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Issues Involved:
1. Whether the assessee could have made an application under section 27. 2. Whether it was open to the assessee to challenge the validity of the assessment under section 23(4) in an appeal under section 30. Issue 1: Application under Section 27 The primary issue was whether the assessee could have applied under section 27 for cancellation of the assessment made by the Income-tax Officer under section 23(4). The court examined the circumstances under which the Income-tax Officer issued a notice under section 22(4) and subsequently assessed the assessee under section 23(4) due to the alleged non-production of a separate set of books. The assessee argued that he did not maintain two sets of books and hence could not comply with the notice. The court observed that section 27 provides a mechanism for an assessee to challenge an assessment made under section 23(4) by showing sufficient cause for non-compliance with the notice. The court rejected the argument that section 27 was inapplicable simply because the assessee contended that the books did not exist. It held that section 27 is broad enough to cover cases where the Income-tax Officer believes the assessee possesses books that the assessee claims do not exist. Therefore, the court concluded that the assessee could have made an application under section 27. Issue 2: Challenge to the Validity of Assessment under Section 23(4) in an Appeal under Section 30 The second issue was whether the assessee could challenge the validity of the assessment under section 23(4) in an appeal under section 30. The court analyzed the legislative framework and historical context of the appeal provisions. It noted that prior to the Act of 1939, an appeal against a best judgment assessment under section 23(4) was not allowed. The Act of 1939, however, allowed an appeal against the quantum of assessment but did not change the provision regarding the validity of the assessment, which could only be challenged through an application under section 27. The court emphasized that the legislative scheme harmoniously integrates section 27 and section 30, providing a coherent method for challenging assessments. The court referred to various authorities, including decisions from the Calcutta and Allahabad High Courts, which supported the view that an appeal under section 30 should be limited to the quantum of assessment and not its validity if the assessee did not utilize the remedy under section 27. The court disagreed with the Madhya Pradesh High Court's decision in Suganchand Kanhaiyalal Rathi v. Commissioner of Income-tax, which allowed the assessee to challenge the validity of the assessment in an appeal under section 30. The court held that if the assessee could have made an application under section 27, he is precluded from challenging the validity of the assessment under section 23(4) in an appeal under section 30. Conclusion The court upheld the Tribunal's view and reframed the questions as follows: 1. Whether in the circumstances of the case the assessee could have made an application under section 27? The answer was in the affirmative. 2. If the assessee could have made an application under section 27, whether it was open to him to challenge the validity of the assessment under section 23(4) in an appeal under section 30? The answer was in the negative. The assessee was ordered to pay the costs, and the notice of motion was dismissed with costs.
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