1. This is a reference under Section 66 (1) of the Indian Income-tax Act made by the Income-tax Appellate Tribunal, Bombay, referring a question of law for the determination of this Court. The question of law suggested by the Tribunal is as follows:
'Whether it was open to the assessee in an appeal against the quantum of assessment made under Section 23 (4) of the Indian Income-tax Act to prove that the assessee did not maintain any books of account for the Ganganagar business and then on proof of that ask the Tribunal to treat the appeal as an appeal against an assessment made under Section 23 (3)?'
2. The facts of the case are as follows : The assessee, Suganchand Kanhaiyalal Rathi of Jabalpur, is a Hindu undivided family, and admittedly it has business at various places, including Ganganagar in the former Bikaner State. The matter relates to the assessment for the year 1948-49, and a notice under Section 22 (4) of the Indian Income-tax Act was served upon the assessee. He produced his books of account from Ganganagar. The Income-tax Officer, after holding that the account books of Ganganagar had been suppressed, assessed the tax under Section 23 (4) of the Act on a best judgment assessment. The assessee had stated before the Income-tax Officer that no separate books were maintained at Ganganagar.
3. An appeal was filed by the assessee before the appellate Assistant Commissioner of Income-tax, who declined to entertain the question whether the assessee's contention was correct, on the ground that no application under Section 27 of the Indian Income-tax Act had been made. A similar view was held by the Appellate Tribunal at Bombay and that point, though raised was not considered, and the reason given was that the assessee had not made an application as required by Section 27 of the Act.
4. The present reference was made in these circumstances, and the question put differently really comes to this :
'(a) Was it incumbent upon the assessee to make an application under Section 27 of the Indian Income-tax Act when his contention that no books of account were being maintained at Ganganagar had been rejected?' and
'(b) Not having made such an application, whether the assessee could raise the same contention in the appeal against the assessment?'
5. Section 27 of the Indian Income-tax Act provides for a de novo inquiry on certain allegations being made by an application. The circumstances may give a foundation for an appeal if the matter is decided against theassessee; but Section 27 itself does not cover a case in which books of account are held to be in existence, when the assessee says that they are not. We quote Section 27 :
'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 complying, 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.'
6. It will be noticed that Section 27, is an enabling provision for reopening assessments, and it deals with the following matters only :
(a) Where the assessee was prevented from making a return for sufficient cause.
(b) When he did not receive a notice under Sub-section (4) of Section 22 or Sub-section (2) of Section 23.
(c) Where he had no reasonable opportunity to comply with those notices.
(d) Where he was prevented by sufficient cause from complying with the terms of the last-mentioned notices.
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.
The wording of the section is clear enough, and it allows a de novo inquiry into the assessment on proof of one of the four circumstances mentioned above. The present context of facts does not fit in with any of those four circumstances, and we cannot therefore hold that an application under Section 27 is a sine qua non of the contention in appeal that the Income-tax Officer wrongly held that the books of account did exist.
7. The next point is whether in an appeal against the quantum of assessment this question can be gone into. In our opinion, the quantum of assessment depends upon the income of the assessee. That income may be computed from books or on a best judgment assessment where books have been deliberately withheld. But whether the Income-tax Officer acts upon the first principle or the second or both, the quantum of assessment depends upon the evidence in the books or, if there is a finding that the books have been suppressed, upon best judgment. Therefore, in an appeal against the quantum of assessment the following question is always implicit:
'Whether the Income-tax Officer who disregarded the books such as they were and proceeded to make a best judgment assessmentunder Section 23 (4) was justified in doing so?'
and this question is also implicit where the Income-tax Officer holds that the books have been withheld.
8. In our opinion, an appeal under Section 30 does involve the question whether an Income-tax Officer was justified in holding that books of account were suppressed where the Income-tax Officer has so held and has made a best judgment assessment. This right is unlike another right of appeal which is given to an applicant under Section 27 who unsuccessfully raised any of the matters detailed therein. That is a question which does not arise in the present case, and in our opinion an application under Section 27 of the Act was not a condition precedent to the raising of the present contention. In our opinion, therefore, the answer to the first part of the question of law posed is in the affirmative. In view of our answer, it was incumbent on the Appellant Assistant Commissioner to decide whether the contention of the assessee that books of account did not exist was well founded or not. The second part of the question does not call for an answer.
9. The reference is therefore answered asabove with costs on the Department. Counsel'stee Rs. 100/-.