1974 (3) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the assessment under section 23(4) of the Indian Income-tax Act, 1922.
2. Entitlement to move the court under article 226 of the Constitution without resorting to remedies within the Indian Income-tax Act, 1922.
3. Service of the assessment order and demand notice on the assessee.

Issue-wise Detailed Analysis:

1. Legality of the Assessment under Section 23(4) of the Indian Income-tax Act, 1922:

The main question in this appeal is whether the Income-tax Officer (ITO) acted without jurisdiction in making the assessment under section 23(4) of the Indian Income-tax Act, 1922. The assessment in question was completed on January 29, 1960, under section 23(4)/34(1)(a) of the Act. The ITO issued a notice under section 34(1)(a) with the approval of the Commissioner of Income-tax, Calcutta, and the assessee complied by furnishing a return. The ITO then issued a notice under section 23(2), and the assessee's representative appeared and explained the return. However, the assessee failed to produce the books of accounts of the firm to prove the genuineness of the claim, leading the ITO to compute the total income at Rs. 89,695, adding Rs. 80,000 as income from undisclosed sources.

The court examined whether the conditions for a best judgment assessment under section 23(4) were met. Section 23(4) allows the ITO to make a best judgment assessment if:
(a) A person fails to make a return.
(b) Fails to comply with the terms of the notice under sub-section (4) of section 22.
(c) Fails to produce documents in support of the return after notice under sub-section (2) of section 23.

The court noted that the assessee did not produce any evidence in support of the return, but it was not clear whether the assessee relied on any document or evidence in support of the return. The court concluded that if the assessee was not relying on any evidence, the failure to produce such evidence could not justify a best judgment assessment under section 23(4). The court also noted that failure to comply with section 37 does not authorize a best judgment assessment under section 23(4). Therefore, the assessment order was deemed wrong and in violation of section 23(4).

2. Entitlement to Move the Court under Article 226 of the Constitution:

The next question was whether the assessee was entitled to move the court under article 226 of the Constitution without resorting to the remedies provided within the Indian Income-tax Act, 1922. The court noted that there were provisions for reopening the best judgment assessment under section 27 and for appeal under section 33 of the Act. However, the trial judge proceeded on the basis that the ITO's assumption of jurisdiction was erroneous and without jurisdiction, justifying the resort to an application under article 226. The court referred to several decisions, including R. v. Shoreditch Assessment Committee [1910] 2 KB 859 (CA) and Ujjam Bai v. State of Uttar Pradesh AIR 1962 SC 1621, supporting the view that the petitioner was entitled to move the court under article 226.

The court also considered a similar case, Mohini Debi Malpani v. Income-tax Officer [1970] 77 ITR 674 (Cal), where the learned judge's decision to entertain an application under article 226 was affirmed by a Division Bench. The court concluded that despite the availability of alternative remedies, the facts and circumstances justified the exercise of discretion to entertain the application under article 226.

3. Service of the Assessment Order and Demand Notice on the Assessee:

There was a controversy regarding whether the assessment order and demand notice were served on the assessee. The assessment order was passed on January 29, 1960, and the assessee claimed that the demand notice was not served, while the department contended otherwise. The assessee stated that they became aware of the assessment in 1966 and applied for a certified copy, subsequently moving the court. The court noted that if the assessment had been made in 1960, the appeal would have been barred by 1966. Given the controversy and the fact that a similar matter was entertained by the court and affirmed by a Division Bench, the court decided to entertain the application under article 226.

Conclusion:

The appeal was dismissed, and the court upheld the trial judge's discretion to entertain the application under article 226. The court clarified that the revenue authority could still make an assessment in accordance with the law. The court also noted that there was no question of limitation in making the assessment pursuant to the notice under section 34 of the Act.