1970 (4) TMI 16 - SC - Income Tax

Best Judgment Assessment - If an assessee makes a default under s. 22(2) by not filing a return pursuant to a notice received under that section and he also does not comply with the notice under s. 22(4), he must show sufficient cause for non-compliance with both the provisions and he cannot get the assessment cancelled merely by showing good cause for one of the two defaults - Revenue s appeal allowed

Summary

Issues:
Assessment years 1953-54 and 1954-55 - Non-compliance with notices under sections 22(2) and 22(4) of the Income-tax Act, 1922 - Reopening of assessments under section 27 - Interpretation of section 27 - Cancelling assessment for non-compliance with notices - Disjunctive nature of section 27 - Multiple defaults and cancellation of assessment.

Analysis:
The judgment pertains to appeals arising from a common judgment of the Mysore High Court regarding assessments for the years 1953-54 and 1954-55. The assessee received notices under section 22(2) for both years but failed to file returns. Subsequently, notices under section 22(4) were issued, and the assessee sought adjournments without appearing. The Income-tax Officer proceeded to make assessments under section 23(4) due to non-compliance. The assessee then moved under section 27 to reopen the assessments, claiming sufficient cause for non-compliance with the notices. The High Court directed the Tribunal to refer a question regarding the cancellation of assessments under section 27.

The High Court interpreted section 27, which allows cancellation of assessments upon showing sufficient cause for non-compliance with specified notices. The court held that the assessee could seek cancellation based on non-compliance with any one of the grounds listed in the section, even if not all grounds were satisfied. However, the Supreme Court disagreed with this interpretation. The Court emphasized that section 23(4) mandates assessment upon specified defaults, and section 27 allows cancellation only upon showing sufficient cause for each default. Therefore, an assessee must demonstrate reasons for non-compliance with all relevant notices to seek cancellation of the assessment.

The Supreme Court rejected the High Court's interpretation, stating that the disjunctive nature of section 27 does not permit cancellation based on showing cause for only one default when multiple defaults exist. The Court referenced a previous Bombay High Court decision to support its reasoning. Consequently, the judgment of the High Court was set aside, and the question was answered against the assessee. The appeals were allowed with costs, emphasizing the requirement to show sufficient cause for each default to seek cancellation of assessments made under section 23(4).

In conclusion, the Supreme Court clarified the interpretation of section 27 and its application to assessments made under section 23(4). The judgment underscores the necessity for an assessee to demonstrate sufficient cause for non-compliance with all relevant notices to seek cancellation of assessments. The decision highlights the legislative intent behind the provisions and ensures a harmonious reading of the statutory framework governing income tax assessments.