1. These eight wealth-tax references bearing Nos. 58 to 65 of 1977, have been forwarded by the Income-tax Appellate Tribunal by a consolidated statement of the case. They concern assessment years 1962-63 to 1969-70. The following question in each of these reference has been submitted at the instance of the Commissioner of Wealth-tax for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessed was entitled to have a second opportunity in terms of sub-section (5) of section 16 of the Wealth-tax Act, 1957, and on that ground setting aside the orders of the authorities below and restoring the cases to the Wealth-tax Officer to reframe the assessment ?'
2. The assessed, Shri Gurdial Singh is a director of the Green Finance (India) Pvt. Ltd., in which he holds 1,670 shares of Rs. 100 each. Besides this, he is also partner in M/s. Green Motors and M/s. Capital Diesel Engineering Works. For the previous year relevant to assessment year 1965-66, he is also a partner in Eagle Theatres which firm is having cinemas at Bombay and in New Delhi.
3. No returns were filed by the assessed for any of these years. They were due by the end of June of every year following the close of corresponding previous year. The WTO, thereforee, required the assessed by notice to file the returns but there were again defaults. The notice served under s. 17 of the W.T. Act, also remained uncomplied. All that the assessed did was to file statements mentioning his assets and liabilities. Their position was stated as under :
Assessment year Assets Liabilities New wealth(1) (2) (3) (4)Rs. Rs. Rs.1962-63 5,34,672 4,48,800 85,8721963-64 6,86,783 5,39,517 1,47,0001964-65 11,04,970 10,64,766 (+) 40,2041965-66 12,84,131 12,13,627 (+) 70,5031966-67 13,06,457 13,02,356 (+) 4,1001967-68 8,03,973 9,26,833 (-) 1,22,8601968-69 13,71,352 14,68,022 (+) 96,6691969-70 9,86,599 11,00,394 (-) 13,794
4. Thereafter a number of notices were issued to the assessed for the assessment years 1962-63 and 1963-64, and he was required to produce account books and other material to substantiate the assets and liabilities disclosed in the statements. He was further required to file duly verified returns. However, he failed to comply. Since the assessed showed absolute indifference to those proceedings and the notices, recourse to best judgment assessment was taken and the assessment completed under s. 16(5) of the W.T. Act. During the course of the same, the WTO took note of the assessed's capital investment in the firms, M/s. Green Motors and M/s. Capital Diesel Engineering Works, and share investments in the Green Finance (India) Pvt. Ltd. They came to over Rs. 2 lakhs in each year. It was further noticed that the Green Finance (India) Pvt. Ltd., in which the assessed was one of the three directors, had made a disclosure under s. 271(4A) of the I.T. Act seeking to get the peak amount of rupees 23 lakhs of hundi loans, assessed in its hands to the extent of rupees 15 lakhs. There were besides disclosures by the three directors to the tune of Rs. 8,77,000. The WTO next observed that the assessed had failed to place on record, despite sufficient opportunities, original confirmations of the several liabilities which he was purporting to claim in the statements. the net wealth of each of these two years, was, thereforee, computed at rupees 7 lakhs.
5. While disposing of the appeals for these two years, the AAC upheld the recourse to best judgment assessment under s. 16(5) of the W.T. Act as he found that sufficient opportunities had been allowed to the assessed to file the returns and lead evidence in support of the assets and liabilities disclosed in the statements. The attitude of the assessed was observed to be non-co-operative and, thereforee, the WTO was compelled to proceed exparte. He further found that the names of creditors to whom liabilities were stated to be due, were furnished by the assessed along with the statements, and they showed that the depositors were close relations of the assessed and almost all of them were jointly residing with him. If these liabilities, it was observed, were genuine, the assessed should not have felt any difficulty in adducing satisfactory evidence before the WTO when sufficient opportunity was granted to prove them. He was, thereforee, unable to allow the assessed to produce confirmation letters from them at the appellate stage, and after making reference to r. 46A, held that in the circumstances, fresh evidence was not entertainable.
6. At the same time, the AAC was of the opinion that so far as the disclosure made by the Green Finance (India) Pvt. Ltd. under s. 271(4A) of the I.T. Act was concerned, he was unable to ascribe any wealth to the assessed on its basis as the so-called bogus creditors could not be linked with him. According to him, there was no positive evidence brought out to hold that the deposits with the company belonged to the directors. To this extent, thereforee, he did not approve of the approach of the WTO.
7. However, in the ultimate analysis he came to the conclusion that considering the other circumstances, the estimate of wealth at rupees 7 lakhs in each year was quite adequate and fair. The appeals were dismissed.
8. For the assessment year 1964-65 to 1969-70, the facts according to the WTO were similar. In these years also, the assessed did not care to submit the returns. The notices issued under ss. 14 and 17 requiring the filing of the returns again remained uncomplied. Here too all that the assessed did was to file statements in which assets and liabilities as already reproduced above, were mentioned. The WTO was, thereforee, constrained to to take best judgment proceedings as enjoined under s. 16(5). Several notices were issued to the assessed to appear and take part in the proceedings. There were as many as then hearings fixed from December 27, 1971, to September 6, 1974. On most of them, the assessed's representative Daya Ram, accountant, attended and all he did was to seek adjournments on one plea or the other. On one of the hearings, viz., February 21, 1974, he promised to file wealth-tax returns for some years by February 21, 1974, but failed to do so. There were again further defaults in the production of material to substantiate the assets and liabilities shown in the statements. The WTO then noticed that there were liabilities amounting to Rs. 6,78,684 of the assessed which were said to have been connected with the benami disclosures by his relations and friends under the Finance Act No. 2 of 1965. Quite a number of those persons were stated to be minors who could not be deemed to have any source of income out of which they could make those disclosures.
9. The WTO, thereforee, estimated the wealth of the assessed at rupees 10 lakhs for each of the assessment years 1964-65 and 1965-66, at rupees 11 lakhs for each of the assessment years 1966-67 and 1967-68, at rupees 12 lakhs for the assessment year 1968-69 and rupees 10 lakhs for the assessment year 1969-70.
10. These were again upheld in appeals by the AAC. During the course of the same, he observed that the assessment records spoke volumes of the non-co-operative attitude of the assessed which compelled the WTO to proceed ex parte. He was unable to accept the assessed's contention that he was out of station and was due to return from Howrah on September 6, 1974, but the WTO without waiting for his arrival, completed the assessment ex parte. According to him, had there been any genuine effort on the part of the assessed to co-operate and had he been prevented by his personal absence on the last date of hearing, he could have at least filed the returns as a token of proof of good intention. The statements of assets and liabilities filed by the assessed on plain papers were found to be not authenticated and did not much call for reliance, more so as the liabilities shown therein were not established to be genuine. The appeals were, thereforee, rejected.
11. In second appeals, the Appellate Tribunal agreed that the WTO was compelled to act under s. 16(5) of the W.T. Act and make best judgment assessment. However, that by itself, it was observed, did not give him blanket powers to reject the material placed by the assessed before him without allowing another opportunity to show cause why the wealth declared should not be accepted. Reliance in this regard was placed upon the decision of the Kerala High Court in the case of T. C. N. Menon v. ITO : 96ITR148(Ker) , to the effect that the assessed was entitled to have a second opportunity to show cause why on the material gathered by the ITO, his total income should not be assessed in the manner proposed by the ITO. Since the WTO had not done so in the present cases and had straightway treated the liabilities claimed by the assessed as not genuine, and his wealth were estimated at higher figures in view of the disclosure made by the Green Finance (India) Pvt. Ltd., the Tribunal, set aside the orders of the authorities below and restored the cases to the file of the WTO for all the years with the direction to reframe the assessment after allowing opportunity to the assessed to show cause in the light of the said observations.
12. It is in these circumstances that the revenue feeling aggrieved, has obtained the present references with the aforesaid question for the opinion of this court.
13. We have heard the parties and given our utmost consideration to all the circumstances. In our opinion, the narration of the facts above abundantly brings out the recalcitrant and totally non-co-operative attitude of the assessed. He did not care to file wealth-tax returns of his own. Perhaps there could be some justification for that in case he felt that his wealth were not assessable. However, when the WTO had issued notices under ss. 14(2) and 17 of the W.T. Act, requiring him to file the returns, he was thereafter obliged under the law to file the returns. He could not have thereafter ignored the notices and still remained indifferent to the submission of the returns. The WTO, thereforee, was justified to proceed under s. 16(5) of the Act and frame best judgment assessment. the Tribunal too in this regard has observed that it was no doubt correct that the WTO was compelled to act under s. 16(5) of the Act.
14. That apart, when the assessment proceeded, a number of notices were issued under s. 16(4) requiring the assessed to produce account books and other material to substantiate his case of assets and liabilities disclosed in the statements which he had filed. There was again total defiance and the assessed chose to sit on the fence. Much has been sought to be made out before us that in some of these notices even the sale and purchase vouchers were required to be produced. They, it has been pleaded, had little relevance for the wealth-tax assessment. We are, however, unable to lay any significance to this circumstances as those notices had besides sought the production of account books and other evidence relevant for assessment as well. It could not be that the demand for their production was in any manner eliminated, simply because, certain irrelevant or not too very relevant documents were required to be produced. The assessed could have made appearance and explained the position with respect to those documents and produced the rest.
15. The onus of proving the liabilities which the assessed had shown in the statements furnished, and which the assessed claimed were due from him, squarely rested on him. The WTO repeatedly asked him to substantiate them but without result. Even confirmatory letters from the creditors were not furnished. This was in spite of the fact that most of them were close relations of the assessed and were jointly residing with him. When that had been the conduct of the assessed, the AAC was justified to not admit the confirmations tendered for the first time at the appellate stage. In so far as the disclosures made under the Finance (No.2) Act of 1965 by some creditors, they too had to be first correlated with the liabilities which the assessed was showing in the statements. Even otherwise as per the decisions of the Gujarat and Allahabad High Courts given in the year 1973 and reported as Manilal Gafoorbhai Shah v. CIT : 95ITR624(Guj) and Badri Pd. and Sons v. CIT : 98ITR657(All) , those disclosures could not provide blanket cover when the amounts were found introduced in the books of a third person. In such third person's assessment, it was held, their genuineness still remained open for ascertaining whether the amount in reality belonged to him. Several Benches of the Appellate Tribunal had also taken similar view. thereforee, it could not be said that the WTO was precluded from going into the genuineness of the liabilities which the assessed had shown in the statements furnished. The Delhi High Court decision in the case of Rattan Lal : 98ITR681(Delhi) about voluntary disclosures under the Finance (No.2) Act of 1965, came much later and long after the best judgment assessment effected in the present cases. This assessed, thereforee, could not be held justified to ignore the notices issued under s. 16(4) requiring him to produce account books and other material to substantiate his liabilities. The WTO was, thereforee, clearly justified to make best judgment assessment.
16. Much has been sought to be made out from the side of the assessed that the WTO had for the first two years placed reliance upon the voluntary disclosure made under s. 271(4A) of the I. T. Act by the Green Finance (India) Pvt. Ltd. We, however, find that, to that extent, his order was not sustained by the AAC in appeal. He ignored that disclosure and held that there was no material to connect the deposits in that company with the present assessed. There was, thereforee, no grievance left with the assessed so far as that disclosure was concerned. The AAC still sustained the estimates of the wealth computed by the WTO on the ground that they were otherwise fair and reasonable considering the extent of assets disclosed. The assessment were in their close proximity.
17. As regards the disclosure made by the assessed himself as director of that company, the same was nothing which the assessed was not aware or which could be treated as new and unknown evidence gathered by the WTO behind his back. What was already in the knowledge of the assessed and was the creation of his own act would not be termed as something which took him unaware. Moreover, nothing specifically is shown to have been added on the basis of this disclosure in the computation of wealth. The statements furnished by the assessed showed on the assets side wealth of rupees 5.34 and 6.86 for the first two years. As against these, the estimates of wealth computed were at rupees 7 lakhs.
18. With this background of the facts, we do not see what was the other material which the authorities below had collected or relied upon, about which the Appellate Tribunal observed that the assessed should have been provided a second opportunity of being heard. The generalised statement in the order of the Tribunal about the material collected had little bearing when in fact there was no such material collected. Primarily it were the statements furnished by the assessed himself which were made the basis for best judgment assessment in so far as the assets shown in them were concerned. All that was done was to ignore liabilities as the assessed had failed to substantiate them in spite of a large number of opportunities granted. In our opinion, thereforee, the ratio of the Kerala High Court decision relied upon by the Tribunal was not, in any manner, attracted.
19. The attitude of the assessed was throughout to sit on the fence and contemptuously ignore the assessment proceedings and the notices issued by the WTO requiring him to furnish returns and other material in support of his wealth-tax statements. After all the assessment proceedings could not be converted into a farce of mockery by him. He ought to have shown due regard to them. In the circumstances, there was no justification, to allow him a second innings by setting aside the assessment and requiring the WTO to frame them afresh. For the framing of those best judgment assessment, and the situation in which the assessed found himself rendered, he was himself to blame. He could not, thereforee, be heard to make a grievance of his own defaults. What the principles of natural justice postulate is that a reasonable opportunity should be granted to the assessed of being heard. It is for him to avail that. In case, he does not choose to do so, the orders that allow cannot be held vocative of those principles or the requirements of law.
20. At the same time once it is held that the ex parte assessment are justified, it still remains open what is the reasonable estimate of the assessed's income or wealth which should be computed. It is inherent in the very nature of such assessment, which is a quasi-judicial act, that it should be after forming the best judgment. The classic passage on the point is to be found in the judgment of the Privy Council in CIT v. Laxminarain Badridas  5 ITR 170, where it was observed as under (p. 180) :
'The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessed's circumstances and his own knowledge of previous returns by and assessment of the assessed and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary.'
21. The Supreme Court has also in the case of Commr. of S.T. v. H. M. Esufali, H. M. Abdulali : 90ITR271(SC) , observed that in estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not any one else's. The High Court cannot substitute its best judgment for that of the assessing authority. To use the words of Lord Russell of Killowen, '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 assessed's 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.
22. There is at the same time, no gainsaying that even where an assessed suffers a best judgment assessment, he can move an appeal against the same and plead before the appellate authority that the estimate of income or wealth computed was not reasonable and deserves to be substantially reduced. It may also appear that during the course of the same, in case subsequent events or developments have taken place which have a bearing on the propriety of that estimate, he may bring them to the notice of the appellate authority. In the present case, it is pointed out that some of the deposits with the assessed were disclosed by the depositors under the voluntary disclosure scheme of the Finance (No. 2) Act of 1965, and they were accepted, and further that as a consequence of the decision of the Delhi High Court in Rattan Lal's case : 98ITR681(Delhi) , those additions in the hands of the assessed in the income-tax returns were deleted. The assessed has, thereforee, pleaded that these developments, as also the propriety and reasonableness of the estimates of wealth computed by the WTO, should have been in any case gone into by the Appellate Tribunal, and that in case the question referred is answered against him he should not be prejudiced and precluded from getting these aspects determined from the Tribunal.
23. In our considered opinion, so far as the question referred to us, it has to be answered in the light of circumstances narrated above, in the negative and against the assessed. It is left over now for the assessed to move the Tribunal for going into the propriety and fairness of the estimates computed by the I. T. authorities of the assessed's wealth. We make no order as to costs.
S. Ranganathan J.
24. I agree but I should like to add a few words.
25. In a case where a best judgment assessment is made, we start with the position that the assessed has failed to fulfill his obligations under the Act and that, in the absence of proper assistance from him, the officer is constrained to make an estimate of the income or the wealth. For doing this the officer has to rely on material placed by the assessed himself or gathered by the officer from other sources. Judicial decisions under the Indian I.T. Act, 1922, had pointed out that even in the case of a best judgment assessment, if the ITO in making the assessment relies on material gathered by him behind the back of the assessed, he should, having regard to the principles of natural justice, disclose such material to the assessed and give him an opportunity to explain before he frames the assessment on the basis thereof (See Dhakeswari Cotton Mills Ltd. v. CIT : 27ITR126(SC) followed and applied in Swamy Bros. v. CIT : 34ITR123(Ker) and K. Baliah v. CIT  56 ITR 182 ).
26. The I.T. Act, 1961, introduced a qualification to this rule in s. 142(3). This sub-section provides that the assessed shall, except where the assessment is made under s. 144, be given an opportunity of being heard in respect of any material gathered on the basis of any enquiry or any audit and proposed to be utilised for the purpose of the assessment and this limitation has been emphasised in Miri Mal Mahajan v. CIT and Addl. ITO v. Ponkunnam Traders : 102ITR366(Ker) (Ker). Kanga and Palkhivala (Law of Income-tax) have suggested (p. 862, 7th Edn., Vol. I) that this provision cannot be construed to enjoin or authorise violation of the principles of natural justice in the case of a best judgment assessment and that an opportunity of being heard in respect of any material gathered by the officer should not be denied except where the assessed's conduct or default is of such a character as to necessitate or warrant dispensing with this fundamental principle of justice. It is, however, not necessary for the purpose of the present case to go into this question because there is no provision corresponding to s. 142(3) in the W.T. Act. We can, thereforee, take it as a settled position under the W.T. Act that even while framing a best judgment assessment the ITO should comply with the provisions of natural justice. In other words, if in arriving at his assessment he makes use of or relies upon material gathered behind the assessed's back, he shall not make use of the same unless the assessed is given an opportunity to rebut the said material.
27. However, in setting aside the assessment and directing the WTO to make fresh assessment under s. 16(5) after giving the assessed another opportunity, the Tribunal has acted upon a decision of the Kerala High Court in T.C.N. Menon v. CIT : 96ITR148(Ker) which, like Koyammankutty v. Fourth Addl. ITO : 58ITR871(Ker) , Prabhakar Mallappa Panadare v. Agrl. ITO : 77ITR349(KAR) , seems to go a little further. If all that these decisions require is that the assessed should be given an opportunity to rebut material which the officer may have gathered by enquiry behind the assessed's back, or otherwise, I would respectfully agree therewith. But, if they go further and intend to lay down that even where the officer only acts on material on record he should convene the assessed again, explain to him the basis on which he proposes to make the assessment and give him a second opportunity to put forward his case, I would respectfully disagree. To give such an opportunity, in the case of an ex parte assessment, would only encourage recalcitrant and un co-operative assessed to sit on the fence with all the cards up their sleeves giving no information to the officer and also provide them with opportunities of finding fault with assessment which the officer might evolve to the best of his judgment and thus render an ex parte assessment virtually impossible. An assessment made in such manner would not be really an 'expert' or 'best judgment' assessment which is visited by the Act on a non co-operative assessed.
28. In the present case, I find that the WTO has not rested his assessment on any material gathered behind the back of the assessed. He rested his assessment on the statements of assets and liabilities filed by the assessed. Taking up the assets, in the assessment years 1962-63 and 1963-64, the WTO was of opinion that the value of the shares held by the assessed in Green Finance Pvt. Ltd. in which the assessed was also a director needed enhancement, as that company and its directors had made disclosures to the effect that certain hundi loans shown in its books were not genuine liabilities but were really their undisclosed income. This is of no relevance now because the AAC differed from the WTO and held that these disclosures could not be linked up with the case of the appellant in the absence of positive evidence. For the other assessment years 1965-66 to 1969-70, the WTO disturbed the valuation of the assets shown by the assessed in respect of properties held by the firm, Eagle Theatres, New Delhi, of which the assessed was a partner. This was information and material within the assessed's knowledge. So far as the liabilities were concerned, there were two aspects for consideration-one their genuineness and the other the effect of their having been declared under the Finance (No. 2) Act, 1965, by the persons concerned. So far as the former is concerned, the assessed had ample opportunities before the WTO and his attempt to adduce additional evidence before the AAC having been rejected, he cannot be given another opportunity to prove them. As to the latter, it was a legal point on which the WTO had already taken a view and which, thereforee, needed consideration by the Tribunal straightaway.
29. Thus, it is seen that the WTO had not based his judgment on any material extraneous to the assessed's record or gathered by him behind the assessed's back. There was no violation of the principles of natural justice merely because he did not apprise the assessed of the exact basis on which he proposed to make the assessment and give him an opportunity to rebut it. There was, thereforee, no justification to remand the matter to the WTO unless the Tribunal intended to give the assessed another opportunity to substantiate his wealth statements and if that was the intention, we think the remand was not warranted, for reasons already discussed.
30. I, thereforee, agree with my learned brother that in the present case, the Tribunal should have proceeded to consider whether the assessment under s. 16(5) was supported by the materials on record or not and that there was no occasion or necessity of sending the matter back for the WTO to give an opportunity to the assessed to explain anything before the assessment was completed. Question answered in the negative.