Dipak Misra, J.

1. This is a reference by the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee in respect of the following two questions:

1. Whether, in view of the facts that Mohd. Rashid, proprietor of Mohammad Rashid and Co., Jabalpur, was not summoned in evidence by the Income-tax Officer, in spite of the request made by the applicant under Section 131, in this behalf there is justification in law to use the evidence recorded behind the back of the applicant without affording an opportunity to him to cross-examine the said Mohd. Rashid and drawing an adverse inference?

2. Whether the assessment vitiated in law as the Inspecting Assistant Commissioner (Assessment) has not given reasonable opportunity of being heard and failed in summoning the witnesses as requested under Section 131 and his failure to consider the affidavit of Mohd. Rashid filed along with the written reply submitted on December 31, 1985?

2. To deal with the aforesaid questions the facts which are essential to be stated are that the assessee is an individual and carries on the business of purchase and sale of silver ornaments, utensils, etc., in the name of M/s. Anil Kumar Sheetal Kumar Nahata. A search was conducted by the Income-tax Department on the residential and business premises of the assessee commencing December 13, 1983, to December 17, 1983. During the search silver ornaments and utensils were seized and were found to be in excess of the accounts as per books of account. After the assessment proceeding silver ornaments amounting to 125.44 kilograms were held by the Income tax Officer unexplained and he made an addition of Rs. 3,49,225 for the purpose of computation under the Act. The assessee had explained that the silver said to have purchased from one Rashid and Company of Jabalpur. The aforesaid explanation was not accepted by the Revenue because at the time of search this silver was not found recorded in the books of account and further the assessee in his examination under Section 132(4) of the Act had not offered any explanation about the source of acquisition. That apart on inquiry Mohd. Rashid, the alleged proprietor was found to be a man of very humble means and the assessee did not produce him for examination.

3. It is worth noting that the Assessing Officer examined the said Mohd. Rashid behind the back of the assessee. The assessee made a prayer under Section 131 of the Act to summon Mohd. Rashid, the proprietor of Mohd. Rashid and Company for cross-examination on the ground that the statement of Mohd. Rashid was utilised against the assessee. The said prayer of the assessee was not acceded to by the Assessing Officer and the order of assessment came to be passed.

4. Being dissatisfied with the aforesaid order the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) who by order dated May 16, 1986, confirmed the same. Being aggrieved by the said order the assessee preferred an appeal before the Tribunal and the Tribunal gave the stamp of approval to the order passed by the first appellate authority. An application was filed for rectification of the order which was declined. Thereafter, an application was made to refer the questions of law to this Court and on the basis of the said application the present reference was made.

5. It is apposite to mention that this Court by order dated January 17, 1996 (Prakash Chand Mehta v. CIT ) answered the

reference against the assessee and in favour of the Revenue. Being aggrieved of the aforesaid order of this Court the assessee preferred S.L.P. (Civil) No. 16453/1996 before the Supreme Court (Prakash Chand Nahta v. UOI ). The apex court expressed the view that it is clear from the judgment of the High Court that it proceeded on the basis that the questions that were before it arose upon an order passed by the Tribunal in a rectification proceeding. Their Lordships looked at the reference application under Section 256(1) of the Act and expressed the opinion that it is clear therefrom that what was sought to be referred were questions that arose out of the principal order that had been passed on January 11, 1988. Being of this view the apex court allowed the appeal and directed this Court to decide the reference.

6. At the outset, it is of immense significance to understand the basic controversy of the decisions of the Tribunal. The Tribunal noted in paragraph 33 of the order that the Income-tax Officer had informed the assessee that he had already examined the owner of the firm Rashid and Co., who had denied to have any transaction with the assessee. The Tribunal further opined that whatever was the material in the statement of Mohd. Rashid was fairly communicated to the assessee and that apart it was not the case of the assessee that he did not know what Mohd. Rashid had stated.

7. The Tribunal in paragraph 38 of its original order expressed the view that the rules of natural justice are not meant for nullifying the procedures on small technicalities and also not meant to help those who adopt a very evasive attitude. They are meant to advance the cause of justice and to help a person who really wants to avail of the right of defending himself. The Tribunal further proceeded to state that the principles of natural justice does not need any literal compliance in each case. Regarding the case at hand, it was ruled by the Tribunal when the copies of the statements of Mohd. Rashid and Iddu had been supplied to the assessee, though he never asked for that, there was substantial compliance with the principles of natural justice and no prejudice has been caused. The Tribunal also opined that the findings recorded by the authorities below are well sustainable even if the statement of these witnesses are excluded from consideration altogether.

8. Thus, the issue that arises for consideration basically relates to the applicability of the principles of natural justice to the proceeding when a prayer was made under Section 131 of the Act. First we shall deal with the said facet and thereafter proceed to deal with whether the order of assessment is vitiated by not summoning the witnesses as requested by the assessee under Section 131 of the Act and whether the Tribunal is justified in holding even if their statements are excluded the addition is sustainable.

9. Mr. A.P. Shrivastava, learned Counsel appearing for the assessee, has submitted that a statement recorded behind the back of the assessee cannot be used against the assessee without giving an opportunity of rebuttal. Learned Counsel has contended that the assessee has a right to cross-examine any witness whose statement has been recorded behind his back. To substantiate his submission he has placed reliance on the decisions rendered in CIT v. Eastern Commercial Enterprises ; P.S. Abdul Majeed v. Agricultural ITO and STO

; State of Kerala v. K.T. Shaduli Yusuff and Anupam Agencies v. State of Punjab [1995] 98 STC 338 (P & H). He has also commended us to the decision rendered in Rajesh Kumar v. Deputy CIT . Mr. Shrivastava has also placed heavy reliance on the Division Bench decision of the Delhi High Court in CIT v. Dharam Pal Prem Chand Ltd. [2007] 295 ITR 105.

10. Mr. Rohit Arya, learned senior Counsel along, with Mr. Sanjay Lal, submitted that Section 131 of the Act does not envisage availability of opportunity of hearing and, therefore, the contention raised is without any substance. It is proposed by Mr. Arya that the Tribunal is absolutely correct in holding that there has been substantial compliance with the principles of natural justice and, therefore, no prejudice is caused to the assessee. Learned senior counsel for the Revenue canvassed that the findings of the Tribunal to the effect that if statements of the witnesses are excluded the order of assessment is sustainable cannot be found fault with and, therefore, the assessment order and affirmation thereof by the Commissioner of Income-tax (Appeals) and the Tribunal cannot be put at naught.

11. To appreciate the controversy involved it is apposite to refer to the chronology of events. The search of the premises in question took place on December 13, 1983, and the books of account including silver ornaments were seized. Mohd. Rashid, the proprietor of M/s. Rashid and Co., was summoned under Section 131 to appear on October 1, 1985. The "amanat book" showed M/s. Rashid and Co. issued the bills on three dates, namely, December 8, 1983, December 10, 1983, and December 11, 1983, of 40.300 kgs., 50.340 kgs. and 34.800 kgs. of silver, respectively, amounting Rs. 1,77,117. The assessee had filed correspondences made between it and Rashid and Co., regarding the payment of the amount. After the statement of Mohd. Rashid was recorded Mohd. Rashid moved an application stating that his statement was recorded under coercion and he retracted the statements confirming the transaction entered between him and the assessee. As stated earlier, the assessee requested the Assessing Officer for summoning Mohd. Rashid so that the real facts could come to light. The Assessing Officer accepted all the entries recorded in "amanat book" except the entries pertaining to M/s. Rashid and Co. The affidavit of the Mohd. Rashid and bank transaction made by him were ignored. The Assessing Officer on the basis of the statement made an addition of Rs. 3,49,225 against the bill amount of Rs. 1,77,117.

12. In this factual backdrop it is submitted by Mr. Shrivastava that the statements were recorded behind the back of the assessee and hence, they could not have been taken into consideration while passing the order. To appreciate the said submission, it is seemly to reproduce Section 131 of the Act. It reads as under:

131. Power regarding discovery, production of evidence, etc.--(1) The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals) and Chief Commissioner or Commissioner shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely:

(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath ;

(c) compelling the production of books of account and other documents; and

(d) issuing commissions.

(1A) If the Director General or Director or Joint Director or Assistant Director or Deputy Director, or the authorised officer referred to in Sub-section (1) of Section 132 before he takes action under Clauses (i) to (v) of that section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purposes of making any inquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under Sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority ;....

(3) Subject to any rules made in this behalf, any authority referred to in Sub-section (1) or Sub-section (1A) may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act:

Provided that an Assessing Officer or an Assistant Director or Deputy Director shall not--

(a) impound any books of account or other documents without recording his reasons for so doing, or

(b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director General or Commissioner or Director therefor, as the case may be.

13. On a bare reading of the said provision it is manifest that the same empowers the Income-tax Officer to enforce the attendance of any person and examine him on oath. That power has been exercised by the Assessing Officer in the assessment proceeding. It is contended by Mr. Shrivastava that when a witness has been examined by the Assessing Officer and his statement has been pressed into service, the assessee should have been allowed to cross-examine, more so, when, he had filed an affidavit retracting from his earlier statements.

14. In P.S. Abdul Majeed v. Agricultural ITO and STO , the High Court of Kerala took note of the order of reassessment which was made without any reference to inspection records and made on the basis of the strength of the entries in the auctioneers' records. In that context, it was held that reliance on the auctioneer's records and treating them as if they were conclusive did violence to the principles of natural justice when the petitioner had prayed for an opportunity to cross-examine the auctioneers. It was ruled therein that when such a request was made it was incumbent on the officer to afford an opportunity to the assessee to cross-examine the authors of those books.

15. In this context, we may refer to a three-judge Bench judgment of the apex court rendered in State of Kerala v. K.T. Shaduli Yusuff , wherein their Lordships expressed the view that

where the entries in third party's accounts were used to reject the assessee's accounts to pass best judgment assessment, denial of the assessee's request to cross-examine the third party vitiates the order of assessment.

16. In Rajesh Kumar the apex court has expressed the opinion that assessment proceeding is a part of judicial process and when a statutory process is exercised by the assessing authority in exercise of its judicial functions which is detrimental to the assessee, it is not and cannot be administrative in nature. Their Lordships expressed the opinion that when civil consequences ensue, there is hardly any distinction between an administrative order and a quasi-judicial order and it attracts the principles of natural justice. Mr. Rohit Arya, learned senior Counsel for the Revenue, submitted that the said decision is distinguishable as that deals with giving of reasons. We have referred to the same only to show that the principles of natural justice are applicable when adverse civil consequences are visited to an assessee.

17. Recently in Dharam Pal Prem Chand Ltd. [2007] 295 ITR 105, the Delhi High Court took note of the fact situation where the Assessing Officer had passed an assessment order on the basis of a report obtained from the research institute, namely, Shri Ram Institute for Industrial Research, New Delhi. The assessee had filed objections thereto and requested to cross-examine the analyst. The Assessing Officer did not pay any heed to the same and proceeded to pass order of assessment. The order of assessment was assailed by the assessee before the Commissioner of Income-tax (Appeals) and a contention was raised that request to cross-examine the analyst had not been allowed. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee and concluded that the Assessing Officer had wrongly avoided granting permission to the assessee to cross-examine the analyst and held that the order of assessment is vitiated in law.

18. The Revenue preferred an appeal before the Tribunal and the Tribunal dismissed the appeal on the ground that in the absence of grant of permission to cross-examine the analyst who had prepared the test report the order of assessment was vulnerable. Against the order of the Tribunal the Revenue approached to the High Court and the High Court while dismissing the appeal filed by the Revenue has held as under (page 108):

There is no doubt that even if the strict rules of evidence may not apply, the basic principles of natural justice would apply to the facts of the case. The Assessing Officer placed reliance upon the report of the Shri Ram Institute for Industrial Research for deciding against the assessee. The report cannot be automatically accepted particularly since there is a challenge to it and the assessee had sought permission to cross-examine the analyst making the report. Since the Assessing Officer did not permit the correctness or otherwise of the report to be tested, there is a clear violation of the principles of natural justice committed by him in relying upon it to the detriment of the assessee. As observed by the Constitution Bench in C.B. Gautam v. Union of India , that, 'The observance of the principles natural

justice is the pragmatic requirement of fair play in action'.

19. In the case at hand Mohd. Rashid was summoned and his statement was recorded. A request was made by the assessee to cross-examine him. The same was not allowed. On a perusal of the assessment order it is perceivable that the Assessing Officer has heavily relied upon the statement of Mohd. Rashid. The Assessing Officer has expressed the opinion that there could not have been any transaction between M/s. Rashid and Co., as it was a small firm and not assessed to income-tax.

20. In the obtaining factual matrix the seminal question is whether the said statement of Mohd Rashid could have been utilised against the assessee without calling him for cross-examination. It is of immense significance that Mohd. Rashid has filed an affidavit in variance of his original statement. That apart, the Assessing Officer has ignored the affidavit and ascribed reasons how the transaction with the said Mohd. Rashid was not worth giving credence. The genuineness of bills produced by the assessee has not been accepted exclusively on the basis that the said Mohd. Rashid was a small businessman and was not assessed to income-tax. The aforesaid circumstances eloquently speak that the addition in the order of assessment has been made on the basis of the statement made by Mohd. Rashid. There is no cavil that a prayer was made under Section 131 of the Act to summon the said Mohd. Rashid for cross-examination. That has not been done. The language employed under Section 131 of the Act empowers the Assessing Officer to ensure the attendance of any person. When the statement of Mohd. Rashid was used against the assessee and an affidavit was filed controverting the same, we are disposed to think, it was obligatory on the part of the Assessing Officer to allow the prayer for cross-examination. That would have been in the fitness of things and in compliance with the principles of natural justice.

21. In view of the aforesaid we answer the reference holding that as the Assessing Officer had not summoned Mohd. Rashid, the proprietor of M/s. Rashid and Co., Jabalpur, in spite of the request made under Section 131 of the Act, the evidence of the said Mohd. Rashid could not have been used against the assessee and in the absence of affording a reasonable opportunity of being heard by summoning the said witness the assessment order is vitiated and cannot be saved as the addition has been made on the foundation of his deposition.

22. In the result, we answer the reference in the affirmative in favour of the assessee and against the Revenue. There shall be no order as to costs.

Reference answered in favour of assessee.