MADHAVAN NAIR J. - The assessee is the same individual in these three references which are under section 60(2) of the Agricultural Income-tax Act (22 of 1950). He owns a pretty large extent of lands under different plantations; but the dispute in these cases concerns his incomes from the Goodhope Estate comprising 180 acres of yielding rubber and 100 acres of immature rubber trees. I.T.R. No. 8 of 1961 relates to the assessment for the year 1955-56, in regard to income derived during the year ended January 31, 1955; and I.T.R. Nos. 13 and 14 to the assessment for the following years 1956-57 and 1957-58 respectively. It is contended that in all these years the assessee had submitted his returns in due time and produced his accounts, being the journal, ledger, check-roll, wages-book, sales-bills and purchase-bills. The yield in the first relevant year was shown in the assessees return as 67,112 lbs. of sheet-rubber, in the next year as 77,982 lbs. and in the third year, when 20 acres more have been newly tapped, as 80,771 lbs.
For the assessment year 1955-56 the Income-tax Officer mistook the yield returned as 60,292 lbs. and therefore, calculated the average yield at 335 lbs. per acre, held it to be too low for the trees, which at his inspection on January 9, 1957, were found to be very healthy, rejected the assessees accounts as untrue and incomplete, estimated the yield at a flat rate of 450 lbs. per acre and assessed the income accordingly.
On appeal, the Assistant Commissioner observe :
'It has been clearly brought to right that the Goodhope Estate was one abandoned by A.V. Thomas & Co., brought by the appellant in a neglected state in 1947 and is being slowly improved and is a developing concern. The rubber yield in the several years show marked difference. What was 62,863 lbs. in 1954-55 has come up to 67,112 lbs. in the current year...... Even for the current year it works out to an average yield of 375 lbs. per acre and for ordinary plants the yield is only fair... I do not find any reason to discredit the accounts which are seen to be maintained in the ordinary course of business. I accept the same, but the following items on the expenditure side which are of a capital nature or which are of a personal nature of which have nothing to do with the yielding of revenue are disallowed and added back for purposes of computing the income.'
and made a fresh assessment accordingly by his order dated September 12, 1958.
On November 27, 1958, the Commissioner issued a notice under section 34 of the Agricultural Income-tax Act, 1950, requiring the assessee to show cause 'why the order of the Appellate Assistant Commissioner should not be revised suo motu'. The assessee submitted his explanation on December 2, 1958, asserting his accounts to be true and the assessment of the Assistant Commissioner based thereon correct. However, the Commissioner set aside the appellate order of the Assistant Commissioner and restored that of the Income-tax Officer to the effect, observin :
'The reasons given by the Appellate Assistant Commissioner for accepting the accounts are quite vague and not supported by facts..... There is also no specific data to support the statement of the Appellate Assistant Commissioner that the average yield of 375 lbs. per acre returned by the party is fair in the face of the reports of the Inspecting Assistant Commissioner and Agricultural Income-tax Officer, who have inspected the estate and have recorded a finding that the trees in the estate are very healthy and are capable of yielding 400 to 500 lbs. of rubber per acre and the fact that the Agricultural Income-tax Officer himself has fixed the average yield at 450 lbs. per acre. This is a question of fact which has not been ascertained by the Appellate Assistant Commissioner by a local inspection of the estate.'
[Obviously the Commissioner overlooked the findings of the Assistant Commissioner that the estate was a 'developing concern' being improved by the assessee after he had purchased it in an abandoned condition and that the inspection by the Income-tax Officer was in January, 1957, while the accounting year ended with January 1955.]
The assessees prayer to refer five questions to this court under section 60 of the Act was rejected by the Commissioner. He then moved the High Court in O.P. No. 1202 of 1959 to compel a reference, and thereupon the Commissioner was directed to state a case and refer four questions, namel :
(1) Whether the Commissioner, acting under section 34, has jurisdiction or power to revision order passed by the Appellate Assistant Commissioner functioning as an appellate authority under section 31?
(2) The powers under section 34 being specifically made subject to the provisions of the Act, whether section 34 can be invoked by the Commissioner, when the order of the Appellate Assistant Commissioner is made appealable as per section 32 of the Act?
(3) Whether the Commissioner can, in the case of escaped income, act under section 34 in view of the specific provisions in section 35?
(4) Whether on the facts and circumstances of the case the Commissioner was justified in concluding that the estimate of the income should be made?
The reference made accordingly is the I.T.R. 8 of 1961.
Questions Nos. (1) and (2) above, taken together, seem to be covered by authority. In Anantha Mallan v. Commissioner of Agricultural Income-ta :
'... because the Commissioner in both the cases had objections to the Appellate Assistant Commissioners assessments, he ought to have followed to procedure indicated in section 32(2), and not exercised his revisory powers. To decide your own objections to assessments orders, is violative of principle of natural justice, that persons with biased mind must not adjudicate, which principle is not excluded by the statutory provisions in the Act.'
I do not feel persuaded to differ from the above ruling. As exception to the assessment made by the Assistant Commissioner was taken by the Commissioner himself he ought not to have sat in judgment on it, relying on his general revisional jurisdiction under section 34, but ought to have followed the particular procedure indicated in section 32(2) to have the matter adjudged by the Appellate Tribunal. When two courses of action are indicated for a particular occasion by the statute, of which one is general and the other particular, the latter ought to be followed, especially when that alone is consistent with the principles of natural justice. My answer to questions Nos. (1) and (2) taken together is, in the circumstances of this case, in the negative.
For the assessment years 1956-57 and 1957-58, the Income-tax Officer had accepted the accounts of the assessee regarding the yields of the rubber estate and assessed him accordingly. Notices under section 34 were issued suo motu by the Commissioner on November 27, 1958, to which the assessee submitted his explanations on December 3, 1958. The Commissioners order thereon dated June 14, 1959, read :
'The Agricultural Income-tax Officer has stated that there is no justification to reject the accounts as an increase in yield is shown in the accounts. The fact is, though an increase in yield of rubber is shown by the assessee, he has claimed an expenditure of nearly 70%, which is quite abnormal and against facts. It is an admitted fact that higher the income derived, the lower would be the expenses.
Thus from the records it is evident that there was no justification for the Agricultural Income-tax Officer to deviate from the assessment made by him for the year 1955-56 and reduce the income when there has been considerable increase in the area under yield. Further, there was no sufficient ground for the Agricultural Income-tax Officer to complete the two years assessments in such haste without collecting proper data, when an appeal against the previous years assessment was pending with the Appellate Assistant Commissioner. The accounts are also seen, accepted on sufficient and inadequate grounds and against ordinary principles adopted in arriving at the net income. While admitting that the yielding rubber trees are very healthy and the estate is a developing one, the same Agricultural Income-tax Officer has estimate and reduced the yield for the two years which is much lower than that determined for the previous year.
In view of the reasons stated above, the assessments for the years 1956-57 and 1957-58 are set aside and the cases are remanded to the Agricultural Income-tax Officer, Kottarakara, for further enquiry, local inspection and fresh disposal.'
The applications, one in respect of each year, requesting five questions to be referred to the High Court under section 60 of the Agricultural Income-tax Act were rejected by the Commissioner. The assessee then moved O.P. Nos. 1203 and 1204 of 1959 to compel references; and thereupon this court directed the Commissioner to state two cases and refer three questions in each under section 60(2) of the Act. The two references that followed are I.T.R. Nos. 13 and 14 of 1961, and the questions referred therein are the same namel :
'(1) Whether on the facts and circumstances of the case it can be said that income has escaped assessment?
(2) Whether the Commissioner can in the case of the escaped income act under section 34 in view of the specific provision in section 35 of the Act?
(3) Whether on the facts and circumstances of the case, the Commissioner has jurisdiction to interfere with the order of the Agricultural Income-tax Officer?'
I would take question No. 3 first. The Commissioner has set aside the assessment for the two years concerned on the ground that the Agricultural Income-tax Officer erred in accepting the assessees accounts. His view seems to be that unless there be adequate reasons to accept the accounts, the officer should have rejected them as unreliable. Recently, a commentator has pointed ou :
'There is unfortunately a growing tendency on the part of the departmental officers to presume that every assessee is not straight and that his account should be viewed with suspicion and they have always a list of stock excuses mostly flimsy which are dignified as justifications, for denouncing the accounts.' (Raghavacharia : The Indian Income-tax Act, 1958 edition, vol. I, 712).
To me the correct position appears to be what was laid down in Duni Chand-Dhani Ram v. Commissioner of Income-ta :
'Section 37 of the (Income-tax) Act indicates that the procedure of the Income-tax Officers is of a judicial nature, and in making his assessment the Income-tax Officer should proceed on judicial principles. If evidence is produced by the assessee in support of his return, it should be accepted unless it is rebutted by other admissible evidence and not by mere hearsay.'
That the income-tax assessment proceedings are judicial proceedings seems well settled now. In Suraj Mall Mohta and Co. v. Visvanatha Sastri the Supreme Court has remarke :
'Under the provisions of section 37 of the Indian Income-tax Act the proceedings before the Income-tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before the result is arrived at.'
Section 38 of the Agricultural Income-tax Act (corresponding to section 37 of the Indian Income-tax Act, 1922), has conferred on Income-tax Officers the powers of a civil court to enforce the attendance of any person and examine him on oath or affirmation, to compel the production of documents, and to issue commissions for the examination of witnesses and for ascertaining the yield and cultivation expenses in respect of any land. In order to check perjury and use of false or fabricated evidence and to maintain the dignity of the office, the proceedings are declared 'judicial proceedings' within the meaning of sections 193 and 228 of the Penal Code. Section 18(3) of the Agricultural Income-tax Act (corresponding to section 23(3) of the Income-tax Act) direct :
'...... the Agricultural Income-tax Officer, after considering such evidence as such person (the assessee) may produce (in support of the return) and such other evidence as that officer may require on the specified points, assess the total agricultural income of the assessee and determine the sum payable by him on the basis of such assessment.'
The observations of Sir Sulaiman C.J. in Gopinath Naik v. Commissioner of Income-tax are pertinent her :
'Under sub-section (3) of this section the Income-tax Officer has to hear such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specific points; and the assessee on such basis. Now section 37 of the Act empowers the Income-tax Officer to enforce the attendance of persons and examine them on oath or affirmation, compel the production of document and issue commissioners for the examination of witnesses. All these are matters which have necessarily to be resorted to in the presence of and within the knowledge of the assessee. Sub-section (3) of section 23 speaks of the Income-tax Officer hearing such other evidence as he may require that is to say, evidence other than that produced by the assessee which the Income-tax Officer considers necessary to take, but the word used is evidence and not other words, like, information. It would seem to follow, prima facie, that what the sub-section authorizes the Income-tax Officer to do is to take evidence in rebuttal of the evidence produced by the assessee and.... of which the assessee should have knowledge in order that he may be able to meet such evidence.'
In Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax the Supreme Court has pointed out, in regard to the parallel provisions of the Income-tax Act, thu :
'As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act an material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. Commissioner of Income-tax.
In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions.... It is somewhat surprising that the Tribunal took from the representative of the department a statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the department to the appellant, but if refused even to look at the trunk load of books and papers which Mr. Banerjee produced before the Accountant Member in his Chamber... We think that both the Income-tax Officer and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion.'
It follows that the mere impression gathered by an officer on inspection of the estate cannot be taken as substantive evidence to form the sole basis of an assessment as the Commissioner in these cases seems to have thought. If the officer thought the return of the assessee too poor for the estate he ought to take evidence lay examination of witnesses or compelling production of documents concerning the estate or other estate similarly circumstanced.
In Mohammad Hayat Haji Muhammad Sardar v. Commissioner of Income-tax Shadi Lal C.J., with whom 3 out of 4 of the other learned judges in Full Bench agreed, has pointed out the procedure at assessments thu :
'If he (the Income-tax Officer) however, considers the return to be incorrect or incomplete, he has no authority to reject it and to make the assessment to the best of his judgment as he is entitled to do when no return is made. He must give the assessee an opportunity to prove the..... completeness of the return made by him, and he is, therefore, enjoined by section 23(2), to serve on the latter a notice either to appear at the office of the Income-tax Officer, or to produce, or to cause to be produced, evidence in support of his return. If the assessee does not comply with the terms of the notice, the Income-tax Officer has no material before him except the incomplete or incorrect return; and he has, therefore, no alternative but to make an assessment to the best of his judgment; vide section 23(4). When the assessee complies with the terms of the notice, the Income-tax Officer is bound to hear the evidence which the former may desire to produce in support of his return, and, if in the course of the enquiry, the Income-tax Officer considers that additional evidence should be produced, he is authorised to complete the enquiry by taking such evidence after specifying the points requiring elucidation. After he has received the evidence produced by the assessee and also the evidence, if any, which he has himself called for on the points specified by him, he must assess the income on the material produced before him and has no right to make an assessment to the best of his judgment...'
In the light of these pronouncements, it is clear that the accounts of the assessee cannot be rejected on mere suspicious, but only on positive evidence of their unreliability. The Commissioners disapproval of the Income-tax Officers observation 'that there is no justification to reject the accounts as an increase in the yield is shown in the accounts and his remark, 'The accounts are also seen accepted on insufficient and inadequate grounds,' were not warranted by the circumstances of these cases. The law does not permit the income-tax authorities to reject the accounts produced by an assessee as incorrect or unreliable unless there is some positive material to hold so. Acceptance of accounts kept in the usual course of business is the rule; and their rejection must be the exception for proper reasons only. If the authority sees any reason to suspect the accounts, he is to require proof from the assessee on 'specified points' and the assessee is bound to give convincing proof thereon. Likewise is the Commissioners observation, 'An expenditure of nearly 70% is quite abnormal and against facts'. He himself has observed the estate 'a developing one'. The requirement of a larger proportion of expenditure to improve an abandoned estate is nothing abnormal. The Income-tax Officer has stated the accounts to be supported by check-roll, wages-book and bills for purchases of manure and like vouchers. It was then a matter for verification of the accounts with the relative vouchers, and not for speculation or suspicion. The proposition 'the higher the income derived the lower would be the expenses' appears novel. Normally, it is higher expenditure that brings higher income. The observation that the Income-tax Officer has 'estimated and reduced the yield for the two years lower than that determined for the previous year' is also against the evidence on record. The yield for the previous year determined by the Assistant Commissioner was 375 lbs. per acre, while that determined by the Agricultural Income-tax Officer for the years concerned was above 435 lbs. per acre. It is then clear that the Commissioner has overlooked material facts found by the Agricultural Income-tax Officer and has set aside the orders of assessment without proper justification. The Commissioners order does not disclose any material for disbelieving the assessees accounts and vouchers I am, therefore, constrained to hold that on the facts and circumstances of these cases the Commissioner had no justification to reject the assessees accounts or to set aside the assessment made by the Agricultural Income-tax Officer. I would, therefore, answer question No. (3) in the negative.
Counsel on both sides agree that in view of the answer given to questions Nos. (1) and (2) in I.T.R. 8 of 1961 and to question No. (3) in I.T.R. Nos. 13 and 14 of 1961, the other questions in the reference need not be answered by us. No answer, therefore, is given to those questions.
I do not make any other as to costs in these references.
A copy of this judgment under the seal of the court and the signature of the Registrar will be forwarded to the Commissioner as required by section 60(6) of the Agricultural Income-tax Act, 1950.
VELU PILLAI J. - I agree. In I.T.R. 8 of 1961 no adequate ground has been made out to refer the case to a Full Bench for reconsideration of Anantha Mallan v. Commissioner of Agricultural Income-tax.
In I.T.R. Nos. 13 and 14 of 1961 so far as income from rubber was concerned, the Agricultural Income-tax Officer accepted the account books, vouchers and other documents which were produced by the assessee. In revision under section 34, the Commissioner had no jurisdiction to reject them on any ground whatever. The Commissioner no doubt said that the accounts were accepted by the Income-tax Officer 'on insufficient and inadequate ground and against ordinary principles.' But the reasons stated in support of this by the Commissioner do not bear scrutiny or support the order which he passed; for, the assessment by the Income-tax Officer was not based on the inspection of properties conducted by his predecessor, the Income-tax Officer has not stated that there is no justification to reject the accounts, because an increase in the yield was shown in the accounts, it is not an admitted fact that the higher the income derived the lower would be the expenses, and there was nothing wrong in the Income-tax Officers having completed the assessments for the two years. The above were the four reasons adduced for directing a fresh assessment on the lines indicated. Accordingly, in I.T.R. Nos. 13 and 14 of 1961, question No. 3 is answered thu : On the facts and circumstances of the case the Commissioner had no jurisdiction to interfere with the order of the Agricultural Income-tax Officer.