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Chiranjilal Tibrewala Vs. Commissioner of Income-tax, Bombay City Ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 11 of 1962
Judge
Reported in[1966]59ITR42(Bom)
ActsIncome Tax Act, 1922 - Sections 22(2), 22(4), 23(4) and 27
AppellantChiranjilal Tibrewala
RespondentCommissioner of Income-tax, Bombay City Ii
Excerpt:
.....paragraphs were meant and intended by the assessee to be the reasons for its failure to submit the return of income for more than a year after the notice to submit the same was given. we do not find anything in the earlier paragraphs which can be regarded as an explanation for the non-submission of the return and the statement in paragraph 4 is a mere factual statement that the return has been submitted on 9th june, 1958. however, from the orders of the income-tax officer and the appellate assistant commissioner it does not appear that any submissions were urges before these authorities to explain the failure to submit the return. it appears, on the other hand, that before the appellate assistant commissioner, the default in filing the return was acknowledged but it was contended that..........4 of the application made under section 27, wherein the assessee has stated that it has filed a return of income for the assessment year in question on the 9th june, 1958, and mr. palkhivala wants us to associate that statement with what is contained in the earlier paragraphs which relate to the non-production of the account books on the 26th may, 1958, and hold that the reason stated in the said earlier paragraphs were meant and intended by the assessee to be the reasons for its failure to submit the return of income for more than a year after the notice to submit the same was given. we do not find anything in the earlier paragraphs which can be regarded as an explanation for the non-submission of the return and the statement in paragraph 4 is a mere factual statement that the return.....
Judgment:

Desai, J.

1. For the assessment year 1957-58, for which the relevant previous year was the S. Y. 2012 extending from the 15 November, 1955, to 2nd November, 1956, the assessee, who was a registered partnership firm, was assessed to a best judgment assessment under section 23(4) for having committed defaults in complying with the notices both under section 22(2) for the filing of a return and under section 22(4) for the production of account books. The notice under section 22(2) was given on the 19th of May, 1957, and no return in compliance with that notice was filed until the assessment was made on the 27th May, 1958. There were in all three notices issued under section 22(4) and the compliance sought under these notices was on the 19th March, 1958, 24th April, 1958, and 26th May, 1958, respectively. The last of these notices was served by affixing. The account books required by this notice under section 22(4) were never produced but on 26th May, 1958, which was the last date for compliance with the last of these notices, one of the ex-partners of the firm, the firm by that time having been dissolved, appeared before the Income-tax Officer and sought an adjournment on the ground that another person, by name Chandiprasad, who was looking to the Income-tax matters of the assessee-firm, had met with an accident and was unable to attend. The adjournment was refused by the Income-tax Officer and he proceeded to a best judgment assessment, which he made on the 27th May, 1958. Simultaneously with the assessment of the firm he also made a best judgment assessment of Chiranjilal, a partner of the firm, who had also failed to comply with the notices issued to him under sections 22(2) and 22(4) of the Income-tax Act. The Income-tax Officer also made an order under section 28 imposing a penalty on Chiranjilal. Applications under section 27 were made by the firm and Chiranjilal to the Income-tax Officer for setting aside the best judgment assessment orders but the said applications were rejected by him. Thereafter, the assessee and Chiranjilal preferred appeals to the Appellate Assistant Commissioner against the orders made by the Income-tax Officer in applications made under section 27 and Chiranjilal also preferred an appeal against the penalty order made by the Income-tax Officer under section 28. All these three appeals were heard together by the Appellant Assistant Commissioner, who was of the opinion that although the assessee-firm had no explanation for non-compliance with the notice under section 22(2), there was good and sufficient cause shown by it for its not being able to produce the accounts in compliance with the notice under section 22(4). According to the Appellate Assistant Commissioner, since the assessee-firm was in a position to give a good explanation for one of the defaults committed by it, the best judgment assessment made by the Income-tax Officer was liable to be cancelled under the provisions of section 27. He accordingly cancelled the best judgment assessment and direct the Income-tax Officer to proceed with a fresh assessment under section 23. The Appellate Assistant Commissioner also took the view that the appeals filed by Chiranjilal against the assessment made against him as an individual and against the penalty order made against him must succeed because the said orders were consequential orders passed on the basis of the assessment order made on the firm and since that order was cancelled, the orders made against Chiranjilal must also be cancelled. He accordingly allowed the appeals of Chiranjilal and directed the Income-tax Officer to have a fresh assessment made in his case also. Against these orders made by the Appellate Assistant Commissioner, the department went in appeal to the Tribunal. The Tribunal found the orders passed by the Appellate Assistant Commissioner difficult to be sustained. It, therefore, allowed the appeals of the department and set aside the orders passed by the Appellate Assistant Commissioner and restored the best judgment assessment orders made by the Income-tax Officer and the penalty order passed by him against Chiranjilal. Thereafter, at the instance of the assessee and Chiranjilal, it has drawn up a statement of the case and referred to this court the question of law which arises out of its orders in these matters as follows :

'Whether in an assessment made under section 23(4) on the ground that the assessee had failed to make a return as required by the notice under section 22(2) and also failed to comply with the terms of the notice issued under section 22(4) and the assessee failed to satisfy the Income-tax Officer that he was prevented by sufficient cause from making a return as required by section 22(2), it is obligatory upon the Income-tax Officer to cancel the said assessment and proceed to make a fresh assessment in accordance with the provisions of section 23 as provided in section 27 of the Income-tax Act ?'

2. A notice of motion has been taken out by the assessee requesting that the question referred to this court by the Tribunal may be reframed and some more material may be taken on record and made part of the statement of the case. The notice of motion, however, has not been very seriously pressed by the learned counsel who appears for the assessee and he has stated that he would only like to draw our attention to the contents of the notice which had been issued to the assessee under section 22(4) in respect of one of the contentions which he will raise before us. We do not, therefore, find it necessary to deal with the notice of motion and make no order on the same.

3. In the order which the Income-tax Officer made under section 27, he held that the assessee had received the notices issued to it under sections 22(2) and 22(4) and had failed to satisfy him that it had not a reasonable opportunity to comply with the notices or that it was prevented by sufficient cause from complying with them. The only reasons which were advanced by the assessee before the Income-tax Officer for not complying with the notices were that there was not staff in the firm; that Chandiprasad, who used to look after the accounts of the firm and the income-tax matters, had met with an accident and was ill on 26th of May, 1958, which prevented him from bringing the accounts before the Income-tax Officer on that day and that since the firm was dissolved from the beginning of S. Y. 2014, the other partners of the firm were not available at one place to give details of business to Chandiprasad to complete the books of account. The Income-tax Officer found that these reasons were not sufficient to explain either of the defaults. According to him, there was no reason whatsoever which was given by the assessee for failure to furnish the return in compliance with the notice under section 22(2) and at no time had the assessee asked for any extension of time to submit the return. As to the failure to produce the account books, he found that the reason given was hardly sufficient because the accounts that were required to be produced were the accounts of S. Y. 2012 and, although the firm had been dissolved from the beginning of S. Y. 2014, the accounts of S. Y. 2012 could not have remained incomplete and not settled till the 26th of May, 1958. The mere circumstance that Chandiprasad was ill on 26th of May, 1958, having met with an accident, was not sufficient to render the assessee-firm unable to produce its accounts as directed by him.

4. The Appellate Assistant Commissioner agreed with the Income-tax Officer that the failure to comply with the notice under section 22(2) was not properly explained by the assessee. He, however, held that the non-compliance with the last notice given under section 22(4) requiring the assessee to produce the accounts on the 26th May, 1958, was properly explained and there was good and sufficient reason shown by the assessee for not being able to produce the accounts on that day. According to the Appellate Assistant Commissioner, although the default under section 22(2) had not been explained, since the other default, viz., the failure to comply with the notice under section 22(4), was explained by the assessee, the best judgment assessment order was liable to set aside under the provisions of section 27 of the Indian Income-tax Act. In the appeals before the Income-tax Appellate Tribunal, the only contention, which appears to have been urged, was whether the Appellate Assistant Commissioner was right in taking the view that if the assessee had committed more than one default which had led the Income-tax Officer to make a best judgment assessment against him under section 23(4) and if in the application made under section 27 for the cancellation of the said order, the assessee were able to satisfy that there was good and sufficient explanation for one of the defaults committed by it, the best judgment assessment order was liable to be cancelled. The Tribunal answered this question against the assessee and, in consequence, set aside the Appellate Assistant Commissioner's order. The question, as has been framed by the Tribunal and referred to us on the present reference, is also based on the only contention which appears to have been urged before the Tribunal and is dealt with by its order.

5. Mr. Palkhivala, the learned counsel who appears for the assessee, has, however, urged before us that it was contended by the assessee before the Tribunal that good and sufficient cause had been shown by the assessee for not being able to comply with the notices both under section 22(4) as well as under section 22(2) and the Appellate Assistant Commissioner's orders cancelling the best judgment assessments and the penalty and directing fresh assessment under section 23 were perfectly good and justified. He complains that the Tribunal has not dealt with that contention of the assessee. He points out that the Tribunal has not even dealt with the correctness of the conclusions of the Appellate Assistant Commissioner on the question whether there was good and sufficient reason for not complying with the notice under section 22(4), because it has taken the view that even if there was any good reason for that default, since the other default, viz., non-compliance with the notice under section 22(2), still remained unexplained, the best judgment assessment order could not be cancelled. Mr. Palkhivala's grievance is that the Tribunal has proceeded on the basis that the default under section 22(2) was not explained by the assessee without applying its mind as to whether the default was explained or not and without recording a finding thereon. We do not think that the grievance which has been made by the learned counsel has any substance. As we have already pointed out, neither in the application made by the assessee under section 27 nor at the hearing of that application before the Income-tax Officer or in the appeals to the Appellate Assistant Commissioner from the orders made by the Income-tax Officer, had the assessee ever urged that there was any good or sufficient ground for not complying with the notice under section 22(2). The only cause which was attempted to be shown or the only explanation which was sought to be offered on behalf of the assessee in these proceedings related to the non-production of the account books on the 26th of May, 1958. Mr. Palkhivala has invited our attention to paragraph 4 of the application made under section 27, wherein the assessee has stated that it has filed a return of income for the assessment year in question on the 9th June, 1958, and Mr. Palkhivala wants us to associate that statement with what is contained in the earlier paragraphs which relate to the non-production of the account books on the 26th May, 1958, and hold that the reason stated in the said earlier paragraphs were meant and intended by the assessee to be the reasons for its failure to submit the return of income for more than a year after the notice to submit the same was given. We do not find anything in the earlier paragraphs which can be regarded as an explanation for the non-submission of the return and the statement in paragraph 4 is a mere factual statement that the return has been submitted on 9th June, 1958. However, from the orders of the Income-tax Officer and the Appellate Assistant Commissioner it does not appear that any submissions were urges before these authorities to explain the failure to submit the return. It appears, on the other hand, that before the Appellate Assistant Commissioner, the default in filing the return was acknowledged but it was contended that since there was good and sufficient explanation for the default of not complying with the notice issued under section 22(4), the best judgment assessment order must be cancelled under section 27. The Appellate Assistant Commissioner has observed :

'Had the assessment been completed without the issue of notice under section 22(4), I think the assessment under section 23(4) could have been treated as absolutely valid and strong, but since the notices under section 22(4) have not been served on the right persons and the notice served by affixture was attended to but the accounts could not be produced as they were not available with the existing partner, but with the partner who was lying ill at Jaipur, I think it could be treated as a sufficient cause that prevented the appellant in complying with the notices issued by this office.'

6. In these circumstances, it appears to us that the assessee had at no time during the proceedings under section 27 tried to explain the default committed by it by not submitting a return in response to the notice under section 22(2). We cannot, therefore, find any fault with the Tribunal for not having dealt with the question whether the assessee had any explanation to offer for the non-compliance of the notice under section 22(2). The reason why the Tribunal's order does not contain any discussion with regard to that question is because the question was never agitated before the Tribunal and it was accepted by the assessee that there was no explanation for its failure it was accepted by the assessee that there was no explanation for its failure to comply with the notice under section 22(2). The question which has been framed by the Tribunal is also on the basis that the assessee had accepted that no explanation could be offered by it for its non-compliance with the notice under section 22(2). We do not, therefore, find any substance in the grievance made by Mr. Palkhivala that the Tribunal ought to have applied its mind to the question as to whether there was any good explanation which the assessee could offer for non-compliance with the notice under section 22(2). We may also state that there is in fact no explanation on the material on record which could possibly be put forward for the non-submission of the return by the assessee in response to the notice under section 22(2).

7. Mr. Palkhivala has then urged that, even though the notice under section 22(2) was not complied with by the assessee by submitting a return as required by the said notice, the failure to do so could not be looked upon as a default committed by the assessee because the Income-tax Officer has allowed the assessee the extension of time to submit the return till the 26th of May, 1958, by the last notice given by him under section 22(4). Mr. Palkhivala argues that if time was thus extended to submit the return till the 26th May, 1958, the assessee could not be said to have committed any default until that date and if for not submitting the return on that date the assessee has a valid explanation, then there is no default at all under section 22(2) which could sustain the best judgment assessment order. He has for that purpose invited our attention to the last notice under section 22(4) which was given by the Income-tax Officer. A copy of the notice has been annexed to the notice of motion taken out by the assessee. In particularising the accounts and documents, which the notice required the assessee to produce, the items mentioned are the books of account for the Samvat Year 2012 and return of income for Samvat Year 2012. Mr. Palkhivala's argument is that the mention of the return of income for the Samvat Year 2012 in this notice amounts to giving an extension of time to the assessee to submit his return until the expiry of the time given by this notice.

8. We do not think that the submission which the learned counsel has made is capable of being accepted. In the first place, it was never the case of the assessee either before the Income-tax Officer, the Appellate Assistant Commissioner or the Tribunal. On the other hand, the Income-tax Officer has stated in his order that the assessee-firm had never asked for the time for the late submission of its return of income. Under section 22(3) of the Indian Income-tax Act, an assessee is enabled to submit a return or to revise the return submitted by him at any time until actually an assessment is made by the Income-tax Officer. A notice under section 22(4) is not a notice calling for the return of income for which the relevant provision is section 22(2). Notice under section 22(4) is for the purpose of calling upon the assessee to produce accounts and other documents such as may be required by the Income-tax Officer for the purpose of making the assessment. We do not, therefore, think that the mention of the return of the income for the assessment year in the notice under section 22(4) amounted to an extension of time given by the Income-tax Officer to the assessee for the purpose of submitting his return, which he was called upon to submit by the notice given to him under section 22(2). It is no doubt true that if, before the assessment is made, the assessee submits a belated return, the Income-tax Officer is bound to receive the same and on receipt of the said return by the Income-tax Officer he could not proceed to best judgment assessment on the ground that there was a failure on the part of the assessee to comply with a notice under section 22(3), but in the present case there has been no such return filed by the assessee before the assessment was made. We do not, therefore, agree with Mr. Palkhivala that the mention of the return for the assessment year in the notice issued under section 22(4) amount to an extension of time given by the Income-tax Officer to the assessee so as to enable him to contend that no default has been committed by him in not complying with the notice under section 22(2).

9. Mr. Palkhivala has finally urged that on a proper construction of section 27 where there are more than one default committed by the assessee, for any one of which the Income-tax Officer is entitled to proceed to best judgment assessment, if even one of the defaults is explained by the assessee, he is entitled to have the best judgment assessment cancelled and a fresh assessment made under section 23. It may be, says the learned counsel, that the fresh assessment which may be made may also be a best judgment assessment if all the defaults are not explained, but the best judgment assessment which is made on the basis of all the defaults together must be set aside. In the fresh best judgment assessment which may be made thereafter, the assessee must be entitled to take advantage of complying with that notice for the failure to comply with which he has offered good and sufficient reasons. We do not think that the submission, which has been urged by Mr. Palkhivala, has much force in it. Section 23(4) enumerates the defaults which lead to the consequence of a best judgment assessment and the language of the section shows that the presence of even one of them, though there may be more or all in a given case, requires the Income-tax Officer to proceed to a best judgment assessment. The best judgment assessment which is made by reason of the existence of these faults can only be cancelled under section 27 if sufficient cause has been shown for each of the defaults. It is not sufficient for the assessee to say that although he was not able to show sufficient cause for all the defaults, since he could show cause for some of them, the best judgment assessment can be cancelled. In Commissioner of Income-tax v. Laxminarain Badridas, the Privy Council has held that if there is a failure on the part of the assessee to comply with one of the notices mentioned in section 23(4) on the basis of which a best judgment assessment could be made and if that failure has not been properly explained by him by showing that he had not a reasonable opportunity to comply with that notice or he was prevented by sufficient cause from complying with that notice, the best judgment assessment must stand and it would be irrelevant that the assessee is in a position to show that his failure to comply with another notice was for sufficient cause. The argument of Mr. Palkhivala, that even if the assessee could not challenge the best judgment assessment if there is a failure to comply with one of the notices mentioned in section 23(4) and the failure is not properly explained by him, he would at any rate be entitled to have the best judgment assessment order passed against him set aside if he is in a position to show sufficient cause for not complying with another notice issued to him again, cannot be accepted. If the best judgment assessment is set aside, the procedure laid down in section 23 will have to be followed again and unless there are fresh defaults in relation to the said assessment, there could be no best judgment assessment. If, in the present case, the best judgment assessment already made is set aside and the Income-tax Officer is directed to make a fresh assessment, he will not be able to rely upon the failure to comply with the notice under section 22(2) in not submitting a return if the assessee, before the fresh assessment order is made, furnishes the return. In our opinion, therefore, all the contentions which are argued on behalf of the assessee by the learned counsel do not avail him in persuading us to come to the conclusion that the view taken by the Tribunal is erroneous.

10. The result, therefore, is that our answer to the question, which has been referred to us, is in the negative. The assessee will pay the costs of the Commissioner.

11. There will be no order on the notice of motion and no order as to costs.

Question answered in the negative.


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