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Tulsi Lal Manilal Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference No. 23 of 1977
Judge
Reported in[1985]154ITR665(Raj); 1985(2)WLN430
ActsIncome Tax Act, 1961 - Sections 139, 143(3), 144, 146, 246(1), 251(1) and 254
AppellantTulsi Lal Manilal
RespondentCommissioner of Income-tax
Appellant Advocate R. Balia and; R.K. Soni, Advs.
Respondent Advocate J.P. Joshi and; J.L. Daga, Advs.
Cases ReferredState of Kerala v. Velukutty
Excerpt:
.....shall not be an assessment made on the basis of the books of account of the assessee but the account books shall be used only for a limited purpose to enable the income-tax officer to pass a proper best judgment assessment.;reference answered in affirmative. - section 2(k), 2(1), 7 & 40 & juvenile justice (care and protection of children) rules, 2007, rule 12 & 98 & juvenile justice act, 1986, section 2(h): [altamas kabir & cyriac joseph, jj] determination as to juvenile - appellant was found to have completed the age of 16 years and 13 days on the date of alleged occurrence - appellant was arrested on 30.11.1998 when the 1986 act was in force and under clause (h) of section 2 a juvenile was described to mean a child who had not attained the age of sixteen years or a girl who..........account was produced by the assessee before the ito and on one of the dates of hearing, the account books had also been produced by the assessee before the ito, who had in fact examined the account books. the aac also made certain observations indicating that the addition in the silver trading account could be more than rs. 4,000 and further that the material called for a closer scrutiny. he, therefore, set aside the assessment order on this limited question of addition in the silver trading account and remitted the matter to the ito with the direction to re-examine the question afresh and thereafter to give a proper and judicious finding in accordance with the settled procedure of law about the making of addition in the silver trading account. the addition of rs. 4,000 was.....
Judgment:

Dwarka Prasad, J.

1. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following two questions of law, arising out of its order dated November 15, 1976, to this court for its opinion :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified to remit the case to the Income-tax Officer for investigation properly, when the assessment was made under Section 144 of the Act ?

If the answer to the above question is in the affirmative :

2. Whether, on the facts and in the circumstances of the case, the order of the Tribunal was valid and sustainable in law '

2. In our view, the two questions are overlapping, as the answer to the first question would also constitute the answer to the second question.

3. The assessee, M/s. Tulsilal Manilal, is a registered firm. The assessee filed its return under Section 139 of the I.T. Act, 1961, and in pursuance of a notice issued by the ITO under Section 142(1) read with Section 143(3), the assessee appeared on some of the dates fixed before the ITO and produced some documents, including its books of account. However, on January 17, 1974, the assessee did not appear, although the authorised representative of the assessee attended the office of the ITO and submitted that the assessee could not appear nor could he produce his books of account on that date. The ITO thought that the assessee was deliberately withholding his books of account and as such he decided to proceed to make an assessment to the best of his judgment, in accordance with the provisions of Section 144(c) of the Act. One of the questions considered by the ITO related to the income of the assessee from the business of sale and purchase of silver ornaments and bullion. The ITO made an addition of Rs. 4,000 in round figure in the silver trading account of the assessee by his assessment order dated April 21, 1974.

4. The assessee filed an application under Section 146 before the ITO for reopening the assessment made under Section 144. However, the application was rejected by the ITO who refused to reopen the best judgment assessment.

5. The assessee thereupon preferred two appeals before the AAC of Income-tax, Udaipur Range, Udaipur. One appeal was preferred by him under Section 246(1)(d), against the order passed by the ITO under Section 146 refusing to reopen the assessment made by him under Section 144. The other appeal was preferred by the assessee under Section 246(1)(c) challenging the order of assessment passed under Section 144, objecting to the amount of income assessed. The AAC dismissed the appeal preferred by the assessee against the order under Section 146 and held that the ITO was fully justified in making an order under Section 144 and in rejecting the application under Section 146. In the quantum appeal, as regards the addition of Rs. 4,000 in the silver trading account, it was argued before the AAC, on behalf of the assessee, that the addition was arbitrary and there was no basis for making the said addition. The AAC noted the fact that a copy of the silver trading account was produced by the assessee before the ITO and on one of the dates of hearing, the account books had also been produced by the assessee before the ITO, who had in fact examined the account books. The AAC also made certain observations indicating that the addition in the silver trading account could be more than Rs. 4,000 and further that the material called for a closer scrutiny. He, therefore, set aside the assessment order on this limited question of addition in the silver trading account and remitted the matter to the ITO with the direction to re-examine the question afresh and thereafter to give a proper and judicious finding in accordance with the settled procedure of law about the making of addition in the silver trading account. The addition of Rs. 4,000 was deleted until the ITO gave fresh finding in respect of that issue.

6. The assessee filed a further appeal before the Income-tax Appellate Tribunal against the order passed by the AAC dated April 5, 1965, in the quantum appeal. The Tribunal upheld the order passed by the AAC in that matter on the ground that the order passed by the ITO was vague in that respect and it was necessary to examine fully the account books of the assessee for arriving at a proper estimate of the income in the silver trading account. The Appellate Tribunal, however, while dismissing the appeal of the assessee by its order dated November 15, 1976, observed that certain observations made by the AAC indicating that addition in the silver trading account could be more should not influence the ITO while making a fresh assessment.

7. The question which arises in this reference primarily relates to the jurisdiction or authority which can be exercised by the appellate court while remanding a case wherein assessment has been made by the assessing authority under Section 144 of the Act on the basis of his best judgment. The assessee has raised an objection that the Appellate Tribunal and the AAC could not direct the ITO by the order of remand to take into consideration, the account books of the assessee while making a fresh assessment in a case where the earlier assessment was made by the assessing authority to the best of his judgment under Section 144.

8. Section 251(1) authorised the AAC while disposing of an appeal against an order of assessment, to either confirm, reduce, enhance or annul the assessment or to set aside the assessment and refer the case back to the ITO for making fresh assessment in accordance with the directions given by him and after making such further enquiry as may be necessary, the ITO would, therefore, proceed to make further enquiry and determine, where necessary, the amount of tax payable on the basis of such fresh assessment. Similarly, the Appellate Tribunal, while deciding an appeal before it, is authorised under Section 254(1) of the Act to pass such orders thereon as it thinks fit. Thus, it appears that while passing an order of remand, the powers of the AAC or the Commissioner (Appeals) or the Income-tax Appellate Tribunal are wide enough and they are authorised to give directions to the ITO to make such further enquiry as may be necessary and thereafter proceed to make a fresh assessment and on the basis thereof determine afresh the amount of tax payable by the assessee, in a case where an assessment order is made by the ITO under Section 144 to the best of his judgment, on the failure of the assessee to file a return in compliance with a notice under Section 139(2) or a revised return on the receipt of a notice under Clause (4) of Sub-section (5) of Section 139 or on his failure to comply with a notice under Section 142(1) or having made a return, on the failure of the assessee to comply with the terms of a notice issued under Section 143(2). Even where further enquiry is made after an order of remand, the fresh assessment order that may be passed by the ITO shall continue to remain as a best judgment assessment under Section 144. The nature of the order of assessment would not change because of further enquiry that may be made by the ITO in pursuance of the order of remand passed by the AAC or the Appellate Tribunal. But, the further enquiry that may be made by the ITO in pursuance of the order of the AAC or the Appellate Tribunal may be utilised by the ITO for assisting him for the purpose of arriving at a reasonable basis for making a proper best judgment assessment.

9. A similar question was raised before their Lordships of the Punjab High Court in Brij Mohan Rameshwar Dass v. CIT . In that case, the assessee failed to comply with the notice issued under Sections 22(2) and 22{4) of the Indian I.T. Act, 1922. A best judgment assessment was made by the ITO under Section 23(4). The assessee filed an application under Section 27 for reopening the assessment which was dismissed. Then appeals were preferred against the order refusing to reopen the assessment under Section 27 as also against the order of assessment passed under Section 23(4). The AAC dismissed the appeal against the refusal to reopen the assessment, while in the appeal against the assessment order made under Section 23(4), the AAC remanded the case to the ITO for further enquiry limited to certain matters. The ITO was directed to recompute the income of the assessee on the basis of further enquiries as well as the assessee's accounts. Further appeals to the Income-tax Appellate Tribunal were dismissed. The question was referred to the High Court. It may be observed that the provisions of Section 23(4) of the Indian I.T. Act, 1922, correspond to the provisions of Section 144 of the I.T. Act, 1961, and the provisions of Section 27 of the 1922 Act are similar to the provisions of Section 146 of the 1961 Act, relating to the reopening of the assessment. Moreover, Section 31 of the 1922 Act corresponds to Section 251 of the 1961 Act.

10. Learned Chief Justice of the Punjab High Court, while deciding the aforesaid case, observed as under (p. 40):

'There is nothing in Section 31(2) which limits the scope of the further enquiry ordered under Clause (2). Further inquiry by its very nature implies that fresh evidence should be led, and the account books of the assessee undoubtedly are fresh evidence... The answer, in my opinion, is that in law there is no bar to the Appellate Assistant Commissioner when making a remand order permitting or directing the Income-tax Officer to take into consideration account books of the assessee when making his reassessment, and I would return the reference accordingly.'

11. The same view was expressed by Chagla, Chief Justice, as he then was, of the Bombay High Court in the case of Girdher Javer & Co. v. CIT and CEPT : [1953]24ITR540(Bom) . It was observed by him as under in the aforesaid case (p. 547):

'It must be borne in mind that when the books of account are produced by the assessees and the assessment is an ordinary normal assessment under Section 23(3), unless the books are rejected under Section 13, the assessment proceeds on the basis of the books produced by the assessees. under Section 23(4), the assessment is one according to the judgment of the Income-tax Officer, and even though books of account may be looked at by him under the direction of the Appellate Assistant Commissioner, they would be looked at for an entirely different purpose, from the purpose for which he would look at them if he was proceeding to assess the assessees under Section 23(3). Therefore, if the Appellate Assisstant Commissioner directed the Income-tax Officer to look into the books of account, it could only be for the purpose of arriving at his best judgment. It is true that the further inquiry contemplated by Section 31(2) must be an inquiry for the purposes of disposing of the appeal, and the question in appeal before the Appellate Assistant Commissioner must be whether the judgment of the Income-tax Officer was properly exercised under Section 23(4) and whether the quantum arrived at by the Income-tax Officer was properly and fairly arrived at. But can it be said that under no circumstances is the Appellate Assistant Commissioner permitted to direct the Income-tax Officer to look into the books of account which books have not been and cannot be produced for the purpose of ordinary assessment ?..... What we are considering in this reference is not the right of the assessees to produce their books, but it is the power and the jurisdiction of the Appellate Assistant Commissioner to direct the Income-tax Officer to look into these books of account. The right that the assessees had to produce their books of account was taken away when their appeal under Section 27 was dismissed. They could not insist on the assessment being made on the basis of their books of account. But the question of the jurisdiction and the power of the Appellate Assistant Commissioner is entirely a different one. Even though in practice it may be in extremely rare cases that the Appellate Assistant Commissioner would direct the Income-tax Officer to look into the books of account of the assessee which the assessee has failed to produce, however rare the cases may be, we have got to answer the question of law on the provisions of the statute and not from the point of view of its practical application.'

12. The aforesaid decision was followed by a Bench of the Madras High Court in Muthuwappa v. CIT : [1962]46ITR1107(Mad) and it was observed that the passage cited above from the judgment of Chagla J. correctly indicates the jurisdiction of the AAC. It was also pointed out that even in the case of a best judgment assessment, it is not improper to look into the books of account of the assessee so that the judgment of the assessing officer may be properly directed and that a capricious and unjustified assessment may not be made. Thus, the AAC has jurisdiction to make an order of remand and he can, while doing so, direct the examination of books of account even in the case of a best judgment assessment, but such examination of books of account shall be only for the purpose of enabling a proper best judgment assessment being made. The fresh assessment that would be made by the assessing officer shall not be an assessment made on the basis of the books of account of the assessee but the account books shall be used only for a limited purpose to enable the ITO to pass a proper best judgment assessment.

13. In Sundermul & Co. v. CIT : [1967]66ITR277(AP) , a similar view was taken by the Andhra Pradesh High Court and it was held that where the ITO rejected the application for reassessment under Section 27 of the 1922 Act, and the assessee's appeal against the order passed under Section 27 was dismissed, yet in the quantum appeal it was open to the AAC to hold that the ITO had acted without any material or arbitrarily or capriciously. Thus, while disposing of such an appeal, the AAC may pass an order remanding the case to the ITO for making further inquiries. It was also held that even in the case of a best judgment assessment under Section 23(4) of the 1922 Act, it would not be improper for the AAC to direct the ITO to look into the books of account of the assessee, which he had failed to produce when asked to do so under Section 22(4), in order to ensure that the judgment of assessing authority is not capricious or arbitrary and that it had a valid and proper basis.

14. In Balasubramanian v. ITO : [1978]112ITR512(AP) , their Lordships of the Andhra Pradesh High Court expressed their entire agreement with their earlier decision in Sundermul & Company's case : [1967]66ITR277(AP) and it was held that it is not improper for the AAC, even in the case of best judgment assessment under Section 144 of the I.T. Act, 1961, to direct the assessing authority to look into the books of account, which the assessee failed to produce when asked for under Section 142(1) in order to satisfy himself that the best judgment of the assessing authority was not arbitrary or capricious.

15. A similar question also arose for consideration before the Madhya Pradesh High Court in Kalani v. CIT : [1979]120ITR163(MP) and it was held that in an appeal against the best judgment assessment, the only restriction was that the validity or propriety of passing an assessment order under Section 144, equivalent to Section 23(4) of the old Act, could not be challenged which could form the subject-matter of an application under Section 146 of the new Act, corresponding of Section 27 of the old Act. In a quantum appeal, the only limitation on the appellate jurisdiction was that the propriety of the ITO in proceeding to pass the best judgment assessment could not be questioned. But, otherwise, the AAC had wide powers while deciding the appeal, even if the assessment was passed under Section 144.

16. We may observe that under Section 144, corresponding to Section 23(4) of the 1922 Act, the assessing authority is required to make the assessment to the best of his judgment against a person who is in default as regards filing the return or supplying information and the assessing authority in such a case may utilise all information or material, relevant for the purpose, which may come to his knowledge so as to enable him to make a fair estimate of the income of the assessee. In this connection, their Lordships of the Privy Council held as early as in the year 1937, in the case of CIT v. Laxminarain Badridas [1937] 5 ITR 170 that the ITO passing an order under Section 23(4) of the old Act must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for that purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstance and his own knowledge of previous returns by, and assessments of, the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate ; and though there may be some guess-work in the matter, yet it must be honest guess-work. The assessment would be to some extent arbitrary, but the assessing officer must exercise proper judgment and must not act capriciously or act in any other way inconsistent with the exercise of proper judgment. The ITO must perform his duties in this regard in conformity with the principles of equity, justice and good conscience.

17. On the question of the power of the AAC while deciding an appeal before him in State of Kerala v. Velukutty : [1966]60ITR239(SC) , their Lordships of the Supreme Court quoted with approval the following observations made by Chagla C.J., as he then was, in Narrondas Manordass v. CIT : [1957]31ITR909(Bom) :

'It is clear that the Appellate Assistant Commissioner has been constituted a revising authority against the decisions of the Income-tax Officer; a revising authority not in the narrow sense of revising what is the subject-matter of the appeal, not in the sense of revising those matters about which the assessee makes a grievance, but a revising authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the Income-tax Officer but he can revise every process which led to the ultimate computation or assessment. In other words, what he can revise is not merely the ultimate amount which is liable to tax, but he is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer.'

18. In Velukutty's case : [1966]60ITR239(SC) dealing with the limits of the power of an ITO, while passing a best judgment assessment, their Lordships of the Supreme Court relied upon the decision of the Privy Council in Laxmi Narain Badridass' case [1937] 5 ITR 170 and observed as under (at p. 244):

'The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally, Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a 'best judgment assessment', it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though Sub-section (2) of Section 12 of the Act provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard for the available material.'

19. We may point out that in the cases which have been cited before us and to which a reference has been made above, it was the assessee who desired to produce the account books and the Department objected to the production thereof on the ground that the application filed by the assessee under Section 146 for reopening the assessment has been rejected and the appeal in respect therof has also been dismissed, and it was in this context that the various courts have held that so far as the assessee is concerned, he has no right to produce the account books after his application under Section 146, for reopening the assessment is rejected and the appeal therefrom is dismissed. But the right of the AAC or the Appellate Tribunal to direct the ITO to look into the account books of the assessee for the purpose of satisfying himself that the best judgment assessment may not be arbitrary or capricious cannot be questioned. The jurisdiction of the AAC or the Appellate Tribunal, at the time of passing an order of remand is not circumscribed by any such consideration that while directing the ITO to make further inquiry, the AAC or the Appellate Tribunal could not also direct that the account books of the assessee or other material may be looked into, but it must be clearly understood that the account books may be looked into by the assessing authority, in pursuance of an order of remand in the case of an assessment under Section 144, for a limited purpose, namely, to see that the best judgment assessment is not wholly arbitrary or capricious but is reasonable or just and fair in the circumstances of the case.

20. In the present case, it is not the Income-tax Department which has objected to the order of remand on the ground that the books of account could not be looked into, as in the other cases which have been cited above, but strangely, the assessee has objected to the consideration of his account books by the Income-tax Department, in pursuance of the order of remand passed by the AAC and affirmed by the Appellate Tribunal. But, in our view, that would make no difference as regards the scope and limit of the jurisdiction of the AAC under Section 251(1) and of the Appellate Tribunal under Section 254, in the case of a remand arising out of a best judgment assessment passed under Section 144.

21. In the result, both the questions referred to us are answered in the affirmative. The parties are left to bear their own costs.


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