TMI Blog1939 (11) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... Now Section 23, Clause (3), of the Income-tax Act reads as follows:- On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points shall, by an order in writing, assess the total income of the assessee and determine the sum payable by him on the basis of such assessment . The contention of the applicant is that this clause contemplates the recording of evidence, in the presence of the assessee, whether it be cited for an assessee or be required by the Income- tax Officer. The contention of the Income-tax Officer is that it is open to him to act upon any information which he may receive without examining the informant in the presence of the assessee and that he is not bound to supply a copy of such information or disclose the name of his informant. This contention undoubtedly raises an important question of law on which there is no decision of any High Court and we think the Commissioner was wrong in not referring that point to us . By consent, however, the question raised on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accept the assessees' accounts as reliable. He had received information that the profits earned were much larger than those shown and he thereupon in a letter dated April 22, 1931, purporting to act under Section 22(4) of the Act informed the assessees that he had information that the profits were greater than those shown and that he believed that they were keeping another set of accounts and he called upon them to produce their true accounts failing which he would make a best judgment assessment under Section 23(4) of the Act. The assessees replied to this letter of the Income-tax Officer, asking them to disclose the necessary information which he believed to be in their possession to enable him to make a correct assessment of their liability to income-tax, by calling upon him to disclose to them the information in his possession. They contended that they had the right to copies of statements on which this information was based and the right to cross- examine the informants. They denied the existence of any second set of accounts. The Income-tax Officer appears then to have accepted this particular denial and to have proceeded against the assessees upon the basis of an ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word, he would already have the powers conferred on him by Section 37 of the Act in virtue of this fact. The real question now in issue is, we think, as we have put it. The Income-tax Officer concluded the proceedings before him by assessing the firm on a total income of ₹ 85,545. It may, we think, be fairly said that he finally came to his conclusions on a consideration of the unreliability of the accounts produced before him and on his private enquiries, rejecting, for reasons given, the assessees' claim that there was a loss, and estimating the remitted profits from outside India at ₹ 1,16,502, which less a sum of ₹ 30,957 already assessed, left an income of ₹ 85,545, and resulted in a demand notice of ₹ 10,241-7-0. Now the learned advocate for the assessees bases his case upon an interpretation of Section 23(3) of the Income-tax Act which makes that section exhaustive and provides that once an assessee has produced books of accounts, however un-satisfactory those books may be, the burden lies upon the Income-tax Officer of adducing evidence which must be recorded under sub-section (3) of Section 23 of the Act to take the place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. It is answered in the sense of the judgment, but the learned Chief Justice did not draw a sharp distinction between sub-section (3) and sub-section (4). In both cases, he considered, the assessment must be made to the best of the judgment of the assessing officer upon a consideration of facts relating to the income of the assessee. In both cases the assessment must be based upon some material, and the only difference between an assessment under sub-section (3) in a case like the one mentioned in the reference and an assessment under sub-section (4) is, in the opinion of the Chief Justice, that the Act contemplates a more summary method under sub-section (4) than under sub-section (3). Briefly, whether acting under sub-section (3) or sub-section (4) the Income- tax Officer must assess the assessee to the best of his judgment on the material before him. In the one case, however, the assessee produces his accounts; in the other, he does not. The learned Chief Justice referring to Section 13 of the Income tax Act found himself in disagreement with the Punjab and Rangoon High Courts in their Judgments in Gangaram Balmokand v. Commissioner of Income-tax, Punjab, [1937] (5 I.T.R. 464) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax, C.P. U.P. [1939] (7 I.T.R. 515) Stone, C.J., was of the opinion that Section 13 or rather the proviso to Section 13 should be read with Section 23(3) even when the accounts are rejected. The Chief Justice said (Page 522): As to the third question we have not had our attention to any principle of assessment other than this: the Income-tax Officer having doubted the return, having given notice, having received and examined books, has rejected those books as unreliable and has proceeded to assess under Section 23(3) and for the purpose of arriving at his figure has computed as directed by Section 13 proviso. In order not to guess he has, with the help of the assessee, analysed the assessee's books from various angles and has arrived at an estimate and on that estimate has assessed the assessee. We see no principle here but merely a compliance with the provisions of the Act . There is, in our opinion, no conflict or divorce between Section 23(3) and Section 13 of the Income-tax Act. In proper cases the sections work together. But the proviso to Section 13 does not, we think, have reference to the manner in which information is obtained either by private enquir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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