Assessment under section 23(3) confirmed where assessee produced books and evidence; best-judgment rule under section 23(4) not attracted.

An assessment made after the assessee attended in response to notice and produced books and evidence falls under section 23(3) of the Income-tax Act, 1922, even if the Income-tax Officer does not accept the books as conclusive; that alone does not amount to failure to comply with notice or justify best-judgment assessment under section 23(4). Because the assessment was under section 23(3), an appeal lay and the Commissioner was bound to state a case under section 66(2). The produced books also raised a substantial question on the proper method of determining taxable profits, making judicial reference appropriate.

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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; and (ii) whether the Commissioner was bound to state a case under section 66(2) of the Act.

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 had attended in response to the notice and had produced the books and evidence on which he relied. The mere fact that the Income-tax Officer did not accept the books as conclusive did not amount to a failure to comply with the notice. The assessment order and demand also showed that the Officer treated the matter as one under section 23(3). Section 23(4), which applies where there is failure to comply with the statutory notice or failure to make a return, was therefore not attracted.

Conclusion: The assessment was made under section 23(3) and not under section 23(4).

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

Analysis: Since the assessment was one made under section 23(3), an appeal to the Assistant Commissioner lay, and the Commissioner could not refuse a reference on the footing that no appeal was maintainable. The books produced by the assessee raised a substantial question as to the proper method of determining taxable profits, and the matter required a statement of facts for judicial determination.

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

Final Conclusion: The assessee succeeded in securing a reference, and the question of law was directed to be placed before the Court for determination.

Ratio Decidendi: Where an assessee attends in response to a notice under section 23(2) and produces the evidence relied upon, the assessment is under section 23(3) if the Officer proceeds to assess after considering that evidence; refusal to accept the books as conclusive does not convert the assessment into a best-judgment assessment under section 23(4).

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