Regular assessment under section 23(3) remains appealable when the assessee produces evidence and books despite rejection of accounts.

An assessment made after the assessee complies with the notice, attends, and produces the books and evidence relied upon falls under section 23(3) of the Income-tax Act, 1922, even if the Income-tax Officer rejects the books as insufficient; mere rejection does not convert it into a best judgment assessment under section 23(4). On that basis, the assessment remains appealable. Where the appeal remedy is available, the Commissioner cannot refuse to state a case under section 66(2) on the mistaken footing that no appeal lies; the proper course is to place the relevant facts and the effect of the accounts before the court for determination of the legal issue.

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Issues: (i) Whether the assessment was made under section 23(3) of the Income-tax Act, 1922, or under section 23(4) of that Act. (ii) Whether the Commissioner was bound to state a case under section 66(2) of the Income-tax Act, 1922.

Issue (i): Whether the assessment was made under section 23(3) of the Income-tax Act, 1922, or under section 23(4) of that Act.

Analysis: The assessee attended in response to the notice under section 23(2) and produced the books and other evidence on which he relied. Section 23(3) applies where the assessee complies with the notice and the Income-tax Officer assesses the total income after considering the evidence produced. Section 23(4) applies only where there is failure to make a return or failure to comply with the notice. Mere rejection of the books as not conclusive does not convert the proceeding into a best judgment assessment. The assessment record itself stated that it was made under section 23(3).

Conclusion: The assessment was under section 23(3), not under section 23(4), and the assessee had a right of appeal.

Issue (ii): Whether the Commissioner was bound to state a case under section 66(2) of the Income-tax Act, 1922.

Analysis: Since the assessment was appealable, the Commissioner's refusal based on the assumption that no appeal lay could not stand. The assessee's books were said to be capable of yielding the taxable profit by a simple calculation, and that contention required examination on a stated case. The proper course was for the Commissioner to set out the facts and the effect of the books so that the legal question could be determined.

Conclusion: The Commissioner was required to state a case under section 66(2).

Final Conclusion: The application succeeded, the Commissioner's refusal was set aside, and the matter was remitted for a stated case on the facts and effect of the accounts.

Ratio Decidendi: Where an assessee complies with a notice to attend and produces the evidence relied upon, the assessment falls under the regular assessment provision and not the best judgment provision merely because the officer rejects the evidence as insufficient; in such a case, appellate and reference remedies remain available.

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