CHIRANJILAL TIBREWALA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) FOR the asst. year 1957 -58, for which the relevant previous year was the S.Y. 2012 extending from the 15th Nov., 1955 to 2nd Nov., 1956, the assessee, who was a registered partnership firm, was assessed to a best judgment assessment under S. 23(4) for having committed defaults in complying with the notices both under S. 22(2) for the filing of a return and under S. 22(4) for the production of account books. The notice under S. 22(2) was given on the 19th of May 1957, and no return in compliance with that notice was filed until the assessment was made on the 27th of May, 1958. There were in all three notices issued under S. 22(4) and the compliance sought under these notices was on the 19th March, 1958, 24th April, 1958, and 26th May, 1958, respectively. The last of these notices was served by affixing. The account books required by this notice under S. 22(4) were never produced but on 26th May, 1958, which was the last date for compliance with the last of these notices, one of the ex -partners of the firm, the firm by that time having been dissolved, appeared before the ITO and sought an adjournment on the ground that another person, by name Chandiprasad, who was looking to the income -tax matters of the assessee -firm, had met with an accident and was unable to attend. The adjournment was refused by the ITO and he proceeded to a best judgment assessment, which he made on the 27th May, 1958. Simultaneously with the assessment of the firm he also made a best judgment assessment of Chiranjilal, a partner of the firm, who had also failed to comply with the notices issued to him under ss. 22(2) and 22(4) of the IT Act. The ITO also made an order under S. 28 imposing a penalty on Chiranjilal. Applications under S. 27 were made by the firm and Chiranjilal to the ITO for setting aside the best judgment assessment orders but the said applications were rejected by him. Thereafter, the assessee and Chiranjilal preferred appeals to the AAC against the orders made by the ITO in applications made under S. 27 and Chiranjilal also preferred an appeal against the penalty order made by the ITO under S. 28. All these three appeals were heard together by the AAC, who was of the opinion that although the assessee -firm had no explanation for non - compliance with the notice under S. 22(2), there was good and sufficient cause shown by it for its not being able to produce the accounts in compliance with the notice under S. 22(4). According to the AAC, since the assessee -firm was in a position to give a good explanation for one of the defaults committed by it, the best judgment assessment made by the ITO was liable to be cancelled under the provisions of S. 27. He accordingly cancelled the best judgment assessment and directed the ITO to proceed with a fresh assessment under S. 23. The AAC also took the view that the appeals filed by Chiranjilal against the assessment made against him as an individual and against the penalty order made against him must succeed because the said orders were consequential orders passed on the basis of the assessment order made on the firm and since that order was cancelled, the orders made against Chiranjilal must also be cancelled. He accordingly allowed the appeals of Chiranjilal and directed the ITO to have a fresh assessment made in his case also. Against these orders made by the AAC, the Department went in appeal to the Tribunal. The Tribunal found the orders passed by the AAC difficult to be sustained. It, therefore, allowed the appeals of the Department and set aside the orders passed by the AAC and restored the best judgment assessment orders made by the ITO and the penalty order passed by him against Chiranjilal. Thereafter, at the instance of the assessee and Chiranjilal, it has drawn up a statement of the case and referred to this Court the question of law which arises out of its orders in these matters as follows :

(2.) A notice of motion has been taken out by the assessee requesting that the question referred to this Court by the Tribunal may be reframed and some more material may be taken on record and made part of the statement of the case. The notice of motion, however, has not been very seriously pressed by the learned counsel who appears for the assessee and he has stated that he would only like to draw our attention to the contents of the notice which had been issued to the assessee under S. 22(4) in respect of one of the contentions which he will raise before us. We do not, therefore, find it necessary to deal with the notice of motion and make no order on the same.

(3.) MR . Palkhivala, the learned counsel who appears for the assessee, has, however, urged before us that it was contended by the assessee before the Tribuhal that good and sufficient cause had been shown by the assessee for not being able to comply with the notices both under S. 22(4) as well as under S. 22(2) and the AAC's orders cancelling the best judgment assessments and the penalty and directing fresh assessment under S. 23 were perfectly good and justified. He complains that the Tribunal has not dealt with that contention of the assessee. He points out that the Tribunal has not even dealt with the correctness of the conclusions of the AAC on the question whether there was good and sufficient reason for not complying with the notice under S. 22(4), because it has taken the view that even if there was any good reason for that default, since the other default, viz., non - compliance with the notice under S. 22(2), still remained unexplained, the best judgment assessment order could not be cancelled. Mr. Palkhivala's grievance is that the Tribunal has proceeded on the basis that the default under S. 22(2) was not explained by the assessee without applying its mind as to whether the default was explained or not and without recording a finding thereon. We do not think that the grievance which has been made by the learned counsel has any substance. As we have already pointed out, neither in the application made by the assessee under s. 27 nor at the hearing of that application before the ITO or in the appeals to the AAC from the orders made by the ITO, had the assessee ever urged that there was any good or sufficient ground for not complying with the notice under S. 22(2). The only cause which was attempted to be shown or the only explanation which was sought to be offered on behalf of the assessee in these proceedings related to the non -production of the account books on the 26th of May, 1958. Mr. Palkhivala has invited our attention to paragraph 4 of the application made under S. 27, wherein the assessee has stated that it has filed a return of income for the assessment year in question on the 9th June, 1958, and Mr. Palkhivala wants us to associate that statement with what is contained in the earlier paragraphs which relate to the non - production of the account books on the 26th May, 1958, and hold that the reasons stated in the said earlier paragraphs were meant and intended by the assessee to be the reasons for its failure to submit the return of income for more than a year after the notice to submit the same was given. We do not find anything in the earlier paragraphs which can be regarded as an explanation for the non -submission of the return and the statement in paragraph 4 is a mere factual statement that the return has been submitted on 9th June, 1958. However, from the orders of the ITO and the AAC it does not appear that any submissions were urged before these authorities to explain the failure to submit the return. It appears, on the other hand, that before the AAC, the default in filing the return was acknowledged but it was contended that since there was good and sufficient explanation for the default of not complying with the notice issued under S. 22(4), the best judgment assessment order must be cancelled under S. 27. The AAC has observed: