1967 (5) TMI 17 - HC - Income Tax

An assessment order was passed u/s 23(4) on the footing that the firm had failed to comply with the notice u/s 22(4) - a notice of demand was also issued on that basis - held that no notice could be served upon the respondent u/s 22(4) of the Act - Since the notice itself was invalid, assessment was also invalid

Summary

Issues:
1. Validity of notice under section 22(4)
2. Action under section 23(4)

Analysis:
The judgment delivered by the High Court of Allahabad pertains to a special appeal arising from assessment proceedings under the Income-tax Act, 1922. The case involved a firm, M/s Adarsh Construction Company, consisting of three partners, which had furnished a statement under section 22(3) of the Act for the assessment years 1959-60 and 1960-61. Subsequently, the Income-tax Officer issued a notice under section 22(4) for certain documents, to which the firm responded that it was unable to provide all the requested documents. This led to an assessment order under section 23(4) based on the firm's alleged failure to comply with the notice under section 22(4). A writ petition challenging this assessment order and demand notice was allowed by a single judge, quashing the same. The appeal raised questions regarding the validity of the notice under section 22(4) and the permissibility of action under section 23(4, necessitating a detailed examination of sections 22 and 23 of the Act.

Regarding the validity of the notice under section 22(4), the court analyzed the provisions of sections 22 and 23 meticulously. Section 22 outlines the procedure for filing returns, with sub-sections (1) and (2) mandating specific actions, while sub-section (3) allows for filing revised returns. The crucial issue was whether a return filed under section 22(3) could be equated to a return under section 22(1) for the purposes of section 22(4). Various judicial precedents were cited to elucidate the distinction between voluntary and obligatory returns, emphasizing that section 22(4) did not explicitly mention sub-section (3), indicating a legislative intent to differentiate between types of returns. The court concluded that the return filed by the respondent under section 22(3) could not be considered a return under section 22(1) for the application of section 22(4), rendering the notice invalid.

In the context of action under section 23(4), the court highlighted that the absence of specific reference to sub-section (3) in section 22(4) indicated a legislative choice to treat returns under sub-section (3) differently. The court rejected the argument that section 28 encompassed returns under section 22(3), emphasizing the voluntary nature of such returns. Additionally, the court emphasized the workability of the statutory provisions, noting that alternative sections empowered the Income-tax Officer to conduct assessments even without recourse to section 22(4). Ultimately, the court upheld the single judge's decision, ruling that the notice under section 22(4) was invalid, thereby annulling the assessment order dated November 30, 1961.

In conclusion, the High Court dismissed the appeal, affirming the single judge's decision and ordering the appellant to bear the respondent's costs. The judgment provides a detailed analysis of the statutory provisions, judicial precedents, and legislative intent, elucidating the nuances of filing returns under the Income-tax Act and the implications for assessment proceedings.