SABYASACHI MUKHARJI, J.--In this reference the following question has been referred to us by the Tribunal :- "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that before making an assessm ent under section 144 of the Income-tax Act, 1961, the assessee should be given an opportunity of being heard under section 142(3) of the said Act, in respect of any material gathered on the basis of enquiry made under section 142(2) and proposed to be utilised for the purpose of assessm ent and on that view in confirming the order of the Appellate Assistant Commissioner setting aside the assessment made under section 144."
2. The assessm ent years involved in this reference are 1967-68, 1968-f;9 and 1969-70. In the assessm ent year 1967-68 the assessee submitted a return under section 139(2) showing a loss of Rs. 23,550. The Income-tax Officer issued a notice to the assessee under section 142(1) requiring the assessee to produce the statutory books but the assessee committed default and the income-tax Officer made an assessm ent under section 144 of the Income-tax Act, 1961. The assessee had claimed that it purchased Samabeong Tea Estate ,n 1963. It did not disclose any income up to 1965 from the Tea Estate. It also failed to produce the sale-deed in its favour and satisfy the Income-tax officer that there was any agreement between the assesses and the seller Aessrs Padma Ltd. By which the latter was to run the estate. The Income-tax Officer found that there was litigation between Shri K. R. Agarwal, Principal Director of the assessee and members of his family and on the basis of an kward, the Tea Estate was allotted to him and also share capital of the ~ssessee. The Income-tax Officer was of the view that the assessee company was cent per cent owned by Shri K.
Agcrwal. He, however, proceeded to assess the income of the Tea Estate in the bands of the assessee as the assesses ;)aimed its ownership. The assessee produced account books but the 'ucosie-tax Officer for the reasons given by him in his order rejected the same. Che Income-tax Officer also found defects in the accounts and also observed hat the bills, correspondence between the offices of the assessee, star Lcquittance rolls etc. Were not produced. The assesses claimed that the Tea :state was sold out in November, 1966 but the assessee showed income from be same in the assessm ent years 1968.69 and 1969-70. The Income tax officer estimated the assessee's income at Rs. 36,000 from tea manufacture and Rs. 4,000 from licence fee aggregating to Rs. 40,000 in the assessment year 1967 -68.
3. 1=or the assessm ent year 1968-69 the assessee submitted a return disclosing .Loss of Rs. 62,194. - In this year also the assessee failed to comply with the notice under section 142(1) of the 1 ncome- tax Act, 1961 and the income-tax Officer completed the assessment under section 144 of the Act by estimating the assessee's income at Rs. 40,000. The assessee disclosed a loss of Rs. 37,032 in the return for the assessm ent year 1969-70 and it also failed to comply with the notice under section 142(1) in this year. The Income-tax Officer completed the assessment under section 144 by estimating the assessee's income at Rs. 20,000.
4. The assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner brard the appeals for the assessment years 1967-68 and 1969-70 together and disposed of them by a common order. The assesses in the appeals challenged the finding of the Income-tax Officer that the assesses company was owned by Shri Kashiram Agarwal and that he was the sole beneficiary of the assets and business of the assessee. It was urged before him that the Income-tax Officer was not justified in taking cognizance of the several facts relating to the family disputes between Shri Kashiram Agarwal and the other members of :h-. Family and the award in fu:cur of Shri Kashiram Agarwal. It was pointed out that the award was et0l in dispute before the High Court. It was urged that the income-tax officer was not justified in adopting the hearing to the assessee and also to furnish to status of the assessee as a company in which the public were not substantially interested. The Appellate Assistant Commissioner, however, beld that the Income-tax Officer was justified in determining whether there ,;,as a genuine company or not and for that purpose in taking into cognizance the award and the other material referred to by him in his order: He also held that the majority of the shares and the control of the assessee company was held by less than 5 persons and that the assessee was a company in which the public were not substantially interested. It was next urged before him that -the Income-tax Officer was not justified in estimating the income of the assessee at Rs. 40,000 in each of those two years as the Income-tax Officer did not issue any notice under section 143(3) before rejecting the accounts of the assesses. The disallowance of the expenses by the Income-tax Officer was also objected to for similar reasons. It was submitted that the sale-deed by Messrs Padma Ltd. Of the Tea Estate was a registered deed and the sale in favour of Kashiram Agarwal thereof was also by a registered deed.
It was argued that the Income-tax Officer was not justified in estimating and disallowing the expenses as the assessee's accounts had been duly audited. 1---. Was next contended that the Income-tax Officer was under legal obligation issue a show-cause notice to the assessee and to allow the assessee sufficient opportunity of being heard before arriving at an adverse conclusion and before rejecting the assessee's accounts and estimating the assessee's income. He, further, observed that on one hand the Income-tax Officer had stated that there was no valid conveyance deed for the above tea estate in favour of the assesses company while on the other hand, he estimated the income from the tea estate in the hands of the assessee. According to him, the income in respect of tea estate could not be assessed in the hands of the assessee. The Appellate Assistant Commissioner, further, observed that from the perusal of the assesses s records he found that no notice under section 143(3) was issued to the assesses to give an opportunity of being heard before drawing au adverse conclusion in rejecting the book version and in estimating ::.e _=come. The Appellate Assistant Commissioner in these circumstances, set aside the assessments with the direction to give an opportunity of the assessee the information on the basis of which be had arrived at the conclusion adverse to the asses ~ee and to reframe the assessments in accordance with law.
Similar contenti ~as were raised in the apr:al for the assessment year 1969-70 against the finding of the Income-tax Office, that the assessee company was owned by Kashira:n Agarwal and against t:.e estimate of income of the assessee. The correctness of the estimate of incon.:> for the assessm ent year 1969-70 was also challenged. It was submittec that all the sales were effected during the beginning of the year and the tea gardens remained closed during the middle of the accounting year due to labour troubles and that the Income-tax Officer had not taken into consideration those facts in estimating the assessee's income and that the expenses had be n disallowed without any reason. The Appellate Assistant Commissioner observed that before arriving at the conclusion that the assessee company was owned by Shri Kashiram Agarwa;, the Income-tax Officer had not given any opportunity of hearing to the assessee and the Income-tax Officer had violated the cardinal principle o f justice and that before an adverse conclusion could be drawn against the assessee it must have been given an opportunity of being heard and that the Income-tax Officer must have furnished information gathered by him on the basis of which the adverse conclusions had been drawn. With respect to the estimate of income he also observed that the Income-tax Officer had not given any opportunity to the assessee before estimatiLib the same, He, therefore, set aside the assessment with the direction to the Income-tax Officer to give an opportunity to the assessee of being heard and to recompute the income after considering all the facts. He also directed the Income-tax Officer to give an opportunity to the assessee of hearing before arriving at hi3 conclusion regarding the ownership by the assessee.
5. - Aggrieved by the orders of the Appellate Assistant Commissioner the department came up in appeals before the Tribunal. It was submitted before the Tribunal by the learned Departmental Representative that as the assessments were made under section 144 the assessee was not entitled to any hearing nor to any information of the type mentioned by the Appellate Assistant Commissioner in his order and the Appellate Assistant Commissioner was also not justified in .
Setting aside the assessm ent and in directing the income-tax Officer to make a fresh assessment.
It was argued that an assessee was entitled to an opportunity of being heard in respect of material gathered on the basis of any enquiry made subsection (2) of section 142 only in cases of assessm ents other than those made under section 144 and that the assessee bad no such right of opportunity in the eases before the Tribunal and the assessments could not be set aside with a view to afford such an opportunity to the assessee. It was further urged that the assessee made applications under section 146 and those applications were dismissed by the Income-tax Officer and the appeals against those orders were also dismissed by the Appellate Assistant Commissioner. It was argued that in appeals against quantum of assessments the Appellate Assistant Commissioner could not exercise his powers which he could do in appeals against the order under section 146 and that by setting aside the assessments with a direction for making fresh assessm ents, the Appellate Assistant Commissioner had circumvented the provisions of section 146 in respect of which he had no power. The learned counsel for the assessee on the other hand submitted that the assessm ent proceedings were judicial proceedings and the assessee was entitled to be heard if any material was sought to be used against him on principles of natural justice. He pointed out that the' applicability of principles of natural justice was not excluded even when an assessm ent was made under section 144. After referring to the provisions of subsection
(3) of section 142 the learned counsel for the assessee pointed out that the provisions of subsection
(3) did not exclude the applicability of principles of natural justice m providing such an opportunity to the assessee even if any assessm ent was made under section 144. In support of his contention he placed reliance on the decision in the case of Koyamman Kotty v. 4th Additional Income-tax officer ((1965) 58 I T R 871 (Kar.)). It was next argued that the Appellate Assistant Commissioner had not circumvented the provisions of section 146 as he had not granted any relief to which the assessee could be entitled if any application under section 146 had been accepted as he had only directed the Income-tax Officer to give an opportunity to the assessee of being heard with respect to the material that was proposed to be used against the assessee in making the assessment.
6. The Tribunal after referring to the facts and decisions in the case of Koyamman Kotty v. 4th Additional Income-tax Officer (supra) (2) and in the case of T. C. N. Menon v. Income-tax Officer, B- Ward, Ernakulam (96 I T R 148 : 1973 Tax L R 1426 (Kar.)) observed that from these decisions it was clear that the assessee bad a right to be heard before any adverse inference was drawn against it from the material gathered by the Income-tax Officer. The Tribunal further observed that section 146 provided for making an application for setting aside an assessment under section 144, in the circumstances, mentioned in that section. The Tribunal referred to the provisions of clauses (c) and
(d) of section 246 and observed that the matter which fell under section 146 could not be considered in appeal against the assessment under section 245(c). But in the present case the setting aside of the assessm ent orders by the Appellate Assistant Com--missioner and the direction for affording an opportunity to the assessee of being heard against the material gathered and proposed to be utilised against it did not fall within the ambit of the relief that could be granted to an assessee under section 146 and on that account there was no circumvention by the Appellate Assistant Commissioner of the provisions of section 146 in passing the impugned order.
The Tribunal, therefore, dismissed the departmental appeals.
7. Upon these, the aforesaid question has been referred to us. The Tribunal in its main order has posed the question before it as follows :- "The point in controversy in this case was whether before making a best judgment assessment under section 144 of the Income-tax Act the assessee should be given under subsection (3) of section 142 an opportunity of being heard in respect of any material gathered on the basis of any enquiry under subsection (2) and proposed to be utilised for the purpose of assessment."
8. On this aspect the Tribunal held that the assessee must be given a further opportunity. In view of the clear language used by section 142(3) read in conjunction with clause (6) of section 144 of the Income-tax Act, 1961, in our opinion, the conclusion arrived at by the Tribunal on this point of law is contrary to the clear and unambiguous expression used in these sections. Therefore, we are unable to agree with this conclusion of the Tribunal.
9. In that view of the matter, it is necessary for us to refer to the several decisions which have been mentioned in the order because those decisions do not strictly deal with the actual points with which we are involved in the present case.
10. In that view of the matter, the question must be answered in they negative and in favour of the Revenue.
11. Each party will pay and bear its own costs.
SUBAS CHANDRA SEN, J. I agree.
M. Z. M. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.