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Issues Involved:
1. Whether the estimate of 11 lakhs as the capital invested by the assessee is based on such evidence as the Assistant Commissioner was in law empowered to act upon. 2. Whether the Assistant Commissioner was authorized under Section 13 of the Income Tax Act or otherwise to make private inquiries and to take the result of such inquiries into account in making the assessment. Detailed Analysis: Issue 1: Evidence for Estimate of 11 Lakhs Summary: The primary issue revolves around whether the estimate of 11 lakhs as the capital invested by the assessee in his money-lending business was based on legally permissible evidence. Detailed Analysis: - Initial Assessment: The assessee submitted a return for the assessment year 1929-30, which was not accepted. The Income Tax Officer estimated the income based on an investment of 15 lakhs, which was subsequently reduced to 11 lakhs by the Assistant Commissioner. - Assistant Commissioner's Basis: The Assistant Commissioner reduced the estimate to 11 lakhs based partly on the previous year's assessment and partly on private inquiries. The previous year's assessment was a best judgment assessment, which was not challenged by the assessee. - Legal Considerations: The court noted that an assessment under Section 23(3) must be based on 'evidence'. The term 'evidence' does not necessarily mean evidence fulfilling all technical requirements of the Indian Evidence Act but must be more than mere conjecture or surmise. - Court's Conclusion: The court concluded that the Assistant Commissioner's estimate was partly based on permissible evidence (previous assessments) and partly on impermissible evidence (private inquiries). The answer to the first question was thus partly affirmative and partly negative. Issue 2: Authorization for Private Inquiries Summary: The second issue concerns whether the Assistant Commissioner was authorized to make private inquiries and take the results of such inquiries into account in making the assessment. Detailed Analysis: - Private Inquiries: The Assistant Commissioner made private inquiries from people in Basti about the assessee's money-lending business without the assessee's knowledge. - Legal Framework: Section 13 of the Income Tax Act deals with methods of accounting and does not specifically authorize private inquiries. Section 23(3) requires that the assessment be based on evidence, implying that such evidence should be produced in the presence of the assessee. - Court's Analysis: The court emphasized that while private inquiries might be necessary for administrative purposes, they cannot form the basis of an assessment under Section 23(3). The evidence must be taken in the presence of the assessee to allow for a fair opportunity to rebut. - Court's Conclusion: The court concluded that the Assistant Commissioner was not authorized under Section 13 or otherwise to make private inquiries and take the results into account without giving the assessee an opportunity to respond. The answer to the second question was in the negative. Final Judgment: Combined Judgment: - The estimate of 11 lakhs as the capital invested by the assessee is based partly on such evidence as the Assistant Commissioner was in law empowered to act upon and partly on evidence which he was not empowered by law to act upon. - The Assistant Commissioner was not authorized under Section 13 of the Income Tax Act or otherwise to make private inquiries and to take the result of such inquiries into account in making the assessment. Costs: The department was directed to pay three-fourths of the costs incurred by the assessee, and the assessee was to pay one-fourth of the costs incurred by the department. The counsel for the department was certified to have earned Rs. 1,000 as his fee, with six weeks to file a certificate. Costs awarded included costs of all hearings, including those entailed by the assessee's application for an order to the Commissioner that a reference be made.
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