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TMI Blog1944 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar lines was also referred to. The questions that arise on this aspect of the case, therefore, are : (1) Whether, after rejecting the accounts of an assessee without reference to method of accounting but otherwise, an Income-tax Officer is bound to rely on the evidence, true or false, adduced by the assessee ? (2) Can he not ignore the false evidence altogether and make an assessment under the proviso to Section 13 ? (3) If he makes his own estimates, is he bound to disclose the material on which he founds that estimate to the assessee ? (4) Is he entirely debarred from relying on private sources of information which he may not disclose to the assessee at all ? (5) In case he utilises the private inquiries made by him, is it enough for him to communicate the gist to the assessee ? A third point also arises in this case as is envisaged in the first question formulated by this Court, viz., whether a finding arrived at by an Income-tax Officer partly on circumstantial evidence and partly on private inquiries is vitiated altogether if it is ruled that the private inquiries so made could not form a valid basis for that assessment. Counsel for the assessee relies on Balwan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in the accounting year. The Assistant Commissioner remanded the case to the Income-tax Officer, observing that " it is absolutely necessary that there should be some data and definite material on record for the finding that some profits were received into British India during the accounting period ". A further report was accordingly submitted by the Income-tax Officer and the Assistant Commissioner declined to interfere with his order. The assessee then moved the Commissioner of Income-tax both under Section 33 and Section 66 of the Income-tax Act, but he too did not disturb the assessment. So far as the assessee's application under Section 66(2) was concerned, where as many as 11 questions had been raised by him, the Commissioner remarked : " The upshot of the whole is that the assessee failed to discharge the onus that lay on him, while there was abundant circumstantial evidence to prove the existence of productive sources of income in Bangkok and influx of money from there. As there is no issue of law involved in these facts, the application under Section 66(2) is rejected ". Similar action was taken by the Income-tax Officer in the case of Seth Dyal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hoarded or otherwise, or is their jurisdiction limited to discover assessable income for a particular year ? These petitions came on for hearing before a Bench of this Court composed of Dalip Singh and Ram Lal, JJ. in November 1940. Dalip Singh, J., with whom Ram Lal, J. concurred, delivered the principal judgment, in the course of which the learned Judge inter alia observed : (1) " It is sufficient to say that the Income-tax Officer arrived at his finding after ample opportunity had been given to the assessees to show that the reasons for which the Income-tax Officer came to the conclusion that there was business or property in Siam still existing and which yielded income were incorrect ". (2)" It appears that the Income-tax Officer made some inquiries behind the backs of the assessees the source of which is not disclosed at all and was not disclosed to the assessees at any time though they asked for it, but the substance of the information which was supplied to the assessees was that these inquiries revealed that the assessees had personally and through relatives brought large sums either in cash or in gold bullion into India during the disputed years ". (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under Section 23(3) in the case of Seth Gurmukh Singh vitiated by the fact that in arriving at his conclusion the Income-tax Officer based that conclusion partly on circumstantial evidence and partly on material derived from inquiries made behind the back of the assessee and which were never disclosed to the assessee ? " " (2) Whether the Income-tax Officer in the case of Seth Dyal Singh in an assessment made under Section 23(3) was entitled to base his conclusion solely on inquiries made behind the back of the assessee and not revealed to him ? " In compliance with this order the Commissioner drew up a statement of the case and expressed the opinion that an assessment based on circumstantial evidence as well as confidential inquiries was not bad in law. He, however, stressed the fact that " the substance of the information received by the Income-tax Officer was placed before the assessee and he was given ample opportunities to meet the case ". On this reference coming before a Bench of this Court of which I was a member, several questions of law arose which in the opinion of the Bench were most material for the proper decision of the reference. Unfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction to be put upon sub-sections (2), (3) and (5) of Section 66 of the Income-tax Act. By subsection (2) an assessee is permitted to make an application to the Commissioner within sixty days of an order under Sections 31, 32, 33 or of a decision by a Board of Referees under Section 33A, requiring the Commissioner to refer to the High Court any question of law arising out of such order or decision, and the Commissioner is enjoined to draw up a statement of the case and refer it with his own opinion thereon to the High Court. If the Commissioner refuses to state the case on the ground that no question of law arises, the assessee may, under sub-section (3), apply to the High Court and the High Court, if it is not satisfied of the correctness of the Commissioner's decision, may require the Commissioner to state the case and to refer it, and on receipt of any such requisition the Commissioner is bound to state and refer the case accordingly. Sub-section (5) provides that the High Court upon the hearing of any such case, shall decide the questions of law raised thereby and shall deliver its judgment thereon containing the grounds on which such decision is founded. If, however, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any question of law arising out of a certain transaction which appeared material to the High Court. The High Court accordingly formulated the question itself and decided that question too along with the other questions referred by the Commissioner. On appeal to the Privy Council their Lordships did not favour this procedure and in this connection observed as follows : " The Commissioner unfortunately omitted to formulate any question of law arising out of this transaction. The duty of the High Court under Section 66(5) is to ' decide the questions of law raised ' by the case referred to them by the Commissioner and it is for the Commissioner to state formally the questions which arise. Here the High Court itself formulated the questions to be decided as being . . .Their Lordships deprecate this departure from regular procedure . . . . . ." This dictum of their Lordships clearly debars the High Court from taking into consideration any matter which has not been raised by the Commissioner himself while stating the case under Section 66(2). In National Mutual Life Association of Australasia, Ltd. v. Commissioner of Income-tax, Bombay Presidency and Aden,(1936) 4 I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observation : " Their Lordships are fully alive to the circumstances in which the High Court was constrained to direct that these further questions should be referred to it for consideration, and the result in the present case of the order then made merely serves to confirm the view of the Board that the High Court will, in future cases, be well advised to require, before they seek to entertain any question under Section 66 of the Indian Income-tax Act, that the preliminary requirements of the section are strictly complied with ". This authority again clearly impresses upon the High Court the necessity of observing all the formalities laid down in Section 66, before a question is raised and unmistakably leads to the conclusion that, unless and until a question is duly referred to the High Court under the provisions of Section 66, the High Court is not competent to raise any question of its own accord. Relying on the remarks of their Lordships of the Privy Council in-Commissioner of Income-tax, Bihar and Orissa v. Sir Kameshwar Singh(1933) 1 I. T. R. 94 ; I. L. R. 12 Pat. 318) and Trustees Corporation (India) Ltd. v. Commissioner of Income-tax (1930) 57 I. A. 152 ; I. L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain some of the remarks made by me in Messrs. Gangaram Balmokand v. Commissioner of Income-tax, Punjab ((1937) I. L. R. 19 Lah. 10 ; 5 I. T. R. 464) at page 45, which are liable to be somewhat misunderstood. I there observed : " Counsel for the firm has finally urged that in view of the fact that the question as formulated by the Court issuing the mandamus leaves us no choice to determine any other aspect of the case but that envisaged in the question, we are bound to give a reply to the question but within the terms of the question. I may say at once that I do not consider that the proposition advanced by the counsel is legally sound. Under sub-section (3) of Section 66, the High Court, if not satisfied of the correctness of the Commissioner's decision, is empowered to require the Commissioner to state the case and to refer it. It is nowhere laid down that a question is to be formulated by the Court issuing the mandamus. Further, sub-section (5) of the same section jays down that upon the hearing of any such case the High Court is empowered to decide the questions of law raised thereby. This sub-section also does not confine the High Court to the decision of the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase by the High Court at that stage is not final. No doubt that Commissioner is represented before the High Court in those proceedings also, but at that particular time the only question that falls for the determination of the High Court is whether the decision of the Commissioner that no question of law arises is correct or not. If, therefore, any remark concerning the facts of the case is made by the High Court on the strength of which the High Court interferes with the order of the Commissioner, he cannot be precluded from stating that the High Court was misinformed on the subject. In Raja Bahadur Sir Rajendra Narayan Bhanja Deo v. Commissioner of Income-tax, Bihar and Orissa ((1940) 8 I.T.R. 495; A.I.R. 1940 P.C. 158) which has already been referred to in another connection, a question had arisen whether on the terms of a certain kaoolnama the assessee's income from his raj was exempt from taxation. The Commissioner refused to submit any reference to the High Court on that matter and the High Court directed him, under subsection (3) of Section 66, to refer the question set out above. The Commissioner, while drawing up the statement of the case, pointed out inter alia that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer the question if so minded. Even prior to the decision of their Lordships of the Privy Council in 1940 the Courts in India proceeded on this basis and the Bench hearing the reference did not consider circumscribed within the limits set out at the stage of mandamus. In Commissioner of Income-tax, Madras v. Chengalvaroya Chetti ([1925] I.L.R. 48 Mad 836; 2 I.T.C. 14), Sir Murray Coutts Trotter, C.J., while hearing the reference made the following remarks in respect to a question which had been propounded by a learned Judge of that Court while issuing the mandamus: "The learned judge did something further which the section does not provide for ; he framed the question which he supposed to arise from the facts as set out in the Commissioner's report. With great respect to the learned judge, I do not think that the question he framed was the real question raised in the case, and I think that the question as he has frarned it is so beset with assumptions and begged questions that it would be impossible to decide farily what the real point in this case is by any answer that could be given to the highly involved questions he formulated." Krisbrian, J., who generall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points, shall, by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment." Sub-sections (1) and (4) of Section 23 are not really relevant to the discussion, but they may, for facility of reference be re-produced here, as the provisions made as well as the language employed therein can render some assistance in the discussion of the other sub-sections. Sub-section (1) reads as follows: "If the Income-tax Officer is satisfied that a return made under Section 22 is correct and complete, he shall assess the total income of the assessee, and shall determine the sum payable by him on the basis of such return." Sub-section (4) enacts "If the principal officer of any company, or any other person fails to make a return under sub-section (1) or sub-section (2), of Section 22, as the case may be, or fails to comply with all the terms of a notice issued under sub-section (4) of the same section or, having made a return, fails to comply wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (1) of Section 23 that the Income-tax Officer shall assess the total income of the assessee and shall determine the sum payable by him on the basis of such return, the word "assess" is used not in the sense of fixing "the amount of taxation" but in that of estimating the official value of the property or income to be taxed." In the same manner, when in sub-section (3) of Section 23 it is stated that the Incometax Officer shall "assess" the total income of the assessee and determine the sum payable by him on the basis of such "assessment", the word "assess" carries the same meaning as it does in sub-section (1) of Section 23. Similarly, the word "assessment" too signifies the determination of the official valuation of property or income for the purposes of taxation. In both these sub-sections the determination of the sum payable by the assessee follows the act of "assessing" in the first instance. The process of assessment, i.e., the estimating of the value of the property or income to be taxed necessarily involves its computation. If the taxable income falls under Section 7 (Salaries), Section 8 (Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e falls short of the whole object of the Legislature, a more extended meaning may be attributed to the words, if they are fairly susceptible of it." No doubt it is further stated there that the construction must not be strained to include case-, plainly omitted from the natural meaning of the words, but this prohibition does not Come into play in this case for the simple reason that the language of sub-section (3) does not plainly omit a case falling under this category. A similar opinion was expressed by me in Messrs. Gangaram, Balmokand v. Commissioner of Income-tax, Punjab, where I gave my detailed reasons at pages 15-21 for holding that the proviso to Section 13 can be utilised in these circumstances for computing the income of the assessee, and it is not necessary to recapitulate them here. Suffice it to say that several cases both of this Court and of the other High Courts in India have been decided on the same basis quite independently of my judgment. In Navadwipchandra Nagendra Das, In re (1939) 7 I.T.R. 488), Sir Harold Derbyshire, Chief justice of the Calcutta High Court, observed : "The Income-tax Officer was justified in being thoroughly suspicious of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a fact that complete accounts had not been produced before him and bad on that account proceeded to estimate the assessable income under the proviso to Section 13 of the Act, a Bench of this Court composed of Addison and Sale, JJ., approved the course adopted by him. Another judgment of this Court as reported in Messrs. Bulagi Mal and Sons v. Commissioner of Income-tax, Punjab & N.W.F.P.(6) may also be referred to in this connection. A case from the Rangoon High Court reported as Commissioner of Income tax v. Chan Lo Chwan(7) also supports the view taken by me in respect of the use of the proviso to Section 13 even when the accounts are not found to be genuine. I am aware of the fact that my judgment in Gangaram Balmokand v. Commissioner of Income-tax(8), was dissented from by a Full Bench of the Madras High Court in Gunda Subbayya v. Commissioner of Income-tax, Madras(9), on the ground that Section 13 did not contemplate the rejection of the accounts. But with all respect I still consider that the course suggested by me is the only proper way of dealing with the matter. judgments like Ganeshi Lal and Sons, jewellers Agra v. Commissioner of Income-tax", and Messrs. Ganeshi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining him on oath or affirmation ; (b) compelling the production of documents (c) issuing commissions for the examination of witnesses and any proceeding before an Income-tax Officer, Assistant Commissioner or Commissioner under this Chapter shall be deemed to be a 'judicial proceeding' within the meaning of Sections 193 and 228 and for the purposes of Section 196 of the Indian Penal Code." It is obvious that it is only in respect of certain specified matters that the Income-tax authorities are invested with the powers exercisable by a Civil Court and it is only for a limited purpose that a proceeding before them is declared to be deemed to be a judicial proceeding. It naturally follows that in all other matters, not covered by the section, the Income-tax authorities cannot exercise the powers of a Civil Court, nor can the proceedings before them be deemed to be judicial proceedings. Had the Legislature intended that the Income-tax authorities should in every matter conduct themselves as a Court of law, bound by the rules, evidence and the procedure of a Civil Court, the wording of Section 37 would have been different. Under some of the provisions contained in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duce, or to cause to be produced, evidence in support of his return. If the assessee does not comply with the terms of the notice, the Incometax Officer has no material before him except the incomplete or incorrect return; and he has, therefore, no alternative but to make an assessment to the best of his judgment; vide, Section 23, sub-section (4). When the assessee complies with the terms of the notice, the Income-tax Officer is bound to hear the evidence which the former may desire to produce in support of his return, and, if, in the course of the enquiry, the Income-tax Officer considers that additional evidence should be produced, he is authorised to complete the enquiry by taking such evidence after specifying the points requiring elucidation. After he has received the evidence produced by the assessee and also the evidence, if any, which he has himself called for on the points specified by him, he must assess the income on the material produced before him and has no right to make an assessment to the best of his judgment." In Gopinath Naick v. Commissioner of Income-tax, U.P.(1936) 4 I.T.R. 1; 1. L.R. 58 All. 200) a difference of opinion arose between Niamatullah, J., a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax, Lahore (1937) A.I.R. 1937 Lah. 919), decided by Sir Douglas Young, C.J., and Monroe, J., it was observed that the procedure of the assessing authority was a judicial one and that he ought to act on evidence. The learned judges, however, explained that the assessing officer was entitled to regard the account produced by the assessee as unsatisfactory without producing any evidence to show that the statements in the books or some of them were false. In Gunda Subbayya v. Commissioner of Income-tax, Madras ((1939) 7 I.T.R. 21; I.L.R. 1939 Mad. 404), Leach, C.J., inter alia remarked that where in a case falling under sub-section (3) the assessee had failed to produce evidence on which the Income-tax Officer could make a proper assessment of the assessee's income, the Income-tax Officer was bound himself to take steps to procure material for the purpose if it was not already in his possession. The learned Chief justice further observed : "There are two other questions which are bound up with the question under discussion, namely, whether the Income-tax Officer when making an assessment on material which he himself has gathered shall disclose it to the assessee befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... might not be justified by the Evidence Act." In Binjiraj Hukumchand v. Commissioner of Income-tax, Bengal(2) Sir George Rankin, Chief justice, made the following observations: "When as in this case an assessee produces his books for the year of account and complies with any other requirements as to specific documents so that he is assessed in the ordinary way under Section 23(3) and not as being in default, the Income-tax authorities cannot assess him upon any figure of profits not warranted by evidence which they have before them." In Harmukhrai Dulichand, In re(3), the same learned Chief justice observed: It has been said that the Income-tax Officer must proceed in a judicial manner and Section 37 has been mentioned in this connection. Fundamentaly no doubt, the Income-tax Officer must proceed in a judicial spirit and come to a judicial conclusion upon properly ascertained facts ; though I would point out that the Income-tax Officer is not a Court, he has not the procedure of a Court, and he is to some extent a party or judge in his own case. However true it be and for whatever purpose it be true that the assessment to income-tax is to be done in a judicial mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their Lordships observed at page 334 that even a guess could not be made without evidence. I cannot do better than to wind up the consideration of the authorities on this aspect of the case by a quotation from Viscount Haldane, Lord Chancellor*, in Local Government Board v. Arlidge(3) : "They (the Income-tax authorities) must deal with the question referred to them without bias and they must give to each of the parties the opportunity of adequately presenting the case made. The decision must be come to in the spirit and with the sense of responsibility of a tribunal whose duty it is to mete out justice The judgments of the majority of the Court below appear to me, if I may say so with respect, to be dominated by the idea that the analogy of judicial methods or procedure should apply to departmental action. judicial methods may, in many points of administration be entirely unsuitable and produce delays, expense, and public and private injury. The department must obey the statute and if administration is to be beneficial and effective, it must be the master of its own procedure." Though the procedure to be observed under the Indian Income-tax Act is not the same as that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to hold that if once the assessee under sub-section (3) of Section 23 leads evidence, whether reliable or unreliable or produces any document, whether genuine or fictitious, the Income-tax Officer must base his decision on that evidence unless he is in a position to bring on the record any definite evidence to the contrary. My answer to the second set of questions would, therefore, be as follows: (a) An Income-tax Officer is not bound to rely on such evidence produced by the assessee as he considers to be false. (b) He can have recourse to the proviso to Section 13 even in those cases where he rejects the accounts produced by the assessee on the grounds that they are not genuine, and thus fail to represent truly his income and profits. (c) If he proposes to make an estimate in disregard of the evidence, oral or documentary, led by the assessee, he should in fairness disclose to the assessee the material on which he is going to found that estimate. (d) He is not, however, debarred from relying on private sources of information, which sources he may not disclose to the assessee at all. (e) In case he proposes to use against the assessee the result of any private enquires m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence or in a position to be able to weigh it and see whether in fact, apart from the objectionable evidence, there was sufficient evidence to entitle the lower Court to come to the decision which it did. It is impossible for us There to say exactly how far the mind of the Subordinate judge was influenced, by this document." Though no earlier decisions were cited in the Patna judgment, there are some which may be perused with advantage. In Mohur Singh v. Ghurila(1) a case which had been before three Courts in India, two of which had tried the question of fact, certain grounds were brought to their Lordships' notice on which their conclusion could be impeached. While dealing with this aspect of the case their Lordships observed: "It seems to their Lordships that giving full weight to all these objections, there is still sufficient and more than sufficient proof in the unsuspected evidence I given in the case to support the decrees against which the appeal is brought. Their Lordships, of course, do not give to a decree founded upon evidence which has been so impeached, the same weight which they would give to the finding of an Indian Court upon evidence against which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with questions of law only. The learned Chief justice who delivered the main judgment observed : "The question which we have now to determine is, whether we ought to remand the case on account of the improper reception of this evidence. The 167th Section of the Evidence Act provides. . . . . . . . It seems to me, however, that there is great difficulty in applying the provisions of this section to the generality of cases which come before the High Court on second appeal, and the difficulty arises thus. On second appeal we have no power to deal with the sufficiency of the evidence ; we have only a right to entertain questions of law. And our duty being thus confined it seems to me, that when evidence has been wrongly admitted by the Court below, this Court has, generally speaking, no right to decide, whether the remaining evidence in the case, other than that which has been improperly admitted, is sufficient to warrant the findings of the Court below. We cannot decide that question, as it seems to me, without examining in detail, that other evidence, and determining, as a question of fact, whether it is sufficient of itself to warrant the lower Court's finding ......... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to attack nor within the functions of the High Court to determine. It is to be seen, therefore, whether the same principles as apply to second appeals can be followed in references under Section 66 of the Income-tax Act. In Gopinath Naik v. Commissioner of Income-tax, U.P.,(1) Sir Shah Mohammad Sulaiman, Chief justice, remarked : "In this view of the matter, I am of the opinion that the finding of the Assistant Commissioner was passed partly on the result of private inquiries made by him and partly on the admitted circumstances of this case. So far as it was based on the private inquiries, it was improper and is vitiated. But if it could be based on the other circumstances without taking into account the result of the private inquiries, then the finding would not be illegal according to the principle underlying Section 167 of the Indian Evidence Act. I am not called upon to say whether in this particular case the assessment at 11 lakhs could have been made on the other circumstances of this case excluding the result of the private inquiries. This is for the Assistant Commissioner to decide." In spite of declaring that the finding of the Assistant Commissioner so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -I agree to the answers suggested by my brother Din Mohammad, J., to all the questions except the answer to question No. 2 in the second set. To that question I agree with the answer proposed by my brother Munir, J. SALE, J.-I agree to the answer proposed by my brother Din Mohammad, J., and with the judgment delivered by him. ABDUR RAHMAN, J.- I perfer to agree with the answers proposed by my brother Din Mohammad without any reservation. MUHAMMAD MUNIR, J.- The facts of this case and the circumstances in which the two sets of questions were referred to the Full Bench have been stated in detail in the judgment of my brother Din Mohammad and need not be repeated. With the exception of the answer to question No. 2 in the second set, I agree that the answers to the questions referred to the Full Bench should be as proposed by my learned brother. As regards the answer to question No. 2 in the second set I may state at the very outset that though I differ from my learned brother in his interpretation of Section 13, on the substance of the issue I have arrived at practically the same result as he has arrived in the present case, or as he arrived in Gangaram Balmokand v. Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsisting of books of account or not, is to be judged when it is produced by the assessee under Section 23(3) in support of his return. Section 23 before its amendment by the Act of 1939 was as follows: "23. (1) If the Income-tax Officer is satisfied that a return made under Section 22 is correct and complete, he shall assess the total income of the assessee, and shall determine the sum payable by him on the basis of such return. (2) If the Income-tax Officer has reason to believe that a return made under Section 22 is incorrect or incomplete, he shall serve on the person who made the return a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which such person may rely in support of the return. (3) On the day specified in the notice issued under sub-section (2) or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points, shall, by an order in writing, assess the total income of the assessee, and determine the sum pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision about the result following from the rejection of evidence. When an assessee produces his books of account in support of his return, be produces them in an investigation under sub-section (i) of Section 23, just as he may produce any other kind of evidence that he wishes, and the sub-section does not say how the Income-tax Officer should deal with the evidence. Now, entries in books of accounts may be quite true as to the transaction purporting to be recorded therein or they may be wholly false, fictitious and "cooked up" for the purposes of assessment to income-tax. If the books arc false, the Income-tax Officer may reject them as he may reject any other false evidence, oral or documentary, produced by the assessee. What consequences follow from the rejection of such books is not stated in the section just as it is not stated what result may follow from the rejection of other oral or documentary evidence produced by the assessee. Section 13 is not relevant to a case where evidence, be it books of account or other evidence, documentary or oral, is rejected by the Income tax Officer on the ground that it is false. Books of account may, however, be true as to the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are correctly recorded therein, from the manner in which those books have been kept it is not possible to deduce the true income of the assessee for the previous year. Where the books are unreliable in this sense the proviso to Section 13 is applicable provided the Income-tax Officer can, in some manner, make the entries therein a basis for the computation of the true income of the assessee for the previous year. The word "method" used in Section 13, as pointed out by Davis, J.C., in Commissioner of Income-tax, Bombay v. Khem Chand Ram Das(2) must be given a broad and reasonable interpretation and the proviso to Sec. 13 employed where books, if they are not rejected as false and the entries therein, correctly represent the business activity of the assessee, have been kept in such a manner that though ex facie they do not show the true income of the assessee for the previous year, the Income-tax Officer can in some manner make the entries therein the basis of computation of such income. This view receives support from the Privy Council judgment in Commissioner of Income-tax, Bombay v. Sarangpur Cotton Manufacturing Co., Ltd.(1). where Lord Thankerton made the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out by their Lordships of the Privy Council in the case above cited, must exercise his judgment, and if by a reasonable amount of labour he can deduce the true profit from the accounts, he should do so and not reject the books on the mere ground that in such a case it is entirely discretionary with him to accept or reject the books. Where, however, books are not merely unreliable in the sense indicated above but false and fictitious, the Income-tax Officer is neither under any obligation, nor has he any power, to act under the proviso to Section 13. In such a case the books must be rejected and the only use to which the Income-tax Officer may put them is to take the admissions contained therein against the assessee for the purpose of the assessment or to draw the from the fact that they are false certain inferences against the assessee. It has been contended by the learned counsel for the assessee that where the only material produced by the assessee in support of his return under Section 23 sub-section (3) is the books of account and there is no contrary material before the Income-tax Officer about the income of the assessee, the Income-tax Officer must accept the books and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would conflict with sub-section (2) of Section 23 inasmuch as it would restrict the assessee's right under sub-section (2) to produce all evidence that he wishes, in support of the return. In the interpretation of statutes punctuation, not being a part of the statute to be construed, is not the determining factor and if the proviso as punctuated leads to an absurb result or conflicts with some other provision of the statute which is unambiguous and free from doubt, the punctuation must yield to an interpretation that is reasonable and makes it consistent with the other provisions of the Act. If the words " on specified points " which are preceded by comma are taken to qualify not only the words "such other evidence as the Income-tax Officer may require" but also the words "such evidence as such person may produce", the result would be that the assessee's right to produce " any evidence on which such person may rely in support of the return " which is given to him by sub-section (2) Of Section 23 would be curtailed and the assesee would not be entitled to produce all such evidence as he wishes to produce in support of the return and hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt in order to enable him to remove it by such evidence as he may wish to produce. If this interpretation of the section is correct, the Income-tax Officer would have the power to base the assessment on any material that is before him, provided the attention of the assessee is drawn to that material and he is given sufficient opportunity to rebut it. Such material may be within the Income-tax Officer's own knowledge and might have been derived by him from hearsay or from information of a most authentic character. I do not think that this sub-section was intended to mean that the Income-tax Officer should, as if it were, try an issue or issues in a suit between the assessee and himself by calling his own evidence-though undoubtedly be has such power--and marshalling and exhibiting his documents in the presence of the assessee, and that the assessee should have the right to cross-examine the Income-tax Officer's witnesses and the right to inspect his documents. The Income-tax Officer has an unqualified power of seeking for and obtaining information about the assessee's affairs and to base his assessment on all such information and material even though it may not be &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the specified points. When an assessee produces books of account either in support of his return or as special evidence on a point specified by the Income-tax Officer, the Incometax Officer has to examine the books in the same way as he would examine any other evidence produced by the assessee under rub-section (3) Of Section 23. If the objection to the books is merely one of method or if the books are unreliable merely in the sense that, though they are a correct record of the assessee's transactions, they have been kept in such a manner that they do not ex facie reveal the true result of the assessee's trading activity during the previous year, and the Income-tax Officer can, in some manner, make them the basis of computation of the assessee's income for the previous year, he must proceed under the proviso to Section 13. If, however, the books are false, fictitious or "cooked" for the purposes of assessment to income-tax, the Income-tax Officer must reject them, as he must reject any other false evidence, and make the assessment on the other material before him provided the attention of the assessee is drawn to that material. The proviso to Section 13 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts have been "cooked" for the purposes of assessment to income-tax and from this finding infers that the assessee's income must have been several times the income disclosed by the books of account to furnish to the assessee a motive sufficiently strong to induce him to prepare such elaborate accounts, the finding would, without invoking in aid the proviso to Section 13, be legal and based on material under sub-section (3) of Section 23 and would raise no question of law referable to the High Court under Section 66, the assessee's only remedy being an appeal to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, inasmuch as the finding being based on material would raise no question of law and the adequacy or inadequacy of the material for the finding would be for the appellate authority to judge. Even where the books are held to be false, there is nothing to prevent the Income-tax Officer from using and acting on any admissions that they might contain. For instance, the Income-tax Officer may accept the figure of sales and estimate the profits without accepting the trading account as a whole or he may accept the expenditure and on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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