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TMI Blog1937 (5) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... said decision was dismissed by the Assistant Commissioner on July 24, 1934. On August 27, 1934, the assessee filed a combined application for review and reference to the High Court. On October 8, 1934, the learned Commissioner refused to state a case and on the application for review he remitted certain issues to the Income tax Officer. We are not concerned in the present proceeding with the result of the application for review. The assessee, then filed an application in the High Court praying that we should require the Commissioner to state a case under Sec. 66 (3) of the Act. By our order dated February 27, 1936, we required the Commissioner to state a case and formulated three questions of law. We mentioned then that the only matter which he had to decide at that stage was whether a question of law arose out of the decision of the Assistant Commissioner, and we were of the opinion that the three questions formulated by us did arise and we did not agree with the opinion of the Commissioner that no question of law arose although counsel for the department also pressed that point before us even at that stage. The learned Commissioner has now stated a case and has referred the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. The learned Commissioner, however, has made reference to a certain passage occurring at page 277 of the Allahabad Law Journal Reports. The passage is: A refusal to make a fresh assessment under Sec. 27 can proceed only on the ground that the assessee was not prevented by any sufficient cause from complying with the notice under Section 22 or Sec. 23 If any question of law arises from such refusal it can certainly be the subject of reference under the order of the High Court. But any question of law which arises from the best judgment assessment sought to be set aside by an application under Sec. 27, cannot fall within the purview of Sec. 27. From the words which we have underlined it is clear that the learned Judge was of the opinion that a question of law can arise from a refusal by the Income-tax Officer to cancel an assessment under Sec. 27 of the Act. This case, therefore, does not in any way support the opinion of the Commissioner. The Patna case also has no bearing on the present matter, for all that was decided in that case was that where an application under Section 27 of the Income-tax Act to reopen an assessment under Sec. 23 (4) for failure to produce accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and proceed with a fresh assessment upon the ground that he was not satisfied that there was sufficient cause shown by the assessee preventing him from producing the Shan States accounts pursuant to the notice duly served on him in that behalf under Section 22 (4). In such an appeal he question whether the assessment was properly made or not was immaterial............. So far there is nothing which militates against the view that we are taking, but the learned Judges proceed and observe : and it was equally immaterial whether the notice, which admittedly was served upon the assessee, calling upon him to produce the Shan States accounts, was valid or not. This last passage, standing in the cryptic form in which it stands, undoubtedly favours the view taken by the Commissioner, and if it implies that the question about the validity of a notice can never in any form, as the basis of any allegation within the purview of Sec. 27, become the subject of a reference under Sec. 66 out of the appellate order of the Assistant Commissioner, then we respectfully beg to dissent from it. On the authority of the cases mentioned above including the Allahabad case, it is well settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law arises out of the order of the Assistant Commissioner rejecting the appeal. So far as the present case is concerned, it is clear that the Assistant Commissioner did not and could not reject the appeal against the Sec. 27 order passed by the Income-tax Officer under the proviso to Sec. 30 (1) but could at worst only confirm the order of the Income-tax Officer under Sec. 31 of the Act, and we are of the opinion that if a question of law arises from the appellate order of the Assistant Commissioner it can certainly be made the subject of reference under the orders of the High Court and as a matter of fact when we directed the Commissioner to state a case we were of the opinion that the three questions of law which we formulated for the benefit of the Commissioner did arise, and we now propose to give our opinion on the said three questions which have been referred to us., It might, however, be convenient to state a few facts in order to appreciate the questions. In the course of the assessment year 1932-33 ending with the 15th of Chait 1989 a notice under Sec. 22 (2) for the filing of a return was issued on April 1, 1932. After some extensions, with which we are not concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice. The first irregularity is that the year ending Shait Sambat 1988 was mentioned, though the correct year which ought to have been mentioned was the year ending Shait Sudi 15, Sambat 1989. The learned Commissioner has rightly pointed out that this did not in any way mislead the assessee and we might further mention that the assessee did appear in person and did not lodge any protest in respect of this mistake. Moreover, the difference is only that of fifteen days and the account books, such as were furnished, were in respect of the correct year ending Shait Sudi 15, Sambat 1989. The proceedings in connection with which the notice was issued related to the year ending Shait Sudi 15, Sambat 1989 and these were the only proceedings pending at that time and the assessee knew perfectly well what account books he was required to produce. We are, therefore, of the opinion that this irregularity does not in any way vitiate the notice. The other irregularity is a more serious irregularity, and it is that the words or to produce, or to cause to be there produced any evidence on which such person may rely in support of the return were scored out. The contention on behalf of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer, and it would be necessary for him to produce some evidence in support of the return, and if the notice directed only the attendance of the assessee the latter would not be able to produce valuable evidence. It may also be that the assessee might find it extremely inconvenient to attend in person and at the same time might feel that the Officer could be given every satisfaction by the production of some evidence. From every point of view we are of the opinion that the law intended to give the options to the assessee and not to the Department. It was contended by Mr. Varma on behalf of the Department that if the law were interpreted in the way in which we feel inclined to interpret it, the position would become Unworkable. He said that if the option were with the assessee, then under certain circumstances there Could be no default in compliance with a notice under Sec. 23 (2) and the Income-tax Officer could never proceed to pass a best judgment assessment. The illustration that he gave was that the assessee Who admittedly keeps no accounts and whose calling does not necessarily involve the keeping of accounts might on a notice issued under Sec. 23 (2) decide to attend at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The passage is:- After he had his full say and had produced all the evidence at his disposal he informed me by his letter dated December 22. 1932, that he did not want to adduce any further evidence because he had produced all the evidence which he wanted to adduce . This is not at all a correct statement of facts and we are satisfied after what has been said by counsel that the assessee did not produce any evidence under Sec. 23 (2). The second question that has been referred to us is :- Is the issue of a valid notice under Sec. 23 (2) a condition precedent under the circumstances of the present case to the making of an assessment under Sec. 23 (4) ? A plain reading of Sec. 23 (2) shows that under certain circumstances the issue of a notice under the above provision is mandatory and the question is whether it was so mandatory under the circumstances of the present case. The notice starts by saying : To enable me to test the correctness of the return made by you . It is therefore, clear that the Income-tax Officer had reason to believe that the return filed by the assessee was incorrect or incomplete and moreover the very fact that a notice under Sec. 23 (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Ram Khelawan Ugan Lal v. Commissioner of Income-tax AIR 1928 Pat. 529. Some of the above cases also lay down that a combined notice under Secs. 22 (4) and 23 (2) can be issued after an assessee has made a return, and it was held in the case of Harmukhrai Dulichand (supra) that were an assessee had made a return in compliance with a notice under Sec. 22 (2) and thereafter a notice has been served upon him under Sec. 23 (2) and also a notice under Sec. 22 (4) and the assessee has complied with the terms of the notice under Sec. 23 (2) by producing the evidence upon which he relies, but has failed to comply with the notice under Sec. 22 (4) to produce account books, the Income-tax Officer is entitled to make an assessment under Sec. 23 (4) for failure to comply with the notice under Sec. 22 (4), and a some what similar view was held in the case reported in I.L.R. 52 Mad. page 194 Ramaswamy Chettiyar's case (supra) . It is there fore, argued on behalf of the Department that the defaults mentioned in Sec. 23 (4) are independent defaults and any one of them would entitle the Income-tax Officer to make an assessment to the best of his judgment, and although in the present case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n application under Sec. 27 of the Act was rejected by the Income-tax Officer and the Assistant Commissioner. A reference was then made to the High Court and the learned Judges held that it was open to the High Court to formulate questions of law that really arose in a case and to answer them for the benefit of the Commissioner and the parties, and the fresh question of law that was formulated by the High Court was to the following effect:- Was the assessee prevented by sufficient cause from making the return required by Sec. 22 ? The answer that was given was that under Sec. 22 (2) the Income-tax Officer must give the proposed assessee at least thirty days time within which to file a return. If this minimum is denied the notice becomes entirely illegal and no subsequent extension of time will cure the defect that initially lay in the notice issued. It will be observed that in this Allahabad case there was a non-compliance with a notice under Sec. 22 (4), but as the initial notice under Sec. 22 (2) was an irregular notice the learned Judges held that there could possibly be no valid assessment of income-tax under Sec. 23 (4). The phraseology of Sec. 23 (2) suggests that u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Sec. 22, (2) he did not receive the notice issued under sub-sec. 4 of Sec. 22, (3) he did not receive the notice issued under sub-sec. 2 of Sec. 23, (4) he had not a reasonable opportunity to comply with the terms of the last-mentioned notices, or (5) he was prevented by sufficient cause from complying with the terms of the last-mentioned notices. It is contended on behalf of the assessee that the notice issued under Sec. 23 (2) in the present case was an illegal notice and therefore it is tantamount to the non-receipt of such a notice and therefore he has established condition No. 3. There is some force in this contention and as Sec. 27 reads, it might be argued that on the establishment of any one of the conditions mentioned in Sec. 27, the Income tax Officer has to cancel the assessment and has to proceed to make a fresh assessment, The argument on behalf of the Department, however, is that Sec. 27 is utilised by the assessee when there has been a best judgment assessment, and one has got to see as to what the default was which brought about the best judgment assessment and the assessee has got to satisfy that that default can be condoned either becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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