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Issues Involved:
1. Whether the Income-tax Officer (ITO) can examine or record statements of any person behind the back of the assessee without their knowledge or notice. 2. Whether the ITO has the power to keep such records concealed from the assessee and refuse to provide copies of the statements recorded and other information collected. 3. Interpretation and scope of Section 23(3) of the Income-tax Act in relation to the powers and procedures of the ITO. 4. The applicability of principles of natural justice in the proceedings under Section 23(3) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Examination and Recording of Statements Behind the Assessee's Back: The court examined whether the ITO can rely on information obtained without the assessee's knowledge. The assessee argued that Section 23(3) of the Income-tax Act requires all evidence to be recorded in the presence of the assessee. The ITO contended that he could act on any information received without disclosing it to the assessee. The court concluded that the ITO can indeed rely on private and confidential information as long as the substance of the information is disclosed to the assessee, allowing them a reasonable opportunity to respond. 2. Concealment of Records and Refusal to Provide Copies: The court addressed whether the ITO has the authority to conceal records and refuse to provide copies of statements. It was determined that while the ITO is not required to disclose the names of informants or provide copies of confidential statements, he must inform the assessee of the substance of the information and give them an opportunity to meet the case against them. This approach aligns with the principles of natural justice, ensuring that the assessee is aware of the material being used for their assessment. 3. Interpretation and Scope of Section 23(3) of the Income-tax Act: The court analyzed the interpretation of Section 23(3), which allows the ITO to assess the total income of the assessee based on the evidence produced and other evidence required by the ITO. It was argued that this section is exhaustive and requires the ITO to record evidence in the presence of the assessee. However, the court held that Section 23(3) is not exhaustive and implicitly allows the ITO to collect and act on other evidence, including private enquiries. The court cited various judgments, including those from the Madras, Lahore, and Calcutta High Courts, supporting the view that the ITO can use private information as long as the assessee is informed of the substance and given a chance to respond. 4. Applicability of Principles of Natural Justice: The court emphasized the importance of natural justice in the proceedings under Section 23(3). It was held that while the ITO is not a court in the usual sense, he must conduct proceedings fairly and in accordance with natural justice. This includes informing the assessee of the material on which the assessment is based and providing a reasonable opportunity to meet the case. The court concluded that the ITO should include sufficient precision in the assessment order to allow the appellate authority to judge the fairness of the assessment. Conclusion: The court answered the reference by stating that while the ITO can rely on information not disclosed to the assessee, he must conduct proceedings in accordance with natural justice. This requires drawing the assessee's attention to the material used and giving them a reasonable opportunity to respond. The ITO is not obliged to provide copies of confidential statements or disclose informants' names. The court directed that a copy of the decision be sent to the learned Commissioner and ordered the return of the assessee's deposit of Rs. 100, with no order as to costs. Reference Answered Accordingly.
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