Income-tax notice for accounts may follow inquiry, but best judgment assessment fails where default is waived or inoperative.

Section 22(4) of the Income-tax Act, 1922 was not confined to the period before an inquiry under Section 23(3) began; the Income-tax Officer could require accounts whenever they were needed for a proper assessment. However, a best judgment assessment under Section 23(4) could not be sustained where the assessment had to proceed on the merits after inquiry materials were already available, and the officer could not rely on a waived or inoperative default to extinguish the assessee's appeal rights. On the facts, the later notice was not treated as validly supporting a summary best judgment assessment, and the assessee succeeded on the decisive point.

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Issues: Whether a notice under Section 22(4) of the Income-tax Act, 1922 could validly be issued after an inquiry under Section 23(3) had commenced, and whether failure to comply with such notice justified a best judgment assessment under Section 23(4).

Analysis: The statutory scheme of Sections 22 and 23 was read together. The power to call for accounts under Section 22(4) was held not to be confined to the interval before an inquiry under Section 23(3); the notice could be issued whenever the Income-tax Officer required accounts for a proper assessment. The words used in Section 23(4) were held not to cut down the plain width of Section 22(4). At the same time, where the officer had already entered upon an inquiry and had materials before him, the assessment had to be made on the merits and not merely as a summary best judgment assessment so as to extinguish the assessee's right of appeal. On the facts, the earlier notice had been waived and the later notice was ignored in the final decision on the reference.

Conclusion: A notice under Section 22(4) was not invalid merely because an inquiry under Section 23(3) had begun, but the assessment in the present case was not rightly made under Section 23(4).

Final Conclusion: The reference was answered so that the assessee succeeded on the decisive point and the best judgment assessment could not stand on the facts as ultimately accepted.

Ratio Decidendi: The power to require accounts under Section 22(4) is not automatically excluded by the commencement of proceedings under Section 23(3), but best judgment assessment under Section 23(4) cannot be sustained where the assessment is founded on a waived or inoperative default and the officer must proceed on the merits with an appealable determination.

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