Skip to content


Dhanalakshmi Pictures Vs. Commissioner of Income-tax, Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Judge
Reported in[1983]144ITR452(Mad)
ActsIncome Tax Act, 1961 - Sections 143(3) and 144
AppellantDhanalakshmi Pictures
RespondentCommissioner of Income-tax, Madras
Appellant AdvocateK.S. Balakrishnan, Adv.
Respondent AdvocateJ. Jayaraman, Adv.
Cases ReferredPonkunnam Traders v. Addl.
Excerpt:
direct taxation - opportunity of being heard - sections 143 (3) and 144 of income tax act, 1961 - department issued notice for assessment - assessee neither appeared nor comply with notice - department initiated best judgment reassessment under section 144 - whether assessee entitled to opportunity of being heard in best judgment assessment again - assessment under section 144 must be done to best of officer's judgment after taking into account all relevant materials - assessee should be given opportunity of being heard and right to question correctness of or reliance of materials on basis of which department initiated best judgment assessment - in present case department did not provide assessee opportunity of being heard before utilisation of material against assessee in best judgment.....balasubrahmanyan, j.1. this tax case coming before us on a reference by the income-tax appellate tribunal madras, under s. 256(1) of the i. t. act, 1961, raises the question of the validity of an assessment made on tan assessee by the ito, under s. 144, of the i. t. act. the facts relating to the assessment proceedings are not in dispute. they are as under : the assessee is an unregistered firm of three partners carrying on business as distributors of fims. for the assessment year 1971-72, the assessee did not file any return on its own accord under . s 139(1) of the act. the ito issued a notice under s.; 139(2) of the act calling upon the assessee to furnish its return of income. this notice was issued on june 16, 1971, and served on the manager of the assessee-firm on june 22, 1971. no.....
Judgment:

Balasubrahmanyan, J.

1. This tax case coming before us on a reference by the INcome-tax Appellate Tribunal Madras, under s. 256(1) of the I. T. ACt, 1961, raises the question of the validity of an assessment made on tan assessee by the ITO, under s. 144, of the I. T. ACt. The facts relating to the assessment proceedings are not in dispute. They are as under : The assessee is an unregistered firm of three partners carrying on business as distributors of fims. For the assessment year 1971-72, the assessee did not file any return on its own accord under . s 139(1) of the ACt. The ITO issued a notice under s.; 139(2) of the ACt calling upon the assessee to furnish its return of income. This notice was issued on June 16, 1971, and served on the manager of the assessee-firm on June 22, 1971. No return was furnished by the assessee in compliance with this notice. Accordingly on June 28, 1972, the ITO Issued a further notice calling for the return. Under the terms of this notice, the return has to be furnished on July 27, 1972. But it was not filed on that date. A notice was thereupon issued by the ITO to the assessee on July 4, 1973, calling to the assesses to produce its books of account for the previous year ended March 31. 1971, relevant to the assessment year 1971-72. This notice wa issued under s. 142(1) of the ACt. The notice require the assessee to produce the books of account on July 12, 1973. The accounts, however, were not produced on that date but a letter wa filed on behalf of the assessee to the effect that the partner of the assessee-firm in charge of the income0-tax affairs was away from headquarters and he could not attend to the hearing,. and herd account for the year ended March 31, 1971, were even then being finalized the return would be filed it time was granted till March 31, 1973. The ITO wrote a letter in reply to the effect that all that was required by the notice under s.; 142(1) was production of accounts for which the presence of the partner was not needed and that if the accounts were not produced buy the extended time, by July 18, 1973, the assessment would be completed ex parte. There was by July 18, 1873, the assessment would be completed ex parte. There was no compliance with this letter. The ITO then issued a fresh notice dated NOvember 17, 1973, again under s. 142(1) of the Act requiring the production of the day books and other records relating to the previous year ended March 31, 1971. To this notice, however, the assessee wrote a letter asking for further time for complying with its terms.

2. In these circumstances the ITO proceeded to make the assessment under s. 144 of the Act on the firm as an unregistered firm. The ITO noticed that the assessee was carrying on the business of distribution of films during the year in /salem district, with a branch office at Salem. From the information available to the ITO he found that two films were distributed by the assessee during the year, Viz., Vietnam Veedu and Kulama Gunama. The ITO found that in both these film, m there wa a popular artist in the leading role and one of the film has a successful run of over 102 days in the theatre at Salem and for 55 days in a theatre at Vellore. The ITO noticed that the film Kulama Gunama was released by the assessed at Apsara TAlkies at Vellore on March 26, 1971, and although this films has run only for a few days, the other film Vietnam Veedu has run throughout the year in the District no NOrth Arcot, as a box office hit. ON the basis of these pieces of information, and having regard to the income assessed for the earlier assessment years, the ITO fixed the assessee's income on an estimate, at Rs. 75,000 and levied income-tax on that basis for 1971-72.

3. The assessee appealed to the AAC from the order of assessment. The principle ground the assessee took in the appeal was that the ITO was factually wrong in holding that is has exhibited the file,, Kulama Gunama, in Apsara Talkies in Vellore. It wa further stated that the appellant did not not have any distribution right of th film, Vietnam Veedu, in North Arcot District, but has such a right only in Salem and Deharmapuri districts. IN this view, therefore, it was urged that the estimate of income made at Rs. 75,000 was not correct and wa liable to be revised.

4. The order of the AAC shows that he was inclined to accept the commissioner of the assessee that it has no distraction rights for the picture Vietnam Veedu of Kulama Gunama Gunama, in NOrth Arcot District and the assumption sufficient to dislodge the estimate of Rs. 75,000 made by the ITO while computing the assessment. To a certain extent, the conclusion of the AAC was included by the FAct that subsequent to the completion of the assessment, the assessee have filed a return of income in which it has preferred to show a sum of Rs. 134,248 as representing cash credits in its books for which it was even then gathering supporting evidence., On a consideration of these aspects of the case, the AAC dismissed the assessees, s appeal and confirmed the estimated assessment.

5. The assessee thereupon filed a further appeal before the Tribunal, reiterating its contention that the ITO's assessment on an estimate was based on non-existent factors, particularly relating to th assessee's area of distribution. The Tribunal in its order recorded the assessee's representation that it distributed films during the account year only in Salem and Dharamapuri Districts and it has no distribution right for any film in North Arcot District. The Tribunal also, at the same time, recorded the argument addressed on behalf of the Department to the effect that the ITO has come to know on enquiry that the assessee has in fact distribution two films in the NOrth Arcot District also, in addition to distribution of films in the districts of Salem and Dharmapuri. The Tribunal having recorded to rival contentions of the parties, proceeded to find that Vietnam Veedu was a successfully run picture which has celebrated the 100th day of its run in the relevant account year. The Tribunal found that this wa also the case with the other film, Kulama Gunama. In those circumstances, they rejected the contention of the assessee that the estimate of income made by the ITO was arbitrary. They observed,, 'We have not been persuaded to hold that the estimate of the assessee's income at Rs. 75,000 is, in any way excessive or unreasonable. We, therefore, uphold the order of the AAC.'

6. The assessee then demanded a reference to this court. The Tribunal has referred the following questions of law for our opinion.

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the estimate of income from business at Rs. 75,000 ?'

7. Mr. Balakrishnan, learned counsel for the assessee, argued before us that the Tribunal was not right in upholding the estimate of assessment since the ITO himself was not warranted in making the estimate on the basis of a piece of erroneous information. Learned counsel further submitted that the Tribunal was not justified in upholding the estimate made by the ITO without going into the contention raised by him, to the effect that the assessee has no distribution right whatever for the two films in questions during the relevant year in NOrth Arcot district. In any case, it was urged, even if the ITO has any information to the effect that the assessee has distribution rights for these two films in North Arcot district. In any case, it was urged even the ITO had any information to the effect that the assessee had distribution rights for these two films in NOrth Arcot District, the ought to have placed that information before the assessee and called for the assessee's remarks before proceeding to frame his estimate on the basis of this information. Since the ITO did not afford any opportunity to the assessee in this regard, that, according to learned counsel, vitiated his finding in that regard as well as the very estimate of income for the year.

8. The learned counsel for the Department, however, objected to the assessee raising contention of this kind at this stage of the reference. He submitted that the one and only question which was urged by the assessee before the Tribunal, as well as before the AAC, was the one relating to the non-existence of any distribution rights of the firm in North Arcot District.. Learned counsel for the Revenue said that the assessee did not at any time raise the point that it was not given any opportunity whatever by the ITO before he proceeded to make the estimate. Apart from these two objections of a preliminary character, having particular whatever by the ITO before he proceeded to make the estimate. Apart from these two objections of a preliminary character, having particular, reference to the proceedings in this case, urged the broad proposition that in an assessment made by the ITO under s. 144 of the I. T. Act, for the failure of an assessee to file a return or to comply with a notice under s. 142(1) of the Act for production of books of account, the ITO was not under as obligation to convene the assessee and place the gist of the materials in which he proposed to rely before proceeding to draw up the ultimate estimate of assessment. We shall first deal with the matter of substance while the learned counsel for the REvenue has put forward last, before we address ourselves in the points of procedure and jurisdiction raised by the learned counsel for the Department.

9. This assessment, as we earlier observed, was one made by the ITO under s. 144 of the I. T. ACt. The section carries the marginal note 'Best judgment assessment. ' It provides that where any assessee fails to make a return under s. 139(2) or where he fails to comply with the terms of a notice issued under s. 142(1), or where having made a return, he fails to comply with a notice issued under s. 143(2), the ITO shall make an assessment of the total income to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment after taking into account all relevant materials which he might have gathered. There is no controvert in the present case that the circumstances of the present case did warrant the ITO taking recourse to this provision for making an assessment to the 'best of his judgment'. For, there assessee has not only failed to file a return under sd. 139(2) of th ACt, but has also defaulted to comply with the terms of the notices issued by the ITO under s. 142(1) of the Act for the production of his accounts. The questions, however, is, whether, in spite of the defaults committed by the assessee, the assessee is not entitled to a notice from the ITO, of the basis on which the ITO proposed to make the estimate from materials which he has obtained otherwise than from the assessee. On this aspect of the modus operandi of a best judgment assessment, the assessee; s learned counsel submitted that whatever may be the default of the assessee, it is the duty of the ITO, even while making a best judgment assessment under s. 144, to place before the assessee any material which the officer has gathered on the basis of any outside enquiry made by him or caused to be made by him or caused to be made by him in regard to the assessment. Learned counsel said that while this would be the undoubted procedure for an assessment made under s. 143(3) of the Act, the procedure did not vitally differs under s. 144 too. The learned counsel submitted that an assessment under s. 143(3) and an assessment under s. 144 did not differs in kind, but they differed only in degree. According to the learned counsel the obligation of the ITO to place before the assessee at least the gist of the materials obtained by him before preceding to make the assessment was the same under both the provision.

10. As to the nature to the assessment process both under s. 143(3) and under s. 144, what the learned counsel says must be accepted as substantially correct. A Bench of this court dealing with the comparable provisions of ss. 23(3) and 23(4) of the Indian I. T. Act, 1922, has has occasion to observe in Gunda Subbayya v. CIt : [1939]7ITR21(Mad) , the substantial points of similarity between the two, REferring to the assessment under s. 23(4) of the ACt, the Bench refereed to the statutory requirement that the assessment must be to the best of the officer's judgment. The learned judged remarked that the word 'judgment' itself implies consideration of something and, in the context of s. 23(4), that consideration must be of facts relating to the income of the assessee. According to the learned judge the same principal would hold good in case where the ITO acts under s. 23(3). The learned judges then proceeds to observe that even in a case failing under s. 23(3), if the assessee has filed to produce evidence on which the ITO can make a proper assessment of the assessee's income, the officer himself must take steps to produce material for the purpose, if it is not already in hi possession. The learned judges referred to s. 37 of the ACt under which the ITO has power to summon witnesses and make his own inquiries. Having regard to the produce under the two provision in s. 23(2) and 2. 23(4) the learned judges finally concluded thus (p. 27) :

'The only difference between an assessment under sub-s. (3) in a case like the one mentioned in the reference and an assessment under sub-s., (4) is that the Act contemplates a more summary method when the Income-tax Officer is acting under sub-s. (4) and this is by reason of the deliberate default of the assessee.'

11. Adopting the language in the above case, it may be said that the assessment under s. 144 is not different in kind from an assessment under s. 143(3), but it is only a more summary method of making the assessment than the latter. Otherwise the procedure cannot be different in any material respects.

12. The learned counsel for the assessee referee to us two decisions of the Kerala High Court, as supporting his proposition in T. C. N. Menon v. ITO : [1974]96ITR148(Ker) and Ponkunnam Trader v. Addl. ITO : [1972]83ITR508(Ker) .

13. In case of T. C. N. Menon the assessee did not file a return of his total income, nor did he respond to the notice calling up him to produce e accounts. In the course of the assessment which followed under s. 144, the ITO observed, inter alia, that during the relevant account year the assessee has constructed a building at an estimated cost of Rs. 40,000 and that this his profession income was Rs. 25,000. Apart from these estimates of income under two different heads, the ITO estimated Rs. 15,000 to be the assessee; s income from other sources/. The assessee filed a writ petition in the Kerala High Court seeking to quash the order of assessment. His contention was that the ITO included Rs. 15,000 as income from 'other sources' without giving the assessee an opportunity of showing that there was no basis for that. It, was however, argued on behalf of the Department in that case that under the scheme of s. 142 especially, sub-s(3) of the section, where an assessment is made under s. 144 the assessee has not right to demand an opportunity of being heard in respect of any metrical gathered by the ITO for the purpose of assessment. It was urged on behalf of the assessee, on the contrary that as a person affected buy the assessment, he wa entitled, on the principles of natural justice, to a hearing before any material was utilised by the ITO against him in making an assessment, and these principles would apply even to a case where the assessment is made ex parte under s. 144 of the Act., Isaac J., who heard this case, agreed with the assessee's contention. He observed than an assessment to the best of the officer's judgment was a quasi-judicial process and it has to be based on the materials gathered. He added that a quasi-judicial process must necessarily afforded an opportunity of being heard before the decision is made against the party in questions. The learned judge observed that a decision can be arrived at best, or as correctly as possible, even under s. 144, only if the assessee is given on opportunity to say why, on the materials gathered by the ITO, the income should not be assessed in the manner proposed to be done by the officer. The learned judge observed that there was nothing in the provisions of s. 142(3) to militate against the observance of the principles of natural justice even n an assessment under s. 144 of the ACt. He accordingly quashed the order of assessment and remitted the case to the ITO for being disposed of according to law.

14. The other case relied on by the assessee's learned counsel from the Kerala High Court is by another learned Single judge of that court, mathew J., in Ponkunnam Traders v. Addl. ITO : [1972]83ITR508(Ker) . this case also arose for decision in proceedings under art. 226 of the Constitution., The assessment in this case, however, wa not made under s. 144, but only under s. 142(3). IN the course of his judgment, Mathew J. observed that when the ITO gathers materials from a source other than the records relevant to the year of assessment, he must be regarded as having gather materials on the basis of an opportunity to the assessee in regard to the materials so gathered by him, and any failure on the officer's part to conform to this principle of natural justice would render the order of assessment void. As we indicated earlier, this case turned on the construction and application of s. 143(3) of the ACt to which s. 142(3) in terms applied.

15. The problem before us, m however, is whether in any assessment made by the ITO under s. 144 of the ACt following the default of the assessee in making a return and in complying with there terms of a notice under s,. 142(1), it is still required of the ITO that he should give an opportunity to the assessee before utilizing the materials gathered from esls where. The learned counsel for the Department drew our attention to the terms of s. 142(3) of the Act. This section has a marginal note indicating that its provisions deal with 'equity before assessment'. Sub-section (3) of this section is in the following terms :

'The assessee shall, expect where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any enquiry under sub-section (2)...... and proposed to be utilised for the purpose of the assessment.

The learned standing counsel for the Department emphasised that the words in parenthesis, viz., expect where the assessment is made under section 144', are clearly intended to exclude an assessment made under s. 144 from the ambit of the provisions of s. 142(3) of the Act. The learned standing counsel further submitted that the provision of s. 142 relate to inquiries before the assessment in regard to any assessment made under the Act, whether the assessment be made under s. 143 or under s. 144 and in this context the specific if exclusion of an assessment under s. 144 from the ambit of the procedure provided for under s. 142(3) would show that Parliament intended that in a best judgment assessment under s. 144, the ITO was not under any obligation to give, m an opportunity to the assessee of being heard in respect of any material gathered by the ITO on the basis of any enquiry instituted by him.

16. On a strict construction of s. 142(3) of the Act, taking note of the express words of exclusion conveyed by the cause 'except where the assessment it made under section 144' :, there is considerable force in the contention put forward by the Department's learned counsel. the exclusionary words' 'except where the assessment is made under section 144' can be given a proper meaning only if it qualifies the inquiry preceding as assessment under s. 144. It cannot otherwise be given any proper significances. However, the submission of the learned counsel for the assessee in the present case has not been that the opportunity envisaged under s. 142(3) should be given to him even in an assessment made under s. 144. The crux of the submission made buy the assessee's contained in that section, but that in the very nature of the assessment under s. 144, he was entitled to an opportunity of being informed of the basis of the estimate or estimated assessment before the ITO proceeds to finalize it and an opportunity to controvert it, is he can.

17. We are inclined to agree with this line of approach to the procedure and requirements of an assessment under. s 144. We have earlier pointed out that an assessment under s. 144 is normally referred to as a 'best judgment assessment. ' But is is also often refers3d to a an ex party assessment. We should avoid carrying the analogy of the ex parte nature of the assessment beyond proper limits. We cannot, for instance, equate an ex parte income-tax assessment with an ex parte judgment or decree passed by a civil in a suit or other adversary proceeding between parties. Under the Civil Procedure Code the court is well within its rights in dismissing a suit for default of appearance of the plaintiff, or to proceed to give judgment against the defends t where the defendant is absent when called at the trial and base the judgment entirely on the evidence let in on behalf of the plainitiff. While courts of law are entitled, by the virtue of their position as well as by virtue of the provisions of the procedure case, to make ex parte judgments of this kind, subject top the provisions available to the parties in question to seek to set aside the ex parte judgments on sufficient case being shown, an assessment under s. 144, even though in sense it is an ex parte assessment, can by no means be equated to ex parte proceedings in a civil court, for notwithstanding the default committed by the assessee, or the different kinds of default committed by the assessee, or the different kinds of defaults set out in cls. (a), (b) and (c), of s. 144 it is still the duty of the ITO to make the assessment to the best of his judgment after taking into account all relevant materials which he might have gathered. The two processes, viz., the gathering of relevant materials and the making of the assessment to the best judgment can never be dispensed with, even in a case where that assessment is made ex parte following the default of the assessee. It is only in this sense that the courts have regarded the assessment under s. 144 as differing only in the degree of summariness s compared to the assessment under s. 143. Excepting for the fact that the assessee is not present before the ITO or has not furnished a return, m or where he has furnished a return, has subsequently, defaulted to produce materials in support of his return or defaulted to co-operate with the officer in the task of adjusting his tax liability the position of the ITO in no way differs from a case where he has got to proceed under any other provision of the Act for th purpose of making the assessment. It is true that under s. 142(3) of the Act, there is a statutory requirement for giving an opportunity to the assessee before any materials are being utilised buy the ITO for the purpose of assessment, and this requirement stand excluded by the very terms of s., 142(3) in the case of an assessment under s. 144. But that does not really impinge upon the wider and ever present statutory mandate that the officer must farm the assessment only to the best of his judgment, and nothing short of that.

18. Isaac J., has pertinently pointed out in T. C. N. Menon v. ITO : [1974]96ITR148(Ker) , that an assessment to the best of the officer's judgment, being a quasi-judicial process, it necessarily required an opportunity to be given to the assessee of being heard, before a decision is taken buy the ITO for arriving at the final figure of assessment. Isaac J. was able to discover in the assessment process two different stages, (i) the stage of gathering materials, m and (ii) the subsequent stage of utilizing those materials for farming the assessment. According to the learned judge, what is s. 142(3) envisages is that the assessee should have an opportunity at both th stages, m one at the stage when the officer gathers materials, i, e., even before the officer comes to a tentative decision or proposal to determine the total income at a given amount. The second opportunity is at the stage when the ITO has formed in his mind what the actual figure of income would be own which he proposed to assessee the assessee. According to the learned judge, s. 142(3) while dealing with the first stage takes care to provide that the assessee should have an opportunity event at that first stage to be heard. According to the learned judge the opportunity at this first stage of inquiry as above is denied to an assessee faced with an assessment under s. 144. The specific words of s. 142(3), it is said, m have only this limited effect. According to the learned judge, the provisions of s. 142(3) do not expect the second opportunity from the purview of s. 144, which must be given to the assessee before the assessment is finalized by the officer to the best of his judgment.

19. Apparently the learned judge might be having in contemplation some kind of a draft assessment order, which an ITO sometimes issues in the case of complicated assessments, or a pre-assessment notice which is generally being issued by Commercial Tax Officers before making a final assessment to sales tax chargeable on dealers. It may not be necessary for us to go into the question worthier there are really tow stages contemplated in the assessment process wherein a double opportunity should be given for hearing the assessee, one at a preliminary stage contemplated in the assessment process wherein a double opportunity should be given for hearing the assessee, one at a preliminary stage when the materials are being gathered and the other at final stage just before the assessment is finalized. We are not also expressing any opinion on the question s to whether s. 142(3) only covers the first of the stages of inquiry. It is sufficient for our purpose, however, to say that under the scheme of s. 144. itself and on the statutory imperative that even an assessment under s. 144 must be done only to the best of there officer's judgment and after taking into account all relevant materials which has been gathers, it stand to reason, that the assessee will have to be given an opportunity of being heard and a right to question the correctness or the reliance of the materials on the basis of which the ITO proposed to estimate the assessment.

20. We now turn to the objection put forward by the Department's learned counsel that within the framework of the questions of law which has been set to us buy the Tribunal we ought not to be engaging ourselves in examining whether in th present case the assessee w3s no was not given such an opportunity before the assessment was finalized. the learned standing counsel submitted that all though the proceedings, from the appeal before the AAC onward, the concern of the assessee in this case had been only to point out a mistake in the actual calculation of the assessment and not a procedural lacuna such as the absence of any notice of hearing before the assessment was rendered final. On a reference to the records we are satisfied that the objection of the Departments, learned counsel cannot be sustained. We did not, however, propose to consider the aspect of natural justice while examining the decision of the Tribunal in the present case. For, we are satisfied that even on the somewhat more limited scope afford by the questions of law actually before us, the Tribunal's order cannot be sustained. We have earlier pointed out that in the course of their order, m the Tribunal did notice that the assessee has been claiming, viz., that it has no distribution rights over any films in NOrth ARcot district and the ITO was in error in proceeding on the supposition that the firm did have such distribution rights. However, after nothing the submission put forward on behalf of the assesses in this manner, the Tribunal did not proceed to examine whether that contention was well founded or not. The Tribunal only dealt with the arguments addressed on behalf of the Department to the effect that when the ITO has stated in his order that the assessee has distribution rights in NOrth Arcot distinct also, he did so on the basis of his enquiry. Unfortunately this representation by the I. T. Dpet. before the Tribunal was not also purposed. The Tribunal did not care to did out whether the ITO's information wa borne out buy facts. The result has been that part from noticing the rival contention, the Tribunal did not proceed to enter their finding on the subject of controversy viz,,. whether or not the assessee has distribution rights over the two films or any other film in NOrth Arcot district in the relevant year of account. A perusal of the assessment order would show an assertion by the ITO to the effect that the assessee has film distribution rights over NOrth Arcot district for two films and that is has a cinema theatre in Vellore which was running a film over which it has distribution rights. There fact, as asserted, were taken note of as important factors for arriving at the officer's final estimate of Rs,. 75,000 as the assessable income of the assessee for the year in questions. To what extent these factors entered into the reckoning in the mind of the ITO in framing the estimate is heard to believe. But certainly they must have had their due share in arriving at the estimate. It is, therefore, very important to find out whether the basis information about the assessee's business in NOrth Arcot on which the ITO proceeded to draw up the estimate was well founded or ill founded. As we earlier mentioned the AC went into this question and found that the assessee has no distribution rights in NOrth Arcot district. Having thus found the basis of assessment to be wrong or non-existent the AAC, however dismissed the mistake of the officer as a mistake of no importance. Even this method of disposal hasn't been followed by the Tribunal. We are, m therefore, left with a defective and inconclusive discussion of contested facts on the Tribunals' part. In these events, we cannot say that the Tribunal was right in upholding the estimate made by the ITo. In our judgment, the proper thing for the Tribunal to have done would have been to her the assessee on the question as to the reassembles of the estimate and the relevance and validity of the materials on the basis of which the estimate has been made. If the Tribunal found that any of those so-called materials in the assessment order were not in fact support by any evidence, it would be the duty of the Tribunal to discard those materials and find out to what extent the estimate already made by the ITO would be affected thereby. If, however, the Tribunal is not in a portion to accurately measure the effect of the particular materials in the formation of the ultimate estimate, the Tribunal will have to set aside the assessment and send it back to the ITO for a de none estimate.

21. Learned counsel for the Department cited before us a judgment of a Division Bench of the Punjab and Haryanan High Court in Mr. Mal Mahajan v. CIt , in support of the proposition that for an assessment mad under s. 144 of the Act, the provisions of s. 142(3) would not apply. in that case, the complaint of the assessee was that the evidence which the ITO collected was not put to him as provided for under s. 142(3). This contention was rejected by the Punjab and Haryanan High Court on the ground that the assessee was given a number of opportunities to produce his books account, but he failed to avail of any of these opportunities. The assessee's default was regarded by the learned judges as good ground for not giving him an opportunity to say what he may have to say in respect of the immaterial gathered by the ITO. It seems to us, with respect, that the fact the assessee has defaulted to company with the notice, or failed or omitted to company with the terms of a notice under s. 142(1), cannot be its own force be sufficient to support the contention that he is not entitled to an opportunity to be heard before the ITO utilised the material gathered by him. The learned judges, however, in their judgment pointed out to the parenthetical clause in s. 142(3) which expected the assessment made under s. 144 from the previous of that section. To this extent the judgment of the learned judges may be supported by the words of the section. If, however, the judgment is based on the theory that an assessee who has defined the statutory notices, or omitted to comply with the notices issued by the ITO, must be given him a hearing them with 3respect, we cannot accede to that proposition.

22. All things considered, the particular disposal of the apple by the Appellate Tribunal in this case under reference doe not seem to us to be proper. We have come to that conclusion even without entering into a discussion as to weather the assessee wa or was not entitled to a hearing question in the negative and in favour of the assessee. The effect of this answer is to obliterate the order of the Tribunal and to direct the Tribunal to rehear the appeal and dispose of it on the bias of materials on the lines suggested by us in the foregoing paragraphs. The assessee will have their costs. Council's Fee RS. 500.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //