1. The assessees failed to submit a return for the assessment year 1945-46 in response to a notice under Section 22 (2) of Income-tax Act. They also failed to produced the account books in answer to the notice under Section 22 (4) of the Act. Thereupon the Income-tax Officer made the assessment under Section 23 (4) and he estimated the sales effected by the assessees, who are doing business of chemists and druggists, at Rs. 9,00,000 and applied a flat rate of 25 per cent. to compute the gross profits. The assessees then made an application under Section 27 for setting aside the assessment under Section 23 (4). That application was dismissed by the Income-tax Officer. the assessees then preferred two appeals to the Appellate Assistant Commissioner, one against the order of the Income-tax Officer under Section 27 and the other against the quantum of the assessment under Section 23 (4). The Appellate Assistant Commissioner dismissed the appeal against the order of the Income-tax Officer under Section 27. With regard to the appeal in respect of the quantum under Section 23 (4) he made an order of remand and directed the Income-tax Officer to get the books of account of the assessees properly examined and to submit the report in detail within a month. The remand report came before the Appellate Assistant Commissioner who considered the report and dismissed the appeal. The assessees then preferred an appeal to the Appellate Tribunal and the assessees desired the Tribunal to consider the remand report, and the view taken by the Appellate Tribunal was that the Appellate Assistant Commissioner was not competent in law to direct the Income-tax Officer to examine the books of the assessees and submit a report to him, and therefore they refused to look at the remand report; and the substantial question that has been submitted to us for our opinion is whether the Appellate Assistant Commissioner in law has the power to direct the Income-tax Officer who has made an assessment under Section 23 (4) to consider the books of account of the assessees and make a report on those books of account.
2. Now, the power of the Appellate Assistant Commissioner arises under Section 31 (2) and that power is that before disposing of any appeal he may make such further inquiry as he thinks fit or cause further inquiry to be made by the Income-tax Officer. It is contended on behalf of the assessees that the Legislature has not thought fit to put any limitation upon the power of the Appellate Assistant Commissioner to make or cause to be made any further inquiry, and if in order to dispose of an appeal against a bast judgment assessment the Appellate Assistant Commissioner thinks it necessary to have the books of account of the assessees examined, he has the power to do so and jurisdiction cannot be challenged. On the other hand, it is contended--and with considerable force--that conferring such power upon the Appellate Assistant Commissioner would really be stultifying the whole scheme of the Act and by-passing the provisions of Section 27 of the Act. It is pointed out that in this particular case the assessees did not produce the books of account in answer to the notice served upon them under Section 22 (4). They made an application under Section 27 to cancel the assessment made under Section 23 (4) and to be given an opportunity to produce their books. That application was dismissed by the Income-tax Officer and the order was confirmed in appeal and no further appeal was preferred to the Appellate Tribunal. Ex-hypothesi, therefore, the Income-tax Officer must make the assessment under Section 23 (4) in the absence of the books of the assessees. The books of account cannot and should not be before him because they were not produce at proper time and the attempt of the assessees to produce them later had been rejected. It is therefore pointed out that the Appellate Assistant Commissioner cannot direct the Income-tax Officer to do what in law he could not do and should not do.
3. It must be borne in mind that when the books of account are produced by the assessees and the assessment is an ordinary normal assessment under Section 23 (2), unless the books are rejected under Section 13, the assessment proceeds on the basis of the books produced by the assessees. Under Section 23 (4) the assessment is according to the judgment of the Income-tax Officer, and even though books of account may be looked at by him under the direction of of the Appellate Assistant Commissioner, they would be looked at for an entirely different purpose for which he would look at them if he was proceeding to assess the under Section 23 (3). Therefore, if the Appellate Assistant Commissioner directed the Income-tax Officer to look at the books of account, it could only be for the purpose of arriving at his best judgment. It is true that the further inquiry contemplated by Section 31 (2) must be an inquiry for the purposes of disposing of the appeal, and the question in appeal before the Appellate Assistant Commissioner must be whether the judgment of the Income-tax Officer was properly exercised under Section 23 (4) and whether the quantum arrived at by the Income-tax Officer was properly and fairly arrived at. But can it be said that under no circumstances is the Appellate Assistant Commissioner permitted to direct the Income-tax Officer to look at the books of account, which books have not been and cannot be produced for the purpose of the ordinary assessment We fully appreciate the point of view put forward on behalf of the Department that the assessees should not be allowed to sit on the fence, take the chance of a best judgment assessment is not in their favour and the production of the books of account which they have suppressed may result in an assessment more favourable to them, then ask for the examination of their books. We also appreciate the point of view of the Department that the weight to be attached to the books of account which have not been produced at the proper time must always be very slight. But what we are considering in this reference is not the right of the assessees to produce their books, but it is the power and the jurisdiction of the Appellate Assistant Commissioner to direct the Income-tax Officer to look into these books of account was taken away when their appeal under Section 27 was dismissed. They could not insist on the assessment being 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 statue and not from the point of view of its practical application. In this particular case with which we are dealing, there can be no doubt that the order of the Appellate Assistant Commissioner is entirely erroneous. he points out that the order under Section 27 clearly shows that the default committed by the assessees are not habitual defaulters and regret the default which has been committed and give an oral assurance that in future all the notices will be complied with regularly and properly, he wishes to give the assessees one more opportunity to produce their books of account. Therefore, in this particular case the Appellate Assistant Commissioner has made this order of remand in order to assist him in deciding the quantum or in deciding whether the judgment exercised by the Income-tax Officer was a proper judgment. The order of remand made by the Appellate Assistant Commissioner, with respect to him, has really stultified his own previous order. Having held that there was no sufficient cause for not producing the books of account and having dismissed their application under Section 27, he proceeds to give to the assessees an opportunity to produce those very books of account. In effect he is really making an order under Section 27 and not an order Section 31 (2).
4. If the order of remand is bad, as we hold it is, then undoubtedly there was no obligation upon the Appellate Tribunal to consider the report made on that order of remand, and therefore the Tribunal were within their powers in refusing to apply their mind to the report which was made by the Income-tax Officer on the order of remand.
5. There is one decision to which reference might be made, which was referred to at the Bar. That is a decision of the Punjab High Court which is directly in point and where the facts were almost identical with the facts of this case, and the case is reported in Brij Mohan Rameshwar Dass v. Commissioner of Income-tax . There too, two appeals were filed against the order of the Income-tax Officer. One was an order under Section 27 and the other was an order Section 23 (4) and the appeal against the order under Section 27 was dismissed. Then an order for remand was made by the Appellate Assistant Commissioner and order of remand was to recompute the income on the basis of further inquiry and the Income-tax Officer was asked as well to look into the assessee's accounts. The Income-tax Officer made a further assessment. When the remand report came back to the Appellate Assistant Commissioner, that office was being holding that his predecessor had erred in permitting or directing the accounts of the assessee to be looked into by the Income-tax Officer. Then there was an appeal to the Appellate Tribunal and the question that was propounded was whether the Appellate Assistant Commissioner had jurisdiction by this order of remand to permit the Income-tax Officer to take into consideration the accounts of the assessee, and the Punjab High Court held that the Appellate Assistant Commissioner had the power so to do, and the learned Chief Justice as page 40 in his judgment says :-
'There is nothing in Section 31 (2) which limits the scope of the further inquiry order 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.'
6. The learned Chief Justice further adds that they were not concerned to pronounce upon the weight, if any, which should be attached to the account books, and he also express the opinion that the question before them give the answer. With respect, we take the same view of the matter that for all practical purposes the question is academic because it is difficult to contemplate a case where the Appellate Assistant Commissioner will direct the Income-tax Officer to look into the books of the proper time in answer to a notice issued under the Act. But in this particular case it is not even necessary to give the academic answer as had to be done by the Punjab High Court, because if the order made by the Appellate Assistant Commissioner is an erroneous order, as we hold it was, then it is sufficient for us to say that particular order was not in accordance with law and that order not being in accordance with law, there was no obligation upon the Appellate Tribunal to consider the report made on that order.
7. Mr. Kolah has attempted to argue that it is not open to the Department to contend that the order of the Appellate Assistant Commissioner was erroneous, inasmuch as that order has become final and no appeal has been preferred against it by the Commissioner under Section 33. In our opinion that contention of Mr. Kolah is entirely untenable. The power given by the Appellate Assistant Commissioner under Section 33 (2) is a power confined to preferring appeals against the substantive orders made under Section 31 and those substantive orders are made by the Appellate Assistant Commissioner under Section 31 (3). It is that sub-Section that provides that in disposing of the appeal the Appellate Assistant Commissioner may pass the various orders which are set out in clauses (a) to (h). But what the Appellate Assistant Commissioner was doing in this case was not passing any order. All that he was doing was issuing a direction under Section 31 (2) and such a direction is clearly not appealable the commissioner could not have appealed against that order. The substantive order passed by the Appellate Assistant Commissioner was dismissing the appeal of the asessees and therefore the Commissioner was never aggrieved by that order and no question of appealing against that order ever arose. We have to consider the direction given by the Appellate Assistant Commissioner because before the Appellate Tribunal the assessees insisted upon the Tribunal considering the report order itself was a proper order; and if the order was not a proper order, no question of considering the report made on that order can arise.
8. The result therefore is that we must answer both the questions submitted to us in the negative. No order as to costs.
9. Reference answered accordingly.