TMI Blog1980 (9) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... er notice calling for the return. Under the terms of this notice, the return had to be furnished on July 27, 1972. But it was not filed on that date. notice was thereupon issued by the ITO to the assessee on July 4, 1973, calling upon the assessee to produce its books of account for the previous year ended March 31, 1971, relevant to the assessment year 1971-72. This notice was issued under s. 142(1) of the Act. The notice required the assessee to produce the books of account on July 12, 1973. The accounts, however, were not produced on that date, but a letter was filed on behalf of the assessee to the effect that the partner of the assessee-firm in charge of the income-tax affairs was away from headquarters and he could not attend to the hearing, and the accounts for the year ended March 31, 1971, were even then being finalised and the return would be filed if time was granted till March 31, 1973. The ITO wrote a letter in reply to the effect that all that was required by the notice under s. 142(1) was Production of accounts, for which the presence of the partner was not needed and that if the accounts were not produced by the extended time, by July 18, 1973, the assessment would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the error, saying that it was a small error and that it was not sufficient to dislodge the estimate of Rs. 75,000 made by the ITO while computing the assessment. To a certain extent, the conclusion of the AAC was induced by the fact that subsequent to the completion of the assessment the assessee had filed a return of income in which it had preferred to show a sum of Rs. 1,34,248 as representing cash credits in its books for which it was even then gathering supporting evidence. On consideration of these aspects of the case, the AAC dismissed the assessee's appeal and confirmed the estimated assessment. The assessee thereupon filed a further appeal before the Tribunal, reiterating its contention that the ITO's assessment on an estimate was based on non-existent factors, particularly relating to the assessee's area of distribution. The Tribunal in its order recorded the assessee's representation that it distributed films during the account year only in Salem and, Dharmapuri Districts and it had no distribution right for any film in North Arcot District. The Tribunal also, at the same time, recorded the argument addressed on behalf of the Department to the effect that the ITO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee before the Tribunal, as well as before the AAC, was the one relating to the non-existence of any distribution rights of the firm in North Arcot District. Learned counsel for the Revenue said that the assessee did not at any time raise the point that it was not given any opportunity whatever by the ITO before he proceeded to make the estimate. Apart from these two objections of a preliminary character, having particular reference to the proceedings in this case, urged the broad proposition that in an assessment made by the ITO under s. 144 of the I.T. Act, for the failure of an assessee to file a return or to comply with a notice under s. 142(1) of the Act for production of books of account, the, ITO was not under an obligation to convene the assessee and place the gist of the materials on which he proposed to rely before proceeding to draw up the ultimate estimate of assessment. We shall first deal with the matter of substance which the learned counsel for the Revenue has put forward last, before we address ourselves on the points of procedure and jurisdiction raised by the learned counsel for the Department. This assessment, as we earlier observed, was one made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y correct. A Bench of this court dealing with the comparable provisions of ss. 23(3) and 23(4) of the Indian I.T. Act, 1922, had had occasion to observe in Gunda Subbayya v. CIT [1939] 7 ITR 21, 27 (Mad) [FB], the substantial points of similarity between the two. Referring to the assessment under s. 23(4) of the Act, the Bench referred to the statutory requirement that the assessment must be to the best of the officer's judgment. The learned judges remarked that the word " judgment " itself implies consideration of something and, in the context of s. 23(4), that consideration must be of facts relating to the income of the assessee. According to the learned judge the same principle would hold good in cases where the ITO acts under s. 23(3). The learned judges then proceeded to observe that even in a case falling under s. 23(3), if the assessee had failed to: produce evidence on which the ITO can make a proper assessment of the assessee's income, the officer himself must take steps to procure materials for the purpose, if it is not already in his possession. The learned judges referred to s. 37 of the Act under which the ITO has power to summon witnesses and make, his own inquiries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d apply even to a case where the assessment is made exparte under s. 144 of the Act. Isaac J., who heard this case, agreed with the assessee's contention. He observed that an assessment to the best of the officer's judgment was a quasi-judicial process and it had to be based on the materials gathered. He added that a quasi-judicial process must necessarily afford an opportunity of being heard before the decision is made against the party in question. The learned judge observed that a decision can be arrived at best, or as correctly as possible, even under s. 144, only if the assessee is given an opportunity to say why, on the materials gathered by the ITO, the income should not be assessed in the manner proposed to be done by the officer. The learned judge observed that there was nothing in the provisions of s. 142(3) to militate against the observance of the principles of natural justice even in an assessment under s. 144 of the Act. He accordingly quashed the order of assessment and remitted the case to the ITO for being disposed of according to law. The other case relied on by the assessee's learned counsel from the Kerala High Court is by another learned single judge of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessment under s. 144 from the ambit of the procedure provided for under s. 142(3) would show that Parliament intended that in a best judgment assessment under s. 144, the ITO was not under any obligation to give an opportunity to the assessee of being heard in respect of any material gathered by the ITO on the basis of any enquiry instituted by him. On a strict construction of s. 142(3) of the Act, taking note of the express words of exclusion conveyed by the clause " except where the assessment is made under section 144 ", there is considerable force in the contention put forward by the Department's learned counsel. The exclusionary words " except where the assessment is made under section 144 can be given a proper meaning only if it qualifies the inquiry preceding an assessment under s. 144. It cannot otherwise be given any proper significance. However, the submission of the learned counsel for the assessee in the present case has not been that the opportunity envisaged under s. 142(3) should be given to him even in an assessment made under s. 144. The crux of the submission made by the assessee's counsel is not that s. 142(3) would apply to s. 144 despite the saving con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the ITO or has not furnished a return, or where he has furnished a return, has subsequently defaulted to produce materials in support of his return or defaulted to co-operate with the officer in the task of adjusting his tax liability, the position of the ITO in no way differs from a case where he has got to proceed under any other provision of the Act for the purpose of making the assessment. It is true that under s. 142(3) of the Act, there is statutory requirement for giving an opportunity to the assessee before any materials are being utilised by the ITO for the purpose of assessment, and this requirement stands excluded by the very terms of s. 142(3) in the case of an assessment under s. 144. But that does not really impinge upon the wider and ever present statutory mandate that the officer must frame the assessment only to the best of his judgment, and nothing short of that. Isaac J., has pertinently pointed out in T. C. N. Menon v. ITO [1974] 96 ITR 148 (Ker), that an assessment to the best of the officer's judgment, being a quasi-judicial process, it necessarily required an opportunity to be given to the assessee of being heard, before a decision is taken by the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt all relevant materials which had been gathered, it stands to reason, that the assessee will have to be given an opportunity being heard and a right to question the correctness or the relevancy of the materials on the basis of which the ITO proposed to estimate the assessment. We now turn to the objection put forward by the Department's learned counsel that within the framework of the question of law which has been sent to us by the Tribunal, we ought not to be engaging ourselves in examining whether in the present case the assessee was or was not given such an opportunity before the assessment, was finalised. The leaned standing counsel Submitted that all through the proceedings, from the appeal before the AAC onwards, the concern of the assessee in this case had been only to point out a mistake in the actual calculation of the assessment and not a procedural lacuna such as the absence of any notice of hearing before the assessment was rendered final. On a reference to the records we are satisfied that the objection of the Department's learned counsel cannot be sustained. We do not, however, propose to consider the aspect of natural justice while examining the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights in North Arcot district. Having thus found the basis of assessment to be wrong or non-existent the AAC, however, dismissed the mistake of the officer as a mistake of no importance. Even this method of disposal had not been followed by the Tribunal. We are, therefore, left with a defective and inconclusive discussion of contested facts on the Tribunal's part. In these events, we cannot say that the Tribunal was right in upholding the estimate made by the ITO. In our judgment, the proper thing for the Tribunal to have done would have been to hear the assessee on the question as to the reasonableness of the estimate and the relevancy and validity of the materials on the basis of which the estimate had been made. If the Tribunal found that any of those so-called materials in the assessment order were not in fact supported by any evidence, it would be the duty of the Tribunal to discard those materials and find out to what extent the estimate already made by the ITO would be affected thereby. If, however, the Tribunal is not in a position to accurately measure the effect of the particular materials in the formation of the ultimate estimate, the Tribunal will have to set aside the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
