1964 (3) TMI 116 - HC - Income Tax

Summary

Issues: Interpretation of section 27 of the Income-tax Act, 1922 regarding cancellation of assessment based on non-compliance with notices under section 22(2) and section 22(4).

The judgment involves the interpretation of section 27 of the Income-tax Act, 1922, in a case where the assessee failed to produce a return for assessment years 1953-54 and 1954-55 despite notices under section 22(2) and section 22(4). The Income-tax Officer proceeded to make an assessment under section 23(4) after the assessee failed to produce accounts. The assessee sought cancellation of the assessment under section 27, claiming sufficient cause for non-compliance with the notices. The key question was whether the Income-tax Officer was obligated to cancel the assessment if there was sufficient cause for non-compliance with the notice under section 22(4) even if there was no sufficient cause for non-compliance with the notice under section 22(2).

Section 27 of the Income-tax Act provides for the cancellation of assessment if the assessee satisfies the Income-tax Officer within one month of a notice of demand that there was sufficient cause for non-compliance with the required return or notices under sections 22 and 23. The section outlines various scenarios where cancellation of assessment is mandatory, including cases where the assessee was prevented by sufficient cause from making the return or did not receive the notices under section 22(4) or section 23(2). The provision is disjunctive, allowing the assessee to seek cancellation based on any of the grounds specified.

The court emphasized that the word "or" in section 27 indicates that the grounds for cancellation of assessment are not cumulative but disjunctive. Therefore, if there was sufficient cause for non-compliance with the notice under section 22(4), the assessee could request cancellation of the assessment even if there was no sufficient cause for non-compliance with the notice under section 22(2). The argument that both notices must have sufficient cause for non-compliance for cancellation overlooks the disjunctive nature of the provision.

In conclusion, the court held that the Income-tax Officer was obligated to cancel the assessment and proceed with a fresh assessment if there was sufficient cause for non-compliance with the notice issued under section 22(4), even if there was no sufficient cause for non-compliance with the notice under section 22(2). The court ruled in favor of the assessee, granting costs and advocate's fee for the reference.