CHANDRASEKHARA SASTRY J. - These two references, on under section 66(1) and the other under section 66(2) of the Indian Income-tax Act respectively, arise out of the same assessment proceedings.
We shall first take up R.C. No. 49 of 1959. The assessee is firm consisting of two partners, Kodidasu Appalaswamy and Suryanarayana. The assessment year is 1952-53, the account year being from April 1, 1951, to March 31, 1952. The assessee firm carried on the business of milling paddy and manufacturing of groundnut oil. The application which led to this reference was filed by Kodidasu Appalaswamy, one of the two partners of the assessee firm. It appears that he subsequently died on June 26, 1959, and that, therefore, his son, Sanyasi Row, was impleaded as his legal representative. Appalaswamys share was 3/4th and Suryanarayanas share was 1/4th. A notice under section 22(2) of the Income-tax Act was served upon the firm on June 13, 1952, and the date before which the return had to be submitted was July 18, 1952. But no return was filed within the time. One return was filed on January 8, 1953, under section 22(3); but it was not accompanied by the usual documents such as, profit and loss account, balance-sheet, etc., which an assessee is require to annex to the return. Therefore, a notice under section 23(2) was issued on May 17, 1955. It appears that, ever prior to that date, the Income-tax Officer had issued several notices under section 22(4) and for every one of them the assessee asked for adjournment on some ground or other. Even after the issue of the notice under section 23(2) a number of adjournment were asked for and granted. It appears from the statement of the case that between May 17, 1955, and February 22, 1957, the Income-tax Officer gave adjournments on not less than nine occasions. The assessment for the assessment year 1952-53 had to be completed on or before March 31, 1957. In spite of this, when the matter was posted to March 5, 1957, the assessee again asked for n adjournment. The request was granted and the case was finally posted to March 25, 1957. On that day, no one appeared for the assessee. But a telegram was sent by the Sanyasi Row, the son of Appalaswamy, stating that his father was serious ill. Since either he or the other partner, Suryanarayana, never a appeared for the enquiry before the Income-tax Officer, the latter refused to grant adjournment and made the order of assessment on March 29, 1957, under section 23(4) of the Act for default under section 23(2). He determined the income of the assessee firm at Rs. 75,000 subject to depreciation allowance of Rs. 3,268 and determined the total assessable income at Rs. 71,732. He also refused to grant registration of the firm for the assessment year 1952-53, in exercise of the discretion vested in him under section 23(4). In due course, an application under section 27 was made; but it was dismissed.
A copy of the order of assessment and the notice demanding the payment of the tax pursuant to the order of assessment were served upon the assessee firm on April 6, 1957. On these facts, the following question for decision was referred to the High Court :
'Whether the assessment made on March 29, 1957, is barred by limitation according to the provisions of section 34(3) by reason of a copy of the order and the relevant demand notice having been served upon the assessee on April 6, 1957 ?'
Section 34, clause (3), of the Income-tax Act reads as follows :
'No order of assessment of reassessment, other than an order of assessment under section 23 to which clause (c) of sub-section (1) of the section 28 applies or an order of assessment or reassessment in cases falling within clause (a) of sub-section (1) of sub-section (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable.'
The argument of the learned counsel for the assessee is that since the demand notice was served upon the assessee only on April 6, 1957, the assessment is barred by limitation having regard to section 34(3). The fact that the assessment was made on March 29, 1957, is not in dispute and that, if that date is to be taken into account the assessment is made within the period prescribed under section 34(3). The contention which a copy of the order of assessment and the notice of demand were served on the assessee (i.e., April 6, 1957, in the present case) that has to be taken into account and that, therefore, the assessments barred by limitation. In support of this contention, reliance is placed upon the decision in Swaminathan v. Lakshmanan. In our opinion, that case has no application to the present case. The question that arose for decision in that case was one under section 77 of the Indian Registration Act. In that case, an order was passed by the sub-Registrar refusing registration of a document on the ground that the document did not appear and admit it execution and the party affected by the order applied to the Registrar under section 73(1) of the Registration Act to establish his right to have the document registered more than thirty days after the sub-Registrar passed the order but with thirty days after the communication of the order reached the applicant. It was held that :
'In a case where an order was not passed in the presence of the parties or after notice to them of the date when the order would be passed, the expression within thirty days after the making of the order, used in section 73(1) and section 77 of the Act means within thirty days after the date on which the communication of the order reached the parties affected by it.'
As already pointed out, this decision has no bearing at all on the question. Under section 34, clause (3), the order of assessment could be passed within the period mentioned therein and, in this case, it is not disputed that the order was in fact passed by the Income-tax Officer within the period prescribed. In our opinion the date on which the notice of demand and the copy of the order of assessment were served on the assessee is not at all material as the language of section 34, clause (3), is very clear and unambiguous.
The decision in Viswanathan Chettiar v. Commissioner of Income-tax is again the contention urged by the learned counsel for the assessee. We, therefore, answer this questions against the assessee; but, in the circumstances we make no order as to costs.
We shall next take up the question that arises for determination in R.C. No. 10 of 1961 which is as follows :
'Whether on the facts and in the circumstances of the case the estimate of the income for the assessment year 1952-53 in a sum of Rs. 50,000 is sustainable in law ?'
As already stated, when discussing the question in R.C. No. 49/59, the total income fixed by the Income-tax Officer was Rs. 75,000 subject to the allowance for depreciation. The assessee disputed the assessment in appeal before the Appellate Assistant Commissioner, who reduced the estimate to Rs. 50,000. The assessee appealed to the Income-tax Appellate Tribunal, Hyderabad Bench. The Tribunal however confirmed the order of the Appellate Assistant Commissioner. It may be noted that the assessment was made under section 23(4) of the Act. In spite of several adjournments, the assessee did not place any material before the Income-tax Officer, who made the order of assessment on March 29, 1957, just two days before the assessment would be barred by limitation under section 34(3) of the Act. No question of giving a further notice arises in this case because if a further notice were to be given, the assessment itself would be barred by limitation. Therefore, the Income-tax Officer proceeded to assessee on the basis of the material available with him. He had in the possession information relating to the detention of one of the partners of the assessee firm, Appalaswamy, under the preventive Detention Act on charge of black-marketing activities in rice to the alarming extent in the course of which he was estimated to have made illegal profits amounting to Rs. 5 lakhs which were not brought to his regular accounts. This news item was reported in the India Express (Daily) dated August 28, 1951. No doubt, we are told that the order of detention was quashed by the High Court. Though at the time the Government abolished the procurement of paddy there were restrictions for the movements of paddy and rice from one district to another. The assessee is the proprietor of Sri Ganeswara Oil Mills at Payakarowpet of Vizagapatnam District. This place is just the bank of the Thandav river which forms the boundary between East Godavari District and Vizag District. East Godavari District is a surplus area and the Vizag District is deficit one where there was scarcity of rice. The suggestion is that the assessee firm as smuggling the rice into his mill from East Godavari District and was employing several persons for this purpose, who bring the paddy to the mills across the river by the head-loads, by bullock carts and also by train. These persons, it is stated, were paid in cash on the spot and the rice so purchased was sold in the black-market without being brought to the assessees accounts. That, is short, is the case for the income-tax department. On the night of June 6, 1951, 14 persons were actually found transporting various quantities of paddy and rice from East Godavari District to Visakhapatnam District without any permits and were actually caught red-handed by the Grain Movement Officer, Kakinada, at the mill premises of the assessee, to which place the paddy and rice were transported. On the same night, the mill was resided by the Grain Movement Office, Kakinada Taluk, the Supply Officer, Tuni, and the officials, and large variations in the stocks were discovered and according to the slips found the mill, unauthorised purchases of 280 bags for over Rs. 17,000 were detected on that day alone. These stocks were not accounted for in the facts taken into consideration by the Income-tax Officer and by the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal. Another fact on which reliance is placed by the department is a letter dated October 22, 1951, written by Suryanarayana, the other partner, to the Income-tax Officer, wherein the wrote as follows :
'Since our managing partner, M. Kodidasu Appalaswamy, is not in jail at Madras, I am not able to disclose the correct escaped income but only an appropriate figure. It will be about Rs. 60,000 (rupees sixty thousand) roughly. The details of this income will be furnished after consulting Mr. K. Appalaswamy.'
No doubt, this letter does not state that this suppressed income of Rs. 60,000 was for how many years and for what years. But this does certainly show that the assessee firm was suppressing the income on a every large scale and the income-tax authorities are entitled to rely upon this statement of one of the partners when determining the income. It is submitted by the learned counsel for the assessee before us that for the previous assessment year, the Appellate Assistant Commissioner himself pointed out that this statement of suppression of income of Rs. 60,000 cannot be taken to be for any one particular year. That may be so but this statement is evidence of the fact that the assessee firm was not disclosing all it income it its accounts. The department took into account also the fact that, for the earlier years, the firm was assessed on large incomes, Rs. 52,000 for 1948-49 and Rs. 84,000 for 1949-50. The department also took in to account that the assessee firm showed a loss of Rs. 6,000 for the year 1950-51. But it may well be that the assessee firm was able to show a loss of Rs. 6,000 for 1950-51 for the reason that the assessee firm suppressed it income as is evident from the letter of the partner, Suryanarayana, referred to above. These are the main facts on which the Tribunal relied in confirming the order of the Appellate Assistant Commissioner determining the income of the assessee firm at Rs. 50,000.
But is it argued by Sri Ramakrishna Row, the learned counsel for the assessee, that the finding of the Tribunal based upon mere suspicion and irrelevant material and that the law requires that the conclusions reached by the Tribunal should not be coloured by any irrelevant consideration or matters of prejudice. Therefore, it is urged that the Tribunal may be asked to reconsider the matter. In support of this argument, reliance is placed upon the decision so the Supreme Court in Omar Salay Mohamed Sait v. Commissioner of Income-tax and Lalchand Bhagat Ambica ram v. Commissioner of Income-tax Act, wherein it was held that :
'ON NO ACCOUNT WHATEVER should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, it is finding, even though on question of fact, will be liable to be set aside by this court.'
But, at the same time, it must, be remembered that the assessing authorities are not bound by strict rules of evidence. It was held by the Privy Council in Commissioner of Income-tax v. Laxminarain Badridas that :
'Under section 23(4) of the Income-tax Act the officer is to make as assessment to the best of his judgment against a person who is in defaults regards supplying information. He must not act dishonestly, or vindictively or capriciously because be must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessees circumstances, and his own knowledge of previous returns by, and assessments of, the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate.
For these reasons, we are unable to agree with the contention of the learned counsel for the assessee that the order of the Income-tax Appellate Tribunal has to be set aside. We, therefore, answer the question for decision against the assessee. In the circumstances of the case, we make no order as to costs.
Question answered accordingly.