1985 (2) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in remitting the case to the Income-tax Officer (ITO) for proper investigation when the assessment was made under Section 144 of the Income-tax Act, 1961.
2. Whether the order of the Tribunal was valid and sustainable in law.

Detailed Analysis:

Issue 1: Justification of Remitting the Case to the ITO for Proper Investigation under Section 144

The court addressed whether the Tribunal was justified in remitting the case to the ITO for further investigation when the assessment was made under Section 144 of the Income-tax Act, 1961. The assessee, a registered firm, had filed its return under Section 139 of the Act. However, the assessee failed to appear on a crucial date, leading the ITO to proceed with a best judgment assessment under Section 144(c). The ITO added Rs. 4,000 to the silver trading account of the assessee.

The court noted that the Appellate Assistant Commissioner (AAC) has the authority under Section 251(1) to confirm, reduce, enhance, annul, or set aside the assessment and refer the case back to the ITO for fresh assessment with necessary directions. Similarly, the Tribunal is authorized under Section 254(1) to pass such orders as it deems fit. The court emphasized that the powers of the AAC and the Tribunal are broad enough to direct the ITO to make further inquiries and proceed with a fresh assessment, even if the initial assessment was made under Section 144.

Issue 2: Validity and Sustainability of the Tribunal's Order

The court examined whether the Tribunal's order was valid and sustainable in law. The AAC had set aside the assessment order concerning the addition in the silver trading account and remitted the matter to the ITO for re-examination. The Tribunal upheld this order, emphasizing the necessity to fully examine the account books to arrive at a proper estimate of income. The Tribunal also directed that certain observations made by the AAC should not influence the ITO while making a fresh assessment.

The court cited multiple precedents to support its view. In Brij Mohan Rameshwar Dass v. CIT, the Punjab High Court held that there is no legal bar to the AAC directing the ITO to consider the account books for a fresh assessment. Similarly, in Girdher Javer & Co. v. CIT and CEPT, the Bombay High Court ruled that the AAC could direct the ITO to look into the account books to ensure a proper best judgment assessment. The Madras High Court in Muthuwappa v. CIT and the Andhra Pradesh High Court in Sundermul & Co. v. CIT also supported this view.

The court concluded that the AAC and the Tribunal have the jurisdiction to direct the ITO to examine the account books even in a best judgment assessment under Section 144, but only for the purpose of ensuring that the assessment is not arbitrary or capricious. The fresh assessment would still be a best judgment assessment under Section 144.

Conclusion

The court answered both questions in the affirmative, affirming the Tribunal's decision to remit the case to the ITO for further investigation and deeming the Tribunal's order valid and sustainable in law. The parties were left to bear their own costs.