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1963 (8) TMI 52 - MADRAS HIGH COURT

1963 (8) TMI 52 - MADRAS HIGH COURT - [1965] 56 ITR 293 (Mad.) - Tax Case No 7 of 1961 (Reference No 7 of 1961) - Dated:- 22-8-1963 - JAGADISAN J. JUDGMENT This is a reference under the Indian Income-tax Act The question referred is as follows : Whether the inference of the Tribunal that the Income-tax Officer had exercised his discretion lawfully in applying the proviso to section 23(4) to reject the assessee s renewal application u/s 26A is legal ? W .....

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The question raised is whether the Tribunal acted rightly in conformity with law in refusing registration to the assessee-firm The Income-tax Officer refused registration because the assessees were in default in complying with the terms of the notice u/s 22(4) calling for documents and account books relating to the assessee s business Taking the view that the assessees failed to comply with the statutory notice u/s 22(4), the Income-tax Officer passed a best judgment assessment permi .....

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ssible only if section 23(4) were to apply The AAC went further and held that the estimated income of ₹ 1,50,000 made by the officer was not warranted He reduced the estimate to ₹ 75,000 He also directed registration of the firm On appeal by the department the Tribunal restored the order of the Income-tax Officer fully In other words, the Tribunal held that the officer s estimate of the income was correct and that his refusal to register was also proper The assessment of t .....

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) But now the question is whether the Tribunal was right in upholding the order of the Income-tax Officer refusing registration Learned counsel for the department contends that it is not open to the assessees to submit at this stage before us that there has been no default on their part in complying with section 22(4) notice, as that question must be deemed to have been set at rest by the very act of the assessees in allowing the Tribunal s order regarding the quantum of assessment to .....

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stent view in the matter we do not think that we should in any way be precluded from considering the question whether there was in fact a default on the part of the assessees to attract the penalty of non-registration quite independent of the implications that may be attributed to the best judgment assessment The assessee has a right under the Act to claim the benefit of registration under certain conditions laid down by the Act If those conditions are present he would be entitled to registratio .....

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for the assessment is contained in section 23(4) That sub-sections reads : 23 (4) If any person fails to make the return required by any notice given under sub-section (2) of section 22 and has not made a return or a revised return under sub-section (3) of the same section or fails to comply with all the terms of a notice issued under sub-section (4) of the same section or, having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of this secti .....

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he best of his judgment It might be said that defaulting assessees are visited with the penalty of a best judgment assessment But such a penalty only flows from the conduct of the assessee himself In the face of a contumacious default on the part of the assessee, the Income-tax Officer vested with the statutory duty of making assessment has no alternative but to proceed to determine the assessment in as good a manner as possible, indulging of course in some guess-work within the limits of honest .....

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shall and may are found in two different limbs of the same section, there cannot be a better legislative pointer to indicate that the first is obligatory and the second is discretionary We have no doubt that the statute does not compel the officer to deprive the assessee of the benefit of registration under the last part of section 23(4) In other words, it would be wrong to assume that the defaults listed in section 23(4) of the Act would lead to a two-fold penal consequence : (1) a best judgmen .....

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urely one of discretion to be exercised by the officer and, therefore, he should exercise it not arbitrarily or capriciously but in a manner consistent with judicial standards This, in our opinion, is the true scope of section 23(4) of the Act We cannot help observing that in the instant case neither the Income-tax Officer nor the Appellate Tribunal seem to have had a correct perspective of the question We shall now consider the question as to whether in fact the assessees .....

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f the Income-tax Officer dated November 14, 1951, clarified the requirement A rough day-book is one maintained in the regular course of business and the above-mentioned letter called upon the assessee to produce genuine books of account maintained in the regular course of business In our opinion the assessee failed to produce these books The Tribunal is in error in stating that the letter of the officer dated November 14, 1951, called upon the assessees to produce the rough day-books .....

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tock book produced and the admitted sales books of the assessees It is true that there is a lot of discrepancy between the stock position as disclosed in the assessee s stock book and the sales accounts now produced by them It may be that even the assessee s explanation for the discrepancies pointed out was not quite convincing But the real question is whether it can be said that the assessee must have been maintaining another set of account books and that they committed default in no .....

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