NEW PORTMAN LTD. v. JAYAWARDENA AND TWO OTHERS

023-SLLR-SLLR-1989-V-1-NEW-PORTMAN-LTD.-v.-JAYAWARDENA-AND-TWO-OTHERS.pdf


307
CANew Portman Ltd. v. Jayawardena and Two Others.
NEW PORTMAN LTD,
V.
JAYAWARDENA AND TWO OTHERS
COURT OF APPEAL .
TAMBIAH, J.
MOONEMALLE. J. ■■
C. A. APPLICATION 2366/80C. A. APPLICATION 2367/80'
FEBRUARY 22 AND'23 1984.
Certiorari. — Prohibition — Income tax — Assessment — Reasons — Adequacy,of the..reasons — Assessor acting on information — Duty to confrorif assessiees—Section 115 (3/ of the Inland Revenue Act.
New •Portman Ltd: furnished a return (PI) of its income for the-year of income1979/8,0 to the, 2nd respondent^'
It’.disclosed a total statutory income of Rs. 42,210/- and a loss of -Rs,
. 197,574/- allowable loss’under S. 1’62 (b) (iv) of the' lnland Revenue Act No.'28of 1-979 ‘’’'■ '
Ij was,brought forward fr.om. the previous year of,assessment.*
The Iniand'Revenue department rejected the return and assessed the income atRs. 1 50,000/-against a statutory, loss of Rs.’l 55, T64/-.
The petitioner moved for on ceftibVaria.nd; prohibition against, the assessment.Held
’ -The reasons for rejection of thb return given' by the.Assbsbr to the-.assessedshould' be'adequate and' intelligible' General reasons are inadequate. –
The assessor, if acting, on information, must confront.the assessee with'the
information'of its' substance arid give him an' opportunity to counter-.the,information.*'''"
Cases referred to:;.
1 Mrs.. Fernando and another y. A. M. Ismail SC Appeal No. 22.of ,1981 S.C,Minutes of 2A.1.9,82. …
-:> Re Poyser'and Mills Arbitration . [ T9641 2 Q . B'.D. 467.
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(198911 Sri L. R.
Elliott and Others v. South Wark London Borough Council (19761 1 W.L.R.499.
Gurmukh Singh v. Commissioner of Income Tax AIR 1 944 SC 353 F.B.
APPLICATION for writs of prohibition and certiorari.
C. Sivaprakasam with H. Devasagayan for the Petitioner.
M. S. Aziz Deputy Solicitor-General for the Respondent.'
Cur. adv. vult.
May 11.1984TAMBIAH, J.
There are.two applications before us. In Application No. 2366of 1 980. the petitioner is New Portman Ltd; in Application No.23.67 of 1980. the petitioner was E.D. Gunaratne. who was theManaging Director of New Portman Ltd. He died while hisapplication was pending before this Court, and his widow hasbeen substituted in his place. New Portman Ltd. carries on thebusiness of clearing, forwarding and transporting. On 29.2.80.
. New Portman Ltd. furnished a return (p1) of its income for theyear of assessment 1 979/80.to the 2nd respondent,.who wasan Assessor attached to Unit 1 of the Department .of InlandRevenue The. return disclosed a total statutory income ofRs.i 2.210/- against which it claimed an allowable loss ofRs.197.374/- under s. 1 62 (b) (iv) of the Inland Revenue Act No.28 of 197.9. This amount was a l.oss brought forward from theprevious year of assessment.. According to the 1 st respondent,an Assessor, attached-to Unit 9 of the Department, before thereturn of income was furnished., the Managing Director of theCompany had discussions with the officials of the Departmentabout the'subject matter of the returns.
By letter dated 27.5.80. the 1st respondent called upon theManaging Director of the Company to. produce the books ofaccounts and documents of’the Company in respect of the yearof assessment 1979/80. Accordingly, on 16.4.80. the books ofaccounts were handed over to the Ist respondent. The CashBooks handed over, covered only nine months of the year;
CA New Poriman Ltd. v. Jayawardena and Two Others (Tambiah. J.)309.
according to-the petitioner company, the cash- books for the'balance year was missing and it attributed the loss of the cashbooks to the Accountant who had left his employment under theCompany. .
It is-common ground that'there was an interview.with the 1strespondent on-17,6,80, at which, interview, were present theManaging Director, his Counsel, the Accountant of the Company" and. the Deputy Commissioner, Unit 9. PaFti.es are.at varianceinregard to what transpired at..the interview. According .to 'the-' petitioner company, -the only question thatwas repeatedly put bythe 1st respondent was whether the return of-income was.correct, and when the .answer was in the. affirmative,, the 1 strespondent became visibly annoyed:- neither the 1st- respondentnor the Deputy, .Commissioner- questioned 'the petitionercompany on the accuracy of the accounts furnished or- soughtany clarification as to how the accounts were • made-up orindicate in what, respect the accounts, were suspect. The'petitioner asserts that certain submissions made by its Counselwere not noted down by'the -1 st respondentthough requested to.do so but that he.requested them, if. they wished, to send in-their- written submissions. –
This position of'the petitioner cannot be sustained as thed.s.t' respondent has 'annexed the notes of the interview ,to hisaffidavit-.. Annexure (183) records, that Counsel states-:- {1) -theprofits for the year ended . 3,1.3.79 was reduced by aboutRs. 1 00,000/- on'the-instructions.of. the accountant, (2).thoughfactually the lorries were transferred to the Company in April1 978,, the legal transfer took place later; that during this period,the lorry expenses were met out of drawings from the company,-but the, profit of .the .company . was– inflated .because theseexpenses were not-reflected in. the profit and- loss account.Counsel was requested by the Deputy Comixiissioner, to give hisstatement in writing. -'
■ On 25.6.80, the-auditors-of the. company were afforded anopportunity of examining the books of account of the Companywhich were in the custody of the 1 st.respondent. and thereafterthe Managing. Director sent his written submissions on 19.8.80/ It
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would appear from ihe written submissions that the controversybetween the Department and the Assessee centres round anentry in the ledger under "Mr. E. D. Gunaratne's A/c". Accordingto the Managing Director, large sums of money drawn by himand expended on the company’s behalf on account of repairs tovehicles, their maintenance and running expenses have not beencharged against the profits for the year.
By letter dated.31.7.80 (P3). the 1st respondent purporting toact under S. 1 1 5 (3) of the Inland Revenue Act No. 28 of 1 979informed the petitioner company as follows "According to theinformation available with me the statement of accountsfurnished by you in support of the return of income for the aboveyear of assessment (1979/80). year ended (31.3‘79) in respectof the above company (New Portman Ltd.) does not reveal thecorrect profit. I am therefore, rejecting the Return and an-assessment on estimated assessable income of the company willbe issued shortly."
Thereafter the 2nd respondent sent the notice of assessmentdated 1 2.8.80 (P4) wherein the petitioner's income has beenassessed at Rs.150.000/-. as against a statutory loss ofRs. 155.1 647- which, the petitioner states, was disclosed by it inits return.
The petitioner then wrote the letter (P5) dated 2.9.80 to the 1 strespondent and stated that the assessment is ultra vires, null andvoid and.-one made without; jurisdiction for the reasons that (1)the letter P3 does not comply with S. 113 (3) of the Act. as the1st respondent had failed to communicate the reasons for notaccepting the return.. (2) there was a violation of the rule of audi.alteram partem in that the 1st respondent had failed to confrontthe assessee with the information.he had and to hear him onsuch information.
to this, the 1st respondent replied by his letter P7 of 9.9.80and stated, that a .hearing .was given to the petitioner on mattersrelevant to the assessment and that he had rejected the returnand issued an assessment as he was not satisfied that the.returnsand accounts'disclosed, the'Correct income of the company.
CA New Portman Ltd. v. Jayawardena and Two Others (Tambiah. J.)311
•The petitioner wants this Court to quash on Certiorari andProhibition the' assessment (P4) for the reasons that themandatory provisions of S'. 1 -1 5 (3) have not been complied withby the 1st respondent, and that there has been a denial ofnatural justice as the petitioner has not been questioned on theinformation available to the 1st .respondent.
In Application No. 2367/80, the petitioner-who was theManaging Director of New Por.tman Ltd, on 19.1 1.79 sent a'ffoincome return (P1) for the year of assessment 1979/80 to the2nd respondent. The 1st respondent, purporting to act underS. 1 15 (3) of the Act, informed the petitioner as follows;^-"Yourdeclaration that you have earned no income after the transfer.ofthe lorry,, has been rejected".. (P2 of 31.7.8.2).. He was als.o toldthat an assessment 'would follow. Thereafter, a notice ofassessment dated T2.8.80 (P3 of ! 12:8.80) was issued by the2nd, respondent wherein the petitioner's. income'was assessed atRs.-253,040/-. Here too, the petitioner's complaint is that the 1stand 2nd respondents have failed to' perform their mandatory,duty cast on them b.y'S. .115 (3). in that, they have failed tocommunicate their reasons for.mot accepting his return. A furthercomplaint is that he was not afforded an opportunity'of beingheard.on matters affecting'his liability to tax. Writs of Certiorariand Prohibition have been asked for to quash the assessment P3,
According to the affidavit of the 1 St respondent,' the petitioner,before he sent his return of income, has-had discussions with theofficials of the Department about the subject matter of thereturns. Before his return was rejected by the . letter R2. .thepetitioner with his..Counsel and Accountant-had interviewed theDeputy Commissioner and.the 1st respondent on 17,6r80. andon 25.6.80. his Accountant had called over and examined thebooks of the Company. The 1st respondent asserts that thenotice of assessment (P3) was issued by-him-after consideringthe representations made by the petitioner from time to timeregarding.the income from the .hiring of lorries and the profits onsale of.-lorries- It is the 1st respondent's-position that thepetitioner has failed to. disclose profits from.transfer of lorries to.the Company in his.return for-the year of assessment 1979/80 .and that in the letter P2. he has duly communicated to the
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petitioner the reasons for not accepting his return. In the light ofthe assertions made by the 1 st respondent, which have not beencountered by the petitioner, his allegation that he was not heardon matters affecting his liability to tax, has no basis.
The written submissions tendered by the petitioner to the 1strespondent (1 R8) makes clear the matter in controversy betweenthe Department and the assessee. The petitioner was engaged inclearing arid transport business and had his own lorries. In June1 976, New Portman Ltd. was incorporated and the petitioner andhis wife.held all but a few shares. The company hired, thepetitioner's lorries. According to the petitioner, as from 1.4.78.the company took over possession and ownership of the lorries,but the legal transfers were effected later in' the year. As' from1:4.78, he did not receive hire from the company, but he wasallotted shares for the value of the vehicles handed over.
The petitioner in Application No. 2366/80 seeks to quash thenotice of assessrnent (P4.) on two grounds
(.1) the letter (,P3) does -not give the reasons for not, accepting the return.(P1). and
(2) the 1st respondent had failed to confront the assesseewith the information available to him and to hear theassessee on,it.
In Application No.2367/80, the petitioner seeks to quash theassessment (P3) on the ground that the 1:st respondent hasfailed to state in his letter P2 the reasons for rejecting his return(PI):
S. 113(3) of the Inland Revenue Act No. 28 of 1979 reads asfollows:-
"Where a person has furnished a' return of income, wealthv> or gifts. the.Assessor may in’making an assessment on suchperson under subsection (1) or Under subsection (2).either^-. . :
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CA New Portman Ltd. v. Jayawardena and Two Others (Tambiah. J.j
accept the return made by that person; or
if he does not accept the return made by that person;estimate the amount of the assessable income, taxablewealth or taxable gifts of such person and assess him
. accordingly:r .
Provided that where an Assessor does not accept a returnmade by any person for any year of assessment and makesan assessment or additional.'assessment on such person forthat year of assessment, he .sh3ll ''commbnicate'to suchperson in writing, his reason's for.not accepting the return."
The provisions of this section came up for'consideration in.Mrs. Fernando and another v. A. M. Ismail'(]): By-.a majority,judgment, the- Supreme Court . held that – the' requirement tocommunicate reasons for’ nOn-acceptance of the return‘is .amandatory- dne, and the failure to state, the reasons fenders thenotice of assessment null arid void and liable-to bequa'shed onCertiorari. As the assessee in this case denied the receipt of theletter communicating the reasons forThe rejection of his return,and as the Department ’of Inland Revenue did not furnishsatisfactory proof of the posting df the letter, the Supreme Courtproceeded -on the ;basis .that the Assessor had failed- tocommunicate to the assesseefthe reasons for the;rejection of thereturn. Samarakoon, C.Unobserved"The section requires the
rea’soris'.to be stated arid not-the conclusion which he arrived at:though he-may-."-if he so chooses, give his 'Conclusions tog!
– Furthermore, the-section requires.reasons for hori-acceptance ofa return which is an act of the Assessor. It is his thinking that has.to be disclosed to-the-Assessed-'.';lri'the present case theAssessor accepted the figures of assessable'income and taxablewealth. He only rejected the, claims, for, expenses and made hisowri'-asse.ssment of expenses. The Assessor was then required togive.reasons'Uqr.suchaction:"'..
As regards the; letter P3: (C. A- Application No;. 2366/80).while learned.Attorney for the petitioner, contended that noreasons for the rejection of the returns have been given, learned'’Deputy Solicitor-Ceneraf argued that a reason has been, given,
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namely, the statement of accounts to support the return is false.
He further argued that in any event.. having regard to thediscussions had prior to the sending of the return (which has notbeen denied by the petitioner), the interview had on 1 7.6.80 andthe examination of the books on 25.6.80 by the assessee'saccountant, the assessee knew what the assessor was talkingabout in his letter P3 and he knew why his return was rejected.
In Re Poyser and Mills' Arbitration (2)the landlord of anagricultural holding served a notice under S. 24 (2) (d) of theAgricultural Holdings Act. 1948. alleging that he was in breachof certain items, of the tenancy, agreement and requiring him toremedy those breaches within a period of four months. As thetenant had failed to comply with the notice to remedy, thelandlord, in terms of the Act. served on him aootice to quit. Inthe .schedule to.the notice were set.out seven items of supposedbreach of. clauses of lease. The tenant, in terms of the Act.required that there-should be arbitration and an arbitrator wasappointed by the -Minister-of Agriculture to determine whether ornot there had been-breaches of- the lease and failure to remedythose breaches within.the required or a reasonable time. Thearbitrator determined,’that the. notice to quit was. a good notice.
S.. 12 of the Act provides, that where the- arbitrator gives anydecision, it shall ^.be the duty of the arbitrator to furnish astatement of -the reasons for the decision, if requested. Thetenant required of the arbitrator that he should state his reasonsfor the decision in the award.- ln stating, his reasons the arbitratorin paragraph 3 stated- "I found.faults in the notice to remedy inrespect of certain items and ignored. these items, but I found as afact-that there,-was sufficient ..work required in the notice which -ought to have been done and was not done on the.relevant dateto justify the notice.-to quit,"
On'behalf of the tenant it was argued that there is an error oflaw'in relation to paragraph 3.' in that, there being seven items inthe notice to remedy, the arbitrator has'not said'which of theseitems he found to be good, and which he found to be bad. Hehas ndt dealf-.with'them individually; he has'merely said that he.found as a’fact that there was sufficient work required in thenotice whicfi ought to have beeY< done'and was not done on therelevant date to justify the notice to quit. "
CA New Portman Ltd. v. Jayawardena and Two Others (Tambiah. J.)315
Megaw.J.said(p.478)-
' ■.t
"Parliament provided .that reasons shall be given, and in myview that must be read as meaning that proper, adequatereasons must be given. The reasons that are set out must bereasons which will not only be intelligible, but which dealwith the substantial points that have been raised . . . In myview, in the present case para 3 gives insufficient andincomplete information as to the grounds of the decision."1
1 .
the Court treated inadequacy of reasons as an error .on the faceof the,record and set aside the award.
, In Elliott & others v. South-Wark London Borough Council (3)the plaintiffs were owner-occupiers of- hOu'ses-.in a clearance area• which has been classified as unfit for human habitation. .TheCouncil having made a clearance, order .under the Mousing Act1957, submitted to the Secretary lof State a .compulsorypurchase order for confirmation. On objection being raised bythe plaintiffs, the.Secretary of State directed that a publip inquirybe held. The Inspector.' after inquiry, fecomrnended that thecompulsory purchase order be confirmed’and the Secretaryconfirmed the order. On confirmation, the houses, became liable■ to be demolished.
-‘■ i
The Housing Act; T974. made provision for rehabilitation of.houses as an alternative to demolition. The plaintiffs applied tothe Council for a "rehabilitation order" in terms of S. 1'14 (2) Ofthe Housing Act. 1974. The applications were considered by asub-committee of the Housing Committee and. the HousingCommittee of the Council., .and the Council accepted ' theirrecommendation and refused the application. Schedule .1 O', para3 (2) to the Act .states that.where the local, authority refuses tomake ..a ‘rehabilitation order’ it shall give-the owner of the housein writing its'reasons for so refusing. The Clerk to the Councilwrote to each of the plaintiffs as follows.
"I write :to inform you that the, Council, at their meeting on. July1 6.. resolved to refuse the application for the reason that theproperties should be demolished, arid the sites used for.the
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erection of new housing accommodation". The plaintiffs filedaction and sought, inter alia, a declaration that the Council hadfailed to carry out their statutory duties under the Housing Act1 974. to consider, determine and give reasons for their decisionupon the requests made for rehabilitation orders. The Judgedismissed the plaintiff's claim. He said – "It seems to me . . . that.in the particular circumstances of the case which is beingconsidered that it must appear to the satisfaction of any Courtwhich is being asked to review the reasons that the recipientshould fairly understand why it is that the. housing authority isnot able in this case to accede to the request. The question hereis whether in. the circumstances of this case those reasons dopass that test." The Judge held that "in the circumstances of thecase, bearing.in mind what had gone before." the letter by theclerk gave a reason for refusal which was adequate andintelligible to-the recipient of the refusal. The words "what hadgone, before" was a reference to the public inquiry ordered by theMinister and the Inspector's report.
' ' ‘ • ’’ ’
■ In appeal, for the plaintiffs it was argued that where a Statuteexpresses a-duty to give reasons, the Court should imply acondition that persons given in discharge-of that duty shall beadequate and intelligible and that the reasons, if any, given-bythe Council do not pass that test; that the purported reasonsgiven were inadequate and did not convey to those whorequested 'the making of rehabilitation' orders why it was that thelocal authority was refusing their requests. For the Council, it wascontended /that, the purported ,reason was adequate andintelligible. ■
The Court of Appeal upheld a two-line reason which merelystated that the Council had decided that the houses should bedetnolished rather "than rehabilitated. The Court observed. (pgs. 509. 510) that "against the background of the inquiry, theInspector's report and the .Secretary of State's decision letter . .to those who received the letters.the reason for the refusal wasintelligible and sufficient V.” •"
Thus.'tn'this case.Mhe-plaintiff's application was for a"rehabilitation order", instead .of dealing with the houses, bydemolition.'The reason that simply 'stated that "the-property
CA New Portman Ltd. v. Jayawardena and Two Others (Tambiah.'J.)
317.
should be demolished and the site used for the erection of newhousing accommodation" was found to be^ adequate whenconsidered against the background of arguments advanced atthe inquiry and-the* Inspector's report. ■
. I cannot accept the submission . of learned DeputySolicitor-General that the letter. P3 • gives a reason. for therejection of the return, namely, the.statement of. accounts givenin support of the return'is false. The .statement of accounts is part-and parcel of theTeturo and is furnished in support of the. return.The rejection. of a statement of accounts is.eguivalentand-tantamount to a rejection- of, return, and • vice versa. WhatS. 115(3) proviso requires is the giving . of reasons for-concluding that the return, cannot be accepted. The letter P3Tiasonly.stated a conclusion and not the reasons for the conclusion.The letter P3. therefore, does not -satisfy the requirements of S'.
1 15 {3} proviso. -. r:… '
The learned .Deputy Solicitor^General. however, submits-that-"in the circumstances of. the casei bearing in mind to what hadgone, before.”- the discussions before the return was sent. the.interview had on 17.6.80. the- examination of books on25.10.80–to the~a'sses.see who was the recipient of the letterP3. the reasons for the1 rejection of his return #as adequate andintelligible..• '
' -I cannot' accept, this'cdhte'ntiort';either.' The' law. as it ^stoodbefore the amendihg'Act No 28 of 1978 is as follow's:— • • •■•
• • S. 93 (2) of Act No.- 4 of 1 963 —.'•
– t J" 1-I •' t.. f ) . ….
…" "yVhere a person has furnished'a, return of income, wealth,■or. gifts, the Assessor, may either,.— .
(a) accept the return and-make-an-assessment accordingly;.
or *•.,… ■ / •• .
'(b) if he does not accept the return, ,estimate the'amoupt ofthe essessableJncome., taxable vyeal.th pr.tax'a,ble gifts ofsuch person and assess him accordingly."
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The Amending Act No. 30 of 1978 retained S. 93 (2) but at theend of S. 93 (2) (b) added the words "and communicate to suchperson in.writing the reasons for not accepting the return."
As was-pointed out by the Chief Justice in Ameer MohideenIsmail's case (supra) — "The picture is now different. A duty isnow imposed on the Assessor not only to give reasons for non-acceptance of a return but also to communicate them to theAssessee". The mischief and defect in the old law which theamending'Act sought to remedy are:.
(1) to prevent arbitrary and grossly unfair assessments and toensure that the Assessor will bring his mind-to bear on the returnand come to a definite determination whether or not to accept it.(ibid Samarakoon. C.J.).
. (2) the.Assessee could only speculate on the reasons-for therejection of his return -for the purpose of his appeal. Now. thereasons for rejection are to be made known to the Assessee toenable h'i'm-to demonstrate the-untenability of the said reasons atthe hearing of any appeal that may be preferred by him againstthe assessment (ib'id'Sharvananda. J.).. '
J find that in the above case, an argument was advanced onbehalf of the Assessor that the requirement to give reasons does.not apply to false returns. Admittedly, the return was a falsereturn and did not disclose the true income.. Dealing with thispoint. Samarakoon., C,J. said "No doubt there may be caseswhere the reasons for nonracceptance may be obvious but onemust bear in-mind the fact that the legislature has made no• exception to the general rule and the duty cast on the Assessormust be carried out even though the Assessee himself acceptsthe obvious … I am of opinion that the Assessor is bound togive reasons for non-acceptance of a.return.without exception."
' If I were to accept the learned Deputy Solicitor-General'scontention having regard to what had gone before, the Assesseeknew what the Assessor was talking about in his.letter (P3) — Iwould be restoring the law'to its old position and would fail togive effect;'to.the vital change brought about by the amendinglaw.' ■:
CA New Portman Ltd. v. Jayawardena and. Two Others ’(Tambiah. J.)319
This, apart, there is an additional reason why the notice ofassessment (P4) pannot stand. The letter P3. speaks of"information available" to the Assessor. The Assessee's complaintis that this private-information-was not made knoyyn to him and-he was not heard on it. The petitioner asserted .this position'inparagraphs 20,'and 24 .(b) of his petition, and,in his letter P5 to;the Assessor. The. Assessor,. neither in. his affidavit nor in hisletter P.7.'which is a-'.reply to letter P5; contradicted ' thepetitioner's position. .,
In Gurmukh Singh, v. Commissioner of Income Tax W after theassessment . was made, the income : tax. officer receivedinformation that the assessees had not disclosed.in'their returnslarge remittances.,they-'received from Siam, where fheyovvnedextensive business as well as ..considerable house* property.Rejecting the explanations given by the Assessees on this matter,a sum of Rs. 40,000/- was added to the income returns by. theassessees for the year T.-93.4/357and the Two-subsequent years'.The questions on which the Opinionof the Court was soughtwere: ' ■..V' ■"' ■….••••’.
( • : r';‘I ,•• ,iv; ■ C Ii.
Whether, after rejecting‘the accounts of an assessee. anincome tax officer is bound'to' rely on the evidenceadduced by the assessee ? '- .'v.-:' – •
. (2) If he makes his ovim estimate, is he bound td disclose thematerial on’ which" :he ' founds; that – estimate'; to thei; ■ assessee? ■'■"■ '
■-2(3) Is he entirely debarred fromrelying on private sources of
information which he'may not disclose tpithe-assessee at
all ?
In case he utilises the'private inquiries made by law. is itenough for him to communicate the.gist tofthe Assessee?
■‘-s•
The Count answered these questions as follows (p.: 36,3)— .
"An Income-tax Officer is. not. bound to rely'on suchevidence produced day the1''assessee.;as'-he considers Jo be' 1 false. If he proposesTo'make an-estimate in disregard'of'the evidence.-
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oral or documentary, led by the assessee. he should infairness disclose to the assessee the material on which he isgoing to found that estimate. He is. not. however, debarredfrom relying on private sources, of information, whichsources he may not disclose to the assessee at all. In casehe proposes to use against the assessee the result o'? anyprivate enquiries made by him. he must communicate to theassessee the substance of the information so proposed tobe utilised to such an extent as to put the assessee inpossession of full particulars of the case he is expected tomeet and should further give him ample opportunity to meet-it. if possible."
On the question whether the finding of fact arrived at by anincome-tax Officer, is vitiated'altogether-if it is partly based- onadmissible material and partly on confidential enquiries, thesubstance of which was never disclosed to the assessee; DinMohamed, J.. who wrote the main Opinion, said (p. 365)—
"It may be urged that where it is not possible to determinehow far the finding of fact was influenced by inadmissiblematerial, the entire finding should disappear. But I do notconsider that that consequence necessarily follows in everycase. If the material that could not be used is so mixed upwith the material that could be used as to make it.. impossible to-separate one from the other, or, to put it in a
different way.-, if the inadmissible, material is the mainfoundation of the- entire superstructure raised by theIncome-tax officer, no doubt the finding will vanish as soon- • as the basis 'is ^destroyed . . : If there is any admissiblematerial to-support the finding of the Income-tax officerquite apart from the result of the confidential enquiriesmade by him and not communicated to the assessee. it will'- not be open 'to the High Court- to declare the finding•-altogether vitiated." -.•-
Wade -in his Administrative Uaw (4th Edn.) discusses thisquestion under the heading "The right to a fair hearing".
-! "Comparatively repent Statutes have extended, if they havenot origina.ted, the practice of irnposiing upon departments
CA New-Portman Ltd. v. Jayawardena and Two Others (Tambiah. J.)321
or officers .of State- the duty'-of deciding , or determiningquestions of various kinds , . . They.can ob.tain informationin any way thfey think best, always giving a fair opportunityto those who are parties in the controversy for correcting orcontradicting anything prejudicial to their view." . • x .•
(pages 4’32. 433)
"Natural justice often requires, the disclosure of reports andevidence in possession of the deciding authority . . . But thismay sometimes be adequately achieved by telling him the"substance of the case he^has tq meet., without disclosing ,the precise evidence or the sources of information."
. (pages 459, 460),
– * m
For reasons I have given. I allow fhe application and quash the:Notice of Assessment (p 4). in C. A. Application No. 2366/80..^The petitioner will be entitled to costs fixed at Rs. 525/-
In Application No. 2367/80,, the only ground on which theNotice of Assessment <P3) is attacked by learned Attorney'for thepetitioner is that the letter P2 rejecting the return does not state areason. In my view it does. The reason given is that the Assesseehad not disclosed his income from the lorries. Aciue is given tothe.petitioner as to where he had gone wrong in his return. Tothe petitioner who received P2. the reasdn given is adequate andintelligible to enable him to formulate his grounds in order toappeal to the Commissioner. I refuse the application for Writs.
. The substituted petitioner will pay Rs. 525/- .as costs to therespondents.
moonemalle. j. — I agree
Writ allowed.in Application No, 2366/80
Application refused in No. 2367/80