Invalid Section 23(2) notice and denial of statutory opportunity justified relief under income-tax procedure.

A notice under Section 23(2) was invalid where the wrong year was stated and the printed alternative to produce evidence was struck out, because the assessee's statutory choice to attend or produce evidence could not be curtailed by the Department. In the facts, service of a valid Section 23(2) notice was imperative before the assessment process could properly proceed under Section 23(4), even though that requirement was not treated as an absolute condition in every case. The defective notice also supplied sufficient cause under Section 27 for non-compliance with the Section 22(4) notice, as the assessee had been denied the statutory opportunity to explain the return.

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Issues: (i) Whether the notice issued under Section 23(2) of the Indian Income-tax Act, 1922 was irregular and invalid because of the wrong year stated and the deletion of the alternative requiring production of evidence; (ii) whether a valid notice under Section 23(2) was imperative in the facts of the case before an assessment could be made under Section 23(4); and (iii) whether, in the absence of such valid notice, the assessee could be said to have been prevented by sufficient cause from complying with the notice under Section 22(4) for purposes of Section 27.

Issue (i): Whether the notice issued under Section 23(2) of the Indian Income-tax Act, 1922 was irregular and invalid because of the wrong year stated and the deletion of the alternative requiring production of evidence.

Analysis: The wrong year in the notice did not mislead the assessee, who understood the proceeding and appeared without protest. However, the printed words relating to the alternative of producing evidence were struck out, leaving only an attendance requirement. The statutory language of Section 23(2) gives the assessee alternatives to attend or to produce evidence, and those alternatives were treated as belonging to the assessee rather than the Department. A notice that deprived the assessee of that choice was held to be irregular and invalid.

Conclusion: The notice under Section 23(2) was invalid.

Issue (ii): Whether a valid notice under Section 23(2) was imperative in the facts of the case before an assessment could be made under Section 23(4).

Analysis: Once the Income-tax Officer had reason to believe that the return was incorrect or incomplete, Section 23(2) required service of a notice in the prescribed form. Although failure to comply with Section 22(4) can, in appropriate cases, justify best judgment assessment, the assessee's grievance was that the mandatory opportunity under Section 23(2) had not been afforded. The requirement of such notice was therefore treated as obligatory in the circumstances of the case, even though the Court did not accept that it was an absolute condition precedent in every case under Section 23(4).

Conclusion: A valid notice under Section 23(2) was imperative in the facts of the case.

Issue (iii): Whether, in the absence of such valid notice, the assessee could be said to have been prevented by sufficient cause from complying with the notice under Section 22(4) for purposes of Section 27.

Analysis: Section 27 was read as protecting an assessee who had been denied a statutory opportunity to meet the assessment process. Since the assessee was entitled to a valid notice under Section 23(2) and none was effectively served, the assessee was deprived of a valuable right to explain the return or produce evidence. That denial furnished sufficient cause for not complying with the notice under Section 22(4), because the assessee could treat the earlier defective notice as depriving him of the fair opportunity contemplated by the Act.

Conclusion: The assessee was prevented by sufficient cause from complying with the notice under Section 22(4).

Final Conclusion: The reference was answered in favour of the assessee on all the material questions, and the assessment made on the footing adopted by the revenue could not stand in the circumstances of the case.

Ratio Decidendi: Where the Act requires a valid opportunity to explain the return under Section 23(2), a notice that curtails that statutory choice is invalid, and the assessee may rely on that defect as sufficient cause under Section 27 for not complying with the related production-of-accounts notice.

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