1. In pursuance of the order of Court, 1 have the honour to refer under Section 66 (3), Income-tax Act, the following case for the decision of the Hon'ble High Court.
2. The following are the facts of this case: Messrs. Raghunath Das Sowlal, hereafter called the 'assessees,' having their offices in Calcutta are dealers in piecegoods, sugar, jute, gunny and hessian, observing the Ramnavami year ending in April as their year of account. On 29th May 1926, a notice was issued upon thorn by the Income-tax Officer, District IV (1) Calcutta, calling for a return of their income during the previous year, viz., Ramnavami 1982, by 30th July 1926. On 31st July 1926, a petition was filed asking for one month's extension of time. This was allowed. On 21st August 192G, another petition was filed praying for two months' time on the plea that the books could not be adjusted owing to the absence of the gumasta who had gone to his native village This was allowed till 24th September 1926. On 30th September 1926, another petition came in for a further two months' extension on the same plea as before. But time was refused as the Income-tax Officer considered that more than ample time had already been granted. On 1st October 1926, he issued a notice under Section 22 (4) calling for books of Ramnavami 1982 and 1981, for 7th November 1926. On 8th November 1926, the assessees submitted their return showing a loss of Rs. 39,206. Thereupon, the Income tax Officer issued a combined notice under Sections 23 (2) and Section 22 (4) of the Act requiring the assessees to produce any evidence on which they might rely in support of the return, and also accounts of three years 1980, 1981 and 1982 Ramnavami on 19th November 1926.
3. On this date they only produced the accounts of their cloth business and not of any other business and those for 1982 Ramnavami only. The case was then adjourned to 23rd November 1926, when the assessees were asked to produce three years' books for all the departments of their business as mentioned in the notice under Section 22 (4). On 23rd November 1926, a petition was filed asking for a fortnight's time on the plea that the accountant was ill and so there was none to explain the accounts. The Income-tax Officer granted time till 27th November 1926. On 27th November 1926, the assessees produced jamabahi, nakal and rokar of the hessian business only for 1982 Ramnavami, but not even the ledger of this business, not to speak of the accounts of the other businesses which they had been asked to bring on that day. The assessees put forward the plea that the previous years' accounts had been sent to Bikaner, but no explanation was given as to why they were sent, nor was any evidence produced that they were sent there. The Income-tax Officer therefore did not accept this statement holding that it had no foundation in fact. On the same plea they filed a petition on 30th November 1926, asking for 20 days' time for production of all the books called for. This was rejected. However for some reason the case was not taken up till 23rd December 1926, when a fresh combined notice under Sections 22 (4) and 23 (2) issued for production of evidence in support of the return as well as the accounts of the three years for 12th January 1927. As the Christmas holidays intervened this notice was served on 5th January 1927. The assessees did not pay any heed to the notice. In the circumstances the assessment was made under Section 23 (4) on 15th January 1927.
4. On 27th January 1927, the assessees-presented a petition under Section 27 on the ground that they were prevented by sufficient cause from complying with the requisitions under Sections 23 (2) and 22 (4).
5. On 12th February 1927, they filed a. supplementary petition under Section 27 stating that the notice under Section 23 (2) was complied with by production of accounts on 23rd November 1926 and 27th November 1926, only the ledger of the hessian business was not brought through mistake, and that on 12th January 1927,. their pleader appeared and applied for a. fortnight's adjournment on the ground that the head gumasta, who was the only person competent to explain the accounts had gone to Gangasagore for pilgrimage. Further the accounts of 1980 and 1981 could not be produced having been detained at Bikanir and a long time would be required for their production.
6. On 14th February 1927, the Income-tax Officer rejected the petition on the ground that none of the notices had been fully complied with, and sufficient time had been granted for compliance and that the pleader appeared before him on 12th. January 1927, after ho had passed the order, but as no petition for time was filed before him ho did not take action.
7. The Assistant Commissioner of Income-tax upheld this decision on appeal. Before him a new plea was put forward to explain the nonproduction of books of 1980 and 1981, to the effect that they were sent to Bikanir in connexion with a civil suit. As no proof of this was forthcoming ho did not accept the plea. He passed his order on 23rd February 1927.
8. From the above account it is obvious that the assessees had more than seven months' time from the date of the service of the notice under Section 22 (2) till the date of the assessment to produce complete accounts of the previous year, and I hold that there was no object in examining the books as produced in their incomplete state since no reliable estimate of income could have been arrived at from these incomplete books. It is also clear that they wilfully withheld the books of the two years immediately anterior to the previous year as had they been at Bikanir in connexion with a civil suit, as was alleged before the Assistant Commissioner of Income-tax for the first time, the requisition of the Bikanir Court could have been produced before him. Moreover, it was stated in the subsequent petition under Sections 33/66 (2) that the decree of the Bikanir Court would be produced at the time of the hearing of that petition but this promise was never fulfilled. The only evidence produced before the Commissioner was two affidavits sworn by gumastas, but they were not accepted as proof in the absence of any other evidence.
9. The books were no doubt rightly requisitioned since it is not possible to arrive at a correct computation of the income of a business like that of the assessees from the books of the previous year only. These have to be tallied with books of the earlier years to see whether stocks have been rightly carried forward.
10. Subsequently they filed a petition Tinder Section 33/66 (2) for review of the Assistant Commissioner's order or in the alternative for a reference to tb.3 High Court of certain questions of law. After the hearing of this petition the counsel of the assessees submitted on 2nd May 1927 a supplementary question of law which ran as follows:
If a potential assesses has made a return in pursuance of a notice under Section 22 (2) and thereafter a notice has been served upon him under Section 23 (2) and also a notice under Section 22 (4) and the potential assesses has complied with all the terms of the notice under Section 28 (2), but has failed to comply with the notice under Section 22 (4), is the Income-tax Officer entitled to refuse to examine the evidence produced in pursuance of the notice under Section 23 (2) and to make an assessment under Section 23 (4), or is he bound to proceed under Section 23 (3).
11. It is not a fact as stated in the assessees' petition before the High Court that ray predecessor who heard the Section 33/66 petition asked their counsel' 'to formulate more explicitly a pure question of as involved in the questions of law, which are already mentioned in the said petition [petition under Section 33-66 (2) ].'
12. He (my predecessor) refused to refer this supplementary question to the High Court on the grounds: (1) that it was tiled on 2nd May 1927, after the lapse of one mouth of the passing of the appellate order by the Assistant Commissioner on 23rd February 1927, and was time-barred; and (2) that it was based on a mis-statement of fact as the notice under Section 23 (2) was not fully complied with. He refused to state the other questions on the ground that no question of law arose.
13. Thereupon, the assessees moved the Hon'ble High Court under Section 66 (3) of the Act and the Court issued a rule upon me to show cause why I should not refer the following questions to it with my own opinion for the opinion of the Court:, (1) whether the notice under Sub-section (4), Section 22, Income tax Act of 1922, upon the assessees therein mentioned to produce their account books was valid, having regard to the fact that the said assessees had made a return of their income; (2), if not, whether the Income-tax Officer in the said petition mentioned was entitled to proceed to assess them under Sub-section 4, Section 23, Income-tax Act; and (3) whether the application made by the said asses-sees to the said Income-tax Officer and mentioned in the said petition was out of time having regard to Sub-section 2, Section 66 of the said Income-tax Act.
14. On reconsideration of my predecessor's order I decided to state a case and the rule was accordingly made absolute.
15. I now refer the questions with my opinion which is as follows: As regards questions (1) and (2) I. submit that in view of the circumstances of this case the notice under Section 22 (4) was valid, and the Income-tax Officer rightly made the assessment under Section 23 (4) for failure to comply with the notice. This is the view which the Hon'ble High Court expressed in the case of Harmukhrai Dulichand v. Commissioner of Income-tax, Bengal : AIR1928Cal537 . As regards question 3, I submit that the Hon'ble High Court appear to be referring to the question of law, filed on 2nd May 1927, in connexion with the application under Section 66 (2) before my predecessor, a no petition to the Income-tax Officer was held to be out of time. According to Section 66 (2) I am only authorized to refer to the High Court any question of law, arising out of the appellate order under Section 31 or Section 32, which the assessees may file within one month of the passing of such order. In this case the Assistant Commissioner passed his order in appeal on 23rd February 1927 and the question of law was filed on 2nd May 1927. In the circumstances I am of opinion that the question was out of time, having regard to Sub-section (2), Section 66, Income-tax Act (11 of 1922).
16. In this case, the questions of law must be answered in favour] of the income-tax authorities. The first question is already covered by decision. The second question does not arise and on the third question the Commissioner of Income-tax appears to be right. In my judgment these questions should be answered accordingly and the assessees must pay the costs of this reference.
C.C. Ghose, J.
16. I agree.
17. I agree.