Sabyasachi Mukharji J.
1. In this reference the following question has been referred to us by the Tribunal:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that before making an assessment under Section 144 of the Income-tax Act, 1961, the asscssee should be given an opportunity of being heard under Section 142(3) of the said Act, in respect of any material gathered on the basis of an enquiry made under Section 142(2) and proposed to be utilised for the purpose of assessment andon that view in confirming the order of the Appellate Asst. Commissioner setting aside the assessment made under Section 144?'
2. The assessment years involved in this reference are 1967-68, 1968-69 and 1969-70. In the assessment year 1967-68, the assessee submitted a return under Section 139(2) showing a loss of Rs. 23,550. The ITO issued a notice to the assessee under Section 142(1) requiring the assessee to produce the statutory books but the assessee committed default and the ITO made an assessment under Section 144 of the I.T. Act, 1961. The assessee had claimed that it purchased Samabeong Tea Estate in 1963. It did not disclose any income up to 1965 from that tea estate. It also failed to produce the sale deed in its favour and satisfy the ITO that there was any agreement between the assessee and the seller, M/s. Padma Ltd., by which the latter was to run the estate. The ITO found that there was litigation between Shri K.R. Agarwal, principal director of the assessee, and members of his family and on the basis of an award, the tea estate was allotted to him and also the share capital of the assessee. The ITO was of the view that the assessee-company was, cent per cent. owned by Shri K.R. Agarwal. He, however, proceeded to assess the income of the tea estate in the hands of the assessee as the assessee claimed its ownership. The assessee produced account books but the ITO, for the reasons given by him in his order, rejected the same. The ITO also found defects in the accounts and also observed that the bills, correspondence between the offices of the assessee, staff acquittance rolls, etc., were not produced. The assessee claimed that the tea estate was sold out in November, 1966, but the assessee showed income from the same in the assessment years 1968-69 and 1969-70. The ITO estimated the assessee's income at Rs. 36,000 from tea manufacture and Rs. 4,000 from licence fee aggregating to Rs. 40,000 in the assessment year 1967-68.
3. For the assessment year 1968-69, the assessee submitted a return disclosing a loss of Rs. 62,194. In this year also the assessee failed to comply with the notice under Section 142(1) of the I.T. Act, 1961, and the ITO completed the assessment under Section 144 of the Act by estimating the assessee's income at Rs. 40,000. The assessee disclosed a loss of Rs. 37,032 in the return for the assessment year 1969-70 and it also failed to comply with the notice under Section 142(1) in this year. The ITO completed the assessment under Section 144 by estimating the assessee's income at Rs: 20,000.
4. The assessee appealed to the AAC. The AAC heard the appeals for the assessment years 1967-68 and 1969-70 together and disposed them by a common order. The assessee in the appeals challenged the finding of the ITO that the assessee-company was owned by Shri Kashiram Agarwal and that he was the sole beneficiary of the assets and business of the assessee. It was urged before him that the ITO was not justified in taking cognizance of the several facts relating to the family disputes between Shri Kashiram Agarwal and the other members of the family and the award in favour of Shri Kashiram Agarwal. It was pointed out that the award was still in dispute before the High Court. It was urged that the ITO was not justified in adopting the status of the assessee as a company in which the public were not substantially interested. The AAC, however, held that the ITO was justified in determining whether there was a genuine company of not and for that purpose in taking into cognizance the award and the other material referred to by him in his order. He also held that the majority of the shares and the control of the assessee-company was held by less than 5 persons and that the assessee, was a company in which the public were not substantially interested. It was next urged before him that ,the ITO was not justified in estimating the income of the assessee at Rs. 40,000 in each of those two years as the ITO did not issue any notice under Section 143(3) before rejecting the accounts of the assessee. The disallowance of the expenses by the ITO was also objected to for similar reasons. It was submitted that the sale deed by M/s. Padma Ltd. of the tea estate was a registered deed and the sale in favour of Kashiram Agarwal thereof was also by a registered deed. It was argued that the ITO was not justified in estimating and disallowing the expenses as the assessee's accounts had been duly audited. It was next contended that the ITO was under a legal obligation to issue a show cause notice to the assessee and to allow the assessee sufficient opportunity of being heard before arriving at an adverse conclusion and before rejecting the assessee's accounts and estimating the assessee's income. He, further, observed that on one hand the ITO had stated that there was no valid conveyance deed for the above tea estate in favour of the assessee-company while, on the other hand, he estimated the income from the tea estate in the hands of the assessee. According to him, the income in respect of the tea estate could not be assessed in the hands of the assessee. The AAC further observed that from a perusal of the assessee's records he found that no notice under Section 143(3) was issued to the assessee to give an opportunity of being heard before drawing an adverse conclusion in rejecting the book version and in estimating the income. The AAC, in these circumstances, set aside the assessments with the direction to give an opportunity of hearing to the assessee and also to furnish to the assessee the information on the basis of which he had arrived at the conclusion adverse to the assessee and to reframe the assessments in accordance with law. Similar contentions were raised in the appeal for the assessment year 1969-70 against the finding of the ITO that theassessee-company was owned by Kashiram Agarwal and against the estimate of income of the assessee. The correctness of the estimate of income for the assessment year 1969-70 was also challenged. It was submitted that all the sales were effected during the beginning of the year and the tea gardens remained closed during the middle of the accounting year due to labour troubles and that the ITO had not taken into consideration those facts in estimating the assessee's income and that the expenses had been disallowed without any reason. The AAC observed that before arriving at the conclusion that the assessee-company was owned by Shri Kashiram Agarwal, the ITO had not given any opportunity of hearing to the assessee and the ITO had violated the cardinal principle of justice and that before an adverse conclusion could be drawn against the assessee it must have been given an opportunity of being heard and that the ITO must have furnished information gathered by him on the basis of which the adverse conclusions had been drawn. With respect to the estimate of income he also observed that the ITO had not given any opportunity to the assessee before estimating the same. He, therefore, set aside the assessment with the direction to the ITO to give an opportunity to the assessee of being heard and to recompute the income after considering all the facts. He also directed the ITO to give an opportunity to the assessee of hearing before arriving at his conclusion regarding the ownership by the assessee.
5. Aggrieved by the orders of the AAC, the Department came up in appeals before the Tribunal. It was submitted before the Tribunal by the learned departmental representative that as the assessments were made under Section 144, the assessee was not entitled to any hearing nor to any information of the type mentioned by the AAC in his order and the AAC was also not justified in setting aside the assessment and in directing the ITO to make a fresh assessment. It was argued that an assessee was entitled to an opportunity of being heard in respect of material gathered on the basis of any enquiry made under Sub-section (2) of Section 142 only in cases of assessments other than those made under Section 144 and that the assessee had no such right or opportunity in the cases before the Tribunal and the assessments could not be set aside with a view to afford such an opportunity to the assessee. It was further urged that the assessee made applications under Section 146 and those applications were dismissed by the ITO and the appeals against those orders were also dismissed by the AAC. It was argued that in appeals against the, quantum assessments the AAC could not exercise his powers which he could do in appeals against the orders under Section 146 and that by setting aside the assessments with a direction for making fresh assessments, the AAC had circumvented the provisions of Section 146 in respect of which he had no power. The learnedcounsel for the assessee on the other hand submitted that the assessment proceedings were judicial proceedings and the assessee was entitled to be heard if any material was sought to be used against him on principles of natural justice. He pointed out that the applicability of the principle of natural justice was not excluded even when an assessment was made under Section 144. After referring to the provisions of Sub-section (3) of Section 142, the learned counsel for the assessee pointed out that the provisions of Sub-section (3). did not exclude the applicability of the principle of natural justice in providing such an opportunity to the assessee even if any assessment was made under Section 144. In support of his contention he placed reliance on the decision in the case of Koyammankutly v. Fourth Addl. ITO : 58ITR871(Ker) . It was next argued that the AAC had not circumvented the provisions of Section 146 as he had not granted any relief to which the assessee could be entitled if any application under Section 146 had been accepted as he had only directed the ITO to give an opportunity to the assessee of being heard with respect to the material that was proposed to be used against the assessee in making the assessment.
6. The Tribunal after referring to the facts and decisions in the case of Koyammankutty v. Fourth Addl. ITO : 58ITR871(Ker) and in the case of T.C.N. Menon v. ITO : 96ITR148(Ker) , observed that from those decisions it was clear that the assessee had a right to be heard before any adverse inference was drawn against it from the material gathered by the ITO. The Tribunal further observed that Section 146 provided for making an application for setting aside an assessment under Section 144 in the circumstances mentioned in that section. The Tribunal referred to the provisions of Clauses (c) and (d) of Section 246 and observed that the matter which fell under Section 146 could not be considered in appeal against the assessment under Section 246(c). But in the present case the setting aside of the assessment orders by the AAC and the direction for affording an opportunity to the assessee of being heard against the material gathered and proposed to be utilised against it did not fall within the ambit of the relief that could be granted to an assessee under Section 146 and on that account there was no circumvention by the AAC of the provisions of Section 146 in passing the impugned order. The Tribunal, therefore, dismissed the departmental appeals.
7. Upon these, the aforesaid question has been referred to us. The Tribunal in its main order has posed the question before it as follows :
'The point in controversy in this case was whether before making a best judgment assessment Under Section 144 of the Income-tax Act, the assessee should be given under Sub-section (3) of Section 142 an opportunity of being heard in respect of any material gathered on the basis of anyenquiry under Sub-section (2) and proposed to be utilised for the purpose of assessment.'
8. On this aspect the Tribunal held that the assessee must be given a further opportunity. In view of the clear language used by Section 142(3) read in conjunction with Clause (b) of Section 144 of the I.T. Act, 1961, in our opinion, the conclusion arrived at by the Tribunal on this point of law is contrary to the clear and unambiguous expression used in these sections. Therefore, we are unable to agree with this conclusion of the Tribunal.
9. In that view of the matter, it is not necessary for us to refer to the several decisions which have been mentioned in the order because those decisions do not strictly deal with the actual points with which we are involved in the present case.
10. In that view of the matter, the question must be answered in the negative and in favour of the Revenue.
11. Each party will pay and bear its own costs.
Suhas Chandra Sen, J.
12. I agree.