suffered losses of Rs 12,303 and Rs 1,81,587, and that what they paid was passed on to the two constituents. The officer examined Achaldas of Meghaji Kapurchand and Poonamchand of Bhimaji Motiji, held the entries fictitious and disallowed the two amounts. Before the Appellate Assistant Commissioner the assessees complained that the two men had been examined in their absence; that officer summoned them and allowed cross-examination, held the cotton transactions not genuine but the assessees mere brokers or mediators, and directed exclusion of Rs 1,94,890. On the Department's appeal the Tribunal reversed him and restored the assessment, finding that there had been no previous dealings with either firm, that no deposit or security had been taken from new constituents for such large sums, that the entries looked suspicious and not written in the usual course, that the two firms always gained and never once lost, which was unrealistic, that their partners had told the officer the transactions were bogus and that they had sold the profits with an ulterior motive, that even before the Appellate Assistant Commissioner they did not claim the transactions were genuine, and that they had encashed the assessees' cheques and repaid the amounts - to the assessees according to their first statements, to unknown and unidentifiable parties according to their later ones. The assessees also declined to examine Joitram Kedarnath. The Bombay High Court answered both referred questions against them.
The appeal was dismissed with costs. The statements made by Achaldas and Poonamchand before the Income-tax Officer were material on which the Tribunal could act. The Income-tax Officer is not bound by any technical rules of the law of evidence and may collect material to facilitate assessment even by private enquiry, but if he wishes to use the material so collected the assessee must be informed of it and given an adequate opportunity of explaining it. There was nothing on the record to show that the officer had failed to disclose what he had collected, and in any event the Appellate Assistant Commissioner, in the interest of justice and fair play, had summoned the two men and allowed cross-examination. It was therefore open to the Tribunal, in appreciating the evidence, to rely on their statements before the Income-tax Officer and to disbelieve their statements before the Appellate Assistant Commissioner. The High Court's jurisdiction on a reference is merely advisory; it does not sit in appeal over the income-tax authorities and is not concerned with whether the Tribunal's appreciation of evidence is correct. A finding of fact unsupported by evidence, or unreasonable and perverse, may be challenged as unsupported by material, but here there was material on which the Tribunal could reasonably reach the conclusion it did.
The Court took the assessees' argument at its highest - that only the statements made before the Appellate Assistant Commissioner, where the witnesses absolved them, were legal evidence - and answered it in two steps. First, material gathered in private enquiry is not thereby disqualified; what disqualifies its use is a failure to disclose it and to allow the assessee to meet it, and neither was shown here. Second, once both sets of statements were properly before the authorities, choosing between them was an exercise in appreciating evidence, which is the Tribunal's function. The Court noted what the two sets of statements had in common - that the cheque amounts had been repaid - and where they differed, namely whether the money went back to the assessees or to persons who could not be produced. That difference was itself something the Tribunal could weigh. Having found that a mass of evidence supported the Tribunal's conclusion and that the question was purely one of fact, the Court held the High Court had rightly answered the two questions.
if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it
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Handle my notice → Ask a CA on WhatsAppIt can be, provided it is disclosed to you. The Supreme Court held that the Income-tax Officer is not bound by the technical rules of the law of evidence and may collect material to facilitate assessment even by private enquiry, but if he wishes to use it he must inform the assessee of the material and give an adequate opportunity to explain it. Here nothing showed the material had been withheld, and in any event the Appellate Assistant Commissioner had summoned the two witnesses and allowed cross-examination. The Tribunal was therefore free to rely on their earlier statements and to disbelieve the later ones. This was decided by the Supreme Court (Supreme Court of India - M. Hidayatullah and J.C. Shah, JJ (judgment delivered by Shah, J)) and bears on section 66(2) of the Indian Income-tax Act, 1922, section 143(3), section 142(3), section 144 of the Income Tax Act 1961. It is reported as (1962) 45 ITR 206 (SC). This is the case for both halves of the rule about material gathered outside the assessee's presence. The freedom - the officer may make his own enquiries and is not tied to the Evidence Act. The condition - what he collects must be put to the assessee with a real opportunity to answer it. It is also a clean statement of the limits of the reference jurisdiction: the High Court's role is advisory, it does not sit in appeal on the appreciation of evidence, and a finding of fact is open to challenge only if it rests on no evidence or is unreasonable and perverse. And it makes the practical point that once the defect of an ex parte examination is cured on appeal, the earlier statements remain material the Tribunal may prefer. If it applies to you, the first step is this: Ask for the material collected behind your back, in writing, and record any refusal; the objection is to its use without disclosure, not to its collection.
The assessees were commission agents and brokers who also did forward business in cotton, bullion and other commodities. In the assessment for 1947-48 the Income-tax Officer noticed two entries in their books for Samvat 2002 showing payments of Rs 48,185 to Meghaji Kapurchand and Rs 1,45,706 to Bhimaji Motiji. A partner explained that these were constituents who had done speculative transactions through the assessees as brokers with Bhawanji Lakhmichand and Joitram Kedarnath, that the latter had suffered losses of Rs 12,303 and Rs 1,81,587, and that what they paid was passed on to the two constituents. The officer examined Achaldas of Meghaji Kapurchand and Poonamchand of Bhimaji Motiji, held the entries fictitious and disallowed the two amounts. Before the Appellate Assistant Commissioner the assessees complained that the two men had been examined in their absence; that officer summoned them and allowed cross-examination, held the cotton transactions not genuine but the assessees mere brokers or mediators, and directed exclusion of Rs 1,94,890. On the Department's appeal the Tribunal reversed him and restored the assessment, finding that there had been no previous dealings with either firm, that no deposit or security had been taken from new constituents for such large sums, that the entries looked suspicious and not written in the usual course, that the two firms always gained and never once lost, which was unrealistic, that their partners had told the officer the transactions were bogus and that they had sold the profits with an ulterior motive, that even before the Appellate Assistant Commissioner they did not claim the transactions were genuine, and that they had encashed the assessees' cheques and repaid the amounts - to the assessees according to their first statements, to unknown and unidentifiable parties according to their later ones. The assessees also declined to examine Joitram Kedarnath. The Bombay High Court answered both referred questions against them. The matter was decided on 1962-02-07 by the Supreme Court (Supreme Court of India - M. Hidayatullah and J.C. Shah, JJ (judgment delivered by Shah, J)). On those facts the Supreme Court held as follows. The appeal was dismissed with costs. The statements made by Achaldas and Poonamchand before the Income-tax Officer were material on which the Tribunal could act. The Income-tax Officer is not bound by any technical rules of the law of evidence and may collect material to facilitate assessment even by private enquiry, but if he wishes to use the material so collected the assessee must be informed of it and given an adequate opportunity of explaining it. There was nothing on the record to show that the officer had failed to disclose what he had collected, and in any event the Appellate Assistant Commissioner, in the interest of justice and fair play, had summoned the two men and allowed cross-examination. It was therefore open to the Tribunal, in appreciating the evidence, to rely on their statements before the Income-tax Officer and to disbelieve their statements before the Appellate Assistant Commissioner. The High Court's jurisdiction on a reference is merely advisory; it does not sit in appeal over the income-tax authorities and is not concerned with whether the Tribunal's appreciation of evidence is correct. A finding of fact unsupported by evidence, or unreasonable and perverse, may be challenged as unsupported by material, but here there was material on which the Tribunal could reasonably reach the conclusion it did.
The Court took the assessees' argument at its highest - that only the statements made before the Appellate Assistant Commissioner, where the witnesses absolved them, were legal evidence - and answered it in two steps. First, material gathered in private enquiry is not thereby disqualified; what disqualifies its use is a failure to disclose it and to allow the assessee to meet it, and neither was shown here. Second, once both sets of statements were properly before the authorities, choosing between them was an exercise in appreciating evidence, which is the Tribunal's function. The Court noted what the two sets of statements had in common - that the cheque amounts had been repaid - and where they differed, namely whether the money went back to the assessees or to persons who could not be produced. That difference was itself something the Tribunal could weigh. Having found that a mass of evidence supported the Tribunal's conclusion and that the question was purely one of fact, the Court held the High Court had rightly answered the two questions. In the words reproduced by the source cited on this page: "if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it"
It was decided by the Supreme Court on 1962-02-07 and is reported as (1962) 45 ITR 206 (SC). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 66(2) of the Indian Income-tax Act, 1922, section 143(3), section 142(3), section 144, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed with costs. The statements made by Achaldas and Poonamchand before the Income-tax Officer were material on which the Tribunal could act. The Income-tax Officer is not bound by any technical rules of the law of evidence and may collect material to facilitate assessment even by private enquiry, but if he wishes to use the material so collected the assessee must be informed of it and given an adequate opportunity of explaining it. There was nothing on the record to show that the officer had failed to disclose what he had collected, and in any event the Appellate Assistant Commissioner, in the interest of justice and fair play, had summoned the two men and allowed cross-examination. It was therefore open to the Tribunal, in appreciating the evidence, to rely on their statements before the Income-tax Officer and to disbelieve their statements before the Appellate Assistant Commissioner. The High Court's jurisdiction on a reference is merely advisory; it does not sit in appeal over the income-tax authorities and is not concerned with whether the Tribunal's appreciation of evidence is correct. A finding of fact unsupported by evidence, or unreasonable and perverse, may be challenged as unsupported by material, but here there was material on which the Tribunal could reasonably reach the conclusion it did. It arises in Evidence & Burden of Proof matters, on section 66(2) of the Indian Income-tax Act, 1922, section 143(3), section 142(3), section 144 of the Income Tax Act 1961, and was decided by Supreme Court of India - M. Hidayatullah and J.C. Shah, JJ (judgment delivered by Shah, J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Take up the opportunity to cross-examine if it is offered at the appellate stage, because the appellate authority curing the defect is what defeated the objection here. Produce the witnesses whose evidence would support your case; the Tribunal held the assessees' refusal to examine one of the parties against them. Do not expect a reference or appeal on a question of law to reopen the appreciation of evidence; frame the challenge as no evidence or perversity, and be able to show it.
Still good law. Constantly cited on the use of material collected behind the assessee's back and on the limits of interference with findings of fact; the harvested page records it as cited in over a hundred later decisions. No later decision doubting it was read as part of this exercise. Note that the reference procedure it describes has been replaced by an appeal on a substantial question of law, and that the 1961 Act contains its own provisions requiring the assessee to be heard on material gathered by the officer. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Decided under the Indian Income-tax Act, 1922, the questions having been referred under section 66(2); the batch line's sections 143(3), 142(3) and 144 of the 1961 Act are where the subject sits today but were not construed. The Court did not decide what would follow had the material in fact been withheld and never put to the assessee - it found no such failure on the record and relied additionally on the cure at the appellate stage - so the case does not settle the consequence of a real denial of opportunity. It also expresses no view on whose money the two sums were, only that there was material for the Tribunal's finding. The figures do not reconcile: the two disputed sums total Rs 1,93,891 while the Appellate Assistant Commissioner is recorded as directing exclusion of Rs 1,94,890, and the judgment does not explain the difference. The harvested page carries no headnote. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed with costs. The statements made by Achaldas and Poonamchand before the Income-tax Officer were material on which the Tribunal could act. The Income-tax Officer is not bound by any technical rules of the law of evidence and may collect material to facilitate assessment even by private enquiry, but if he wishes to use the material so collected the assessee must be informed of it and given an adequate opportunity of explaining it. There was nothing on the record to show that the officer had failed to disclose what he had collected, and in any event the Appellate Assistant Commissioner, in the interest of justice and fair play, had summoned the two men and allowed cross-examination. It was therefore open to the Tribunal, in appreciating the evidence, to rely on their statements before the Income-tax Officer and to disbelieve their statements before the Appellate Assistant Commissioner. The High Court's jurisdiction on a reference is merely advisory; it does not sit in appeal over the income-tax authorities and is not concerned with whether the Tribunal's appreciation of evidence is correct. A finding of fact unsupported by evidence, or unreasonable and perverse, may be challenged as unsupported by material, but here there was material on which the Tribunal could reasonably reach the conclusion it did.
TaxSphere, “C. Vasantlal and Co v CIT”, https://taxnotice.vittsphere.com/caselaw/case/c-vasantlal-and-co-v-cit/ (validity last checked 2026-08-29)
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