DHANALAKSHMI PICTURES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS tax case coming before us on a reference by the INcome-tax Appellate Tribunal Madras, under s. 256(1) of the I. T. ACt, 1961, raises the question of the validity of an assessment made on tan assessee by the ITO, under s. 144, of the I. T. ACt. The facts relating to the assessment proceedings are not in dispute. They are as under : The assessee is an unregistered firm of three partners carrying on business as distributors of fims. For the assessment year 1971-72, the assessee did not file any return on its own accord under . s 139(1) of the ACt. The ITO issued a notice under s.; 139(2) of the ACt calling upon the assessee to furnish its return of income. THIS notice was issued on June 16, 1971, and served on the manager of the assessee-firm on June 22, 1971. No return was furnished by the assessee in compliance with this notice. Accordingly on June 28, 1972, the ITO Issued a further notice calling for the return. Under the terms of this notice, the return has to be furnished on July 27, 1972. But it was not filed on that date. A notice was thereupon issued by the ITO to the assessee on July 4, 1973, calling to the assesses to produce its books of account for the previous year ended March 31. 1971, relevant to the assessment year 1971-72. THIS notice wa issued under s. 142(1) of the ACt. The notice require the assessee to produce the books of account on July 12, 1973. The accounts, however, were not produced on that date but a letter wa filed on behalf of the assessee to the effect that the partner of the assessee-firm in charge of the income0-tax affairs was away from headquarters and he could not attend to the hearing,. and herd account for the year ended March 31, 1971, were even then being finalized the return would be filed it 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 buy the extended time, by July 18, 1973, the assessment would be completed ex parte. There was by July 18, 1873, the assessment would be completed ex parte. There was no compliance with this letter. The ITO then issued a fresh notice dated NOvember 17, 1973, again under s. 142(1) of the Act requiring the production of the day books and other records relating to the previous year ended March 31, 1971. To this notice, however, the assessee wrote a letter asking for further time for complying with its terms.

(2.) IN these circumstances the ITO proceeded to make the assessment under s. 144 of the Act on the firm as an unregistered firm. The ITO noticed that the assessee was carrying on the business of distribution of films during the year in /salem district, with a branch office at Salem. From the information available to the ITO he found that two films were distributed by the assessee during the year, Viz., Vietnam Veedu and Kulama Gunama. The ITO found that in both these film, m there wa a popular artist in the leading role and one of the film has a successful run of over 102 days in the theatre at Salem and for 55 days in a theatre at Vellore. The ITO noticed that the film Kulama Gunama was released by the assessed at Apsara TAlkies at Vellore on March 26, 1971, and although this films has run only for a few days, the other film Vietnam Veedu has run throughout the year in the District no NOrth Arcot, as a box office hit. ON the basis of these pieces of information, and having regard to the income assessed for the earlier assessment years, the ITO fixed the assessee's income on an estimate, at Rs. 75,000 and levied income-tax on that basis for 1971-72.

(3.) MR. Balakrishnan, learned counsel for the assessee, argued before us that the Tribunal was not right in upholding the estimate of assessment since the ITO himself was not warranted in making the estimate on the basis of a piece of erroneous information. Learned counsel further submitted that the Tribunal was not justified in upholding the estimate made by the ITO without going into the contention raised by him, to the effect that the assessee has no distribution right whatever for the two films in questions during the relevant year in NOrth Arcot district. In any case, it was urged, even if the ITO has any information to the effect that the assessee has distribution rights for these two films in North Arcot district. In any case, it was urged even the ITO had any information to the effect that the assessee had distribution rights for these two films in NOrth Arcot District, the ought to have placed that information before the assessee and called for the assessee's remarks before proceeding to frame his estimate on the basis of this information. Since the ITO did not afford any opportunity to the assessee in this regard, that, according to learned counsel, vitiated his finding in that regard as well as the very estimate of income for the year.