1959 (2) TMI 40 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Income Tax Officer indicated to the assessee his intention to assess on the basis of the average yield shown by other millers.
2. Whether a reasonable opportunity was given to the assessee to adduce evidence in rebuttal of the said average yield being made applicable to the assessee.

Detailed Analysis:

Issue 1: Indication of Assessment Basis by Income Tax Officer
The core issue revolves around whether the Income Tax Officer (ITO) communicated to the assessee that the assessment would be based on the average yield shown by other millers. The facts reveal that the ITO compared the yield disclosed by the assessee's books with those of other merchants in the same line. However, there is no record indicating that the ITO apprised the assessee of the data or the basis for his conclusions. The Government Pleader admitted that no notice or record exists to show that the assessee was informed about the average yield data from other merchants. The ITO's order merely stated the yield percentages and the deficit amounts without providing specific details or names of the other merchants whose data was used for comparison.

Issue 2: Opportunity to Rebut the Average Yield
The second issue concerns whether the assessee was given a reasonable opportunity to rebut the average yield applied by the ITO. The assessee's advocate argued that the lack of opportunity to rebut the average yield data greatly prejudiced the assessee's case. The scrutiny of the appellate orders from the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal shows that neither body indicated that the assessee was given a chance to explain the low yield compared to other merchants. The Tribunal's order mentioned considering factors like varieties of ground-nuts and area under cultivation but did not address whether the assessee was given an opportunity to provide a satisfactory explanation.

Legal Precedents and Principles:
The judgment cites several legal principles and precedents emphasizing the need for natural justice and fair treatment. According to Kanga's "The Law and Practice of Income Tax," if the ITO uses private information against the assessee, he must communicate the substance of such information to the assessee and provide an opportunity to rebut it. The Supreme Court's decision in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax highlighted that the ITO must not make assessments based on pure guesswork without evidence and must disclose the information used to the assessee. Similarly, the Lahore High Court in Gurmukh Singh v. Commissioner of Income Tax and the Madras High Court in Gunda Subbayya v. Commissioner of Income Tax stressed the importance of informing the assessee about the grounds for rejecting their evidence and providing an opportunity to explain.

Conclusion:
The court concluded that the ITO failed to provide the assessee with sufficient information and opportunity to rebut the average yield data used for assessment. The Tribunal and the Appellate Assistant Commissioner also did not ensure that the assessee was fairly treated in this regard. Consequently, the question referred to the court was answered in the negative, and the petition was allowed with costs. The judgment underscores the necessity for transparency and fairness in tax assessments, ensuring that assessees are given a fair chance to present their case.