1935 (4) TMI 14 - HC - Income Tax

Summary

Issues:
1. Assessment based on undisclosed information by Income Tax Officer.
2. Opportunity for the assessee to rebut the information.
3. Justification of Income Tax Officer not recording or taking evidence of witnesses.

Analysis:
1. The judgment involves a case under Section 66, Sub-Section (3) of the Income Tax Act where the Income Tax Officer made an assessment of income for transactions outside the ordinary business of the assessee. The Assistant Commissioner, upon review, found the basis of the assessment unclear and directed the Income Tax Officer to provide reasons for the estimate made. The Income Tax Officer, during a surprise visit, discovered additional books beyond what the assessee had disclosed. The Assistant Commissioner reduced the assessment but did not allow the assessee to explain the newly found books, leading to an appeal to the Commissioner.

2. The first issue raised was whether the assessee was entitled to an opportunity to rebut the information forming the basis of the report by the Income Tax Officer. The Court held that natural principles of justice dictate that the assessee should have had a chance to address the new facts raised by the report, such as the discovery of additional books. The Court affirmed that the assessee should have been given an opportunity to rebut the allegations and that justice demanded such a course of action.

3. The second issue pertained to whether the Income Tax Officer was justified in not recording or taking evidence of witnesses cited and produced before him. The Court clarified that there is no obligation on the part of the Income Tax Officer to receive evidence of this kind, especially when the inquiry was made at the appellate stage under the Assistant Commissioner's direction. The Court highlighted the provisions of Section 23, Sub-Section (3) of the Income Tax Act, which outline the requirements for hearing evidence during assessment.

In conclusion, the Court ruled in favor of the assessee, directing the return of the lodged amount and awarding costs and hearing fees. The judgment was unanimous among the judges, with the reference answered accordingly.