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TMI Blog1984 (9) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... never a witness of the assessee and in placing the onus of disapproving the purchases in question made by the assessee on the department ; (iv) ignoring the fact that the payments of assessee to Shri Sunderdas Jairamdas are violative of the provisions of section 40A(3) read with rule 6DD of the Income-tax Rules, 1962 and in placing the onus on disapproving such payments on the department ; (v) holding that the action of the IAC in giving the opportunity to the assessee to cross-examine Shri Sunderdas Jairamdas though done in the interest of the natural justice, is illegal of provisions of section 144B of the Income-tax Act, 1961 ('the Act') ; (vi) holding that the assessment is bad in law because the provisions of sub-section (2) of section 142 of the Act have not been complied with in disregard of the fact that the principle of natural justice has been complied with ; (vii) holding that the IAC has no powers of giving a direction to the ITO to assess a sum of Rs. 16,000 under the head 'Profits and gains of business or profession' instead of the head 'Income from other sources' ; and (viii) cancelling the assessment in disregard of the fact that an addition of Rs. 35,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of its claim, the assessee filed a letter dated 17-8-1978 wherein the vendor accepted the position that he had declined to accept the payment by cheque/draft and the payment was made in cash as agreed at the time of purchase. The vendor clarified that the transactions in question are recorded in his books of account and he is assessed by the ITO. Along with the said letter statement showing the purchases from him duly signed by him was also annexed. The ITO examined the vendor under section 131 of the Act on 24-3-1979. The vendor admitted having sold the goods in question and confirmed having signed the letter and the statement dated 17-8-1978. He explained that he is a sales tax payer but he has not filed income-tax return for the last 5/6 years. He produced cash book, purchase register and sales register. The purchases made by the assessee are found recorded in the books produced by him which are lying impounded with the ITO. He further admitted that he insisted for cash payment. After recording the statement, the learned ITO made some enquiries from some of the parties from whom the vendor claimed to have purchased the oilcake. After these enquiries were instituted against Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. There was also another book called 'Sai book' (receipt register) in which the receipt received from parties to whom payments are made are noted. Payments are made from 10 to 12 days after the date of purchase bills. This book, however, was not available at the time of cross-examination and was produced before the IAC by Jairamdas after the cross-examination, to explain his system of accounting. After considering the entire material before him, the IAC directed the ITO to make an addition of Rs. 1,66,624 and Rs. 16,000, which is proposed by the ITO. In pursuance of the directions issued by the IAC, the ITO passed the assessment order making the aforesaid additions to the income of the assessee against which order, the assessee went up in appeal before the Commissioner (Appeals). The first ground taken by the assessee before the Commissioner (Appeals) is against the legality of the assessment. He also contested some specific additions, namely, the addition of Rs. 35,000 representing the peak credits in the accounts of Tarachand Bakhru, Jaigopal Bakhru and Jairamdas and also with respect to the additions of Rs. 1,66,644 and Rs. 16,000 added by the ITO in the income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO did not give a reasonable opportunity to the assessee as contemplated under sub-section (3) of section 142. Elaborating the point, he submitted that the 'Sai book' has been utilised in building up the addition. The ITO has also utilised the results of certain local enquiries without giving him an opportunity to meet the case. He relied upon the decision of the Kerala High Court in the case of Addl. ITO v. Ponkunnam Traders [1976] 102 ITR 366 in support of his contention that the assessment framed by the ITO without giving a reasonable opportunity to the assessee as contemplated under sub-section (3) of section 142 is bad in law. After hearing the learned counsel for the assessee and the learned IAC, the Commissioner (Appeals) for the reasons stated by him in his order held that the directions of the IAC are tainted with illegality inasmuch as there has been utilisation of additional evidence collected at his own instance and inasmuch as the IAC travelled beyond the scope of section 144B. Therefore, the order of the ITO passed on such directions of the IAC is illegal. He further held relying on the decision of the Kerala High Court in Ponkunnam Traders' case, that the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the addition of Rs. 35,000 in any way has nothing to do with the opportunity having not been given to the assessee as the aforesaid addition is based purely on independent evidence and the provisions of sub-section (3) of section 142 are not contravened. The learned counsel appearing for the assessee contended before us that the prayer made to the IAC in the proceedings under section 144B was to exclude the evidence of Jairamdas recorded at the back of the assessee on 30-3-1979 and also to exclude the evidence in the form of local enquiries and the statements recorded at the back of the assessee. It was not his case before the IAC that the parties should be examined. According to him, the IAC has taken the proceedings under section 144B to consider only the draft assessment order, objections of the assessee and the record relating to the draft assessment order. The learned IAC exceeded his jurisdiction by recording the evidence at that stage, which was never the prayer of the assessee. The department cannot sleep over the matter for two years and then say that for want of limitation, the opportunity could not be given. He submitted that certain evidence in the form of local e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment, he has gathered materials on the basis of enquiry within the meaning of section 142(3) and, therefore, he will be bound to give an opportunity to the assessee in respect of the materials so gathered. The failure to conform to the principle of natural justice of audi alteram partem would make a judicial or quasi-judicial order void : " If we apply the ratio laid down in the aforesaid case to the facts of the case under consideration before us, it is seen that the 'Sai book' (receipt register) in which the receipts received from parties to whom payments are made are noted was not available at the time of cross-examination and was produced before the IAC after the cross-examination. It is further seen that certain local enquiries made by the ITO from some of the parties from whom the vendor purchased the oilcakes were not put to the assessee and the results of such local enquiries have been utilised in making the addition by the ITO. We are, therefore, of the opinion that the ratio laid down in the aforesaid case squarely applies to the facts of the present case. Since this is the only decision on the point and there being no contrary decision of any other High Court, we are ..... 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