1965 (3) TMI 100 - HC - Income Tax

Issues Involved:
1. Non-compliance with notices under sections 22(2) and 22(4) of the Income-tax Act.
2. Best judgment assessment under section 23(4).
3. Application under section 27 for setting aside the best judgment assessment.
4. Penalty order under section 28.
5. Jurisdiction and decision of the Appellate Assistant Commissioner.
6. Decision of the Income-tax Appellate Tribunal.
7. Interpretation and application of section 27.

Detailed Analysis:

1. Non-compliance with Notices under Sections 22(2) and 22(4):
The assessee, a registered partnership firm, failed to comply with notices issued under section 22(2) for filing a return and section 22(4) for producing account books. The notice under section 22(2) was issued on May 19, 1957, and the return was not filed until the assessment was made on May 27, 1958. Three notices under section 22(4) were issued for compliance on March 19, 1958, April 24, 1958, and May 26, 1958. The last notice was served by affixing, and the account books were not produced.

2. Best Judgment Assessment under Section 23(4):
Due to the non-compliance, the Income-tax Officer proceeded to a best judgment assessment under section 23(4) on May 27, 1958. The assessment was made on the firm and one of its partners, Chiranjilal, who also failed to comply with the notices.

3. Application under Section 27 for Setting Aside the Best Judgment Assessment:
The firm and Chiranjilal filed applications under section 27 to set aside the best judgment assessment, which were rejected by the Income-tax Officer. They appealed to the Appellate Assistant Commissioner, who found that while the assessee had no explanation for non-compliance with section 22(2), there was sufficient cause for not producing the accounts under section 22(4). Consequently, the best judgment assessment was cancelled, and a fresh assessment was directed under section 23.

4. Penalty Order under Section 28:
A penalty was imposed on Chiranjilal under section 28, which was also appealed. The Appellate Assistant Commissioner allowed the appeal, reasoning that the penalty and assessment orders were consequential to the firm's assessment, which was cancelled.

5. Jurisdiction and Decision of the Appellate Assistant Commissioner:
The Appellate Assistant Commissioner held that since the assessee had a valid explanation for one of the defaults (non-compliance with section 22(4)), the best judgment assessment should be cancelled under section 27. The decision also extended to Chiranjilal's assessment and penalty, which were set aside.

6. Decision of the Income-tax Appellate Tribunal:
The Tribunal reversed the Appellate Assistant Commissioner's decision, reinstating the best judgment assessment and penalty. The Tribunal held that if multiple defaults lead to a best judgment assessment, the assessment cannot be cancelled unless sufficient cause is shown for all defaults.

7. Interpretation and Application of Section 27:
The High Court examined whether the best judgment assessment could be cancelled if sufficient cause was shown for only one of the defaults. The court concluded that section 27 requires sufficient cause for each default to cancel the assessment. The court referenced the Privy Council decision in Commissioner of Income-tax v. Laxminarain Badridas, which supported this interpretation. The court rejected the argument that the notice under section 22(4) extended the time for filing the return under section 22(2).

Conclusion:
The High Court answered the referred question in the negative, upholding the Tribunal's decision. The assessee was required to show sufficient cause for all defaults to have the best judgment assessment cancelled. The court found no merit in the argument that the notice under section 22(4) extended the time for filing the return under section 22(2). The assessee was ordered to pay the costs of the Commissioner, and no order was made on the notice of motion.

← Previous Next →