1. The petitioner is a firm, M/s. K.A. Karim & Sons, Quilon. The respondents are the ITO, Quilon, Union of India represented by Secretary to Government, New Delhi, and the CIT, Ernakulara. A sum of Rs. 5,52,000 was found at the residence of Shri K.A. Karim, who was the managing partner of M/s. K.A. Karim & Sons, the petitioner herein. It was so found by the Enforcement Directorate, Trivandrum, on March 18, 1980, when they conducted a -search, found the cash and seized it. Thereafter the Income-tax Department started proceedings and the Commissioner issued the proceedings under Section 132A(1) of the Act, evidenced by Ex. P-1 dated March 20, 1980. They were initiated against Shri K.A. Karim. Shri K.A. Karim gave a statement before the Enforcement Officers to the effect that the cash came into his possession a month before the date of seizure and that it represented the sale proceeds of cashew kernels obtained without issue of bills. The ITO started proceedings under Section 132(5) of the Act. He issued notice to Shri K.A. Karim and also to M/s. Karuna Cashew Company, another firm of cashew exporters, who had paid Rs. 5/19,500 in cash towards purchase of cashew kernels. The ITO issued notice to the petitioner firm and directed them to produce their accounts and other documents. Such records and documents were produced before the ITO by the firm. The above records were examined and impounded by the ITO. Shri Karunakaran, managing partner, Karuna Cashew Company was also examined by the ITO. Shri K.A. Karim stated before the ITO that the firm had filed a petition and an affidavit claiming that the amount seized at the residence of the managing partner really belonged to the firm. After perusing the statements and depositions of Shri K.A. Karimand Shri Karunakaran, and the books of accounts, documents and other papers produced by the petitioner-firm, the ITO came to the conclusion that the amount seized by the Enforcement Officers from the residence of Shri K.A. Karim, managing partner, represented the income of Shri K.A. Karim from some undisclosed source. He held so in passing an order under Section 132(5) of the Act, and also directed that the amount seized was to be retained towards the tax due and the maximum penalty that would be leviable on the income. The said order is Ex. P-5 and is dated September 19, 1980.
2. This original petition is filed by the firm, M/s. K.A. Karim & Sons, praying that Ex. P-5 order passed by the ITO under Section 132(5) of the Act be quashed. There is also a prayer to quash Ex. P-1, the warrant of authorisation issued to the ITO by the Commissioner. A direction to respondents Nos. 1 to 3 to return the amount seized by the 1st respondent pursuant to Ex. P-1 and other proceedings is also asked for. The provisions of Sections 132, 132A and 132B of the I.T. Act, 1961, are assailed as unconstitutional and violative of Articles 14 and 19 of the Constitution of India.
3. On behalf of the respondents, a detailed counter-affidavit dated November 4, 1980, has been filed by the 1st respondent and another counter-affidavit dated November 18, 1980, by the 3rd respondent is also filed. The various averments which are made in the original petition are denied in the counter-affidavits filed by the respondents. But on a crucial fact regarding denial of reasonable opportunity to the firm, the petitioner, the counter-affidavit has admitted the averments made by the petitioner in that behalf, but has sought to justify the course adopted. In the view I take regarding this crucial aspect of the case, I am not adverting to the other questions raised in the case.
4. One of the complaints of the petitioner-firm to attack Ex. P-5 order is that the petitioner was not afforded an opportunity to explain the position and the ITO violated the principles of natural justice in not giving an opportunity to the petitioner before passing Ex. P-5 order. Paragraph 20 of the counter-affidavit of the 1st respondent has answered this aspect in the following way :
'The statement, that before passing the order under Section 132(5), the petitioner had not been given an opportunity to explain the position, is admitted. This is because the petitioner was not a party to the proceedings. However, reasonable opportunity of being heard was given to Shri K.A. Karim, managing partner, from whose residence the assets were seized, to explain the source of the amount and documents and evidence relevant to the issue were called for and perused before passing the order under Section 132(5)'
5. Section 132(5) of the I.T. Act reads as follows:
' Where any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in Sections 132A and 132B referred to as the assets) is seized under Sub-section (1) or Sub-section (1A), the Income-tax Officer, after affording a reasonable opportunity to the person concerned of being heard and making such inquiry as may be prescribed, shall, within ninety days of the seizure, make an order, with the previous approval of the Inspecting Assistant Commissioner...'
6. As stated, the petitioner firm claimed before the 1st respondent, the ITO, on July 21, 1980, that the amount seized belonged to it. It is also stated that an affidavit was filed before the officer reiterating its contentions (para. 13 of the O.P.--Ex. P-3). The officer conducted a detailed enquiry. He recorded statements from Shri K.A. Karim, managing partner, K.A. Karim & Sons and Shri Karunakaran, managing partner, Karuna Cashew Company. He perused various documents and account books. Account books and other documents were produced by the petitioner also. The petitioner-firm was not aware of the materials gathered by the officer. Such materials were never put to the petitioner. The petitioner was also not afforded an opportunity to cross-examine the two persons who deposed before the officer. It was not heard. In fact, the petitioner was never told about the various steps that took place in the enquiry, which led to the passing of the order, Ex. P-5, under Section 132(5) of the Act.
7. It should be stated that the ITO was exercising a statutory power in passing an order under Section 132(5) of the I.T. Act. Whether we call it the exercise of quasi-judicial function or an administrative one, it is implicit in the exercise of the power that he should act reasonably, fairly and bona fide and in consonance with the principles of natural justice. The order passed involves civil consequences. The purpose of natural justice is to prevent miscarriage of justice. As held in A.K. Kraipak v. Union of India, : 1SCR457 :
' The concept of natural justice has undergone a great deal of change in recent years. In the past, it was thought that it included just two rules, namely, (1) no one shall be a judge in his own cause (Nemo debet esse judex propria causa), and (2) no decision shall be given against a party without affording him a reasonable hearing (audi alteram partem). Very soon thereafter, a third rule was envisaged and that is that quasi-judicial enquiries must be held in good faith, without bias and not arbitrarily or unreasonably. But, in the course of years, many more subsidiary rules came to be added to the rules of natural justice. Till very recently it was the opinionof the courts that unless the authority concerned was required by the law under which it functioned to act judicially, there was no room for the application of the rules of natural justice. The validity of that limitation is not questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice, one fails to see why those rules should be made inapplicable to administrative enquiries. Oftentimes it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far-reaching effect than a decision in a quasi-judicial enquiry. As observed by this court in Suresh Koshy George v. University of Kerala, Civil Appeal No. 990 of 1968-15-7-1968 : 1SCR317 the rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent, on the facts and circumstances of that case, the framework of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose. Whenever a complaint is made before a court that some principle of natural justice had been contravened, the court has to decide whether the observance of that rule was necessary for a just, decision on the facts of that case. '
8. The ITO was required to make an investigation. It has been held that such an investigating body is always under a duty to act fairly. As observed by Lord Denning M. R. in Selvarajan v. Race Relations Board  1 All ER 12(CA):
' The fundamental rule is that, if a person may be subjected to pains or penalties, or be exposed to prosecution or proceedings, or deprived of remedies or redress, or in some such way adversely affected by the investigation and report, then he should be told the case made against him and be afforded a fair opportunity of answering it.' (emphasis'* supplied)
9. The petitioner laid a claim and it was supported by an affidavit. It produced documents and accounts summoned by the officer. No further explanation was called for. Nor was the examination of the deponent of the affidavit considered necessary by the officer. The petitioner, perhaps, took it that its claim was being accepted. But it was not to be; and could it be so done without proper opportunity and proper procedure being adhered to The answer can only be in the negative. It cannot be disputed that the, petitioner is adversely affected by Ex. P-5 order and injustice has been caused to it. It is plain that, in such circumstances, the ITO cannot be said to have acted in a just manner or reasonably or fairly. The'audi alteram partem' rule has been violated. The observations of the Supreme Court in Mehta Pankhand Co. v. CIT  30 ITR 181 are apposite in this connection :
' It has to be noted, however, that beyond these calculations of figures, no further scrutiny was made by the Income-tax Officer or the Appellate Assistant Commissioner of the entries in the cash book of the appellants. The cash book of the appellants was accepted and the entries therein were not challenged. No further documents or vouchers in relation to those entries were called for, nor was the presence of the deponents of the three affidavits considered necessary by either party. The appellants took it that the affidavits of these parties were enough and neither the Appellate Assistant Commissioner, nor the Income-tax Officer, who was present at the hearing of the appeal before the Appellate Assistant Commissioner, considered it necessary to call for them in order to cross-examine them with reference to the statements made by them in their affidavits. Under these circumstances, it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits. '
10. The amount seized by the respondents from Sri K.A. Karim was claimed by the petitioner-firm. The adjudication involved a decision regarding rival claims made as to whether the amount belonged to Shri K.A. Karim or it belonged to the petitioner-firm. The amount that was seized was very large, amounting to Rs. 5,52,000, In such a case, where the very title to the property or the ownership of the amount has to be adjudicated, it is only fair, proper and reasonable, that the person who claims that the amount belongs to him should be given an adequate and effective opportunity to substantiate his claim. The petitioner laid its claim, filed an affidavit and produced documents and accounts. The Revenue gathered materials and examined persons but the petitioner was not informed about them ; nor was an opportunity afforded to the petitioner to put forth its case on such material nor to meet the materials gathered by the Revenue. The procedure so adopted by the ITO, in such circumstances, is unfair, unjust and unreasonable and violates all canons of fair play and natural justice. I hold so.
11. Counsel for Revenue (Department), Mr. Ravindranatha Menon, argued that notice was issued to Shri K.A. Karim, managing partner, K.A. Karim & Sons and that will be sufficient in law. The firm and the individual, who is a partner therein, are distinct and different persons and they are treated so under the I.T. Act. So it is not possible to accept the contention of the Revenue that the notice given to Shri K.A. Karim (the individual) is notice to the firm which is a distinct and different legal entity under the I.T. Act. (See CST v. Radhakisan : 118ITR534(SC) . The contention of the Revenue in this regard is repelled.
12. In the circumstances, I hold that Ex. P-5 order is illegal and is violative of the principles of natural justice. It is quashed. The ITO will consider the matter de novo. The petitioner-firm will be given sufficient and effective opportunity to substantiate its claim made before the officer. The officer will furnish all the materials, inclusive of all the statements and the depositions he had gathered, on which he intends to rely for the purpose of the enquiry, to the petitioner. The petitioner will also be heard. A fresh order under Section 132(5) will be passed on or before 30th of July, 1983, in accordance with law and in the light of observations and directions contained herein. The other questions raised by the petitioner in the O.P. are left open. The Original Petition is allowed. No costs.