JUDGMENT ASSESSMENT--Rejection of ground of appeal by CIT(A).
Computation of income on the basis of rejection of ground by CIT (Appeals) not justified.
The assessment proceedings being quasi-judicial, if an assessment does not conform to the pronouncements of the courts, it has to be held that the assessment is bad in law. The assessment to be bad in law also involves the quantum involved in the assessment since quantum involves judicial discretion and in that view of the matter, procedural or other mere technicalities should not be allowed to come in the way of justice. On the facts of the case, the assessment was not based on any material on record and simply because the assessee did not take a grammatically correct ground to agitate the quantum, the ground taken by it could not be brushed aside. The Income Tax officer should have conformed to the requirements of law while making a best judgment assessment. The Commissioner(Appeals) was not, therefore, justified in rejecting the assessee's appeal.
1. The appeal is by the assessee, a resident private company. The assessment year involved is 1977-78 and the previous year ended on 31-12-1976.
2. Facts admitted and briefly stated are that the assessee did not file return under Section (1) of Section 139 of the Income-tax Act, 1961 ('the Act'). The assessee also did not comply with notice under Section (2) of Section 139. No compliance was made of notices issued under Section (1) of Section 142 of the Act. In fact, the assessee is not aggrieved on the score that the assessment has been framed under Section 144 of the Act. The grievance of the assessee is in relation to quantum of income assessed.
3. In appeal, the assessee took three specific grounds as under before the Commissioner (Appeals): 1. That the assessment order framed by the learned ITO is bad in law.
2. That the appellant could not attend to the hearing fixed for 28-1-1980 due to serious illness outside the town.
3. The appellant reserves the right to add any other ground at the time of the hearing of the appeal.
4. The Commissioner (Appeals) held that ground No. 1 was vague and general while in the second ground, the assessee appears to suggest that the assessment should not have been made ex parte under Section 144 but he declined to entertain the said ground since the application of the assessee made under Section 146 of the Act stood rejected and the said order has not been agitated upon by the assessee in appeal. He further observed that in the appeal which was before him the assessee could agitate only the quantum of income, hence he rejected the second ground also. As the assessee has not put in appearance before the Commissioner (Appeals) and the appeal was heard ex parte, ground No. 3 taken by the assessee before him stood rejected too since it was not substantive one.
5. The assessee, as aggrieved, is in second appeal and we have heard Shri C.S. Agarwal, the learned counsel for the assessee and Mrs. M.Bhuary, the teamed departmental representative, at length. We have also perused very carefully the paper book since placed on our file for and on behalf of the assessee but since all these documents were not before the lower authorities, we are not taking cognizance of the assessee's paper book.
The company is engaged in the sale of wines at Jullundur and auto parts at Delhi. In the previous year relevant to the assessment year 1976-77 the company showed sale of wine at Rs. 4,38,857 and auto parts at Rs. 7,784. In addition the assessee enjoys, income from house property. Keeping in mind these facts, I assess the company at income from business at Rs. 1,00,000 and income from house property as in the past at Rs. 17,500. Assessment on total income of Rs. 1,17,500.
7. A reading of the above narration reveals that whereas the ITO has discussed the figures of sales of wine and auto parts in relation to the immediately preceding year, viz., 1976-77, he has conveniently not discussed the figure of assessed income. That apart, there is no material on record, much less any circumstance or matter or receipts or sale figures for coming to the conclusion that, for the assessment year under appeal, the income of the assessee from business should be Rs. 1 lakh. As regards income from house property, the ITO has adopted the same figure as has been taken for the assessment purposes in the earlier years and that aspect of the case stands to reason but as regards taking of Rs. 1 lakh as income from business, there being no material, much less any evidence or justification on record, this does not stand to reason.
8. The Lordships of the Calcutta High Court in the case of Jhagru Shaw v. CCT  17 STC 130 have held that: It is now a well-known proposition of law that if a Revenue Officer is to make an assessment to the best of his judgment, against an assessee who is in default as regards supplying information, he must not act dishonestly, or vindictively, or capriciously because he must exercise his judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he may take into consideration local knowledge and repute in regard to the assessee's circumstances and his own knowledge of the previous returns by and the assessments of the assessee and all other matters which he thinks would assist him in arriving at a fair and proper estimate. Though there must be necessarily some guess work in the matter, it must be honest guess work.
9. Their Lordships extensively quoted from the decision of the Privy Council in ITC v. Badridas Ramrai Shop as also from the decision of the Hon'ble Supreme Court in the case of Raghubar Mandal Harihar Mandal v.State of Bihar No doubt it is true that when the returns and the books of account are rejected, the assessing officer must take an estimate and to that extent he must make a guess ; but the estimate must be related to some evidence or material and it must be something more than mere suspicion. To use the words of Lord Russel of Killowen again, 'he must make what he honestly believes to be a fair estimate of the proper figure of assessment' and for this purpose he must take into consideration such materials as the assessing officer has before him, including the assessee's circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate. In the case under our consideration, the assessing officer did not do so and that is where the grievance of the assessee arises.
10. On the facts of the assessee's case, if the law as has been laid down by the Calcutta High Court, as also by the Privy Council and the Hon'ble Supreme Court, is to be applied, vis-a-vis, the orders of the lower authorities, the orders of the lower authorities fail to conform to the minimum requirements of the best judgment assessment.
11. It is true that the assessee in the present case has not co-operated with the lower authorities in the matter of filing of the return or production of books or evidence and hence a best judgment was warranted but an assessee may be bad enough and that is no reason why the assessing authority must be worse and must not conform to the requirements of law in making a best judgment assessment.
12. On the facts of the assessee's case, the assessment is not based on any material on record and simply because the assessee has not taken a grammatically correct ground to agitate the quantum, the ground taken by the assessee which reads as 'that the assessment order framed by the learned ITO is bad in law' cannot be brushed aside.
13. The assessment proceedings being quasi-judicial, if an assessment does not conform to the pronouncements of the High Courts and the Hon'ble Supreme Court, it has to be held that the assessment is not in accordance with law, hence is bad in law and the assessment to be bad in law also involves the quantum involved in the assessment since quantum involves judicial discretion and in that view of the matter, procedural or other mere technicalities should not be allowed to come in the way of justice.
14. In view of the above position, the orders of the lower authorities are set aside insofar as the quantum of assessed income from the income head 'Business is at issue' and the subject-matters stand restored to the file of the ITO with the directions that the assessment be framed de novo after bringing on record the material to justify the assessment and in conformity with the provisions of the Act and the pronouncements of the decisions of the High Court and the Hon'ble Supreme Court mentioned as above. The assessment shall be ex parte, under Section 144 of the Act and to the best of the judgment of the ITO but has to be based on material on record.
15. For the desired fortification, we do rely on the ratio laid down by their Lordships of the Hon'ble Supreme Court in the case of CIT v.Calcutta Discount Co. Ltd.  91 ITR 8. Their Lordships have opined that procedural technicalities should not unduly influence the authorities ; instead, the authorities should deal with the substance of the matter.Concord of India Insurance Co. Ltd. v. Smt.
Nirmala Devi  118 ITR 507 (SC). Their Lordships of the Supreme Court have held that as pronouncements on question of law by Courts are sometimes wrong, legal advice given by the members of the legal profession may also sometimes be wrong, hence, an amount of latitude is expected in such cases for, to err is human and laymen, as litigants are, may legitimately lean on expert advice.
17. In the case of the assessee, certainly the grounds of the appeal before the Commissioner (Appeals) were drafted by the assessee's counsel. Hence, the order of the Commissioner (Appeals) leaned heavily on the side of technicalities and in that view of the matter, respectfully following the observations of their Lordships of the Hon'ble Supreme Court, the order stands set aside.
18. In the result, the appeal by the assessee shall be taken to have been allowed for statistical purposes.