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TMI Blog1985 (2) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... s return under s. 139 of the I.T. Act, 1961, and in pursuance of notice issued by the ITO under s. 142(1) read with s. 143(3), the assessee appeared on some of the dates fixed before the ITO and produced some documents, including its books of account. However, on January 17, 1974, the assessee did not appear, although the authorised representative of the assessee attended the office of the ITO and submitted that the assessee could not appear nor could he produce his books of account on that date. The ITO thought that the assessee was deliberately withholding his books of account and as such he decided to proceed to make an assessment to the best of his judgment, in accordance with the provisions of s. 144(c) of the Act. One of the questions considered by the ITO related to the income of the assessee from the business of sale and purchase of silver ornaments and bullion. The ITO made an addition of Rs. 4,000 in round figure in the silver trading account of the assessee by his assessment order dated April 21,1974. The assessee filed an application under s. 146 before the ITO for reopening the assessment made under s. 144. However, the application was rejected by the ITO who refused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations made by the AAC indicating that addition in the silver trading account could be more should not influence the ITO while making a fresh assessment. The question which arises in this reference primarily relates to the jurisdiction or authority which can be exercised by the appellate court while remanding a case wherein assessment has been made by the assessing authority under s. 144 of the Act on the basis of his best judgment. The assessee has raised an objection that the Appellate Tribunal and the AAC could not direct the ITO by the order of remand to take into consideration, the account books of the assessee while making a fresh assessment in a case where the earlier assessment was made by the assessing authority to the best of his judgment under s. 144. Section 251(1) authorised the AAC while disposing of an appeal against an order of assessment, to either confirm, reduce, enhance or annul the assessment or to set aside the assessment and refer the case back to the ITO for making fresh assessment in accordance with the directions given by him and after making such further enquiry as may be necessary, the ITO would, therefore, proceed to make further enquiry and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al against the assessment order made under s. 23(4), the AAC remanded the case to the ITO for further enquiry limited to certain matters. The ITO was directed to recompute the income of the assessee on the basis of further enquiries as well as the assessee's accounts. Further appeals to the Income-tax Appellate Tribunal were dismissed. The question was referred to the High Court. It may be observed that the provisions of s. 23(4) of the Indian I.T. Act, 1922, correspond to the provisions of s. 144 of the I.T. Act, 1961, and the provisions of s. 27 of the 1922 Act are similar to the provisions of s. 146 of the 1961 Act, relating to the reopening of the assessment. Moreover, s. 31 of the 1922 Act corresponds to s. 251 of the 1961 Act. Learned Chief justice of the Punjab High Court, while deciding the aforesaid case, observed as under (p. 40): " There is nothing in section 31(2) which limits the scope of the further enquiry ordered under clause (2). Further inquiry by its very nature implies that fresh evidence should be led, and the account books of the assessee undoubtedly are fresh evidence... The answer, in my opinion, is that in law there is no bar to the Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on the basis of their books of account. But the question of the jurisdiction and the power of the Appellate Assistant Commissioner is entirely a different one. Even though in practice it may be in extremely rare cases that the Appellate Assistant Commissioner would direct the Income-tax Officer to look into the books of account of the assessee which the assessee has failed to produce, however rare the cases may be, we have got to answer the question of law on the provisions of the statute and not from the point of view of its practical application. " The aforesaid decision was followed by a Bench of the Madras High Court in Muthuwappa v. CIT [1962] 46 ITR 1107 (Mad) and it was observed that the passage cited above from the judgment of Chagla J. correctly indicates the jurisdiction of the AAC. It was also pointed out that even in the case of a best judgment assessment, it is not improper to look into the books of account of the assessee so that the judgment of the assessing officer may be properly directed and that a capricious and unjustified assessment may not be made. Thus, the AAC has jurisdiction to make an order of remand and he can, while doing so, direct the examinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould form the subject-matter of an application under s. 146 of the new Act, corresponding of s. 27 of the old Act. In a quantum appeal, the only limitation on the appellate jurisdiction was that the propriety of the ITO in proceeding to pass the best judgment assessment could not be questioned. But, otherwise, the AAC had wide powers while deciding the appeal, even if the assessment was passed under s. 144. We may observe that under s. 144, corresponding to s. 23(4) of the 1922 Act, the assessing authority is required to make the assessment to the best of his judgment against a person who is in default as regards filing the return or supplying information and the assessing authority in such a case may utilise all information or material, relevant for the purpose, which may come to his knowledge so as to enable him to make fair estimate of the income of the assessee. In this connection, their Lordships of the Privy Council held as early as in the year 1937, in the case of CIT v. Laxminarain Badridas [1937] 5 ITR 170 (PC) that the ITO passing an order under s. 23(4) of the old Act must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression 'best of his judgment', judgment is a faculty to decide matters with wisdom truly and legally, judgment does not depend upon the arbitrary caprice of judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a 'best judgment assessment', it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though sub-section (2) of section 12 of the Act provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard for the available material." We may point out that in the cases which have been cited before us and to which a reference has been made above, it was the assessee who desired to produce the account books and the Department objected to the production thereof on the ground that the application filed by the assessee under s. 146 for reopening the assessment has been rejected and the appeal in respect thereof has also been dismissed, and it was in this context that the various courts have held that so far as the assessee is concerned, he has no right to produce the account books ..... X X X X Extracts X X X X X X X X Extracts X X X X
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