Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, MYSORE
Vs.
RESPONDENT:
SEGU BUCHIAH SETTY
DATE OF JUDGMENT:
23/04/1970
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C.
HEGDE, K.S.
CITATION:
1971 AIR 854 1971 SCR (1) 352
1970 SCC (1) 1
ACT:
Income-tax Act (11 of 1922) ss. 22, 23 and 27-Non-compliance
with notices under s. 22(2) and s. 22(4)-Best judgment
assessment under s. 23(4)-Sufficient cause for non-
compliance shown only with respect notices under s. 22(4)-If
assessment can be re-opened under s. 27.
HEADNOTE:
Notices under s. 22(2) of the Income-tax Act, 1922, were not
complied with by the respondent (assessee) and the Income-
tax Officer issued notices under s. 22(4). Since they were
also not complied with the Income-tax Officer made a best
judgment assessment under s. 23(4). Thereupon, the assessee
applied under s. 27 for reopening the assessment. The
Income-tax Officer found that there was sufficient cause for
noncompliance with the notices under s. 22(4), but, as there
was no sufficient cause for non-compliance with the notices
under s. 22(2), he declined to reopen the assessment. The
order was confirmed in’ appeal and by the Tribunal. But the
High Court held in favour of the assessee.
In appeal to this Court,
HELD : Under s. 23(4) on the assessee committing any of the
defaults mentioned therein, namely, failure to make a return
as required by a notice under s. 22(2) or a revised return
under s. 22(3) or noncompliance with the terms of a notice
under s. 22(4) or failure to comply with the terms of a
notice under s. 23(2), the Income-tax Officer is bound to
make a best judgment assessment. Section 27 empowers, the
Income-tax OfFicer to cancel the assessment when sufficient
cause is shown; but, such cause has to be shown for each
default. Therefore, if the assessee makes default by not
filing a return pursuant to a notice under s. 22(2) and also
does not comply with a notice under s. 22(4) he must show
sufficient cause for non-compliance with both the
provisions. The Legislature could not have intended that in
case of multiple defaults, for each one of which an ex parts
best judgment assessment has to be made, the assessee can
ask for cancellation of the assessment by merely showing
cause for one of such defaults. [355 D-H]
Chiranjilal Tibrewala v. Commissioner of Income-tax, Bombay
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City H, 59 I.T.R. 42, approved.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 23 5 and
236 of 1967.
Appeals from the judgment and order dated March 21, 1966 of
the Mysore High Court in Income-tax Referred Case No. 19 of
1964.
Jagadish Swarup, Solicitor General, G. C. Sharma and B. D.
Sharma, for the appellant (in both the appeals).
R. Gopalakrishnan, for the respondent (in both the
appeals).
353
The Judgment of the court was delivered by
Grover, J. These appeals by certificate arise out of a
common judgment of the Mysore High Court in references made
with regard to the assessments relating to the assessment
years 1953-54 and 1954-55.
For the assessment year 1953-54 the assessee was served with
a notice under s. 22(2) of the Income tax Act 1922,
hereinafter called the "Act", on March 5, 1954. A similar
notice was served in respect of the assessment year 1954-55
on June 5,.1954. The assessee failed to file any return in
compliance with the notices. Thereupon he was served with
notices under s. 22(4) for both the assessment years and was
required to produce accounts on specified dates. None
appeared on any one of those dates but applications were
submitted praying for adjournment on certain grounds. The
Income tax Officer was not satisfied with the reasons given
for seeking adjournments and he proceeded to make the
assessment under s. 23 (4) of the Act. The assessee moved
the Income Tax Officer under s. 27 to reopen the assessments
on the grounds given in the applications filed in that
behalf. The Income Tax’ Officer appeared to be satisfied
that there was sufficient cause for noncompliance with the
notices issued under s. 22(4) of the Act but he was of the
view that the assessee had been a habitual defaulter
inasmuch as he had not submitted the return under s. 22 (2)
even for several preceding years for which the assessments
had to be completed under s. 23(4) of the Act. He declined
to reopen the assessment under s. 27. Appeals to the
Appellate Assistant Commissioner were filed. According to
the Appellate Assistant Commissioner sufficient cause for
non-compliance with one of the statutory notices i.e. the
notice under s. 22(4) could not constitute ’sufficient cause
for non-compliance with any other statutory notice (in this
case the notice under s. 22(2)). The appellate tribunal
dismissed the appeals filed by the assessee upholding the
view of the departmental authorities.
On the tribunal having declined to refer the questions of
law which were sought to be referred the High Court directed
the Tribunal to state a case and refer the following
questions of law
"Whether the Income Tax Officer having
recorded a finding that there was sufficient
cause for non-compliance with the notice
issued under Section 22(4), was not bound to
cancel the assessment made under Sec. 23(4)
and to proceed to make a fresh assessment even
though there was no sufficient cause for non-
compliance with the notice under Sec. 22(2) ?"
354
The High Court answered the question in favour of the
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assessee. Section 27 of the Act is in the following terms :
S. 27. "Cancellation of assessment when
cause is shown.-Where an assessee within one
month from the service of a notice of demand
issued as hereinafter provided, satisfies the
Income Tax Officer that he was prevented by
sufficient cause from making the return re-
quired by section 22, or that he did not
receive the notice issued under sub-section
(4) of section 22, or sub-section (2) of
section 23, or that he had not a reasonable
opportunity to comply, or was prevented by
sufficient cause from complying with the
terms of the last mentioned notices, the
Income Tax Officer shall cancel the assessment
and proceed to make a fresh assessment in accor
dance with the provisions of section
23."
Section 22 provides for return of income. Sub-section ( 1 )
relates to a general notice to be given each year by the
Income Tax Officer by publication in the press or in the
prescribed manner. Subsection (2) relates to an individual
notice. According to sub-s. (4) the Income Tax Officer may
serve on any person who has made a return under sub-s. (1)
or upon whom a notice has been served under sub-s. (2) a
notice requiring him on a date to be specified to produce or
cause to be produced such account or documents as the Income
Tax Officer may require or to furnish in writing and
verified in the prescribed manner in such form and on such
points or matters as may be required for the purpose of the
section including, with the previous approval of the
Commissioner, a statement of assets and liabilities not
included in the accounts. Under s. 23 if the Income tax
Officer is satisfied without requiring the presence of the
assessee or the production by him of any evidence that a
return made under s. 22 is correct and complete he has to
assess the total income of the assessee on the basis of the
return filed by him [sub. s. (1)]. If he is not so
satisfied he must serve a notice requiring the person who
has made the return to attend at his office or to produce or
cause to be produced any evidence on which such person may
rely in support of his return [sub. s. (2)]. Under sub-s.
(3) the Income tax Officer after hearing such evidence as
may be produced by the person making the return in response
to the notice issued under sub-s. (2) or such other evidence
as the Income tax Officer may require to be produced on
specified points has to assess the total income of the
assessee. It is provided by sub-s. (4)
"If any person fails to make the return required by any
notice given under sub-section (2) of section 22 and
355
has not made a return or a revised return under subsection
(3) of the same Election or falls 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
section, the Income Tax Officer shall make the assessment to
the best of his judgment and determine the sum payable by
the assessee on the basis of such assessment..........
The High Court considered that the provisions of s. 27 were
not cumulative but disjunctive and so the assessee could
claim cancellation of the assessment on one of the grounds
on which such cancellation could be sought under the
section. According to the High Court it followed that even
if there was no sufficient cause for noncompliance with a
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notice issued under s. 22(2) so long as there was sufficient
reason for non-compliance with the notice issued under s.
22(4) the assessee could ask for the cancellation of the
assessment. In our judgment the view of the High Court
cannot be sustained. The clear import of s. 23(4) is that
on committing any one of the defaults mentioned therein the
Income tax Officer is bound to make the assessment to the
best of his judgment. In other words if a person fails to
make the return, required by a notice under s. 22(2) and he
has further not made return or a revised return under sub-5.
(3) of the same section the Income tax Officer must make an
assessment under section, 23(4). Similarly if that person
fails to comply with all the terms of the notice issued
under s. 22(4) or if he fails to comply with all the terms
of the notice issued under s. 23(3) the Income tax Officer
must proceed to make an assessment to the best of his
judgment. Section 27 empowers the Income tax Officer to
cancel the assessment when sufficient cause is shown but
such causer has to be shown for each default. For the sake
of illustration, if an assessee makes a default under s.
22(2) by not filing a return, pursuant to a notice received
under that section and he also does not comply with the
notice under s. 22(4) he must show sufficient cause for non-
compliance with both the provisions and he cannot get the
assessment cancelled merely by showing good cause for one of
the two defaults. Although the word "or" which is disjunc-
tive is used in section 27 it has to be read in a reasonable
and harmonious way and in conjunction with s. 23(4). It is
inconceivable that the legislature could ever intended that
in case of’ multiple defaults for each one of which an ex-
parte best judgment. assessment has to be made the assessee
can ask for cancellation of’ the assessment by merely
showing cause for one of such defaults. In our opinion the
Bombay High Court in Chiranjilal Tibrewala v..
356
The Commissioner of Income tax, Bombay City II(1) was right
in holding that in circumstances similar to the present case
the assessee cannot ask for cancellation under S. 27 of an
assessment made under S. 23 (4). In this view of the matter
the judgment of the High Court has to be set aside, and the
question has to be answered against the assessee and in
favour of the appellant.
The appeals are accordingly allowed with costs One
hearing fee.
V.P.S. Appeals allowed.
(1) 59 I.T.R. 42.
357