1986 (1) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order under Section 146 of the Income Tax Act.
2. Validity of the order under Section 144 of the Income Tax Act.
3. Sufficient cause for non-compliance with notices under Sections 142(1) and 143(2) of the Income Tax Act.

Detailed Analysis:

1. Validity of the Order under Section 146 of the Income Tax Act:
The Tribunal first addressed the appeal against the order of the Assistant Appellate Commissioner (AAC) which upheld the Income Tax Officer's (ITO) decision to cancel the assessment under Section 146 of the Income Tax Act. The assessee, a registered firm, filed its income returns and was issued multiple notices under Sections 143(2) and 142(1) by the ITO. The assessee either sought adjournments or failed to comply with these notices, leading the ITO to make a best judgment assessment under Section 144, estimating the net income at Rs. 27 lakhs.

The assessee applied for cancellation of the assessment under Section 146, citing various reasons including reputational damage due to search and seizure operations, civil and criminal litigations, disturbances in Gujarat, and the inability to produce books of accounts from the Surat office as they were held in a civil court. The ITO rejected this application, and the AAC upheld this decision.

2. Validity of the Order under Section 144 of the Income Tax Act:
The Tribunal then examined the appeal against the AAC's order which upheld the ITO's best judgment assessment under Section 144. The ITO issued several notices to the assessee, who either requested adjournments or did not comply. On 25th February 1974, the ITO made a best judgment assessment, citing non-compliance with notices under Sections 142(1) and 143(2), and failure to provide information requested in show-cause notices.

3. Sufficient Cause for Non-Compliance with Notices under Sections 142(1) and 143(2):
The Tribunal considered whether there was sufficient cause for the assessee's non-compliance with the notices. The assessee argued that disturbances in Gujarat and the unavailability of books of accounts from the Surat office, which were held in a civil court, constituted sufficient cause. The Tribunal noted that the assessee had produced books from other branches and attended hearings, indicating partial compliance with Section 143(2). The Tribunal emphasized that non-production of evidence could lead to adverse inferences but did not justify a best judgment assessment under Section 144.

The Tribunal also referred to legal precedents, including the Supreme Court's decision in CIT vs. Segu Buchaiah Setty, to conclude that the assessee must show sufficient cause for each default. However, it found that the assessee's explanations, including reputational damage, civil litigations, and disturbances in Gujarat, constituted sufficient cause for non-compliance under Section 142(1).

Conclusion:
The Tribunal held that the best judgment assessment under Section 144 was not justified based on the grounds cited by the ITO. It directed the ITO to cancel the assessment and make a fresh assessment in accordance with the law. Consequently, the appeal against the order under Section 146 was allowed, and the appeal against the order under Section 144 was dismissed as infructuous.

Final Judgments:
- ITA No. 284/Ahd/75-76 is allowed.
- ITA No. 285/Ahd/75-76 is dismissed.