These four writ applications relate to assessments on a firm and its partners. From the order produced in O. P. No. 2162 of 1963, exhibit P-5, it is seen that the income of the firm has been fixed at Rs. 17,923 for the accounting period which ended on March 31, 1963. The assessment year was 1963-64.
On the basis of the fixation of the income and the allocation of that income to the three partners, assessment orders imposing income-tax on the three partners have been passed. These are exhibits P-6, in each of the other writ applications. The petitioner challenges the orders, exhibit P-5, in O. P. No. 2162 of 1963 and exhibit P-6, in each of the other cases.
Counsel has raised many points. But the only one pressed at the time of argument was that there has been violation of the principles of natural justice and also of the provision in section 142(3) of the Income-tax Act, 1961. To understand this contention, a few facts are necessary.
A return was admittedly filed on behalf of the firm. There is also an application moved for registering the firm. This application was allowed by the order, exhibit P-5, in O. P. No. 2162 of 1963. After the return was submitted a notice was issued to the firm under section 142(1) to produce the accounts and documents mentioned in the notice on September 17, 1963. The assessee moved for adjournment on that day which was granted and the case was posted to September 23, 1963. On that day, the documents and the accounts were produced by the authorised representative of the assessee, one Mohammood. He has filed two affidavits before this court, one dated 10th November, 1963, and the other dated 26th July, 1964. He had controverted in these affidavits some of the assertions made in the order. These relate to the grounds stated in the order for rejecting the accounts. I am not concerned with the question as to whether there were grounds to reject the accounts before making an estimate of the income. Natural justice requires that an opportunity must be given to the assessee to state his case regarding any proposal that the assessing authority may have to tax the assessee after rejection of the accounts. That there is such an obligation in the following manner. It is stated in the order, exhibit P-5, in O.P. No. 2162 of 1963, that 'the average rate of profit in this trade generally ranges between 10 to 12%. And the assessing authority had adopted the minimum rate, i.e., 10% of the turnover. The fact that the average rate of profit on the trade is between 10 to 12% has not been intimated to the assessee. Further the proposal to adopt that basis so far as these assessments are concerned has also not been put to the assessee. For all that one knows the assessee may have valid grounds in contesting both these aspects. If the proposal is not put to the assessee and if he is thus denied an opportunity to persuade the authority to change that aspect, the order passed on the unilateral opinion of the taxing authorities will, I think, spell of arbitrariness. On this short ground I vacate the order, exhibit P-5, in O.P. No. 2162 of 1963 and exhibit P-6 in the other applications.
I may add before parting with these cases that counsel on behalf of the petitioners invited my attention to section 142(3) and stated that the principle above mentioned has now obtained statutory recognition as it is embodied in that section. On the other hand counsel on behalf of the revenue has submitted that this is a case falling under section 145 of the Act and the account having been rejected, the assessment has to be made in the manner provided by section 144 and that therefore section 142(3) has no application. I do not express any opinion on this aspect in these cases as I think that, apart from the statutory provisions, this court will always insist on the principles of natural justice being followed.
It will be open to the assessing authority to issue notice to the assessee and proceed to reassess after giving a reasonable opportunity to the assessee.
These writ applications are disposed of on the above terms. There will be no orders as to costs.