GOPINATH NAIK Vs. COMMISSIONER, INCOME-TAX

JUDGEMENT

(1.) This is a reference under Section 66(3), Income-tax Act. The assessee is one Pandit Gopinath Naik of Bakhera Bazar, District Basti. He submitted a return under Section 22(2) for the assessment year 1929-30. The return, was not accepted by the Assistant Commissioner, who was empowered to act as an Income-tax officer. He was assessed at an income of Rs. 10,450 including Rs. 1,00,000 as his income from money-lending business. He appealed to the Commissioner, who set aside the assessment and directed a fresh assessment. The case was subsequently dealt with by the Income-tax Officer, Basti, who issued a notice under Section 23(2) directing the assessee to produce his accounts for money-lending business. The accounts were produced, and it was discovered that there were serious omissions which created a strong suspicion that the accounts had been manipulated. An opportunity was given to the assessee to explain certain matters. No explanation was, however, furnished, but a fresh return was submitted. The Income-tax Officer called upon the assessee to substantiate the new return. He also summoned the assessee, who did not, however, appear, nor did he produce any evidence. The I.T.O. came to the conclusion that the accounts were incomplete and unreliable." He estimated the income of the assessee from money lending business to be Rs. 1,22,000. The estimate was based on calculating the net profits at the rate of 8 per cent per annum on Rs. 15 lacs which was taken to have been invested by the assessee in his money lending, business. The order of the I.T.O., and his reasons in support of it appear from. App. C.

(2.) The assessee appealed to the Asst. Commissioner, who agreed with the I.T.O., in rejecting the assessee's account-books as unreliable. He, however, estimated the amount invested by the assessee in money-lending business to be Rs. 11 lacs only. The Asst. Commissioner based his estimate, partly at any rate on certain "enquiries," of which there is no record and which were admittedly made behind the back of the assessee, from persons supposed to have an idea of the extent to which the assessee had made investments in his money lending business. His order is Appendix D. The assessee applied to the Commissioner for revision of the Assistant Commissioner's assessment and for a statement of a case being prepared for reference to the High Court. The Commissioner declined to interfere or to make a reference to this Court. The assessee moved this Court under Section 66(3), and the Commissioner was required to prepare a case for the determination of the following two questions: (1) Whether the estimate of 11 lacs as the capital invested by the assessee is based on such evidence as the Assistant Commissioner was in law empowered to act upon. (2) Was the Assistant Commissioner authorized under Section 13, Income-tax Act, or otherwise to make private inquiries and to take the result of such inquiries into account in making the assessment?

(3.) On receipt of this Court's order requiring a statement of the case to be prepared, the Commissioner asked for a report from the Assistant Commissioner as regards the nature of the enquiry made by him and referred to in his order, Appendix D. That report disclosed the fact that the Assistant Commissioner had enquired from the people of Basti about the money lending business of the assessee. They could not point out any big investment. "Rather they stated that his money-lending business was much like before." The Assistant Commissioner says that he was led by what the people of Basti had stated to him to conclude that the Income-tax Officer's estimate of the assessee's investment, namely 15 lacs, was excessive, and so he reduced it to 11 lacs, because the assessee had been assessed in the year immediately preceding at an income of one lakh based on investments amounting to 10 lakhs in the money-lending business. In accepting that exemplar he was influenced by the fact that the assessee had taken no exception to it. The additional: sum of one lakh, which brought the total to 11 lakhs estimated by him, was due to the fact that he had discovered certain omissions in the assessee's accounts. One of the questions argued before us was whether the report of the Assistant Commissioner, above referred to, can be accepted as a supplement to his order, Appendix D, by which he had estimated that the assessee had invested 11 lakhs in his money-lending business. We think that the report may be accepted as an explanation of certain obscure portions of his order of assessment, which by itself does not clearly show the data on which he proceeded.