Raghunath Mahadeo vs Commissioner of Income Tax

Dawson Miller, CJ.

In this case it seems to me that the Commissioner of income tax took a wrong view of the law. He treated the case as me in which no appeal lay u/s 30 of the income tax Act, 1922, and therefore decided that the assessee was not entitled to ask him to state a case under the provisions of section 66. What happened shortly was this. The assessee carries on a business in cloth, gold, silver, jute and groceries at Kishungunj and other places. With regard to his income at the other places we are not concerned and no question arises. With regard to his income from his business in groceries in Kishungunj, it is no longer contended that the assessee can seek any further relief u/s 66. But with regard to the cloth, gold, silver and jute businesses at Kishungunj, it is contended that the accounts were produced and that u/s 13 the income tax Officer ought to have assessed the income in accordance with the regular method of accounting as shown by the assessee''s books. What happened was that the assessee was called upon by the income tax Officer u/s 23 sub-section (2) to attend at the income tax-Officer''s office and produce any evidence on which he might rely in support of his return. The return I may mention had not been accepted by the income tax Officer and, therefore, he wished the personal attendance of the assessee and the production of his books if he relied upon them. The assessee did attend and he produced his books relating to these four classes of business which I have just referred to. The income tax Officer said that these boots had not been balanced and therefore he could get no reliable information from them. He accordingly proceeded to assess the profits apparently adopting the powers conferred by the proviso to section 13 of the Act.

From that decision the assessee appealed to the Assistant Commissioner. His contention was, as it is to-day, that the books produced by him although not balanced in the sense of the expenditure having been deducted from the profits, did show exactly what the expenditure was and what the gross income was, and that the only thing which remained to be done was to deduct the aggregate of the expenditure from the aggregate of the gross profits and then you would get the net profits which is the taxable income. That is merely a simple question of subs-traction and because this had not been done he complains that the income tax Officer refused to regard his books as showing what the actual profits were. The Assistant Commissioner upheld the decision of the income tax Officer.

The assessee then applied u/s 66 sub-section (2) of the Act asking the Commissioner to state a case. The Commissioner took the view that the assessment had been made not u/s 23(3) , but u/s 23(4) and consequently there was no appeal permissible from the income tax Officer and although the Assistant Commissioner had in fact heard and determined such an appeal still he considered that the Assistant Commissioner had no jurisdiction to do so and, therefore, he must treat the case as one in which no appeal was permissible and as if no appeal had been preferred. If that were so, it would follow that no application u/s 66 sub-section (2) could succeed.

The first question we have to determine in the present application is whether the income tax Commissioner was right in arriving at the conclusion that the income in the present case was assessed u/s 23(4) , or whether it was not in fact assessed u/s 23(3) . Section 23 provides in the first clause that if the income tax Officer is satisfied that a return made u/s 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. Then by clause (2) it is provided that if the income tax Officer has reason to believe that a return made u/s 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. The assessee did attend and he did produce the evidence upon which he relied in support of his return but that evidence, as I have said, was not treated by the income tax Officer as conclusive of the matters which he had to determine. Nevertheless the assessee did attend at the office and he did produce the evidence upon which he relied. In other words, he complied with the notice issued u/s 23 sub-section (2) . The learned Commissioner seems to have thought that because the books were not relied upon by the income tax Officer, therefore, the assessee had not complied with the notice served upon him u/s 23 (2) . I cannot, however, take this view. Sub-section (3) of the same section provides that on the day specified in the notice issued under sub-section (2) , 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 (and there is nothing in this case to show that he required any further evidence) 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. It seems to me that the assessment in the present case was carried out under that sub-section. He saw the witness, he considered the evidence produced by him and upon which he relied, and he thereupon made his assessment and in fact when the assessment was made and the demand sent to the assessee for payment of the amount assessed, it was stated therein that it was made u/s 23 sub-section (3) and that he might appeal to the Assistant Commissioner if he wished within 30 days. So there can be no doubt whatever that the opinion of the income tax Officer was that he was acting under sub-section (3) of the section.

The fourth sub-section and the one under which the Commissioner considered that the assessment in this case had been made provides in effect as follows:-That if the assessee fails to make a return or fails to comply with all the terms of the notice issued under sub-section (4) of section 22 or, having made a return fails to comply with all the terms of a notice issued under sub-section (2) of section 23, the income tax Officer shall make the assessment to the best of his judgment. The Commissioner seems to imagine that the assessee in this case had failed to comply with the terms of the notice issued under the sub-section. In my opinion he did nothing of the sort. All that the notice required and could require was that the assessee should attend at the income tax Officer''s office and should produce such evidence as he himself (the assessee) relied upon in support of his case. That he did, and the mere fact that the income tax Officer did not accept that evidence as conclusive of the matter does not appear to me to bring the case within the provisions of section 23 sub-section (4) . The reason, therefore, given by the Commissioner for refusing to state a case, in my opinion, cannot stand.

The next question we must consider is whether there is any substance in the present application that the Commissioner should be ordered to state a case. The facts as set out in the petition and as stated by Mr. Jayaswal on behalf of the assessee are that the accounts produced in support of the cloth, gold, silver and jute businesses, although not balanced or not closed in the sense I have already referred to undoubtedly show by taking very slight trouble and carrying out a very simple sum in arithmetic what the actual profits made for the year in question were. If that is so it seems to me quite clear that income tax Officer, was negligent in his duty in failing to carry out that simple matter himself and so ascertain what was the effect of the books. He cannot shirk his dirty by merely stating that the account is not balanced it the result of that balance can be ascertained by taking small amount of trouble. The books were there but he apparently refused to accept them merely upon that ground. In my opinion he was not entitled to act in that way. The question seems to me to be one of importance but before we can actually decide the question we must ask the Commissioner to state a case detailing what the actual facts are. It may be that when the books are examined, the case, as I have stated it is put a little too broadly but one cannot at the present moment say because we have not got the books before us. The Commissioner will draw up a case stating precisely what the facts are with regard to the evidence before the income tax Officer, what the effect of the books is and then having done that the forwarded the case to the Court we will decide what is the law applicable to such circumstances. The assessee, I understand, has now got the custody of the books which were relied upon before the income tax Officer. These books will have to be returned to the income tax Commissioner to enable him by personal inspection thereof to ascertain what the actual facts are.

Macpherson, J.

I agree.