Alfred Henry Lionel Leach, C.J.
1. This reference has been made by the Income-tax Appellate Tribunal, Calcutta Bench, under Section 66(1) of the Income-tax Act at the request of the Commissioner of Income-tax, Madras. On the 15th August, 1938, the assessees filed a return of their income for the year 1938-39. On the 11th March 1939, the Income-tax Officer served a notice upon them under Sections 22(4) and 23(2) to produce the accounts of their money-lending business for the year 1937-38 and connected documents. The notice was to be complied with by the 20th of that month. The assessees produced for the inspection of the Income-tax Officer certain books of account but when he examined them he considered that the assessees possessed another set of books which they had suppressed. When the notice under Section 22(4) and 23(2) was served on the assessees Section 28 had not been amended. It was amended with effect from the 1st April, 1939. Sub-section 1(b) of Section 28 now provides that if the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of proceedings under the Act is satisfied that a person has without reasonable cause failed to comply with a notice under Sub-section (4) of Section 22, or Sub-section (2) of Section 23, he or it may direct him to pay by way of penalty, in addition to the tax payable by him, a sum not exceeding one and a half times the income-tax and super-tax, if any, which would have been avoided if the income as returned by the person had been accepted as the correct income.
2. On the 9th December, 1939, the Incam-tax Officer wrote to the assessees Stating that a separate set of account books had been kept and that these had not been produced. On the 4th January, 1940, he caused to be issued a fresh notice under Sections 22(4) and 23(2) requiring the assessees to produce the books of account for the years 1937-38, 1936-37 and 1935-36. The assessees did not comply with this notice. On the 31st January, 1940, the income-tax Officer assessed the assessees for the year 1938-39 on an income of Rs. 16,100. This assessment was under Section 23(4). Two days before this assessment was made the Income-tax Officer served a notice upon the assessees requiring them to show cause why a penalty should not be inflicted under Section 28(1)(b). The respondents appeared before the Income-tax Officer in compliance with this notice and he gave his decision in an order dated 21st December, 1940. He held that there had been default in Compliance with the notice to produce the books of account and consequently he imposed a penalty of Rs. 1,200 in addition to the amount of tax payable under the order of assessment.
3. The assessees challenged the correctness of both the orders of the Income-tax Officer in appeals to the Assistant Appellate Commissioner, who agreed with the Income-tax Officer. The assessees accepted the decision of the Assistant Appellate Commissioner so far as it concerned the assessment to income-tax under Section 33(4) but they appealed to the Income-tax Appellate Tribunal against the penalty which had been inflicted on them. The tribunal allowed the appeal on the ground that in connection with the imposition of a penalty for the non-production of books
the existence of the books should be shown in some more tangible material than it may ordinarily be necessary for purposes of an assessment under Section 23(4).
4. The Tribunal also held that Section 28 could not be applied in a case where the assessment was for a period prior to the 1st April, 1939, when the amendment came into force.
5. The Tribunal has referred three questions to the Court for decision. They read as follows:
(1) Whether the proceedings in this case for the imposition of penalty in respect of the assessment for the year 1938-39 are governed by the Income-tax Act as it stood in 1938-39, the year of assessment, or whether they are governed by the Income-tax Act as amended from the 1st April, 1939, as the proceedings were completed in 1940.
(2) If it is held that the Income-tax Act as amended in 1939 should be applicable the next question will arise : When the default was committed, whether on the 20th March, 1939, in answer to the first notice prior to the commencement of the amended Act of 1939 or in January, 1940, when there was again a second default to comply with another notice under Section 22(4) for the production of the same books.
(3) If it is held that the Amended Act applied, whether, the view of law taken by the Tribunal that the existence of the books should be shown in some more tangible material than the one in the case of an order under Section 23(4) was right in arriving at the conclusion that the case was not a fit one for imposition of penalty.
6. It is regrettable that the Tribunal did not take greater care in framing these questions. The second and third questions as they stand are not intelligible; but we gather what is meant from the order which the Tribunal passed on the assessees' appeal.
7. The first question is whether Section 28(1)(b) can be applied in respect of the failure to comply with the notice issued on the 4th January, 1940. It obviously could not be applied to the earlier notice because when that notice was issued the amendment had not been made. When the second notice was issued the amendment had been made and we consider that the section was applicable. When the amendment came into force the Income-tax Officer had not made an assessment for ' the year 1938-39 and he was entitled to make it when he did, namely, on the 31st January, 1940. It has been suggested that to hold that Section 28.(1)(b) applies to the second notice is making the section retrospective, but this is not so. The Income-tax Officer had full power to issue the notice on the 4th January, 1940 and failure to comply with it meant liability under Section 28(1)(b). The answer to the first question is that the Income-tax Officer had the right to act under Section 28(1)(b) for failure to comply with the notice issued to the assessees on the 4th January, 1940. This answer also covers the second question,
8. The third question is really whether more evidence is required for the imposition of a penalty under Section 28 than would be required for a ' best judgment assess-ment under Section 23(4). The two sections have nothing in common and it is not possible to give a direct answer to the question. when the Income-tax Officer makes an assessment under Section 23(4) it must be in the nature of an estimate, because the assessee has failed to place before him material for making an accurate assessment. In Income-tax Commissioner v. Badridas Ramrai Shop, Akola (1937) 2 M.L.J. 43 : L.R. 64 IndAp 102 : I.L.R. (1937) Nag. 191 (P.C.) the Privy Council pointed out how an Income-tax Officer should proceed when assessing under that section. Their Lordships said:
The Officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively, or capriciously, because he must exercise judgment in the matter. He muso make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must, their Lordships' think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances 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 must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary.
9. The imposition of a penalty under Section 28 is not a matter of guess-work. Before imposing a penalty in such a case as this the Income-tax Officer must have in his possession such evidence as would convince a reasonably minded man that there exists a second set of books. It is not possible to lay down any hard and fast rule as to what is actually required. Each case must depend upon its own circumstances. We answer the third question in this sense.
10. The Commissioner is entitled to his costs which we fix at Rs. 250.