Law:

Section:

Section 143, read with section 131 of the Income-tax Act, 1961 [Corresponding to section 23(2) read with section 37 of the Indian Income-tax Act, 1922] - Assessment - Additions to income - Assessment years 1950-51 - Assessee's request to issue notice under section 37 of 1922 Act to third party or call for relevant assessment file in order to establish genuineness of certain cash deposit in its book was not headed and same was added in its total as concealed income - Whether it is implicit in terms of section 23(2) of 1922 Act that ITO should give assessee reasonable time and opportunity to produce evidence - Held yes - Whether assessee had been materially prejudiced on account of failure on part of ITO to call for and examine evidence which was offered by assessee to explain nature and the source of deposit - Held, yes - Whether assessee was entitled to produce evidence in support its case and ITO was bound to give assessee reasonable opportunity to do so and therefore finding as to nature and source of deposit must be regarded as legally vitiated - Held, yes FACTS The assessee was a registered firm. It carried on business as a commission agent in catechu. During the relevant previous year, ending on Chait 2007(S.Y.), a cash deposit of Rs. 17,000 was found in the books of the assessee on 10-9-1949. The amount was credited to the account of one 'A'. The amount was withdrawn on 11-10-1949. The ITO in the course or his assessment of the assessee-firm for the year 1950-51, noticed this deposit and asked the assessee to explain the nature and source thereof. The assessee's explanation was that 'A' and his son, 'M' were carrying on business at Moolganj in Kanpur. 'M' was well known to the partners of the assessee-firm. When 'M' was going home in Kutch he deposited the sum of Rs. 17,000 with the assessee-firm and he took back the amount on his return therefrom. The assessee stated in its written explanation that if its explanation in point was not accepted then notice might be issued under section 37, to the party concerned at its cost. The ITO, it appeared paid no heed to the request made on behalf of the assessee and he completed the assessment under section 23(3)…

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