JUDGMENT Under Section 66(3) of the Indian Income-tax Act the applicant assessee prays that we should require the Commissioner of Income-tax, Central and United Provinces, to state a case.
The assessee is a Hindu undivided family, and although in the course of argument it was contended on behalf of the assessee that the notice for submitting a return meant a notice to a firm, we have no doubt whatsoever that this position has been taken for the first time to-day before us and not even yesterday when the case was opened. The family has an income from property and from money-lending and Benarsi silk business. In response to the notice under Section 22(2) a return was filed by the assessee declaring an income of Rs. 12,758. Notices under Sections 22(4) and 23(2) were then issued and the books were produced on August 25, 1937. The Income-tax Officer examined the books and issued another notice under Section 22(4) requiring the assessee to produce all his books of account for the last three years and the assessee was further required by means of a notice under Section 23(3) to give proof on certain specified points.
The assessee seems to have grown suspicious and he on September 2, 1937 submitted an application before the Income-tax Officer stating that on account of some misunderstanding a part of the familys income had not been included in the return. He showed in this application a further income of Rs. 1,801. The assessment year was 1937-38, but the assessee on the same date filed another application and said that he had omitted some income even in the assessment year for 1936-37 and requested the Income-tax Officer to take action under Section 34 of the Income-tax Act with respect to an escaped income of Rs. 2,263.
It might be mentioned that when the assessee made an application that for the assessment year 1937-38 an income of Rs. 1,801 had been omitted the assessee did not in terms act under the provisions of Section 22(3) inasmuch as he had already furnished a return and was not, by reason of having discovered some omission or wrong statement therein, furnishing a revised return. All that he did by the application was to tell the Income-tax Officer that some more income should be added to the income already disclosed in the first return.
The Income-tax Officer was sceptical about these two applications and started a searching enquiry into the affairs of the assessee and asked for other account books and some books known as Hath Bahis were produced and there the Income-tax Officer found that in the year 1992-93 the personal account of Gopal Das started with an opening balance of Rs. 47,624. He though that the Hath Bahis were kept in an exceedingly irregular manner and were not genuine but had been prepared to explain the deposits in the personal account of Gopal Das. Certain other omissions were discovered, more particularly a hand-note for Rs. 900 executed by one Vijai Ram on September 14, 1934, in favour of Lala Ganga Das a member of the family, did not appear either in the account books or in the Hath Bahis. He says towards the end of his assessment order :
"In the circumstances I am convinced that the Hath Bahis in question do not reflect the real state of affairs and have been prepared specially for income-tax purposes to help the assessee out of an unenviable situation. That apart from the Benarsi cloth business the assessee keeps some subsidiary accounts for his money-lending business or say head office books does not admit of any doubt."
He was thus of the opinion that the notices issued under Section 22(4) were not complied with and therefore Section 23(4) came into play. Under that provision he therefore made an assessment to the best of his judgment. This was on February 22, 1938.
There was an appeal against the order of the Income-tax Officer, and on April 26, 1938, the Assistant Commissioner of Income-tax considered whether there had been any default by the assessee as mentioned by the Income-tax Officer and was of the view that there was such a default. The Assistant Commissioner, therefore, refused to admit the appeal and passed that order on April 26, 1938.
The assessee then applied to the Income-tax Officer under Section 27 of the Income-tax Act, but the Income-tax Officer declined to cancel the assessment. There was an appeal to the Assistant Commissioner of Income-tax and on June 25, 1938 he confirmed the order of the Income-tax Officer.
The assessee then approached the Commissioner of Income-tax with a combined application under Section 33 of the Act and under Section 66(2) of the Act. The application was not very happily worded, and one has to read it twice before one can come to a conclusion not necessarily definite that the applicant was really asking the Commissioner of Income-tax to state a case in connection with proceedings under Section 27 of the Act. The learned Commissioner was of the opinion that the assessee was claiming a reference in connection with the order of the Assistant Commissioner dated April 26, 1938, dismissing the appeal of the assessee in connection with the assessment under Section 23(4).
We may, however, take it that the assessee wanted a reference to this Court because of the proceedings, original and appellate, in the application under Section 27 of the Act. The questions of law that were formulated in the application to the Commissioner are :-
"(1) Whether all the proceedings in this case are ab initio void as the notice purported to have been served on the petitioner under sub-section (2) of Section 22 was not a notice required to be served by that sub-section inasmuch as it did not specify which particular person was required to furnish the return of his or whose total income during the previous year and on whose total income during the previous year and on whose behalf return was to be verified and furnished.
(2) Whether the assessment made without service of a notice under Section 23(2) after the filing of a revised return is illegal.
(3) Whether the assessment, after hearing further evidence, as required by the Income-tax Officer under Section 23(3) must be made under Section 23(3)."
The learned Commissioner who, as we said before, was of the opinion that the assessment itself was in question dealt with the application principally from the view point of giving relief under Section 33 of the Act and came to the conclusion that no such relief could be granted. He discussed the question of default made by the assessee and held that the assessment was rightly made under Section 23(4) of the Act. When he commenced the consideration of the application under Section 66(2) he thought that he has said enough in connection with the application under Section 33 and disposed of the application under Section 66(2) in a very summary manner by saying :
"I have considered these questions and I find that they do not arise out of the facts of the case, and I, therefore, refuse to refer the case to the High Court."
It would have been better if the learned Commissioner had taken some more pains in that connection because we have to be satisfied of the correctness of the Commissioners decision and when the decision is not supported by reasons it is difficult to say whether the decision is correct or not. In spite of the fact that the decision of the Commissioner is faulty in this respect, we have arrived at the result that the circumstances do not warrant our requiring the Commissioner to state a case.
The questions that were formulated by the assessee did not directly suggest that the assessee was challenging in any way the decision of the Assistant Commissioner of Income-tax dated June 25, 1938 in the proceedings under Section 27 of the Act. The questions directly suggested that the assessment under Section 23(4) was invalid and improper. Learned counsel for the assessee even before us has formulated the very same questions but has framed one other question which is :
"Whether the assessee could not under the circumstances of the case be said to have been prevented by sufficient cause in not complying with all the terms of the notice under Section 22(4)."
There is one other question which is : Can the assessment under the circumstances of the case be said to be correctly made under Section 23(4), and this suggests that even before us the validity of the assessment under Section 23(4) is in question.
We shall, however, concentrate our attention on the question which really arise out of the appellate order of the Assistant Commissioner disposing of the appeal in the application under Section 27 of the Act and we shall in that connection assume that the assessee is challenging the validity of the various notices issued to him for the purpose of showing that if the notice are illegal and invalid non-compliance with them constitutes a sufficient cause within the meaning of Section 27 of the Act.
The first notice that is alleged to be illegal is the notice under Section 22(2) of the Act, that is, the notice calling upon the assessee to furnish a return. Under Section 27 the circumstances which would enable the Income-tax Officer to cancel his former assessment where a default is made in connection with the furnishing of the return is stated to be that the assessee was prevented by sufficient cause from making the return required by Section 22. Now in the present case the assessee did submit a return and therefore there is no question of a default in submitting the return and then of that default being explained by sufficient cause. If, however, it can be argued that the notice being illegal the assessee could submit such return as he chose, correct or incorrect, and no further proceedings because of the invalidity of the notices could be started and if started were void, the submission of the counsel for the Department is that there was no real irregularity in the notice.
We have seen the notice that was issued to the assessee and in that notice, as in all such notices, the assessee was required to submit a return and four capacities were indicated one above the other and the notice went to the assessee without any one of these capacities having been scored out. The contention of the assessee is that he did not know exactly as to which capacity of his was under investigation and therefore the notice was illegal. If the assessee was in doubt he might well have asked for elucidation from the Income-tax authorities or, when he was submitting his return, he should have made clear the capacity in which he was furnishing the return. He also submitted the return without scoring out any of the four capacities. It is not possible, therefore, to hold that the notice issued by the Department was invalid or illegal. It is common groundand we have made it sufficiently clear from what we stated at the very inception of our judgmentthat the assessee was in no doubt as to what he has to do in the matter. He had been assessed in previous years as in undivided Hindu family and he submitted his return as an undivided Hindu family. When his omissions were on the point of being discovered he showed some fresh income and suggested that this was a separate income of certain individual members of the family with which the point Hindu family ordinarily had nothing to do. This explanation of his was not accepted by the Income-tax authorities and that was not all; they were of the opinion that there had been consistent concealments of other items of income in the year in dispute and in previous years; indeed it was admitted by the assessee that in the assessment year 1936-37 also there had been an omission. We are, therefore, of the opinion that the first question of law does not arise in the present case.
The next question is that a notice under Section 23(2) was essential after the assessee had submitted an application to the Income-tax Officer mentioning certain omissions. It is true that under the provisions of the Act, when an Income-tax Officer is satisfied with a return made under Section 22, he shall assessee the total income of the assessee and determine the sum payable by him of the basis of that return but if the Income-tax Officer has reason to believe that the return made under Section 22 was incorrect and incomplete, he shall serve on the person who made the return a notice requiring him to do certain things. Such a notice was issued to the assessee when the original return was filed, but no such notice was issued to him when the application mentioning certain omissions had been made nor do we think that it was necessary that such a notice should be filed because, as we pointed out in the beginning of our judgment, there was no revised return within the meaning of Section 22(3) of the Act. The learned Commissioner in a loose manner has called the application of the assessee as having been made under Section 22(3). Here again we might point out that the way in which this question is being argued before us is that a notice under Section 23(2) was imperative and not having been given, the notice under Section 22(4) about which default is said to have been made was of no importance and the assessee had good grounds for not complying with the notice under Section 22(4), but as pointed above we think that a fresh notice under Section 23(2) was not necessary.
The third question in the petition to the Commissioner is not quite clear and it was conceded before us that even after the issue of a notice, which is contemplated by Section 23(3) an assessment can be made under Section 23(4) if there has been a default in complying with a notice under Section 22(4) or 23(2) and it is not necessary that the assessment must be made under Section 23(3) of the Act. We have disposed of all the points that were raised in the petition to the Commissioner and although there are one or two other questions mentioned in the application of the assessee to us, we do not think that they are questions of law or at all arise under the circumstances of the present case. We, therefore, dismiss this application with costs. The counsel for the Department in entitled to a fee of Rs. 75.
Appeal dismissed.