TMI Blog1948 (12) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... e could the estimate of income by the Income-tax Officer be legally revised by the Income-tax Appellate Tribunal? (2) Whether in the circumstances of the case the Income-tax Appellate Tribunal was entitled in law to direct the income accruing or arising in a previous year to be assessed in subsequent years? (3) Whether the Income-tax Appellate Tribunal could legally set aside the estimate of income made by the Income-tax Officer under sub-section (4) of Section 23 of the Indian Income-tax Act for the reason that such estimate exceeded the general rate of profit stated to have been adopted by it in the cases of other assessees? 2. In the application with reference to excess profits tax appeal the following questions have been asked to be referred:- (1) Whether in the circumstances of the case the directions by the Income-tax Appellate Tribunal to split up the profits accruing or arising in the chargeable accounting period and to assess them in different years is in accordance with law? (2) Whether in view of Rule 9 of Schedule I of the Excess Profits Tax Act the profits arising from the performance of a contract within the chargeable accounting period are assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (3) that the estimated profit rate of 40 per cent. was too high. 6. Notices under Sections 22(4) and 23(2) were issued by the Income-tax Officer and Mr. Sen, one of the partners, informed him that the books of the appellant were with his partner, Mr. Bhuyan. When Mr. Bhuyan was examined, he in turn denied that he had any books but stated that the books were with Mr. Sen. Subsequently the Income-tax Officer was told that the books were destroyed by fire. In these circumstances the assessee was assessed by the Income-tax Officer under Section 23(4) and the Tribunal on consideration of all the facts came to the conclusion that the assessment was rightly made under Section 23(4). 7. With regard to the second objection, the assessee's case was that payments were received over a period of 3 years on account basis and the settlement of bills was still pending. He submitted that in these circumstances, the assessment should be made on the basis of the amounts received by the appellant each year, i.e., on cash basis, and not on the basis of contract works which were started and completed within the accounting year. As has been stated, the Income-tax Officer assessed the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit rate from 40 per cent. adopted by the Income-tax Officer to 30 per cent. by the Tribunal on the ground that 30 per cent. was the general rate adopted by it in the cases of other assessees doing the same kind of contract works during the same assessment year was legal? 10. In the excess profits tax assessment appeal an additional argument was advanced by the departmental representative basing it on rule 9 of Schedule I of the Excess Profits Tax Act. He submitted that, whatever may be the basis for the income-tax assessment, for excess profits tax purposes the profit of the business should be computed on the basis of the performance of the contract. It was urged that since the assessee did not deny that the contract was performed within the present chargeable accounting period the whole of the income from the contract should be assessed on the basis of the performance during that chargeable accounting period. The Tribunal held that since rule 9 of Schedule I spoke of the performance of contracts which extended beyond the accounting period it did not apply to the facts of this case, and overruled the contention of the department. We think that a question of law does arise fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the profits and losses in the proportion of 9 as. and 7 as. respectively. The business, of which the profits and gains are the subject of assessment, consisted of aerodrome work under the Central Public Works Department, certain katcha building constructions under the Military Engineering Service and small supply of potatoes to Garrison Engineer. The work began on 28th March, 1942, and terminated on 27th July, 1942, but the work of repairs maintaining the same continued up to February, 1943. The accounting year is the financial year of 1st April, 1942, to 31st March, 1943. During the said year, the assessee received a sum of ₹ 2,92,256. During the next year, that is 1st April, 1943, to 31st March, 1944, they received a sum of ₹ 86,434 and during the following accounting year of 1st April, 1944, to 31st March, 1945, they received a sum of ₹ 25,703. Besides it appears, there were certain estimated outstanding bills to the credit of the assessee which had been excluded from assessment. The Income-tax Officer issued notices under Sections 22(4) and 23(2) of the Income-tax Act. In pursuance of these notices, S. Sen informed him that the books of account were wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. was, therefore, reduced to 30 per cent. by the Tribunal. Of the three questions submitted to us, it is conceded by the learned standing counsel for the department that the 3rd question does not arise for detailed consideration as rule 9 of Schedule I of the Excess Profits Tax Act is not attracted by the facts of the case, and that the Tribunal was, therefore, right in not applying the same. The answer to this question must, therefore, be in the affirmative. The question No. 1 is one of deceptive simplicity. It has hidden within its simple garb the not-very-easy question of determination of the Tribunal's right of interference with the final assessment order of the Income-tax authorities. The question has been argued from a jurisdictional angle of vision. I should wish the question should have been more explicitly worded. We are not asked to say whether the assessment should or should not have been governed by the proviso to Section 13 of the Income-tax Act nor have we been asked whether in the circumstances of this case the income should have been ascertained either on receipt basis or on accrual basis. The question may be viewed as involving one or the other of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 28 or Section 31, is appealable to the Tribunal. The latter can substitute its own order of assessment for the one passed by the appellate income-tax authority. This very widely expressed power, however, shall not be immune from such limitation to which ordinarily an appellate authority or tribunal is subject in the disposal of its duty. The learned standing counsel wanted to argue that the Appellate Tribunal's power of interference is confined more often than not to questions of law and that in matters of questions of fact, its power is not as full and wide as that of an appellate income-tax authority in respect of any order of assessment passed by the Income-tax Officer. Neither is there any warrant for such a contention in Section 33. The contention of the learned standing counsel is placed in the background that in certain cases of assessment, as is the present one, the Income-tax Officer, as good as the Appellate Commissioner, has discretionary power which is seldom liable to interference. Great assistance is prayed in aid in relation to this contention from the case of Rehmat Un-NissaBegam and Others v. Price and Others* where, in a case involving the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce is subject to this rule of which the justice can be seldom doubted. It would be unduly narrowing down this principle to confine its application to cases where there is apparently an error of fact or an erroneous decision of law in the exercise of the original Court's discretion. The concept involved in the words used by Sir Lawrence Jenkins, namely, there are elements in the case which can fairly be regarded as ample warrant for the first Court's decision does not eliminate the element of fairness and natural justice. The discretionary order of the original Court may apparently be based on right appraisement of facts pro tanto but may yet, when contrasted with the conclusion derivable from another mode of appraisement, result in injustice and inequity to the subject. In such cases it can be well said that such elements as are referred to by Sir Lawrence Jenkins as elements which can be regarded as ample warrant for the decision can be found wanting. I should hold that in such cases too, the Appellate Tribunal shall be attributed with the power of interference. At the same time this power shall not be exercised indifferently to the materials on record. In my view, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Committee were dealing, their Lordships answered the question, Whether, in view of the provisions of Section 13 or the Income-tax Act or otherwise, the Income-tax Officer was right in computing for the purpose of Section 10 of that Act, the income, profits and gains in accordance with the method of accounting regularly employed by the assessee, when that method in fact does not show the true income, profits and gains, in the negative. In dealing with the question involved in the width of the Income- tax Officer's discretionary power of assessment in cases of default of the assessee either under Section 23(4) or Section 13, proviso, vis-a-vis the Appellate Tribunal's power of interference, it would not be out of place to refer to the decision of the Privy Council in the case of Commissioner of Income-tax, United and Central Provinces v. Badridas, Ramrai Shop, Akola, owner Lakshminarayan Badridas Sharwagi*. Lord Russel ofKillowen, who delivered the judgment of their Lordships, after referring to what the Judicial Commissioner had laid down in that case observed as follows:- The Judicial Commissioners have laid down two rules which impose upon the officer the dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso to Section 13 as also under Section 23(4). As laid down in the case of Messrs. Ganga Ram Balmokand v. Commissioner of Income-tax*, both the aforesaid provisions of law may be combined in their operation and application to the facts of the present case. This assessment, however, must not be arbitrary but should be one to the best of the Income-tax Officer's judgment. True that in coming to his finding he should make what he honestly believes to be the fair estimate of the proper figure of assessment, and he can pray in aid his local knowledge of such matters as he thinks would assist him in arriving at such an estimate. Though there must necessarily be guess work in the matter, it must be honest guess work. It may be arbitrary to some extent and his order may appear to be final so far as it goes, but wherever it can be shown that the figures arrived at by him are either not based on facts or are erroneous inferences from facts or even as a guess work it has not been arrived at by an honest exercise of judgment, it may be disturbed by the appellate authority or Tribunal. In the present case, the Income- tax Officer arrived at the figure on the basis of the receipts extending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such contingency cannot be wholly eliminated in the present case. If the Income-tax Officer, in arriving at the figure for assessment, leaves out these considerations, he certainly cannot be said to have exercised his judgment which he is none the less called upon to do in making the assessment in cases of assessee's default under Sections 23(4) and 13 proviso of the Income-tax Act. As laid down by their Lordships of the Privy Council, any method of accounting adopted by the Income-tax Officer acting under the proviso of Section 13 can be rejected if the method in fact dot s not show the true income, profits and gains. In this view of the matter, the Appellate Tribunal was right in asking the Income-tax Officer to assess the assessee on receipt basis with regard to contracts carried out and completed during the year of accounting, there being every presumption that the incomes were paid as soon as they became due. At any rate, the Tribunal's decision may be upheld on the ground that when two methods of guess work are available for the purpose of assessment, the one which is more just to the assessee and which involves a much less margin of chance of uncertainty should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an even construe the said judgment as a written document just as a Court of law in order to find out if there is any error of law (vide Usher's Wiltshire Brewery v. Bruce**) In the same case, Lord Sumner, while laying down that an inference from a wide area of facts is itself a fact, observed that the question is different where there is a suggestion that the Commissioners found the facts under any mistake in law, including in that term the view, conscious or unconscious, that a fact may be found which there is no relevant evidence to support................................. This is exactly the case here as the Appellate Tribunal had arrived at the lesser flat rate on the basis of their decisions in similar cases in the district. Their opinion are not receivable evidence in the present case. The decisions in different cases must have been based upon different facts and different inferences deducible from such facts. On the contrary, the Income-tax Officer in his order of assessment says: When others working on similar works and in the same year have actually made 40 per cent. on gross value of bills, there is no reason why the assessee should not make 40 per cent. on net val ..... X X X X Extracts X X X X X X X X Extracts X X X X
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