M.C. Chagla, C.J.
1. A rather important and interesting question arises on this reference, which has not been considered by any decision of this Court, although there is authority of the Calcutta High Court, Allahabad High Court and the Madhya Pradesh High Court, and the question arises under the following circumstances.
2. The assessee is a firm and the assessment year is 1951-52 the relevant accounting year being S.Y. 2006 ended on 9-11-1950. Now, on certain evidence which the Income-tax Officer took, he came to the conclusion that the assessee was maintaining a separate set of books which had not been produced before him and which recorded transactions which had not been entered in the account books that the assessee had produced. On that, he issued a notice under Section 22(4). The contention of the assessee was that he did not have two sets of books, that whatever books, he had been produced and therofre he could not comply with the notice. As the assessee failed to comply with the requisition made by the Income-tax Officer, the Income-tax Officer proceeded to assess the assessee under Section 23(4) the best judgment assessment. The assessee appealed against this to the Appellate Assistant Commissioner and before the Appellate Assistant Commissioner the assessee attempted to argue the question as to whether the Income-tax Officer was right in the view that he took that the assessee maintained two sets of books of account and also whether the Income-tax Officer was right in assessing the assessee under Section 23(4). The Appellate Assistant Commissioner took the view that it was not open to the assessee to argue that question he not having made an application under Section 27. The assessee went in appeal to the Tribunal and the Tribunal upheld the decision of the A.A.C. and the assessee has now come on this reference.
3. Now, turning to the relevant provisions of the Act, the right of appeal to the A.A.C. is conferred under Section 30 and that section provides that any assessee objecting to the amount of income assessed under Section 23 or Section 27 or the amount of loss computed under Section 24 or the amount of tax returned under Section 23 or Section 27, we will only quote the relevant provisions of this section, may appeal to the A.A.C. against the assessment. Now, this is an assessment under Section 23 and an appeal against that assessment lies under Section 30. What is contended by the Department is that when an appeal is limited to the question of the amount of income assessed or the amount of tax determined, it is not competent to the assessee in such an appeal to raise a question as to the validity of the assessment made by the Income-tax Officer under Section 23. What is pointed out is that the Legislature has provided a special machinery for challenging the validity of the assessment and if the assessee does not avail himself of that machinery, then he cannot challenge the validity under Section 30. Now, the machinery provided is under Section 27 and that section provides that where an assessee within one month from the service of a notice of demand issued as hereinafter provided, satisfies the Income-tax Officer that he was prevented by sufficient cause from making the return required by Section 22 or that he did not receive the notice issued under Sub-section (4) of Section 22, or Sub-section (2) of Section 23, or that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from co plying, with the terms of the last mentioned notices, the Income-tax Officer shall cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of Section 23.
4. Now, what is urged is that after the Income-tax Officer had made an assessment under Section 23(4), within the time limited by Section 27, it was open to the assessee to satisfy the Income-tax Officer that he was prevented by sufficient cause from complying with the terms of the notice issued under Section 23(4) and that on such an application being made by the assessee it was open to the Income-tax Officer to cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of Section 27. If the Income-tax Officer had refused to cancel the assessment, a right of appeal against such refusal is expressly given under Section 30 and it was open to the assessee to have had the matter decided in appeal by the A.A.C., with further appeal to the Tribunal and if necessary on a reference to this Court. Therefore, what is urged is that the question whether the assessee had sufficient cause which prevented him from complying with the terms of the notice issued by the Income-tax Officer could only be litigated under Section 27 on an application made by the assessee and it could only be litigated before the A.A.C. and the Tribunal and if necessary on a reference to the High Court in appeal made against the order of the Income-tax Officer under Section 27 refusing to cancel the assessment. It is further urged that the assessee not having availed himself of the machinery provided by Section 27, he has accepted the validity of the assessment. He has not challenged the fact that he was contumacious in not complying with the requisition issued by the Income-tax Officer and having accepted the validity of the assessment all that he can challenge in appeal is the quantum of the assessable income and the quantum of the tax that he has to pay on that assessable income.
5. Now, Mr. Samarth's contention is that this is not a case which falls under Section 27 and he concedes both in view of the authorities, which we shall presently refer and also on principle that if the case fell under Section 27 then the only way to litigate that matter is in accordance with the machinery laid down under the Act. In other words he admits that if his client could have made an application under Section 27 then he should have appealed against the order made by the Income-tax Officer under Section 27 and he cannot now agitate this question not having made an application under Section 27.
6. Now, the first question that we have to consider is whether the assessee could have applied under Section 27 for cancellation of the assessment made by the Income-tax Officer under Section 23(4)? Now, what is urged by Mr. Samarth is that this is not a case where the assessee had books of account or materials which he refused to produce. This is a case where the assessee's contention is that he does not possess the books which the Income-tax Officer suspects he does and he is being called upon to do something which it is impossible for him to do, and according to Mr. Samarth, the Income-tax Officer having taken the view that the assessee is maintaining double sets of books, it would be futile for him to apply under Section 27 to convince the Income-tax Officer that his view is wrong and he should cancel the assessment made by him under Section 23(4). Now, the scheme of the Act makes it clear that whenever an order is made under Section 23(4) which is a best judgment assessment and which may be compared to an ex parte judgment or order passed in a Civil Court, the Legislature has made a provision for challenging that order, if we may use the expression 'the ex parte order' and that provision is to be found in Section 27. We would make the machinery unworkable, if we were to take the view that there are certain cases in which the Income-tax Officer may proceed ex parte and make a best judgment assessment and yet to these cases Section 27 would have no application. We can only make a distinction between case and a case if the distinction is based on some principle. It is difficult to understand the principle for which Mr. Samarth is contending. What is the difference in principle between a case where the assessee refuses to produce books which he admits he possess and a case where the assessee refuses to produce books which the Income-tax Officer believes he possess. In both the cases, the basis of the Income-tax Officer's order is that the conduct of the assessee is contumacious and being contumacious he proceeds to make a best judgment assessment. Therofre, in our opinion, Section 27 is wide enough to cover every kind of cases where the Income-tax Officer proceeds to make a best judgment assessment by reason of the contumacious conduct of the assessee. In this very case, it is difficult to understand why it was not open to the assessee to show sufficient cause which prevented him from complying with the notice issued by the Income-tax Officer. The cause might have been the same which he had shown before the Income-tax Officer or he might have had a better cause or he might have had more materials to satisfy the Income-tax Officer. Even if the cause might be the same, it is difficult to take the view that it is inconceivable that the Income-tax Officer would have ever changed his mind or would admit that he had made a mistake. Therefore, there is no reason to assume that in the case which we are dealing with and which is a rather extreme case where the Income-tax Officer has taken the view that the assessee maintains a double set of books and calls upon him to produce the other set and the assessee contends that he does not maintain a double set of books, that Section 27 has no application and that in such a case it is not possible for the assessee to show sufficient cause why he did not comply with the notice issued by the Income-tax Officer. Therofre, if the case falls under Section 27 -- and we hold that it does there is no question that a specific right of appeal has been given to the assessee under Section 30 against the order passed under Section 27 and if he has not availed himself of that right, he is now precluded from agitating the same question. To put it in a different language, the order made by the Income-tax Officer that under the circumstances he is entitled to make a best judgment assessment has become final and conclusive. To that extent when the assessee appeals against an assessment under Section 24(4) he cannot challenge that order. Apart from that, it is open to him to challenge the actual assessment made and in challenging that it is open to him to satisfy the A.A.C. that the assessment made by the Income-tax Officer was not a proper assessment. The larger question as to whether it is open to an assessee to raise a question of the validity of the assessment even though he could have applied under Section 27 has been argued at some length and our attention has been drawn to various authorities, and we might now proceed to consider it. Now, in this connection, we might look at that the legislative provision was with regard to appeal prior to the Act of 1939. Under the old Act, while Section 30 gage a right of appeal against the assessment under Section 23 or 27, the proviso limited the right of appeal by providing that no appeal shall lie in respect of assessment made under Section 23(4) or under that sub-section read with Section 27. Therofre, against a best judgment assessment, the assessee had no right of appeal at all. He could not appeal against the quantum of the assessable income determined by the Income-tax Officer. His only right was to appeal against an order made under Section 27 and if he did not do so the assessment under Section 23(4) not only became conclusive with regard to the matters covered by Section 27 but it also became conclusive with regard to the quantum. Now in the Act of 1939 the proviso was deleted with the result that an important additional right was given to the assessee, namely, to challenge the best judgment assessment with regard to the quantum. But the provision with regard to challenging the assessment with regard to its validity continued to be the same. In other words, an appeal could only lie with regard to the validity of the assessment provided an application has been made under Section 27 and an application was refused by the Income-tax Officer.
7. Now, in this connection, a certain provision of the Act may be looked at which is with regard to the cancellation of a certificate of registration. Now, Section 23(4) while providing for the best judgment assessment also empowers the Income-tax Officer when the assessee is a firm to refuse to register it or to cancel its registration if it is already registered. Now, it is clear that this provision is penal in character. The result of the contumacy of the assessee is not only that he is liable to be assessed as it were ex parte but if the assessee happens to be a firm, the result of its contumacy may be that the registration of the firm may be cancelled. Now, when we turn to Section 27, no provision is made under Section 27 for applying to set aside cancellation of the registration, as there is a provision for setting aside the best judgment assessment. The only right with regard to the cancellation of registration is a substantive right of appeal given under Section 30; so that when a registration is cancelled under Section 23(4) the only right that the assessee has is to appeal against that order under Section 30. When he does so, undoubtedly it would be open to him to satisfy the appellate authority that the penalty was erroneously imposed upon him and in doing so it would be equally open to him to satisfy the appellate authority that he was not contumacious. Mr. Samarth says that it is rather illogical that if he can do so when he appeals against the cancellation of registration, he should be prevented from urging the same point when he is appealing against the best judgment assessment under Section 23(4). The answer is obvious. Whereas the Act has set up a machinery under Section 27 for challenging the decision of the Income-tax Officer to assess according to his best judgment assessment under Section 23(4), the Legislature has not set up any such machinery with regard to the challenging of the order cancelling the registration and, therofre, when the Legislature gives a right of appeal against that order, we must see to it that that right is an effective right and that right can only be effective provided the assessee is entitled to urge in that appeal every circumstance which will go to satisfy the appellate authority that the order should not have been made by the Income-tax Officer and that he was not contumacious in failing to comply with the notice issued by the Income-tax Officer. Therefore, the whole scheme is a harmonious one and constitutes a coherent whole. When a case falls under Section 27, then any grievance that the assessee has against the Income-tax Officer for not making the requite order must be litigated in an appeal against an order under Section 27. When Section 27 has no application, then any question that might arise in appeal which has a bearing with regard to an order made by the Income-tax Officer under Section 23(4) can be litigated in an appeal under Section 30. But as we have already pointed out, apart from cases of cancellation of registration, which, in terms, do not fall under Section 27 every other case of contumacious refusal of an assessee of complying with any notice issued by the Income-tax Officer must necessarily fall under Section 27 and an order made by the Income-tax Officer that he would proceed to assess under Section 23(4) can only be challenged under Section 27.
8. In the light of this, let us turn to the authorities which were referred to at the bar. The decision, which is very strongly relied upon by Mr. Samarth is a recent judgment of the Madhya Pradesh High Court and that is reported in Suganchand Kanhaiyalal v. Commr. of Income-tax M.P. and Bhopal, : 34ITR152(MP) . Now, we agree that this is a case which on facts is almost identical with the case that we have before us. That was also a case where the assessee contended that no separate books were maintained at a particular branch where the business was carried on and the Income-tax Officer took the view that the books had been suppressed and the Income-tax Officer proceeded to assess the assessee under Section 23(4) as he failed to produce these books, which, according to the Income-tax Officer he had suppressed. The assessee appealed against the order of the Income-tax Officer under Section 30 and the Madhya Pradesh High Court held that in that appeal the question whether the Income-tax Officer was justified in holding that the books of account were suppressed was implicit and it was incumbent on the Appellate Assistant Commissioner to decide whether the contention of the assessee that the books of account did not exist was correct. Now, with great respect, we are unable to agree with the view of the Madhya Pradesh High Court that the question whether the assessee was justified in not producing the books which were held to be suppressed was a question which did not fall within the ambit of Section 27. The learned Chief Justice at page 154 (of ITR): (at p. 276 of AIR), points out the cases to which Section 27 applies, and the last case which is there enumerated is 'where he was prevented by sufficient cause from complying with the terms of the notice.' The learned Chief Justice goes on:
'The section does not contemplate a situation in which the assessee says that no books of account were maintained separately at a branch office and the Income-tax Officer holds on evidence before him or otherwise, that such books of account must have been maintained. Where such a finding is given by the Income-tax Officer, the words of Section 27 are inapposite, and no application can really be made for a de novo assessment.'
With very great respect, it is difficult to understand why the expression 'prevented by sufficient cause' was inapposite or was not wide enough to cover a case where the assessee wants to satisfy the Income-tax Officer that he could not produce the books because not that he had suppressed them but in fact they did not exist. This decision is confined to a case where, according to the Madhya Pradesh High Court, a case does not fall under Section 27 and as we have already pointed out earlier, there would be considerable force in the contention of Mr. Samarth if we were to accept his submission that the present case following the view of the Madhya Pradesh High Court doe snot fall under Section 27. We are always reluctant to differ from an Indian High Court when it considers an all-India Statute. But in this case, no authority was cited before the Madhya Pradesh High Court and the earlier decisions of the Calcutta and the Allahabad High Court were not referred to at all. We are sure that if the attention of the learned Judges had been drawn to these decisions, they would have come to the same conclusion which we have come to.
9. The next case to which reference may be made is the judgment of the Calcutta High Court reported in Naba Kumar Singh Dudhuria v. Commr. of Income-tax, Bengal : AIR1945Cal104 , and the Calcutta High Court took the view that the right of appeal under Section 30 should be limited as regards Section 23 and Section 27 to the quantum of assessment of tax. Section 30 does not entitle the assessee to challenge the assessment under Section 23(4) if he has not taken any steps under Section 27 to cancel the order. In our opinion with respect this correctly represents the law on the subject.
10. To the same effect are the two judgments of the Allahabad High Court, Chhotelal Gobardhan Das v. Commr. of Income-tax U.P. and V.P. Lucknow, : 23ITR272(All) ; and Padampat Singhasia v. Commr. of Income-tax U.P. and Ajmer, Merwara, Lucknow : 24ITR141(All) . Now, Mr. Samarth has made an attempt to distinguish these cases and what he contends is that in the case before the Calcutta High Court the facts were that a Hindu undivided family was served with a notice for submitting a return. The return was made by a particular person and that return was challenged as not being by authorised person and the view taken by the Income-tax Officer was that there had been no proper return and therefore he proceeded to assess under Section 23(4). In : 23ITR272(All) , it is pointed out that it was a case of non-production of existing books. Similar is the case in : 24ITR141(All) , and what Mr. Samarth says is that in none of these three cases they had a case similar to the one before us where the ground of proceeding under Section 23(4) was not a non-production of existing books but of books having been suppressed. As we have already pointed, we see no distinction in principle between the facts in three cases to which reference has been made and the facts in the case before us. All these are cases which fall under Section 27 and if they do fall under Section 27, then all the three authorities have laid down that an appeal against the assessment under Section 23(4) must be restricted to the quantum.
11. The result, therefore, is that we must uphold the view of the Tribunal, although with respect we feel that the controversy between the parties has not been properly brought out in the questions as framed by the Tribunal. We will, therefore, reframe the question and divide it into two parts. The first question will be:
To that our answer will be in the affirmative.
(2) If the assessee could have made an application under Section 27, whether it was open to him to challenge the validity of the assessment under Section 23(4) in an appeal under Section 30?
And our answer to that question will be in the negative.
12. The assessee must pay the costs.
The Notice of Motion is dismissed with costs.
13. Answer accordingly.