In compliance with our order dated the of February 11, 1942 the Commissioner of Income-tax, Central and United Provinces, has stated a case and referred a question of law for our decision. We indicated that question of law in our order, and the same question has been referred to us for decision by the learned Commissioner. The question is as follows :-
'Whether the Assistant Commissioner had jurisdiction in appeal to substitute a different method of computation for the method which had been adopted by the Income-tax Officer ?'
Under the provisions of Section 66(3) of the Act if the Commissioner has refused to state a case on the ground that no question of law arises and the assessee makes an application to this Court, then if we are satisfied that a question of law does arise (it may be substantial question of law or otherwise) we can require the Commissioner to state a case and to refer the question of law that does arise for our decision.
It was under these circumstances that we directed the Commissioner to state a case, but now that all the facts have come out on a perusal of the various orders of the Income-tax authorities, we think that the question of law in the circumstances of the present case ought to be answered in the affirmative.
The facts are that the assessee is a Hindu undivided family which carries on business in cloth, sarrafa, money-lending, grain, arahat speculation in gold and silver etc. etc. at Rasra, Ballia and Calcutta. The assessee owns as many as six shops in these places and when the profits for the year 1933-34 were being assessed the Income-tax Officer looked into the accounts of all these six branches and came to the conclusion that the profits were Rs. 32,489/-. In some of the branches the Income-tax Officer calculated the profits on the book is filed by the assessee himself, and he thought that there it was possible to determine the profits after a reference to the books of account. As regards two or three branches he was of the opinion that some profits could be calculated with reference to the books of account but some other profits ought to be added inasmuch as the books of account did not afford sufficient data for calculating the profits, in respect of certain turnover the Income-tax Officer under the proviso to Section 13 of the Act computed the profits in such manner as he thought best and he held the view that a certain standard rate of profit on the sales should be adopted. In this manner he calculated the profits of the various branches and came to the conclusion that Rs. 32,489/- were the profits of the assessee for the year 1933-34.
There was an appeal to the Assistant Commissioner and in the first instance the Assistant Commissioner asked for a report from the Income-tax Officer. It is true that the Assistant Commissioner uses the word 'remand' which ordinarily under the Civil Procedure Code is considered, as it were, a final order of the appellate authority passed after the disposal of the case, but in this particular instance it is quite clear from the order of the Assistant Commissioner date the November 19, 1934 that all that the Assistant Commissioner did was to ask for a report from the Income-tax Officer. This, we think, he was entitled to do under the provisions of Section 31(2) of the Act.
When the Income-tax Officer was submitting report, the assessee did not co-operate with him but wanted to withdraw the appeal and therefore the Income-tax Officer on the April 11, 1935 submitted a more or less colourless report saying that no explanation has been offered regarding deposits in personal accounts. The Assistant Commissioner then on the of December 17, 1936 considered the appeal on the merits. He also looked into the accounts of the various branches and in the end he agreed with the method of calculation adopted by the Income-tax Officer to a certain extent. He said that the income determined by the Income-tax Officer was Rs. 32,489/- but this income was made up not only of the profits shown in the various shops but also included certain income calculated by the application of flat rates on the turnover. He was of the opinion that that was not a proper method of calculating the profits and he, therefore, deducted the amount which was obtained by the application of flat rates. The latter income was Rs. 11,884/-. From Rs. 32,419/- he deducted Rs. 11,884/- and a sum of Rs. 171/- as bad debt and found the income of the assessee to be Rs. 20,434/- but where the Income-tax Officer had calculated the profits in certain instances on the basis of flat rate, the Assistant Commissioner was of the opinion that the income could be determined by a reference to the books of account themselves, and it was not necessary to adopt any flat rate at all. Certain income was shown as capital deposits and the Assistant Commissioner held the view that these deposits were really profits and therefore a sum of Rs. 31,408/- ought to be added to Rs. 20,434/-. The total income was determined at Rs. 51,842/-.
We are not very much concerned with what the Commissioner did in appeal, but we may mention here that considering all the circumstances of the case he thought that profits disguised as deposits were not Rs. 31,408/- but only half of them. To that extent relief was granted by the Commissioner.
The question which we have got to decide is whether under the circumstances of this case the Assistant Commissioner had the power in certain matters arising in the present case to set aside the flat rate adopted by the Income-tax Officer and to determine the profits from the account books themselves. We think that there is nothing in the Act which would prevent the Assistant Commissioner from doing so.
It is contended that the proviso to Section 13 bars the Assistant Commissioner from doing what he has done in the present case. We, however, think that the language of the proviso does not afford support for the contention that his basis or his method of computation is not liable to interference by the higher authorities of the Department. It is true that the assessee cannot, as a matter of right, question the basis of computation and the manner of computation adopted by the Income-tax Officer if the latter feels that the method of accounting employed by the assessee is such that the income, profits and gains of the assessee cannot be properly deduced therefrom. But the words in Section 31(2)(a) of the Act are very wide, and as we said in the case of Commissioner of Income-tax v. Pyare Lal Shukla there is nothing in the Act to restrict, in respect to an assessment made under the proviso to Section 13, the powers which the higher authorities of the Department have under Sections 31 and 32 in respect to assessments generally. Learned Counsel for the assessee did not in so many words dispute the position taken by the Department that the powers of the Assistant Commissioner were very wide under the provisions of Section 31 of the Act, but what he said was that the powers should be exercised by the Assistant Commissioner himself, and he contended that when the Assistant Commissioner remanded the case on the of November 29, 1934 he took the case out of his won file and directed the Income-tax Officer to arrive at a decision different from what he had arrived at on an earlier occasion. As we pointed out before, the learned Assistant Commissioner had not on the of November 29, 1934 taken out the case from his own file but had only asked for a report from the Income-tax Officer and this he was entitled to do under Section 31(2) of the Act. When the matter came finally before him after the report of the Income-tax Officer he was entitled under Section 31(3) either to confirm or to reduce or to enhance the assessment. He chose to do the latter and his powers are not in any way circumscribed by the Act.
For the reasons given above, we answer the question referred to us in the affirmative, and we direct the Registrar to send a copy of our judgment under the seal of the court to the Commissioner. Learned counsel for the Department is entitled to the costs of the reference which we assess at Rs. 150/-.
Reference answered in the affirmative.