1934 (4) TMI 14 - AT - Income Tax

Issues Involved:

1. Jurisdiction of the Income Tax Officer to proceed under Section 23(4) and make an ex parte assessment.
2. Sufficiency of cause under Section 27 for non-compliance with the notice.
3. Legality of the ex parte assessment order dated 19th October 1931.
4. Legality and propriety of the procedure adopted by the Income Tax Officer in issuing notices under Sections 23(2) and 22(4).
5. Evidence to substantiate the Income Tax Officer's reasoning in the assessment order.
6. Validity of the assessment order based on imaginary assumptions, irregular inquiries, and hearsay evidence.
7. Whether the assessment was made to the best of the Income Tax Officer's judgment given the arbitrary reasons provided.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income Tax Officer to proceed under Section 23(4) and make an ex parte assessment:

The Tribunal found that Mr. Gore, the Income Tax Officer, had jurisdiction to make the summary assessment under Section 23(4) due to the non-applicant's non-compliance with the notice calling for account books and evidence. The Tribunal noted that if the return showing a loss of Rs. 1,700 was considered invalid, issuing a combined notice under Sections 22(4) and 23(2) was redundant. Mr. Gore's assumption that the return was invalid at the last stage was incorrect, but technically, he had jurisdiction to proceed.

2. Sufficiency of cause under Section 27 for non-compliance with the notice:

The Tribunal examined whether the non-applicant had shown sufficient cause for not complying with the notice under Section 22(4). It was found that Mr. Bagadthey and the Assistant Commissioner failed to consider relevant facts, such as the possibility of the non-applicant's agent producing the account books if informed of the refusal for adjournment. The non-applicant's illness was a sufficient cause for non-compliance, and the officers did not exercise their discretion reasonably.

3. Legality of the ex parte assessment order dated 19th October 1931:

The Tribunal held that the procedure adopted by Mr. Gore was not desirable or justifiable. Although the Act does not specifically provide for adjournments, it is a common practice based on justice, equity, and good conscience. Mr. Gore's failure to communicate the rejection of the adjournment request to the non-applicant's agent before proceeding with the ex parte assessment detracted from the technical legality of the summary assessment order.

4. Legality and propriety of the procedure adopted by the Income Tax Officer in issuing notices under Sections 23(2) and 22(4):

The Tribunal found that the combined notice issued was not illegal, and there was non-compliance with the terms of the notice. However, the failure to communicate the rejection of the adjournment request before proceeding with the summary assessment was a procedural flaw.

5. Evidence to substantiate the Income Tax Officer's reasoning in the assessment order:

The Tribunal noted that the ex parte assessment was not based on any legal material. The Income Tax Officer's reasoning was vague and general, and there was no substantial evidence to support the assessment of Rs. 1,00,000 as the non-applicant's income. The assessment was characterized as arbitrary and not made to the best of the officer's judgment.

6. Validity of the assessment order based on imaginary assumptions, irregular inquiries, and hearsay evidence:

The Tribunal agreed with the non-applicant's counsel that the assessment order was based on no legal material and was arbitrary. The Income Tax Officer did not conduct a proper local inquiry or place a detailed note of the inquiry on record. The assessment was not made according to the rules of reason and justice.

7. Whether the assessment was made to the best of the Income Tax Officer's judgment given the arbitrary reasons provided:

The Tribunal concluded that the ex parte assessment was not made to the best of the Income Tax Officer's judgment. The assessment was based on caprice and not on any substantial evidence or inquiry. The Tribunal emphasized that an ex parte assessment must be reasonable and based on proper inquiry.

Conclusion:

The Tribunal answered the first four and the sixth points of the reference in the affirmative and the other two in the negative. The non-applicant was found to have sufficient cause for non-compliance, and the ex parte assessment was not made to the best of the Income Tax Officer's judgment. The Tribunal directed that the costs of the reference be borne by the parties as incurred.

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