1971 (2) TMI 9 - HC - Income Tax

petitioner seeks to quash order of asessment passed by ITO and order passed by CIT in revision - assessee was not given notice of materials gathered by the ITO before making best judgement assessment

Issues Involved:
1. Validity of the assessment order under Section 143(3) of the Income-tax Act, 1961.
2. Compliance with the principles of natural justice under Section 142(3) of the Income-tax Act, 1961.
3. Effect of failure to raise the issue of natural justice before appellate and revisional authorities.
4. Impact of appellate and revisional orders on the original assessment order.
5. Discretion of the court under Article 226 of the Constitution of India.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3) of the Income-tax Act, 1961:
The petitioner, a dealer in hill produce, was assessed to income-tax for the year 1964-65. The Income-tax Officer (ITO) rejected the accounts produced by the petitioner and made a best judgment assessment under Section 143(3) of the Income-tax Act, 1961, adding Rs. 10,000 to the income from dry ginger and Rs. 1,000 from pepper transactions. The ITO estimated the profit in dry ginger at 12% and in pepper at 2% of the turnover. The petitioner appealed, but the Appellate Assistant Commissioner dismissed the appeal. The Commissioner of Income-tax, in revision, upheld the ITO's finding for dry ginger but deleted the Rs. 1,000 addition for pepper.

2. Compliance with the Principles of Natural Justice under Section 142(3) of the Income-tax Act, 1961:
The petitioner contended that he was entitled to notice under Section 142(3) of the Act regarding the materials gathered by the ITO and to have his say about them. The ITO had gathered materials from sources other than the records relevant to the year of assessment, which required giving the petitioner an opportunity to be heard. The court held that an ITO must give an opportunity to the assessee in respect of materials gathered from sources other than the records relevant to the year of assessment.

3. Effect of Failure to Raise the Issue of Natural Justice Before Appellate and Revisional Authorities:
The revenue argued that the petitioner did not raise the issue of non-compliance with natural justice before the appellate or revisional authorities and should not be allowed to raise it in the court. However, the court noted that the failure to conform to the principle of natural justice of audi alteram partem would make a judicial or quasi-judicial order void. The petitioner had no opportunity before the ITO to raise the objection, and thus, it could not be said that he acquiesced or waived his objection.

4. Impact of Appellate and Revisional Orders on the Original Assessment Order:
The revenue contended that the original order had merged into the appellate and revisional orders, which were passed after giving the petitioner an opportunity of being heard. However, the court held that where a decision is null by reason of want of jurisdiction, it cannot be cured by any appellate proceedings. The appellate and revisional orders could not validate the original order if it was void due to non-compliance with natural justice.

5. Discretion of the Court under Article 226 of the Constitution of India:
The court emphasized that it is only in exceptional circumstances that it would decline to issue a writ when an order of an administrative authority performing a quasi-judicial function is a nullity for failure to conform to the principle of natural justice. The court found that the petitioner had no opportunity to object to the ITO's procedure and thus had not waived his right to challenge it. The court quashed the orders of the Commissioner, the ITO, and the appellate authority to the extent they assessed the petitioner to income-tax on the income from transactions in dry ginger and pepper.

Conclusion:
The court quashed the assessment order and the subsequent appellate and revisional orders due to non-compliance with the principles of natural justice, specifically the failure to provide the petitioner an opportunity to be heard on the materials gathered by the ITO. The court emphasized the importance of adhering to natural justice principles and held that appellate and revisional proceedings could not cure the original order's invalidity.

← Previous Next →