1928 (11) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income Tax Officer under Section 22 (4) and Section 23 (4) of the Indian Income Tax Act, 1922.
2. Interpretation of the Income Tax Officer's power to call for accounts under Section 22 (4) after a return has been submitted.
3. Penalty of arbitrary assessment under Section 23 (4) for non-compliance with a notice under Section 22 (4).

Detailed Analysis:

1. Jurisdiction of the Income Tax Officer under Section 22 (4) and Section 23 (4):

In this case, the Income Tax Officer (ITO) was not satisfied with the return submitted by the assessee under Section 22 (2) of the Indian Income Tax Act, 1922. The ITO then required the assessee to produce evidence under Section 23 (2). Finding the evidence insufficient, the ITO issued a notice under Section 22 (4) to produce complete accounts of a branch business. The assessee failed to produce these accounts, leading the ITO to make an assessment under Section 23 (4), which is "to the best of his judgment" and from which there is no right of appeal. The primary question was whether the ITO had the jurisdiction to revert to Section 22 (4) and make an assessment under Section 23 (4) for non-compliance with the notice under Section 22 (4) after the assessee had already made a return and complied with Section 23 (2).

2. Interpretation of the Income Tax Officer's power to call for accounts under Section 22 (4) after a return has been submitted:

The court examined whether the ITO's power to call for accounts under Section 22 (4) could be exercised after the assessee had submitted a return. The court found no restriction in the wording of Section 22 (4) that limits the ITO's power to call for accounts only before the submission of a return. The court emphasized that the only limitations mentioned in Section 22 (4) are that a notice requiring the assessee to make a return must have been served, and that accounts for a period more than three years prior to the previous year cannot be called for. The court concluded that the power to call for accounts under Section 22 (4) is not restricted to the period before the return is submitted, as such a restriction would render the provision less useful.

3. Penalty of arbitrary assessment under Section 23 (4) for non-compliance with a notice under Section 22 (4):

The court addressed the issue of whether failure to produce accounts when called for after a return has been submitted entails the penalty of arbitrary assessment under Section 23 (4). The court noted that the penalty for arbitrary assessment applies to failure to comply with all the terms of a notice issued under Section 22 (4), regardless of whether the notice was issued before or after the submission of a return. The court rejected the assessee's contention that the penalty applies only to failure to comply with a notice issued before the return is submitted, stating that such an interpretation would be unreasonable and out of tune with the policy of the Act. The court concluded that the power to call for accounts under Section 22 (4) may be exercised after the assessee has submitted a return, and failure to produce accounts when called for after submitting a return may be penalized by arbitrary assessment under Section 23 (4).

Conclusion:

The court answered the question in the affirmative, holding that the Income Tax Officer had the jurisdiction to make an assessment under Section 23 (4) for non-compliance with a notice under Section 22 (4) after the assessee had made a return. The assessee was ordered to pay the costs of the reference, amounting to Rs. 250.