B.J. Divan, C.J.
1. The petitioner herein is a resident of Surat and the respondent is the Income-tax Officer, Ward-C, Surat Circle, Surat. The petitioner is carrying on business of manufacturing cloth and sale of yarn and this business is being carried on at Surat. It is the petitioner's case that he had business and social relations with one Ratilal Desai of Bombay. On or about July 1, 1969, the petitioner had gone to Bombay and had met Ratilal Desai. After some preliminary negotiations, Ratilal Desai suggested to the petitioner that he wanted to invest a sum of Rs. 2,00,000 this being the amount which he had realised from the sale of an ice factory at Hyderabad. Ratilal Desai suggested that he wanted to invest this amount in some business which the petitioner might suggest. The petitioner informed Ratilal Desai that there was a considerable scope for investment of funds in cloth business in Surat and, therefore, Ratilal Desai should invest the said sum of Rs. 2,00,000 in the petitioner's factory at Surat. The petitioner and Ratilal Desai thereupon decided to form a partnership firm in which it was also agreed to admit the son of Ratilal Desai as one of the partners. This son of Ratilal Desai was at that time in the United States. The terms of the agreement arrived at between Ratilal Desai and the petitioner were reduced to writing in the shape of an agreement executed on stamp paper and Ratilal Desai gave an amount of Rs. 1,70,000 out of the sum of Rs. 2,00,000 which Ratilal Desai was to contribute towards the capital of the proposed partnership firm. It is the petitioner's case that Ratilal Desai had withdrawn a sum of Rs. 2,00,000 from his account with the State Bank of Hyderabad, Secretariat Branch, Hyderabad, on June 18, 1969, and out of this amount of Rs. 2,00,000 the said amount of Rs. 1,70,000 was paid by Ratilal Desai to the petitioner. The petitioner passed a regular receipt to Ratilal Desai in respect of the said sum of Rs. 1,70,000. The petitioner retained with him one copy of the agreement or deed of partnership and the original document on stamp paper was retained by Ratilal Desai. Ratilal Desai had also asked the petitioner to invest the moneys if the petitioner so desired in purchasing goods at auctions held by the customs department. It is the petitioner's case that the relevant books of accounts both of the petitioner and of Ratilal Desai record this transaction in connection with the amount of Rs. 1,70,000. On or about July 10, 1969, the respondent raided the premises of the petitioner and the raid was carried out under the provisions of section 132 of the Income-tax Act, 1961, (hereinafter referred to as 'the Act'). Amongst various articles seized from the petitioner the respondent seized an amount of Rs. 1,70,000 and 23 guineas. It is the case of the petitioner that at the time when he passed the receipt for the sum of Rs. 1,70,000 to Ratilal Desai, he had set out in the receipt the numbers of 10 Government currency notes of Rs. 10,000 each. There were ten such notes and thus, so far as the amount of Rs. 1,00,000 out of Rs. 1,70,000 was concerned, it could be identified by reference to the numbers of the currency notes of Rs. 10,000 each. It is the petitioner's case that then notes of Rs. 10,000 each were found from the locker and the numbers of those currency notes tallied with the numbers of the 10 notes of Rs. 10,000 each mentioned in the receipt passed by him to Ratilal Desai. The respondent had also seized the regular books of accounts maintained by the petitioner in which there were relevant entries indicating that the amount of Rs. 1,70,000 belonged to Ratilal Desai. It is the case of the petitioner that he protested to the respondent against the manner in which this raid was carried out and he submitted to the respondent that the action under section 132 was taken for purposes which were extraneous to the Act. Subsequently, respondent held protracted inquiries and it is the case of the petitioner that pressure was sought to be brought upon the petitioner in order to induce the petitioner to submit to a settlement of the whole case against him but the petitioner declined to submit to any such pressure. It is the case of the petitioner that the respondent examined the petitioner in respect of the prizes won by the petitioner in some prize competitions and about another prize won by the petitioner's wife in a crossword puzzle competition and the respondent, according to the petitioner, continuously asked the petitioner to submit to a settlement and accept the position that the prizes won by the petitioner and his wife were bogus and were only devices adopted by the petitioner introduce his own concealed moneys in his books of account. The petitioner, according to him, declined to submit himself to the said pressure and contended that the prizes were won by the petitioner and his wife in a genuine and straightforward manner in an open contest. The petitioner had also called upon the respondent to examine the organizers of the said crossword puzzles and give to the petitioner proper opportunity to cross examine them but this was not done. Ultimately, the respondent passed an order on October 9, 1969, under section 132(5) of the Act and by that order the respondent held that the amount of Rs. 1,70,000 did not belong to Ratilal Desai but belonged to the petitioner. The respondent also held that the prizes won by the petitioner and his wife represented undisclosed income of the petitioner and he further held that the value of 23 guineas found from the locker also represented the petitioner's income from undisclosed sources. The respondent estimated the total undisclosed income of the petitioner of Rs. 4,69,161 and he assessed the tax liability of the petitioner under section 132(5) of the Act at Rs. 3,44,787. Against this tax liability, the assets seized in the course of the search came to Rs. 1,73,220 being the cash amount of Rs. 1,70,000 and the value of 23 guineas found at the time of the search of the locker. The petitioner has challenged the action of the respondent in passing the order that he did on various grounds. When the petition was filed, the petitioner had challenged the vires of section 132 of the Act and the main grounds of challenge to the impugned order are, firstly, that on the evidence on record it must be held that Rs. 1,70,000 belonged to Ratilal Desai and not to the petitioner and the finding arrived at by the respondent that this amount of Rs. 1,70,000 belonged to the petitioner was perverse. The second contention which was urged before us was that the whole inquiry conducted by the respondent was contrary to the provisions of rule 112A of the Income-tax Rules, 1962.
2. As regards the challenge to the vires of section 132, we may point out that in Ramjibhai Kalidas v. I. G. Desai, Income-tax Officer, a Division Bench of this High Court consisting of Bhagwati C.J. and T. U. Mehta J. has held that the provisions of the Income-tax Act relating to search and seizure contained in sub-sections (1) (c) (iii) and (5) of section 132 are not violative of articles 14 and 19(1)(f) of the Constitution and are not null and void. The restrictions imposed by the impugned provisions on the right of the citizen to hold and enjoy property under article 19(1)(f) are reasonable restrictions in the interests of the general public and are saved by article 19(5). It was also held that the power conferred under section 132, sub-sections (1) (c) (iii) and (5), is not unfettered or uncanalised. It is a power which is hedged in by several conditions and safeguards and it is exercisable only in certain specified circumstances and subject to certain defined conditions and the section clearly indicates the policy or principles which is to guide the exercise of the power. The challenge to the constitutionality of the impugned provisions on the ground of violation of articles 14 and 19(1)(f) was, therefore, unfounded and could not be sustained. It was further held that the classification made by section 132 between evaders of tax who are not in such possession was reasonable, for the object of the section was to get hold of undisclosed income or property and that could only be done by effecting search and seizure from those who are in possession of it. It was further held that there was no overlapping between the provisions of section 132 and section 147 and it was not possible to say that it was open to the income-tax authorities to adopt one procedure or the other according to their absolute discretion. Section 132 could not, in the circumstances, be said to be violative of the equal protection clause contained in article 14. In view of this decision of the Division Bench of this High Court, the learned Advocate-General appearing on behalf of the petitioner has not argued before us the question of the constitutional validity of the provisions of section 132 though he has not given up that point.
3. Before we take up the second contention urged on behalf of the petitioner, it will be necessary to refer to a few facts. On June 18, 1969, Ratilal Desai and withdrawn an amount of Rs. 2,00,000 from the State Bank of Hyderabad, Secretariat Branch, Hyderabad. On July 1, 1969, an agreement of partnership was executed by the petitioner and Ratilal Desai. On that very day, that is, on July 1, 1969, the petitioner passed a receipt for the sum of Rs. 1,70,000 mentioning the numbers of ten Government currency notes of Rs. 10,000 each, out of the total amount of Rs. 1,70,000. The receipt in terms mentions :
'........ you have given me to-day in cash Rs. 1,70,000 (Rupees one lakh seventy thousand only) in which there are 10 currency notes each of Rs. 10,000 (ten thousand) denomination, the numbers of which are as under. The aforesaid amount has been taken in accordance with the agreement of partnership executed by us to-day.'
and then the numbers of the ten currency notes of Rs. 10,000 each are set out. On July 10, 1969, the respondent, being the authorised officer under the provisions of section 132, raided the premises of the petitioner. These premises were situated at a building called Shiv Ashish. The petitioner had a locker in a safe deposit vault at Surat People's Co-operative Bank. The locker stood in the name of the petitioner's wife, Shantaben. On July 11, 1969, a key was handed over by the petitioner to the respondent but the key did not fit the locker in that particular safe deposit vault. On July 14, 1969, a notice was given by the respondent to the petitioner and thereafter in pursuance of that notice the petitioner's statement on oath was recorded by the respondent. On July 16, 1969, the petitioner wrote a letter to the Income-tax Officer contending that the amount of Rs. 1,70,000 which was in the locker which was yet to be opened, belonged to Ratilal Desai and he also mentioned the circumstances under which the amount of Rs. 1,70,000 came to be in that locker. In the impugned order dated October 9, 1969, the Income-tax Officer, the respondent herein, has observed that this letter or application was handed over by the petitioner after the locker was broken open but in the affidavit-in-reply in terms he has admitted that the letter was handed over or sought to be handed over by the petitioner to the respondent before the locker was broken open. When the locker was broken open, an amount of Rs. 1,70,000.25 and 23 guineas were found in the locker and these amounts were seized by the respondent. On July 17, 1969, the petitioner addressed another letter to the Income-tax Officer and on July 30, 1969, Ratilal Desai filed his affidavit before the respondent supporting the different documents on which the petitioner and Ratilal Desai were relying in support of their contention that the amount of Rs. 1,70,000 belonged to Ratilal Desai. On October 9, 1969, the impugned order was passed by the Income-tax Officer.
4. A perusal of the Income-tax Officer's order shows that apart form the material which he had gathered by questioning the petitioner himself and form the petitioner and from Ratilal Desai whom he had also examined and from Ratilal's statement, the respondent relied upon certain admissions alleged to have been made by Ratilal Desai before the Commissioner of Income-tax, Gujarat II, being a statement recorded on October 3, 1969. It is also becomes clear that in order to arrive at his conclusions regarding the prizes won by the petitioner and his wife at prize competitions, the respondent relied in the impugned order on certain information available to him and in order to find out whether the prizes which were won by the petitioner and his wife at the different prize competitions were genuinely won by them or not, he relied upon certain materials gathered in the course of a search of the premises of the organizers of price competitions. Those premises apparently were situated in Daman within the territories of Diu, Daman and Goa. He has also relied upon the materials gathered on examination of the books of accounts, records, etc., of the organizers of the prize competitions in order to come the conclusion that the prize competitions were not genuine and he came to the conclusion :
'Huge credits referred to above were to enable the withdrawals of the so-called prizes. Cheques did not come from the organizers of the Harifai (competitions) and the only alternative is the prize winner, the assessee himself in this case. The fact that the prize winner has received the money and is enjoying it shows that it is only his own money that has been used for declaring and awarding this so-called prize.'
5. Thus, the respondent relied upon materials gathered by him or gathered by somebody else and made available to him for the purpose of arriving at the conclusions that Rs. 1,70,000 did not belong to Ratilal Desai but belonged to the petitioner and that the prizes won at the prize competitions by the petitioner and his wife represented the petitioner's undisclosed income. It is the petitioner's grievance in paragraph 12(L) that :
'Rule 112A (4) was not complied with by the Income-tax Officer. The Income-tax Officer did not give notice of the material to be used against the petitioner nor a chance to cross-examine those whose statements he used against the petitioner, particularly Ratilal, the Commissioner and Harifaiwalas organisers of the prize competitions.'
6. In order to appreciate this contention, the second contention urged by the learned Advocate-General on behalf of the petitioner, it would be necessary to refer to some of the provisions of the Act and the Rules.
7. Under section 132(1)(c)(iii), where the Director of Inspection or the Commissioner, in consequence of information in his possession, has reason to believe that any person is in possession of any money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which was not been disclosed for the purposes of the Indian Income-tax Act, 1922, or this Act, he may authorize any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search. Under sub-section (5) of section 132, where any money, bullion, jewellery or other valuable article or thing referred to in the rest of the section as the assets is seized under sub-section (1), the Income-tax Officer, after affording a reasonable opportunity to the person concerned for being heard and making such enquiry as may be prescribed, shall, within ninety days of the seizure, make an order, with the previous approval of the Commissioner, estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him, calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922, or the 1961 Act and specifying the amount that will be required to satisfy any existing liability under the 1961 Act and any one or more of the Act specified in clause (a) of sub-section (1) of section 230A in respect of which such person is in default or is deemed to be in default. The first proviso to sub-section (5) of section 132 provides that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized. Under sub-section (14) of section 132, the Board of Direct Taxes may make rules in relation to any search or seizure under this section; in particular, and without prejudice to the generality of the foregoing power, such rules may provide for the procedure to be followed by the authorised officer for obtaining ingress into such building or place to be searched where free ingress thereto is not available; for ensuring safe custody of any books of account or other documents or assets seized. Under Explanation 1 to section 132, in computing the period of ninety days for the purposes of sub-section (5), any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. The Income-tax Rules, 1962, were framed by the Central Board of Revenue and rule 112A is material for the purposes of this judgment. This rule provides the procedure for an inquiry under section 132. Clause (1) of rule 112A provides that where any money, bullion, jewellery or other valuable article or thing are seized, the Income-tax Officer shall within fifteen days of the seizure issue to the person in respect of whom enquiry under sub-section (5) of section 132 is to be made, requiring him on the date to be specified therein (not being earlier than fifteen days from the date of service of such notice) either to attend at the office of the Income-tax Officer to explain or to produce or cause to be there produced evidence on which such person may rely for explaining the nature of the possession and the source of the acquisition of the assets. Clause (3) provides that the Income-tax Officer may examine on oath any other person or make such other inquiry as he may deem fit. Clause (4), which is the material clause, is in these terms :
'(4). Before any material gathered in the course of the examination or inquiry under sub-rule (3) is used by the Income-tax Officer against the person referred to in sub-rule (1) the Income-tax Officer shall give a reasonable notice to that person to show cause why such material should not be used against him.'
8. It will be noticed that clause (4) of rule 112A states that the Income-tax Officer shall give a reasonable notice to the person concerned to show cause why such material should not be used against him. It may be pointed out that this alone provides for compliance with the principles of natural justice because, if the Income-tax Officer is going to utilise any material gathered by him against the person concerned under section 132(5), then it is but fair and just that he should disclose those materials to that person. In Ramjibhai Kalidas v. I. G. Desai, Income-tax Officer, the Division Bench also considered the question whether a particular provision in a statute which on the face of it appears to be mandatory in as much as it uses the word 'shall' is really mandatory or directory cannot be resolved by laying down any general test. This question must ultimately depend upon the facts of each case and for that purpose the object of the statute in making the provision would be the determining factor. The purpose for which the provision has been made and its nature, the intention of the legislature in making the provision, the serious general inconvenience or injustice to persons resulting from whether the provision is read one way or the other, the relation of the particular provision to the other provisions dealing with the same subject and other consideration which may arise on the facts of a particular case including the language of the provision would also have to be taken into account in arriving at the conclusion whether a particular provision is mandatory or directory. The Division Bench in that case held that the provision contained in rule 112A that the show-cause notice shall be issued by the Income-tax Officer to the person in respect of whom inquiry under section 132, sub-section (5), is to be made within fifteen days of the date of seizure is mandatory in character and the Income-tax Officer must issue the show-cause notice within fifteen days from the date of seizure. If he fails to do so, no inquiry can be made under rule 112A and, in that event no order under section 132, sub-section (5), can be passed. It must be remembered in this connection that under section 132(5), before, the order contemplated therein can be passed, such inquiry as may prescribed, has to be held and the inquiry which has been prescribed is under rule 112A. The provision under clause (1) of rule 112A about giving of the show-cause notice within fifteen days of the seizure has been held to be a mandatory provision. In our opinion, the provision in clause (4) about giving a reasonable notice to the person concerned to show cause why the material gathered by the Income-tax Officer should not be used against him is, as we have observed above, a compliance with the principles of natural justice and it is but fair and proper that such opportunity should be given to the person concerned. Even if a provision like clause (4) of rule 112A had not been there, the courts were bound to read into the provisions of rule 112A or in the provisions regarding the holding of this type of inquiry, a mandatory requirement that material gathered by the office on which reliance was to be placed at the time of passing the order against the person concerned, must be disclosed to him and an opportunity of explaining those materials or those circumstances must be given to the person concerned. This is the main object of enacting clause (4) of rule 112A and looking to the purpose which is sought to be served and looking to the context in which this provision occurs, it is obvious that this clause lays down a mandatory requirement and non-compliance with this mandatory requirement would render the order passed under section 132(5) bad because the inquiry as contemplated by rule 112A cannot be said to have been held.
9. When one turns to the impugned order, one finds that under paragraph 5, sub-paragraph (h), the respondent was dealing with the contention of the petitioner that the receipt passed by the petitioner on July 1, 1969, correctly mentioned the numbers of ten Government currency notes of Rs. 10,000 each. In this connection he observed :
'Shri Ratilal who appeared before the Commissioner of Income-tax, Gujarat II, clearly admitted that this was written up later though he said to him that the admission was unofficial.'
10. While dealing with the entries in the books of account of Ratilal Desai and of the firm of Ajay Textiles which was the sole proprietary concern of the petitioner and mentioning the reasons why he was not prepared to believe those entries, the respondent observed :
'Shri Ratilal admitted before the Commissioner of Income-tax Gujarat II, that the books for these years were not contemporaneously written and that they were written up later though he stated that the admission was unofficial.'
11. It is thus obvious that at two places in his order the respondent was relying upon certain statements made by Ratilal Desai before the Commissioner of Income-tax, Gujarat II. It seems that Ratilal Desai had himself filed a special civil application in this court being Special Civil Application No. 1408 of 1969 challenging the actions of the Income-tax authorities. In that special civil application the respondent herein was the first respondent and the petitioner herein was the second respondent. In that special civil application at the admission stage a notice was issued to the respondents of that special civil application and at that stage R. V. Ramaswami, Commissioner of Income-tax, Gujarat II, had filed an affidavit and to that affidavit, a copy of the memorandum, dated October 3, 1969, was attached. This affidavit of Ramaswami has been annexed to the affidavit-in-reply of the respondent filed in the present special civil application and reliance has been sought to be placed on that affidavit of R. V. Ramaswami. This memorandum, dated October 3, 1969, mentions that the present petitioner and Ratilal Desai had seen Ramaswami on October 3, 1969, at 10-15 a.m. and what transpired in the course of that interview has been set out by Ramaswami in that memorandum. It is this memorandum which is referred to and relied upon by the respondent in the two passages which we referred to and relied upon by the respondent in the two passages which we have referred to above where he has disbelieved the evidence led on behalf of the petitioner or by Ratilal Desai partly on the basis of the statement made by Ratilal Desai before the Commissioner of Income-tax, Gujarat II. In the affidavit-in-reply specifically dealing with sub-paragraph (L), being affidavit dated October 22, 1971, the respondent has stated :
'With reference to the said sub-paragraph (L) of paragraph 12 of the petition, I deny that the rule 112A(4) was not complied with by me. I say, that notices under rule 112A were given to the petitioner on 24th July, 1969, and 23rd August, 1969. In reply to the said notices the petitioner addressed a letter to me dated 30th August, 1969, wherein the petitioner relied on his letter dated 16th July, 1969, and the affidavit and statement made by Shri Ratilal C. Desai of Bombay. I had recorded the statements of Shri Ratilal C. Desai as he had lodged a claim on 19th July, 1969, claiming that he was the owner of the sum of Rs. 1,70,000 seized from the petitioner and demanding that the said sum he refunded to him. The statement made by the said Shri Ratilal C. Desai was supported by the petitioner. I say that since the petitioner had himself relied on the statements of the said Shri Ratilal C. Desai there was no question of allowing the petitioner to cross-examine the said Shri Ratilal C. Desai.'
12. In the affidavit-in-reply filed by the respondent on July 22, 1970, he has stated in paragraph 7 :
'The said Ratilal had filed a special civil application in this honourable court challenging the validity of the seizure of the said sum of Rs. 1,70,000 being Special Civil Application No. 1408 of 1969. I was impleaded as respondent No. 1 to the said Special Civil Application No. 1408 of 1969 and the petitioner herein was impleaded as respondent No. 2 therein. Pursuant to a notice issued by this honourable court requiring me to show cause why the said Special Civil Application No. 1408/1969 should not be admitted, Shri. R. V. Ramaswami, Commissioner of Income-tax, Gujarat II, and I had made affidavits on 2nd December, 1969, showing cause why the said special civil application should not be admitted. I say that the circumstances in which the Commissioner of Income-tax, Gujarat II, came to issue the authorisation under section 132(1) of the said Act authorizing me to make search of the premises of the petitioner herein and subsequently an authorisation authorising me to make search of the said Locker, what transpired during the said search, the facts and circumstances which led me to come to the conclusion that the said sum of Rs. 1,70,000 did not belong to the said Ratilal but was the undisclosed income or property of the petitioner herein and I made the order dated 9th October, 1969, under section 132(5) of the said Act, have all been set out in the said affidavits dated 2nd December, 1969, made by Shri. R. V. Ramaswami, Commissioner of Income-tax, Gujarat II, and by me respectively. For the sake of brevity I confirm all the statements and submissions made in the said affidavits of Shri R. V. Ramaswami and of myself and repeat and reiterate the same as if the same were made herein. I deny all the allegations and contentions made in the petition herein which are contrary to or inconsistent with what is stated in the said affidavits of Shri Ramaswami and myself or in the order, dated 9th October, 1969......'
13. Thus, it is obvious that the statement alleged to have been made before Ramaswami on October 3, 1969, has been relied upon by the respondent for disbelieving the version of the petitioner and Ratilal Desai that the amount of Rs. 1,70,000 belonged to Ratilal Desai and for rejecting this particular version of the petitioner. It is true that reliance has been placed on this statement of Ratilal Desai made before Ramaswami on October 3, 1969, only as one of the grounds for rejecting the version of the petitioner and Ratilal Desai regarding the ownership of this amount of Rs. 1,70,000 but it is equally obvious that this statement made or alleged to have been made by Ratilal Desai before Ramaswami was in terms relied upon by the respondent for coming to his conclusion regarding the ownership of this sum of Rs. 1,70,000. It is nobody's case that a copy of this statement of Ratilal Desai alleged to have been made before Ramaswami was furnished to the petitioner before the order under section 132(5) was passed on October 9, 1969. It is equally clear that the petitioner had never been called upon to show cause why this statement of Ratilal Desai should not be used against the petitioner in the proceedings under section 132(5). There is thus considerable substance in the grievance of the petitioner that the respondent did not give notice of this particular material which he used against the petitioner nor a chance to cross-examine those whose statements had been used against the petitioner, particularly Ratilal Desai and the Commissioner.
14. As regard the conclusion of the respondent that the moneys alleged to have been won as prizes in the prize competitions by the petitioner and by the petitioner's wife were in reality undisclosed income of the petitioner, the impugned order mentions in paragraph 7 as follows :
'According to the information available to me, the assessee had allegedly won the following prizes from Kasoti and Makkam Harifai as in his own name and in the name of his wife and son, aggregating to Rs. 2,68,241 as below :.......'
15. Paragraph 8 is in these terms :
'The prizes shown are from the Makkam Harifai Vyuh Nos. 9 and 10, Kumkum Harifai and Kasoti Harifai. A visit to the premises of Kasoti Harifai in Satyanarayan Chawl, Daman, clearly showed that it was not capable of distributing the huge prize it professed to. What is more, in the same premises it was purported that not only Kasoti but also two other Harifais, viz., Makkam and Kundan were carried on, each one of them distributing huge prizes, far beyond their means. The entry fee for an admission was as low as 10 paise and to distribute a prize of Rs. 5 lakhs without any loss, at least 50 lakhs entries should have been received. The establishment required to receive, record, list scrutinise these entries and to pick out the prize winners, would be large indeed. But it was seen that the premises consisted of only one room with 2 or 3 chairs and only one employee nominally for each of the Harifais. The total collections from Makkam Vyuh Nos. 9 and 10 were Rs. 95,443 and Rs. 54,137 respectively while the prizes announced were Rs. 2,21,000 and Rs. 3 lakhs respectively, far beyond the resources of these Harifais to pay these prizes. The real and original cash books (not to mention the later versions of cash books with many added entries) which were seized during the search showed very small cash balance to the order of about Rs. 300 to Rs. 500 and sometimes going up to Rs. 1,000 throughout the relevant period. The position in respect of Kumkum Harifai with the premises at Indore is also practically the same. My observations about the total collections and the prizes awarded as well as the state of books and the cash balance, apply equally to that Harifai. To justify payments of huge amounts into the bank accounts, just on the day or immediately before, the cash of the so called prize cheques, bills of sales of Rokad Pavtis for cash were shown. Most of the persons in whose names the sales were shown were non-existent; those who existed have denied the transactions and the statements on oath recorded during the search showed that the sale bills were all bogus. This is further supported by the fact that as stated above, the cash book never showed these sales. Thus, it is clear that this Harifai could not have distributed these prizes. It is thus clear that the huge credits referred to above were to enable the withdrawals of the so called prizes. Cheques did not come from the organizers of the Harifai and the only alternative is the prize winner, the assessee himself in this case. The fact that the prize winner has received the money and is enjoying it shows that it is only his own money that has been used for declaring and awarding this so called prize.'
16. In the affidavit-in-reply filed by the respondent, being his affidavit dated October 22, 1971, after ground (L), was added in paragraph 12, regarding these prize competition, this is what he has stated :
'As regards information gathered from Harifaiwalas, that is to say, persons conducting so-called prize competitions, I say that I had not received any information from any operator of prize competition in the case of the petitioner specifically. I say that the commissioner of Income-tax had learnt that several persons were conducting bogus prize competitions with a view to enable person to convert their unaccounted income or property into white money. I say that with a view to unearth the said racket, premises of several documents, accounts, etc., were seized in the course of such searches. The information gathered from a study of the documents, accounts and other papers seized in the course of the said searches was within the knowledge of officers participating in the activities undertaken by the income-tax department with a view to unearth the aforesaid racket. I say that the information relied on by me was the information received in the course of such operations. I say that rule 112A does not require that such information which constitutes the document for taking action against any particular individual should be disclosed to the individual concerned. I submit that the information so gathered was not material gathered in the course of the examination or enquiry under sub-rule (3) of the said rule 112A and the provisions of sub-rule (4) of the said rule would, therefore, have no application.'
17. It is thus clear from the extensive quotations from the order that information which had been gathered by the income-tax department in the course of raids on the offices of those who were conducting the different prize competitions were relied upon and utilised by the respondent for the purpose of coming to his conclusion that the amount of Rs. 2,68,941 which he included in the total undisclosed income of Rs. 4,69,161 was the undisclosed income of the petitioner, was on the basis of the information collected in the course of searches of those different organizers of prize competitions. This material was, as the impugned order shows, certainly utilized by the respondent for coming to his conclusions but no reasonable notice was given to the petitioner to show cause why this material should not be used against him. It is true, as the respondent has contended in his affidavit-in-reply, dated October 22, 1971, that this information or material might not have been gathered by him in the course of examination of any other person or in the course of such other inquiry as he might have held while conducting the case against the petitioner, but both on the ground of non-compliance with the principles of natural justice as well as on the ground that the material which was to be utilised against the petitioner was not disclosed to the petitioner and a reasonable notice to show cause why such material should not be used against the petitioner was not given to him, the impugned order must be held to be void. The main emphasis in clause (4) of rule 112A is not the source of the material but that the material is going to be utilised against the person concerned in the course of the inquiry under section 132(5). If this material is to be utilised against the person concerned, it is but fair and just and also the requirement of clause (4) of rule 112A that it should be disclosed to the person concerned and a reasonable opportunity of meeting such material and to give his explanation regarding such material must be given to him. It is clear that no such opportunity was given to the petitioner and on the contrary, the contention on behalf of the respondent in his affidavit-in-reply, dated October 22, 1971, is that there was no obligation on the Income-tax Officer to give such an opportunity or to disclose such material to the petitioner. This stand taken up by the Income-tax Officer was clearly in violation of the principles of natural justice as well as in violation of the requirement of clause (4) of rule 112A. The petitioner has made a grievance in his petition that principles of natural justice were violated in passing the order, dated October 9, 1969, which is the impugned order in the instant case. It is also his grievance that the statutory requirement of clause (4) of rule 112A were not observed in the instant case. We have found that both as regards the alleged admissions of Ratilal C. Desai made before the Commissioner of Income-tax, Gujarat II, on October 3, 1969, at the time of the interview with the said Commissioner and as regards the information gathered in the course of the searches of the different offices of prize competition organizers, material has been used by the respondent for coming to his conclusions being conclusions adverse to the petitioner and the relevant material was not disclosed to the petitioner and the petitioner and the relevant material was not disclosed to the petitioner and the petitioner was never given any opportunity of explaining that material or of showing cause why such material should not be used against him. Under these circumstances there was a clear violation both of principles of natural justice as well as of the statutory requirement of clause (4) of rule 112A. As pointed out by this High Court in Ramjibhai Kalidas v. I. G. Desai, Income-tax Officer, when the clear mandatory provisions of rule 112A are not complied with, no order under section 132(5) can be passed, the reason being that section 132(5) requires that the inquiry contemplated by that sub-section must be held as may be prescribed by the rules and if the requirements of rule 112A are not satisfied, the inquiry cannot be said to have been held in the manner prescribed. A reading of rule 112A clearly indicates that clauses (1) and (4) of that rule are conditions precedent to the passing of a valid order under section 132(5) and if those conditions precedent are not satisfied, the order must be held to be illegal and void. We may also point out that it is well-settled that if in any particular inquiry where the principles of natural justice are required to be followed the principles of natural justice are in fact found to have been violated, the order passed as a result of such inquiry would be vitiated and void.
18. Mr. Kaji, on behalf of the respondent, relied upon the decision of the Supreme Court in Zora Singh v. J. M. Tandon. In that case there was no question of violation of principles of natural justice. The Supreme Court has there observed in paragraph 10 at page 1540 :
'The High Court was right in holding that even if there were, amongst the reasons given by the Commissioner, some which were extraneous, if the rest were relevant and could be considered sufficient, the Commissioner's conclusions would not be vitiated. The principle that if some of the reasons relied on by a Tribunal for its conclusion turn out to be extraneous or otherwise unsustainable, its decision would be vitiated, applies to cases in which the conclusion is arrived at not on assessment of objective facts or evidence, but on subjective satisfaction. The reason is that whereas in cases where the decision is based on subjective satisfaction if some of the reason turn out to be irrelevant or invalid, it would be impossible for a superior court to find out which of the reasons, relevant or irrelevant, valid or invalid, had brought about such satisfaction. But in a case where the conclusion is based on objective facts and evidence such a difficulty would not arise. If it is found that there was legal evidence before the Tribunal, even if some of it was irrelevant, a superior court would not interfere if the finding can be sustained on the rest of the evidence. The reason is that in a writ petition for certiorari the superior court does not sit in appeal, but exercises only supervisory jurisdiction and, therefore, does not enter into the question of sufficiency of evidence.'
19. Now, these observations in Zora Singh v. J. M. Tandon are applicable when there is a question of certiorari but not in a case where principles of natural justice are alleged to have been violated. It is well settled by a series of decision of the House of the Lords in England and that position has been accepted by the Supreme Court in India as well, that whenever there has been a violation of principles of natural justice, the conclusion reached in the course of the inquiry where such violation has taken place must be struck down as void and illegal. It is not necessary to refer to the decisions where this well-settled principle has been recognised by the highest tribunals in India and England. In view of this conclusion, it is not necessary for us to express any opinion regarding the contention urged on behalf of the petitioner that the impugned order was perverse.
20. Under these circumstances we hold that the order, dated October 9, 1969, passed by the respondent in the inquiry under section 132(5) was illegal and void as it was passed in violation of the mandatory requirements of rule 112A(4) and in violation of the principles of natural justice. We, therefore, allow this special civil application and quash and set aside the order passed by the respondent on October 9, 1969, as the same was illegal. As a consequence of quashing and setting aside the order of October 9, 1969, it will follow that the amount of Rs. 1,70,000 and 23 guineas which were seized by the respondent from the locker in the Surat People's Co-operative Bank must be returned to the petitioner. It will, however, be open to the respondent to adopt such proceedings as he can in law adopts as regards these two items. The respondent must pay the costs of this special civil application to the petitioner. Rule is made absolute accordingly. Mr. Kaji, for the respondent, applies that the operation of this order may be stayed for two weeks as that in the meanwhile an application for leave to appeal to the Supreme Court may be preferred. Operation of this order is stayed accordingly for a period of two weeks from to-day.