This is an application under Section 66(2) of the Indian Income-tax Act. The assessee is a trader of Malkapur. In the assessment year 1943-44 for the account year ending Diwali 1942, the assessee did not produce the books of account saying that those books along with one cash book of Samvat 1999-2000 were stolen from the railway train between Wardha and Nagpur. This explanation was accepted and income was worked out on the basis of other evidence and assessment was made under Section 23(3). In the subsequent assessment year also the books for the account year were not produced for the same reason. The assessment was made under Section 23(3) on an estimated income of Rs. 5,000, though the assessee had returned a loss of Rs. 8,708. That loss could not be proved in the absence of account books. In the assessment year 1945-46, which is the year with which we are concerned, the assessee was required by a notice under Section 22(4) to produce in account books for the two years preceding the account year. The assessee pleaded loss of those books. He offered evidence in support of his contention. It was disbelieved and it was found that the story of loss of books was not true. The Income-tax Officer therefore made an assessment under Section 23(4) of the Act. The assessee was unsuccessful in convincing the Appellate Assistant Commissioner or the Appellate Tribunal that the Story of loss of books was true.
Section 23(4) empowers the Income-tax Officer to make assessment to the best of his judgment and to determine the sum of payable by the assessee on the basis of such assessment when the assessee having made a return fails to comply with all the terms of a notice issued under Section 22(4). The question for decision therefore is whether the assessee failed to comply with the terms of the notice requiring him to produce the books of account for the two preceding years. Having found that the story of loss was not true, the Income-tax authorities found that the assessee failed to comply with "all the terms of the notice".
The learned counsel for the applicant, however, submits that as his client had produced the account books for the account year in question and as the assessment could have been made on the basis of those account books, he has complied with the terms of the notice; at any rate, the default was only partial. He further submits that Section 23(4) is not attracted unless there is a default in compliance with each and every term of the notice. This contention is not acceptable.
Section 23(4) is attracted if the assessee fails to comply with all the terms of the notice issued under Section 22(4) or Section 23(2). In other words, a summary assessment under this sub-section would follow the failure to comply with any of the terms of the notice and a partial default involves the same consequences as a total default : Banarsi Das v. Commissioner of Income-tax, Lahore and Tulsi Das Nagin Chand v.Commissioner of Income-tax.
In the assessment year in question, the Income-tax Officer was certainly entitled to issue a notice under Section 22(4) requiring the applicant to produce the account books of the three previous years, to test the correctness of the return submitted by him. There is therefore no substance in the argument advanced for the applicant that the books were not really required and assessment could have been made without those books since the books for account year were duly submitted, as that would be substituting "assessee" for "Income-tax Officer" in that section. It is the requirement of the Income-tax Officer and not of the assessee that is material under that section. The Income-tax Officer alone is the judge of his requirement. "His discretion to issue such notice is uncontrolled." : Per Wort, J., in Ananda v. Commissioner of Income-tax.
It is next contended that the Income-tax Officer was bound of accept on the principles of res judicata the finding in the two previous assessment years that those books were lost. It is well settled both England and in this country that the principle of estoppel by record or res judicata, applicable to decisions of Civil Courts, has no application to Income-tax proceedings so as to prevent a decision in a prior year from being reopened in the assessment proceeding in a subsequent year because of the nature of enquiry and because the Income-tax Officer is not a Court : Commissioner of Income-tax v.Massey and Co., Ltd., Madras, Sankaralinga v. Commissioner of Income-tax and Deokinandan and sons v. Commissioner of Income-tax etc.
In Commissioners of Inland Revenue v. Sneath Lord Hanworth, M.R., observed at page 163 :- "I am, therefore, of opinion that the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. No doubt, a decision reached in one year would be a cogent factor in the determination of a similar point in a following year, but I cannot think that it is to be treated as an estoppel binding upon the same party for all years." The above view has been qualified in some cases. In Sankaralingas case the learned judges held that : "Where income-tax officials have after enquiry proceeded to assess the assessee on a certain basis, though they may be entitled to reopen the enquiry they cannot arbitrarily change the assessment simply on the ground that the succeeding officer does not agree with the preceding officers finding. The position is just like the position of any two parties who have proceeded on a certain basis in their relations. It may be open to one party to reopen the matter. But if he wants to do so, there should be facts which would entitle him to do it. If fresh facts come to light which on an investigation would entitle the Income-tax Officer to come to a different conclusion from that of his predecessor, we think he is entitled to reopen the question. But if there are no fresh facts, it is difficult to see how he can arbitrarily go behind the finding of his predecessor. The same principles of natural justice or judicial dealing which courts impose upon Income-tax Officers would prevent them capriciously setting aside the orders of their predecessors based on enquiry." We respectfully agree with this statement of the law. The propositions are :- (i) The doctrine of res judicata or estoppel by record does not apply to the decisions of Income-tax authorities; (ii) a previous finding or decision of such an authority may however be reopened and departed from in subsequent years in the following circumstances, namely :- (c) if fresh facts come to light which on investigation would entitle the officer to come to a conclusion different from the one previously reached; (iii) in the absence of such circumstances, the Income-tax Officer cannot arbitrarily depart from the finding reached after due enquiry by his predecessor in office simply on the ground that the succeeding officer does not agree with the preceding officers findings.
The assessee was given ample opportunity to prove the alleged loss of account books. He availed himself of that opportunity by examining a number of witnesses. From the order of the Income-tax Officer for the Year 1943-44 it appears that certain correspondence with police authorities and others was produced. In the next year, no additional evidence was adduced. The statement was accepted and income was calculated from the other evidence adduced. It is not the applicants case that all the evidence now adduced by him was placed before the Income-tax Officers in the preceding years. It thus appears that there was on due enquiry in the preceding years. The Income-tax Officer has now in a very elaborate order discussed the evidence adduced by the assessee. The assessee examined such witness as were unhelpful to verify the correctness of the entries said to have been brought forward in the account year and the genuineness of those entries. One very important circumstance noticed by the Income-tax Officer is the apparent wilful suppression of those books of the year ending Diwali 1943 which admittedly were not lost. It was said that the current cash book for that year up to July 1943 was lost in transit. There must therefore be a ledger from which the accounts could be made and there must be a cash book from the date of loss till the end of the year. The explanation that this period was apparently unacceptable. Similarly, the statement that the ledger for that year was not prepared till the date of loss could not be true. As the Income-tax Officer rightly observed, without the ledger it was impossible for the assessee to verify the transactions with the merchants at Wardha and at Nagpur for which the books were said to have been sent to those Places. There is thus sufficient material for the finding of the Income-tax Officer that the story of the loss of account books was not true. That finding was upheld by the appellate authorities. The decision in Ramdatta Sitaram, v. RE., relied on by the learned counsel for the application does not help him. There it was held :- "The sufficiency of evidence is a question of fact, but the question whether there is evidence at al from which an inference can be drawn is a question of law..... In every case the finding, apart from sufficiency or otherwise, shall have to be examined in order to find out whether in the circumstances of the case a reasonable man would draw the inference from that evidence which has been drawn by the Income-tax Officer." The argument of the learned counsel means that a difference conclusion was possible on the evidence before the Income-tax author ities. Even if that were so, the finding is none the less a finding of fact. This Court is not a Court of appeal to examine the correctness of the finding of the Income-tax Officer and substitute its finding for them.
It was next contended that the Income-tax Officer ought to have made an assessment under Section 23(3) on the material before him and that the assessment under Section 23(4) was not warranted in view of the circumstances that the assessee could not produce books of the previous years as they were lost. Having disbelieved the explanation for the non-production the Income-tax Officer acted according to law in making the assessment under Section 23(4).
It was further contended that the quantum of the assessment under Section 23(4) was capricious as there was no basis for the estimated income of Rs. 25,000. This grievance was not made in the application for reference nor in this application under Section 66(2). This ground was evidently not argued before the Tribunal. At the conclusion of the hearing before us the assessee filed an affidavit of the pleader who appeared before the Tribunal along with the Solicitor who argued the case. In the affidavit the ground raised in the memorandum of appeal to the Tribunal have been reproduced, but it is not stated that these grounds were pressed. From the order under Section 66(1) it is abundantly clear that the only question that was argued at the hearing of the appeal was whether the assessees story about the loss of books was believable or not. Since the point was argued before the Tribunal and does not arise out of the facts found by the Tribunal, no question of law arises out of the order of the Tribunal.