Statutory notice service and judicial exercise of recovery discretion govern validity of assessment and enforcement.

Valid service of the statutory notice was treated as a jurisdictional precondition for best judgment assessment; without proof of service in the prescribed manner, the assessment could not be sustained. The text also states that discretion affecting recovery must be exercised judicially, on relevant considerations and with reasons, rather than arbitrarily or on extraneous grounds. Where the taxing authority fails to apply its mind to the assessee's circumstances or pending appeal, mandamus may lie for proper consideration, and recovery based on an improperly exercised discretion cannot proceed.

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Issues: (i) Whether service of notice under section 22(2) of the Indian Income-tax Act was proved so as to sustain the best judgment assessment under section 23(4); (ii) whether the Income-tax Officer failed to exercise the discretion under section 45 judicially in treating the assessee as a defaulter and proceeding with recovery.

Issue (i): Whether service of notice under section 22(2) of the Indian Income-tax Act was proved so as to sustain the best judgment assessment under section 23(4)

Analysis: Section 23(4) could be invoked only if the statutory notice under section 22(2) had been served. The existence of such service was a jurisdictional and collateral fact open to scrutiny in certiorari. The record did not show proof of valid service in the manner required by section 63 and the corresponding civil procedure rules. There was no satisfactory affidavit or admissible proof from the serving officer, and the materials on record did not establish service on an authorised person for the firm.

Conclusion: The notice under section 22(2) was not proved to have been validly served, so the assessment under section 23(4) was without jurisdiction and could not stand.

Issue (ii): Whether the Income-tax Officer failed to exercise the discretion under section 45 judicially in treating the assessee as a defaulter and proceeding with recovery

Analysis: The proviso to section 45 vested discretion in the Income-tax Officer, but that discretion had to be exercised on relevant considerations and not arbitrarily or on extraneous matters. The impugned refusal contained no reasons and showed no real application of mind to the assessee's circumstances or the pending appeal. The Commissioner could not substitute his own discretion for that of the Income-tax Officer.

Conclusion: The discretion under section 45 was not exercised judicially, and the assessee was entitled to mandamus directing proper consideration.

Final Conclusion: The assessment order was quashed, recovery could not be pursued on its basis, and the assessee obtained relief against enforcement of the impugned demand.

Ratio Decidendi: Where a statutory notice is a condition precedent to the exercise of assessment power, its valid service must be proved before jurisdiction can be assumed; and a statutory discretion affecting recovery must be exercised on relevant grounds and in a judicial manner, failing which certiorari or mandamus may issue.

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