The Judgment of the Court was delivered by

Ajit K. Sengupta, J.:— In this reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1962–63, the following questions of law have been referred to this court:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order recorded in the order sheet entry on April 11, 1967, was an order of assessment within the meaning of section 143(3) and was not barred by limitation under section 153 of the Income-tax Act, 1961?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Income-tax Officer to redo the assessment after having found that the order recorded in the order sheet on April 11, 1967, was not in accordance with the law and contrary to the principles of natural justice?”

2. Shortly stated, the facts are that the assessee is a Hindu undivided family. The assessment year is 1962–63, relating to the Dewali year ending on November 3, 1961. The assessee was served, within the statutory period of time available for completion of assessment for the year under reference, with a notice of demand dated April 11, 1967, for the said year. The assessee, however, did not receive a copy of the assessment order on the basis of which the notice of demand had been issued. It is not in dispute that the notice of demand was received within the statutory time. The detailed assessment order under section 143(3) of the Act relating to the assessment year under reference and typed on a form which was indicative of its having been printed on November 16, 1967, was claimed to have been received by the assessee on May 4, 1968, along with the orders for the subsequent assessment years. On these facts, the assessee had originally challenged the order relating to the assessment year under reference received on May 4, 1968, as barred by limitation, although this order had been shown as dated April 11, 1967. In the original appeal before the Appellate Assistant Commissioner, the assessee contended that the order had been ante-dated because the Income-tax Officer could not possibly have typed an order dated April 11, 1967, on a form printed subsequently on November 16, 1967. The Appellate Assistant Commissioner, however, did not deal with this contention of the assessee when he originally passed his appellate order.

3. The assessee went up in appeal before the Tribunal and the latter, vide its order dated February 17, 1972, set aside the order of the Appellate Assistant Commissioner and restored the appeal to his file with a direction to investigate into the point of limitation and dispose of the appeal on merits.

4. The Appellate Assistant Commissioner in his fresh appellate order dated May 30, 1974, states that he had given sufficient opportunity to the authorities concerned to produce before him the original order which was supposed to have been scribbled or written out and a copy of which was typed on the form printed on November 16, 1967. Since no elucidation on this point was forthcoming, the Appellate Assistant Commissioner inferred that the order under section 143(3) of the Act was passed only after November 16, 1967. He, therefore, concluded that the order was made after the period of limitation provided under section 153 of the Act. Accordingly, he annulled the order of the Income-tax Officer made under section 143(3) of the Act, on the basis of which the notice of demand under section 156 of the Act dated April 11, 1967, was issued to the assessee. Since the assessment was annulled by him, the Appellate Assistant Commissioner did not feel it necessary to go into the other grounds of appeal.

5. Being aggrieved by the order of the Appellate Assistant Commissioner, the Revenue came up in appeal before the Income-tax Appellate Tribunal. The learned representative for the Department invited the attention of the Tribunal to the order sheet entry dated April 11, 1967, which reads as under:

“11th April, 1967, assessed under section 143(3) on a total income of Rs. 79,846. Tax as per I. T.N.S 150. Issue D.N and challan.”

and submitted that this entry itself should be treated as an assessment order because it mentioned the income assessed at Rs. 79,846 under section 143(3) of the Act and the tax was to be paid as per I.T.N.S 150. He further submitted that the fact that the details of the total income were not shown would not vitiate the order entirely to make it null and void. In support of his submission, the learned representative for the Department relied on the decisions of the Supreme Court in the cases of Esthuri Aswathiah, [1961] 41 ITR 539 and Bidhu Bhusan Sarkar, [1967] 63 ITR 278.

6. Learned counsel for the assessee, on the other hand, submitted that the manuscript (detailed) order was typed on the form printed on November 16, 1967. This was done seven months after the order sheet entry dated April 11, 1967. The copy of the typed order was given on May 4, 1968, along with the orders for the subsequent years. He, however, stated that the demand notice and challan for the assessment year under reference were received in April, 1967. Further, he submitted that the order sheet entry was not a speaking order and the detailed order, a copy of which was given to the assessee, was different from the order sheet entry dated April 11, 1967. In this connection, he further submitted that the Income-tax Officer was not empowered to amend the order without following the procedure prescribed in section 154 of the Act. He, therefore, urged that the latter order which was a detailed order was null and void as no notice for amendment of the order made by the order sheet entry was given to the assessee. Finally, he submitted that, even if the order sheet entry was an original order as claimed by the Revenue, the same was bad in law as it was not a speaking order. Therefore, any notice issued on the basis of an invalid order was also invalid. Reliance was placed on the decisions of the Bombay High Court in the case of N.N Kotak, [1952] 21 ITR 18 and Rasiklal Amritlal Doshi, [1961] 42 ITR 35. For all these reasons, he submitted that the Appellate Assistant Commissioner was justified in annulling the assessment.

7. The Tribunal, after considering the rival submissions of the parties, disposed of the appeal, in the following manner:

“On careful scrutiny of these decisions, it is clear to us that once the Income-tax Officer applies his mind to the return filed before him and after consideration of the relevant facts makes an order, however brief, it is a valid order because there is no particular form prescribed under the Income-tax Act, 1961, for an order under section 143(3). We are, therefore, of the considered opinion that the order sheet entry dated April 11, 1967, which appears infra is an assessment order within the meaning assigned to it under section 143(3):

‘11th April, 1967. Assessed under section 143(3) on a total income of Rs. 79,846. Tax Was per I.T.N.S 150. Issue D.N and challan.’

We are, therefore, in agreement with the submissions of the learned departmental representative that this is a valid assessment order and has been made within the time prescribed by law.

However, we have to see that the order must be a speaking order, an order which gives reasons for the decisions arrived at by the Income-tax Officer, affecting the rights and interests of the assessee. The Income-tax Officer has to act in a judicial manner, proceed with a judicial spirit and come to judicial conclusions. In this case, however, the impugned order dated April 11, 1967, does not rest on these pillars. The order which is supplied subsequently to the assessee on May 4, 1968, is different. It is non est in our opinion because the order dated April 11, 1967, on the order sheet could not have been amended, as rightly contended by learned counsel of the assessee, without following the procedure prescribed under section 154. Our conclusion, therefore, is that although the order sheet entry dated April 11, 1967, is a valid order, yet it does not meet fully the requirements of law. It is not such as can be struck down as invalid. We have to see that substantial justice is rendered to either party before us. We cannot go on mere technicalities. To be fair to both, we set aside this order of the Income-tax Officer and direct him to redo the assessment after affording reasonable opportunity of being heard to the assessee. In the result, the impugned order of the Appellate Assistant Commissioner is reversed and the order of the Income-tax Officer is set aside with the above direction.”

8. At the hearing, learned counsel for the Revenue reiterated the contentions as urged before the Tribunal, that the note in the order sheet (entry on April 11, 1967) showing that the income was assessed under section 143(3) on a total income of Rs. 79,846 is sufficient compliance with the requirement as regards the limitation for completion of assessment. The date, namely, April 11, 1967, being a date falling within the period of limitation, the assessment has to be taken as completed within the period of limitation. To support this contention, reliance was placed on Esthuri Aswathiah v. Income Tax Officer, Mysore State, [1961] 41 ITR 539 (SC) and CIT v. Bidhu Bhusan Sarkar, [1967] 63 ITR 278 (SC). In these cases, the Supreme Court has upheld that where, pursuant to the filing of a return the Income-tax Officer enters in the order sheet the remarks “No proceedings” or “filed”, it has to be construed as an order disposing of the proceedings of assessment. The facts in this case are, however, slightly different. There, the entry in the order sheet was not made inflicting any tax liability but merely closing the proceeding as infructuous. None the less, it lays down a procedural principle that an entry in the order sheet could as well be an order of assessment. May be, the order is not a speaking one and, in that way, violates the principles of natural justice. Every authority functioning in a quasi-judicial capacity must pass his order by showing reasons which support or afford the basis for such order. It is an elementary principle of natural justice that justice should not only be done but should appear to have been done. It is necessary because, in the absence of a reasoned order, the assessee will not be in a position to prefer any appeal or revision before the higher authorities. Moreover, the requirement of showing reasons also acts as a restraint against arbitrariness on the part of the authority passing the order. Viewed from that angle, the cryptic entry in the order sheet merely recording the fact of completion of the assessment of a particular sum as income is against the requirement of law.

9. This takes us to the question whether this violation of the principles of natural justice renders the assessment a nullity and non est so that the assessment itself should be annulled. It has been held in revenue matters that the violation of natural justice in the completion of assessment shall not lead to nullity of the entire proceeding. Such violation merely results in illegality or irregularity supervening the course of proceeding under the law but does not destroy the jurisdiction of the authority, if he had seisin at the initial stage when the proceeding arose and, if the authority, while acting, had lawfully assumed jurisdiction to proceed to act. Misdirection of the proceeding would merely vitiate the course of the proceeding but that supervening irregularity or illegality has to be set right by putting back the proceeding on right rails. When such error is curable, it is the duty of the court to cure it. Reference is made in this connection to Guduthur Bros. v. Income Tax Officer, Special Circle, Bangalore , [1960] 40 ITR 298 (SC). In that case, the Income-tax Officer issued a notice asking the assessee to show cause why penalty should not be imposed. The persons proceeded against could not say that the Income-tax Officer was devoid of jurisdiction to initiate the proceedings and to issue such notice. But the mistake the Income-tax Officer had committed was that he levied the penalty before he had heard the party. The Appellate Assistant Commissioner set aside the order directing the Income-tax Officer to refund any sum that might have been recovered from the assessee meanwhile. But the officer did not give up the matter. He issued a fresh notice to enable the assessee to present his case and to have an opportunity of being heard. The assessee challenged the fresh notice issued by a writ petition contending therein that the Appellate Assistant Commissioner having set aside the order with a further direction to refund the penalty, the whole proceeding has reached finality and it is not open to the Income-tax Officer to renew it. The High Court and finally the Supreme Court decided that the earlier order passed by the Income-tax Officer in violation of the principle of audi alteram partem does not render the entire penalty a nullity beyond cure. The failure on the part of the Income-tax Officer to hear the assessee constituted a mere illegality. It is an irregularity within the jurisdiction. Therefore, it is curable. Once having assumed jurisdiction correctly, the officer can continue it afresh from the stage where the illegality arose. We also refer in this connection to the decision of the Supreme Court in Kapurchand Shrimal v. CIT, [1981] 131 ITR 451. In this case, the Supreme Court held that, where the Income-tax Officer commits an error in the course of completing the assessment proceeding after having duly assumed jurisdiction, it is the duty of the appellate authority to remove the particular defect or irregularity occurring in the course of the proceeding.

10. In this case, the Assessing Officer violated the principles of natural justice. It is mandatory for him to pass a reasoned order and communicate it because, in its absence, the assessee's statutory right to appeal becomes nugatory. Therefore, the order suffers from a supervening irregularity within the jurisdiction which need be eliminated. So long as there is no error of jurisdiction, the proceeding cannot be annulled.

11. The Tribunal was right in holding that the order of the officer is invalid but it is not a nullity. It is quite fair, in the circumstances, to ask the Assessing Officer to pass a fresh order in accordance with law after giving the assessee an opportunity of being heard. In the premises, both the questions are answered in the affirmative and in favour of the Revenue. There will be no order as to costs.

K.M Yusuf, J.:— I agree.