12. The phraseology, syntax and language used/employed by the legislature in section 144, as quoted hereinabove, are amply clear. As per this section, inter alia, if a person fails to comply with the terms of a notice under section 143(2), the A.O., after taking into account all relevant material gathered by him shall, after giving the assessee an opportunity of being heard, make the assessment to the best of his judgment. It is important to note here, that the words ‘shall, after giving the assessee an opportunity of being heard, make the assessment’ have been substituted for the words ‘shall make the assessment’ with effect from 1-4-1989, by the Direct Tax Laws (Amendment) Act of 1988. It is trite that the legislature uses its words with utmost care. Thus, in its wisdom, the legislature considered it necessary to bring about the above substitution in the section with effect from 1-4-1989. The relevant section 49(b) of the Direct Tax Laws (Amendment) Act, 1988, 169 ITR (Statutes) 89, at 124, runs as follows:-
“49. Amendment of section 144. – In section 144 of the Income tax Act,-
(b) for the words “shall make the assessment”, the words “shall, after giving the assessee an opportunity of being heard, make the assessment” shall be substituted; “
13. With regard to providing opportunity to the assessee when the A.O. proceeds under section 144, the preponderant view has always been in favour of an assessee being given an opportunity to show cause why a best judgment assessment should not be made, before making a best judgment. Even under the 1922 Act, it was held in ‘Swamy Bros. Vs. CIT’, 34^ ITR 123 (Ker.) and ‘K. Baliah and Another Vs. CIT’, 56 ITR 182 (Mysore), that in best judgment assessment if the A.O. takes into account material from comparable cases, such material had to be disclosed to the assessee so that he might have an opportunity to explain. This rule is equally applicable in the generality of cases under the present Act. And it is this which has been specifically elucidated by the above amendment by substitution in section 144 by the Amendment Act of 1988.
14. An argument might ensue, though no such plea has been taken herein, that section 142(3) provides for the giving of an opportunity to the assessee of being heard in respect of any material gathered by the A.O. on the basis of an enquiry carried out by him under section 142(2), if he proposes to utilise such material against the assessee for the puipose of assessment, but that section employes the words “except where the assessment is made under section 144”, and no amendment has been brought about by the legislature in section 142(3). The answer to this is that section 142(3) deals with a stage before the A.O, comes to a tentative decision or proposal to determine the total income at a certain amount on the basis of the material gathered by him and in section 142(3), there is no express denial of the well established common law right of natural justice to the assessee. The assessee is, well entitled to show cause in this regard. Similarly, even in making an assessment under section 144, opportunity of being heard has to be given to the assessee. That section which imposes the statutory duty on the A.O. to observe the principle of natural justice in the case of every assessment under section 143 cannot be construed to enjoin or authorise violation of that principle in the case of a best judgment assessment under section 144. It is inherent in the very nature of an assessment under section 144 – which is a quasi judicial act and which is to be done after forming the best judgment -that the assessee should be given an opportunity of being heard in respect of any material gathered by the A.O. What section 144 requires the A.O. to do in the case of a defaulting assessee is to make an assessment of his total income to the best of the A.O.’s judgment, after taking into account all relevant material which he has gathered. An assessment to the best of judgment is a quasi-judicial process and it has to be based on material gathered. Any quasi-judicial process requires an opportunity of being heard before decision. The decision can be arrived at best, or as correctly as possible, only if the assessee is given an opportunity to say why on the material gathered by the A.O., the income should not be assessed in the manner proposed to be done by him. The material gathered by the A.O. can be used by the A.O. against the assessee only upon having afforded him an opportunity to rebut it. The assessee is entitled to have a second opportunity to show cause why the total income should not be determined in the manner proposed to be done by the A.O. It is only the first opportunity that is denied to a defaulting assessee by section 142(3), as held bv the Hon’ble Kerala High Court in “Kayamman Kutty s. Fourth Addl. ITO”, 58 ITR 871 (Ker.)
15. In “Dhanalakshmi Pictures Vs. CIT\ 144 ITR 452 (Mad.), it has been held that notwithstanding the default committed by the assessee or the different kinds of defaults set out in clauses (a), (b) and (c) of sub-section (1) of section 144, it is still the duty of the A.O. to make the assessment to the best of his judgment after taking into account all relevant material which he might have gathered; that the two processes, namely, the gathering of relevant material and the making of the assessment to the best judgment can never be dispensed with, even in a case where the assessment is made exparte following the default of the assessee; that it is only in this sense that the courts have regarded the assessment under section 144 as differing only in the degree of summariness as compared to the assessment under section 143; and that excepting for the fact that the assessee is not present before the A.O. or has not furnished a return or where he has furnished a return, has subsequently defaulted to produce material in support of his return, or has defaulted to cooperate with the A.O. in the task of adjudicating his tax liability, the position of the A.O. in no way differs from a case where he has to proceed under any other provision of the Act for the purpose of making the assessment.
16. True, section 142(3) contains the words “except where the assessment is made under section 144”, but this does not, in any way, render the aforementioned substitution in section 144 nugatory. The said insertion by way of substitution, in our considered opinion, is purposive and purposeful. The abovesaid reference to section 144 in section 142(3) does not at all detract from the well considered substitution in section 144. Also, it cannot be gainsaid that the said content of section 142(3) did not affect the pre-substitution provisions of section 144, as held in “Dhanalakshmi Pictures” (supra).
17. In view of the above discussion, we hold that the assessee is rightly aggrieved of the A.O. not having confronted him with the evidence gathered at his back and used in framing the impugned assessment. It has been well settled by the Privy Counsel way back in 1937, in “CIT Vs. Laxminarain Badridas\ 5 ITR 170 (PC) and reiterated in “CIT Vs. Segu Buchiah Setty’% 77 ITR 539 (SC) (in 1970) and in “Prabhat Mills Stores Co. Ltd. Vs. CIT”, 59 ITR 197 (Cal.) (in 1964), that the provisions of section 144 are mandatory. That being so, an assessment made in violation of the provisions of section 144 is liable to be set aside.