1963 (11) TMI 97 - HC - Income Tax

Assessing authority not bound by claimed deduction in return. Court directs judgment to Revision Board.

STATE OF UTTAR PRADESH Versus YASHPAL SINGH

The court concluded that the assessing authority can allow a larger deduction from the gross income than what is claimed in the rejected return. The ... - Issues Involved:1. Whether the assessing authority can allow a larger amount of expenses than what is shown in the assessee's return when the return is rejected and the income is determined to be higher.Detailed Analysis:1. Rejection of Assessee's Return and Estimation of Income and Expenses:The primary issue is whether the assessing authority can allow a larger amount of expenses than what is shown in the assessee's return when the return is rejected and the income is determined to be higher. The assessee submitted a return showing gross income and expenses of cultivation. The assessing authority did not accept the figures provided by the assessee and estimated a higher income and corresponding expenses. The State applied to the Revision Board for a reference to the court to answer this question.2. Legal Framework and Interpretation:Agricultural income-tax is charged on the total agricultural income as per section 3 of the U.P. Agricultural Income-tax Act. The total agricultural income includes all receipts specified in section 2(16). Section 6 provides two methods for computing agricultural income, and the assessee opted for the second method, which involves taking the gross proceeds of sale and making certain deductions.3. Procedure for Assessment:The procedure for assessment is outlined in Chapter IV of the Act. Section 15(3) requires the assessing authority to give notice to the person liable to pay agricultural income-tax to furnish a return. Section 16 details the process when the assessing authority finds the return incorrect or incomplete, requiring the assessee to attend or produce evidence. If the assessee fails to comply, the assessing authority must make the assessment to the best of his judgment.4. Estimation of Income and Expenses:The court explained that if the gross income is estimated by guess, the expenses to be deducted should also be estimated by guess. The assessing authority is not bound by the figures provided in the return if it has been rejected. The authority has the discretion to consider the amount of expenses mentioned in the return but is not obligated to accept it. The judgment emphasized that the assessing authority must estimate the amount according to his best judgment, and this judgment cannot be fettered by any rules.5. Doctrine of Estoppel and Admission:The court rejected the argument that the assessing authority cannot allow greater deductions than claimed in the return, citing no provision in the Act or Rules supporting this contention. The court also dismissed the application of the doctrine of estoppel, noting that the assessing authority did not alter its position to its detriment based on the return. An admission in the return is only relevant evidence and not conclusive, and the assessing authority can disregard it if found untrue or mistaken.6. Rule 13 and Proof of Payment:The court addressed the interpretation of 'actually paid' in Rule 13, clarifying that it means 'paid in fact' and not necessarily proved by direct evidence. The assessing authority can estimate the amount of expenses according to the best of his judgment, even without direct proof from the assessee.7. Assessment Without Return:The court noted that if no return is filed, the assessing authority still has to estimate the deductions to be allowed, and the filing of a rejected return does not deprive the authority of this power.8. Rejection of Return:The court observed that the assessing authority rejected the entire return and not just the income part. Therefore, it was unnecessary to consider the implications of partial rejection.9. Reasonableness of Allowing Greater Deductions:The court acknowledged that allowing greater deductions than claimed might seem ridiculous but explained that an assessee might under-estimate expenses to avoid appearing incompatible with the income figure.10. Comparison with Indian Income-tax Act:The court distinguished this case from Hanuman Glass Works, Ferozabad v. Commissioner of Income-tax, noting differences in the provisions of the U.P. Agricultural Income-tax Act and the Indian Income-tax Act.Conclusion:The court concluded that it is open to the assessing authority acting under section 16(4) of the Act to allow a larger deduction from the gross income than what is claimed in the return that is rejected. The authority is not bound by the deduction claimed in the return.Final Judgment:The court answered the question in the affirmative and directed that a copy of the judgment be sent to the Revision Board. The opposite party was awarded costs of Rs. 100, and counsel's fee was assessed at Rs. 100.