1966 (11) TMI 6 - HC - Income Tax

Appellate Commissioner can consider additional evidence for fair assessment under Income-tax Act

The court held that the Appellate Assistant Commissioner (AAC) has the authority to consider additional evidence or material not available to the ... Appellate Assistant Commissioner can call for and receive additional evidence or material not available to the Income-tax Officer at the time of making the best judgment assessment and he has also jurisdiction to remand the matter under section 31(2), but only subject to the limitations Issues Involved:1. Whether the Appellate Assistant Commissioner (AAC) can reduce the income estimate fixed by the Income-tax Officer (ITO) in a 'best judgment' assessment under section 23(4) of the Income-tax Act, 1922, by relying on additional evidence or material not available to the ITO at the time of the assessment.Issue-wise Detailed Analysis:1. Authority of the Appellate Assistant Commissioner to Consider Additional Evidence:The primary issue is whether the AAC has the power to consider additional evidence or material not available to the ITO when making a 'best judgment' assessment under section 23(4).The court analyzed the provisions of section 31(2) of the Income-tax Act, which grants the AAC the authority to make further inquiries before disposing of any appeal. This provision allows the AAC to remand the case to the ITO for fresh disposal if the basis of the assessment is found invalid or unsustainable. The court emphasized that the AAC can call for additional evidence and receive it or hold an inquiry to ensure the assessment is not arbitrary or capricious. This power is subject to the limitation that the additional evidence should not be intended to circumvent the outcome of proceedings under section 27.2. Comparison with Previous Judgments:The court referred to several judgments from different High Courts to support its view.- Brij Mohan Rameshwar Dass v. Commissioner of Income-tax: The Punjab High Court held that the AAC could direct or permit the ITO to consider account books not produced initially, affirming that the AAC has jurisdiction to remand the case for fresh evidence.- Girdher Javer & Co. v. Commissioner of Income-tax: The Bombay High Court supported the principle that the AAC could direct an examination of books of account to ensure a proper best judgment assessment, even if the books were not produced earlier.- M. M. Muthuwappa v. Commissioner of Income-tax: The Madras High Court held that the AAC has jurisdiction to remand a case and direct scrutiny of account books to enable a proper best judgment assessment, emphasizing that the AAC's power to remand is well-established.3. Distinction Between Appeals Under Sections 27 and 31:The court clarified that appeals against the rejection of an application under section 27 and appeals against assessments under section 23(4) are distinct remedies. In an appeal under section 27, the AAC examines whether the assessee had shown sufficient cause for not making a return or complying with notices. In contrast, an appeal under section 31(2) allows the AAC to consider the merits of the assessment, including whether the ITO acted on sufficient material.4. Practical Implications and Legislative Intent:The court rejected the contention that the AAC must act only on the material available to the ITO, stating that such a restriction would render the powers conferred under section 31(2) illusory. The court emphasized that the AAC's authority to call for additional evidence ensures that the best judgment assessment is fair and not arbitrary.5. Conclusion:The court concluded that the AAC can call for and receive additional evidence or material not available to the ITO at the time of making the best judgment assessment and has the jurisdiction to remand the matter under section 31(2), subject to the limitations discussed. The court answered the question in the affirmative and in favor of the assessee, awarding costs with an advocate's fee of Rs. 250.Judgment Summary:The court held that the AAC has the authority to consider additional evidence or material not available to the ITO at the time of the best judgment assessment under section 23(4) of the Income-tax Act, 1922. This power is granted under section 31(2) and allows the AAC to remand the case for fresh disposal if necessary. The court supported its decision by referring to previous judgments from various High Courts and clarified the distinction between appeals under sections 27 and 31. The judgment emphasized that the AAC's authority ensures that the best judgment assessment is fair and not arbitrary. The question was answered in the affirmative, favoring the assessee.