Raghavan, C.J. - (1.)THE appellants are the Additional Income-tax Officer and the Commissioner of Income-tax (the revenue); and the respondent, Ponkunnam Traders, a firm, is the assessee. THE judgment under appeal is reported as Ponkunnam Traders v. Addl. Income-tax Officer, Kottayam, 1972 83 ITR 508 Ker. Since the question involved is fairly simple, we do not propose to state the facts of the case in any detail. THE skeleton facts necessary are that the respondent's accounts having been rejected by the Income-tax Officer, the respondent was assessed on the best judgment method without being told what materials were being used against it for such assessment. THE respondent took objection in the writ petition filed by it that such assessment without giving it an opportunity to explain was to be quashed. THE single judge accepted the contention and allowed the writ petition ; and the appeal is against that.
(2.)WE may just refer to one or two observations from the judgment of the single judge, which would make the position clear. The learned judge has stated in paragraph 3 of his judgment:
"In the order of assessment the Income-tax Officer said that after rejecting the accounts of the assessee he made enquiries and that he was satisfied from the materials gathered by him, namely, the profits made by other dealers carrying on similar businesses and from the profits disclosed in the return for the previous year by the petitioner himself, that the profit of the petitioner from transactions in dry ginger is 10% of the turnover."

The contention of the assessee, as we have indicated, was that it was entitled to notice (under Section 142(3) of the Income-tax Act of 1961), since materials gathered by the Income-tax Officer were used in the assessment.

The counsel for the revenue contended that it was only in respect of materials gathered by the Income-tax Officer as a result of his enquiry under Sub-section (2) of Section 142 that he was bound to give the assessee an opportunity of being heard, that the knowledge of the Income-tax Officer of the previous return submitted by the assessee was sufficient material for a best judgment assessment and such knowledge could not by any stretch of imagination be regarded as materials gathered on the basis of enquiry within the meaning of Section 142(3), and so, no opportunity of being heard in respect of that material was required (paragraph 4). In other words, the contention of the revenue was that the assessment was based only on the material by way of the previous year's assessment of the same assessee and that materials collected from dealers similarly situated or carrying on similar businesses were not considered in making the assessment. The single judge, after considering this question, held that, when an Income-tax Officer gathered materials from a source other than the records relevant to the year of assessment, he had gathered materials on the basis of enquiry within the meaning of Section 142(3) and, therefore, he would be bound to give an opportunity to the assessee to have his say in respect of the materials so gathered (vide paragraph 4 again).

(3.)BEFORE us, the question has been raised by the counsel for the revenue in a slightly different fashion : the counsel does not attack the reasoning of the single judge pointed out above. BEFORE we go to this aspect, we shall briefly refer to the provisions of the Act which we will have to consider in deciding the question. Section 142 of the Act of 1961 provides for enquiry before assessment; and Sub-sections (2) and (3) of the section read:
"(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Income-tax Officer may make such enquiry as he considers necessary.

(3) The assessee shall, except where the assessment is made under Section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any enquiry under Sub-section (2) and proposed to be utilised for the purpose of the assessment."

Section 143 provides for assessment; and Sub-sections (2) and (3) of the section read:

"(2) Where a return has been made under Section 139, but the Income-tax Officer is not satisfied, without requiring the presence of the assessee or the production of evidence that the return, is correct and complete, he shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return.

(3) On the day specified in the notice issued under Sub-section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points, and after taking into account all relevant material which the Income-tax Officer has gathered, shall, by an order in writing, assess the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment."