Judicial exercise of discretion on sufficient cause upheld where no real impediment to filing a proper tax return was shown

Section 27 discretion under the Income-tax Act, 1922 must be exercised judicially on relevant grounds when an assessee claims sufficient cause for failure to file a proper return. On the facts, the assessee did not comply with the mandatory return requirements and the explanation that accounts were not kept yearly did not establish a real impediment to preparing a compliant return from existing books. The Income-tax Officer's refusal to cancel the best judgment assessment and direct a fresh assessment was therefore upheld, as sufficient cause was not shown.

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Issues: Whether the Income-tax Officer properly exercised the discretion under Section 27 of the Income-tax Act, 1922 in refusing to cancel the best judgment assessment and make a fresh assessment on the ground that sufficient cause was not shown for failure to comply with the return requirements.

Analysis: The statutory scheme required the assessee to make a proper return and, where the assessee claimed to have been prevented by sufficient cause, the Income-tax Officer had to decide that question judicially and not capriciously or arbitrarily. The assessee had not complied with the mandatory return requirements and the explanation offered was only that the accounts were not kept on a yearly basis. On the facts, that did not prevent him from extracting the necessary information from his books and preparing a compliant return. The refusal to cancel the assessment was therefore based on a legitimate view that sufficient cause had not been made out.

Conclusion: The discretion under Section 27 was properly exercised and the answer was against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered by upholding the assessment and the refusal to grant fresh assessment, with costs awarded accordingly.

Ratio Decidendi: A statutory discretion to accept or reject a claim of sufficient cause must be exercised judicially on relevant grounds and will be upheld where the assessee fails to show a real impediment to compliance with the return requirements.

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