TaxTMI 
TaxTMI 
1944 (4) TMI 7
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....se which had proceeded on similar lines was also referred to. The questions that arise on this aspect of the case, therefore, are : (1) Whether, after rejecting the accounts of an assessee without reference to method of accounting but otherwise, an Income-tax Officer is bound to rely on the evidence, true or false, adduced by the assessee ? (2) Can he not ignore the false evidence altogether and make an assessment under the proviso to Section 13 ? (3) If he makes his own estimates, is he bound to disclose the material on which he founds that estimate to the assessee ? (4) Is he entirely debarred from relying on private sources of information which he may not disclose to the assessee at all ? (5) In case he utilises the private inquiries made by him, is it enough for him to communicate the gist to the assessee ? A third point also arises in this case as is envisaged in the first question formulated by this Court, viz., whether a finding arrived at by an Income-tax Officer....
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.... and assessed him accordingly. The assessee took an appeal to the Assistant Commissioner under Section 31 of the Act, challenging the finding of the Income-tax Officer that income had accrued to the assessee in Siam and that he had received it in the accounting year. The Assistant Commissioner remanded the case to the Income-tax Officer, observing that " it is absolutely necessary that there should be some data and definite material on record for the finding that some profits were received into British India during the accounting period ". A further report was accordingly submitted by the Income-tax Officer and the Assistant Commissioner declined to interfere with his order. The assessee then moved the Commissioner of Income-tax both under Section 33 and Section 66 of the Income-tax Act, but he too did not disturb the assessment. So far as the assessee's application under Section 66(2) was concerned, where as many as 11 questions had been raised by him, the Commissioner remarked : " The upshot of the whole is that the assessee failed to discharge the onus that lay on him, while there was abundant circumstantial evidence to prove the existence of productive sources of income in ....
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....to base a finding on the question involved under Section 34 enquiry on the history of last ten years of assessment and was that legal evidence in the case ? (5) Whether in the circumstances of this case action under Section 34 was justified in law, and whether the Income-tax Officer could act on information which he does not place on the record ? (6) Whether it is within the competency of the Income-tax authorities to know the total amount of wealth possessed by an assessee, hoarded or otherwise, or is their jurisdiction limited to discover assessable income for a particular year ? These petitions came on for hearing before a Bench of this Court composed of Dalip Singh and Ram Lal, JJ. in November 1940. Dalip Singh, J., with whom Ram Lal, J. concurred, delivered the principal judgment, in the course of which the learned Judge inter alia observed : (1) " It is sufficient to say that the Income-tax Officer arrived at his finding after ample opportunity had been given to the assessees to show that the reasons for which the Income-tax Officer came to the conclusion that there was business or property in Siam still existing and ....
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.... business or income producing property in Siam existing even now " and that " income does accrue from this property ", the learned Judges in view of the remarks extracted above formulated the following two questions and required the Commissioner to state the case and to refer it to this Court : " (1) Was the finding of fact by the Assistant Commissioner on the question of income brought into British India during the years in dispute in an assessment made under Section 23(3) in the case of Seth Gurmukh Singh vitiated by the fact that in arriving at his conclusion the Income-tax Officer based that conclusion partly on circumstantial evidence and partly on material derived from inquiries made behind the back of the assessee and which were never disclosed to the assessee ? " " (2) Whether the Income-tax Officer in the case of Seth Dyal Singh in an assessment made under Section 23(3) was entitled to base his conclusion solely on inquiries made behind the back of the assessee and not revealed to him ? " In compliance with this order the Commissioner drew up a statement of the case and expressed the opinion that an assessm....
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....ssessee ? Along with these questions another matter mooted at the bar was also referred to the Full Bench, viz., whether a finding of fact arrived at by the Income-tax Officer was vitiated altogether if it was partly based on admissible material and partly on confidential inquiries, the substance of which was never disclosed to the assessee. It may be observed that questions (1)(b),(c) and (2)(e), formulated by Sale J. and myself were on our suggestion modified to some extent at the hearing so as to bring out the real matter in controversy. The three parts of question No. (1) involve the true construction to be put upon sub-sections (2), (3) and (5) of Section 66 of the Income-tax Act. By subsection (2) an assessee is permitted to make an application to the Commissioner within sixty days of an order under Sections 31, 32, 33 or of a decision by a Board of Referees under Section 33A, requiring the Commissioner to refer to the High Court any question of law arising out of such order or decision, and the Commissioner is enjoined to draw up a statement of the case and refer it with his own opinion thereon to the High Court. If the Commissioner refuses to state the case o....
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....tion raised by the assessee in his application to the Commissioner. The High Court may formulate the question itself but its substance must be the same though the form may be modified either to give the question indicated by the assessee a proper shape, or to bring out most prominently the legal aspect of the case, discarding all reference to facts. In Commissioner of Income-tax, Bihar and Orissa v. Sir Kameshwar Singh (1933) 1 I. T. R. 94 ; I. L. R. 12 Pat. 318) the Commissioner had made a reference to the High Court under sub-section (2) of Section 66 of the Income-tax Act and had omitted to formulate any question of law arising out of a certain transaction which appeared material to the High Court. The High Court accordingly formulated the question itself and decided that question too along with the other questions referred by the Commissioner. On appeal to the Privy Council their Lordships did not favour this procedure and in this connection observed as follows : " The Commissioner unfortunately omitted to formulate any question of law arising out of this transaction. The duty of the High Court under Section 66(5) is to ....
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....did not criticise this procedure and while finally disposing of the appeal themselves recast the question so as to make it conform to the true state of affairs as disclosed in the case and answered it accordingly. In Trustees Corporation (India) Ltd. v. Commissioner of Income-tax (1930) 57 I. A. 152 : I. L. R. 54 Bom. 437 ; A. I. R. 1930 P. C. 151) where the High Court had remanded the case to the Commissioner directing him to deal in particular with a further question, which in its opinion arose in the case, and the Commissioner had in compliance with the requisition of the High Court referred two futher questions, their Lordships made the following observation : " Their Lordships are fully alive to the circumstances in which the High Court was constrained to direct that these further questions should be referred to it for consideration, and the result in the present case of the order then made merely serves to confirm the view of the Board that the High Court will, in future cases, be well advised to require, before they seek to entertain any question under Section 66 of the Indian Income-tax Act, that the preliminary requirements of the section are strictly complied with ". ....
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....en questions of law arise in a case, it is open to the assessee to choose all or any of them as he likes and require a reference in that respect only but it is he who has to exercise his choice in the first instance and none else. If he abandons any question although it arises in the case, neither the Commissioner nor the High Court can raise it of his or its own accord as the case may be. How can the High Court express its dissatisfaction with the Commissioner's decision on a point which was never raised before him and it is only when it is so dissatisfied, that it can take action under sub-section (3) ? While here it may be necessary to explain some of the remarks made by me in Messrs. Gangaram Balmokand v. Commissioner of Income-tax, Punjab ((1937) I. L. R. 19 Lah. 10 ; 5 I. T. R. 464) at page 45, which are liable to be somewhat misunderstood. I there observed : " Counsel for the firm has finally urged that in view of the fact that the question as formulated by the Court issuing the mandamus leaves us no choice to determine any other aspect of the case but that envisaged in the questio....
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....shape, and in case he refuses to refer the case to the High Court, that Court at the stage of issuing the mandamus or hearing the reference may determine the proper form in which the question of law indicated by the assessee may arise. But subject to this, the High Court is confined to the statement of the case drawn up by the Commissioner so far as the substance of the question is concerned and can decide that question only which is raised thereby. Adverting now to the second part of question No. (1) I consider that if any assumptions of fact are made by the High Court at the stage when the mandamus is issued, they are open to correction by the Commissioner when he draws up the statement of the case. The consideration of the case by the High Court at that stage is not final. No doubt that Commissioner is represented before the High Court in those proceedings also, but at that particular time the only question that falls for the determination of the High Court is whether the decision of the Commissioner that no question of law arises is correct or not. If, therefore, any remark concerning the facts of the case is made by the High Court on the strength of which the High Court int....
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....r any further. I would, therefore, hold that the assumptions of fact made by the High Court at the mandamus stage are not binding on the Commissioner and it is open to him to point out their inaccuracy while making the reference. This disposes of to a great extent the third part of question No. (1) too. The High Court on reference is concerned only with the statement drawn up by the Commissioner and by virtue of sub-section (5) is required to decide the question of law raised thereby. Any expression of opinion on facts made by the High Court at the time of issuing the mandamus, which ultimately turns out to be incorrect, does not, therefore, bind the Bench hearing the reference and it can on the authority above cited refuse to answer the question if so minded. Even prior to the decision of their Lordships of the Privy Council in 1940 the Courts in India proceeded on this basis and the Bench hearing the reference did not consider circumscribed within the limits set out at the stage of mandamus. In Commissioner of Income-tax, Madras v. Chengalvaroya Chetti ([1925] I.L.R. 48 Mad 836; 2 I.T.C. 14), Sir Murray Coutts Trotter, C.J., while hearing the reference made the following re....
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....f information which were not disclosed to the assessee and was altogether debarred from relying on any material so collected while coming to a final decision. By sub-section (2) of Section 23, if the Income-tax Officer has reason to believe that a return made Under Section 23 is incorrect or incomplete, be can " serve on the parson who made the return a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office, or to produce, or to cause to be there produced, any evidence on which such person may rely in support of the return." Sub-section (3) enacts that " on the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points, shall, by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment." Sub-sections (1) and (4) of Section 23 are not really relevant to the discussion, but they may, for facility of reference be re-produced here, as the provisions made as we....
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....on (1) and sub-section (2) of Section 23 and the word "assessment" as used in sub-section (3) of Section 23 have not been defined in the Act itself and naturally, therefore, one shall have to consider the ordinary meanings that these words carry. The word "assess" as defined in Murray's Oxford Dictionary may mean either "to determine or settle or fix the amount of taxation to be paid by a person," or "to estimate the official value of property or, income for the purpose of apportioning its share of taxation." Similarly, the word "assessment" means, among other . things, "the determination of the amount of taxation, the amount of charge determined upon, the official valuation of property or income for the purposes of taxation.", When, therefore, it is stated in sub-section (1) of Section 23 that the Income-tax Officer shall assess the total income of the assessee and shall determine the sum payable by him on the basis of such return, the word "assess" is used not in the sense of fixing "the amount of taxation" but in that of estimating the official value of the property or income to be taxed." In the same manner, when in sub-section (3) of Section 23 it is stated that the Income....
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....4) of Section 22 that a notice may be issued requiring an assessee to produce or cause to be produced such accounts or documents as the Income-tax Officer may require, in Section 23 no specific provision is made to meet the contingency if the accounts or documents so produced are rejected by the Income-tax Officer on the ground of being untrue, fictitious or incomplete. It is suggested that there is a lacuna in the statute on this score. But as stated in Maxwell on the Interpretation of Statutes at page 61. " It is said to be the duty of the judge to make such construction of a statute as shall suppress the mischief and advance the remedy. Even where the usual meaning of the language falls short of the whole object of the Legislature, a more extended meaning may be attributed to the words, if they are fairly susceptible of it." No doubt it is further stated there that the construction must not be strained to include case-, plainly omitted from the natural meaning of the words, but this prohibition does not Come into play in this case for the simple reason that the language of sub-section (3) does not plainly omit a case falling under this category. A similar opinion was expresse....
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....the income in accordance with the proviso to Section 13. In similar circumstances another Bench of the same Court in a case reported as Ganeshi Lal Chhappan Lal v. Commissioner of Income-tax, C.P. & U.P.(3), referred to Section 13 for the purpose of computing the assessee's income whose return did not show a fair margin of profit. In Radhey Lal Balmukund, In re(4), too Section 13 was said to come into play in computing income under Section 23(3). In all these cases it was suggested that this proviso was a check on the arbitrariness of the Income-tax Officer. In Rulia Mal Raunak Ram v. Commissioner of Income-tax, Punjab(5), where the Income-tax Officer had found as a fact that complete accounts had not been produced before him and bad on that account proceeded to estimate the assessable income under the proviso to Section 13 of the Act, a Bench of this Court composed of Addison and Sale, JJ., approved the course adopted by him. Another judgment of this Court as reported in Messrs. Bulagi Mal and Sons v. Commissioner of Income-tax, Punjab & N.W.F.P.(6) may also be referred to in this connection. A case from the Rangoon High Court reported as Commissioner of Income tax v. Ch....
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....lf in accordance with the rules of justice, equity and good conscience. The first matter to be considered in this connection is how far Section 37 of the Income-tax Act supports the suggestion that every proceeding taken under Chapter IV, including a proceeding under sub-section (3) of Section 23, is a judicial proceeding. Section 37 reads as follows : "The Income-tax Officer, Assistant Commissioner and Commissioner shall, for the purposes of this Chapter have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit in respect of the following matters, namely : (a) enforcing the attendance of any person and examining him on oath or affirmation ; (b) compelling the production of documents (c) issuing commissions for the examination of witnesses and any proceeding before an Income-tax Officer, Assistant Commissioner or Commissioner under this Chapter shall be deemed to be a 'judicial proceeding' within the meaning of Sections 193 and 228 and for the purposes of Section 196 of the Indian Penal Code." It is obvious that it is only in respect of certain specified matters that the Income-tax authoriti....
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....-tax ((1931) I.L.R. 12 Lah. 129; 5 I.T.C. 159), a case disposed of by five learned judges of this Court, Sir Shadi Lal, C.J., remarked : "If he (the Income-tax Officer), however, considers the return to be incorrect or incomplete, he has no authority to reject it and to make the assessment to the best of his judgment as he is entitled to do when no return is made. He must give the assessee an opportunity to prove the ... completeness of the return made by him, and he is, therefore enjoined by Section 23, sub-section (1926) I.L.R. 7 Lah. 201; 2 I.T.C. 188), to serve on the latter a notice requiring him either to appear at the office of the Income-tax Officer, or to produce, or to cause to be produced, evidence in support of his return. If the assessee does not comply with the terms of the notice, the Incometax Officer has no material before him except the incomplete or incorrect return; and he has, therefore, no alternative but to make an assessment to the best of his judgment; vide, Section 23, sub-section (4). When the assessee complies with the terms of the notice, the Income-tax Officer is bound to hear the evidence which the former may desire to produce in support of his return....
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....y the assessee, which should prima facie be taken in the presence of the assessee and of which the assessee should have knowledge in order that he could rebut such evidence. It was, however, added that an Income-tax Officer was not bound to accept either the correctness of the return or the genuineness or completeness of the account books or the truth of the evidence produced by the assessee. If be bad ground for believing that such evidence was untrustworthy, he could certainly reject it and having rejected such evidence it was open to him to pursue the inquiry further and take more evidence which he considered necessary. In Pandit Nathu Ram v. Commissioner of Income-tax, Lahore (1937) A.I.R. 1937 Lah. 919), decided by Sir Douglas Young, C.J., and Monroe, J., it was observed that the procedure of the assessing authority was a judicial one and that he ought to act on evidence. The learned judges, however, explained that the assessing officer was entitled to regard the account produced by the assessee as unsatisfactory without producing any evidence to show that the statements in the books or some of them were false. In Gunda Subbayya v. Commissioner of Income-tax, Madras ((19....
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....dence as well. In Baghat Halwai, In re(1), Sir Cecil Walsh of the Allahabad High Court remarked that the proceedings before the Income-tax Officer were judicial proceedings in the colloquial sense only because the Income-tax authorities had to make up their mind judicially with fairness to the public and to the assessee between whom they stood after taking all the facts or such facts as they could into account. But they were not judicial proceedings in the strictly scientific sense of the term. In the words of the learned judge " It is to some extent a private inquisition, it is confidential, it is not supposed to be disclosed to the public, and it is certainly not open to review, especially because frequently the Income-tax Officer is compelled to draw inferences and to consider evidence which might not be justified by the Evidence Act." In Binjiraj Hukumchand v. Commissioner of Income-tax, Bengal(2) Sir George Rankin, Chief justice, made the following observations: "When as in this case an assessee produces his books for the year of account and complies with any other requirements as to specific documents so that he is assessed in the ordinary way under Section 23(3) and no....
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....of the Act lie has merely certain powers, of a Civil Court for the purposes of Chapter IV." Even in a case under sub-section (4) of Section 23, where the Income-tax Officer has unfettered powers and unlimited discretion, their Lordships of the Privy Council in a case reported as Commissioner of Income-tax v. Lakshminayayan Badridas(1) observed : "He (the Income-tax Officer) must not act dishonestly, or vindictively or capriciously because he must exercise judgement in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment ......... and though there must necessarily be guess-work in the matter, it must be honest guess-work." Similarly, in Commissioner of Income-tax, Bihar and Orissa v. Sir Kameshwar Singh(2), their Lordships observed at page 334 that even a guess could not be made without evidence. I cannot do better than to wind up the consideration of the authorities on this aspect of the case by a quotation from Viscount Haldane, Lord Chancellor*, in Local Government Board v. Arlidge(3) : "They (the Income-tax authorities) must deal with the question referred to....
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....ith a view to rebutting it. He may gather information in any manner he likes and utilise it against the assessee even if it does not in all respects satisfy the requirements of the Indian Evidence Act. The very nature of the proceedings conducted by him necessitates the use of such media for collecting information as he may not like to disclose to the assessee, and he is perfectly within his right if on enquiry by the assessee he refuses to disclose the source of his information. But if he makes up his mind to reject the evidence of the assessee on any grounds which appeal to him to be sufficient for that purpose, it is but fair and just that he should acquaint the assessee with those grounds so as to enable him to disabuse his mind, if possible, by explaining them away as baseless or untenable, It is, however, impossible to hold that if once the assessee under sub-section (3) of Section 23 leads evidence, whether reliable or unreliable or produces any document, whether genuine or fictitious, the Income-tax Officer must base his decision on that evidence unless he is in a position to bring on the record any definite evidence to the contrary. My answer to the second set of questi....
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....red against this decision to a Bench of that Court the learned judges were referred to Section 167 of the Evidence Act which lays down inter alia that the improper admission of evidence shall not be ground of itself for a new trial or reversal of any decision in any case, if it shall appear to the Court before which such objection is raised that, independently of the evidence objected to and admitted, there was sufficient evidence to justify the decision. They, however, repelled this contention with the following observation: "Were we a Court of appeal with power to go into the evidence and arrive at an independent judgment upon the evidence itself, we would then be in a position to say whether or not the evidence justified the finding of the learned subordinate judge, but in second appeal the Court is not in possession of all, the evidence or in a position to be able to weigh it and see whether in fact, apart from the objectionable evidence, there was sufficient evidence to entitle the lower Court to come to the decision which it did. It is impossible for us There to say exactly how far the mind of the Subordinate judge was influenced, by this document." Though no earlier decis....
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.... of the Zillah Court and of the Sudder Court ............ that any reliance was placed upon them, and therefore, they may be rejected. The real question is, therefore, first of all, taking the evidence which must be and everybody says is admissible how does the matter stand?" Both these cases were decided before the Indian Evidence Act was enacted and it was presumably with a view to give effect to the observations made there that Section 167 was incorporated in the Evidence Act, which enabled the Court 4 to maintain a decision although partly based on inadmissible evidence, if what remained was enough to support it. In 1881 in a case reported as Womesh Chunder Chatterjee v. Chundee Churn Roy Chowdhry ((1936) 4 I.T.R. 1; I.L.R. 58 All. 200) a Bench of the Calcutta High Court composed of Sir Richard Garth, Chief justice, and McDonnell, J., discussed the possibility of using Section 167 in second appeals where the High Court was concerned not with findings of fact but with questions of law only. The learned Chief justice who delivered the main judgment observed : "The question which we....
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.... on legal evidence. . . . . . . As already stated the question of sufficiency or insufficiency of evidence is not for this Court in second appeal. On the principles enunciated above, in all cases of improper admission of evidence the trend of authority has been to apply Section 167 with full force to all first appeals where the High Court could look into facts as well, but in second appeals to remand cases to the lower appellate Court with a view to enable it to determine whether after rejecting the evidence improperly admitted there was enough evidence left to support the finding of fact originally based on partly admissible and partly inadmissible evidence. In references under Section 66(3), the same limitations are imposed on the powers of the High Court as exist in second appeals. On all questions of fact, the Income-tax authorities are the sole arbiters and the only question of law that arises in respect of the finding of fact recorded by them is whether there was any material to support it. If they can point to any material on which their order could be founded, the sufficiency or insufficiency of it is neither within the competency of the assessee to attack nor within ....
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....urged that where it is not possible to determine how far the finding of fact was influenced by inadmissible material, the entire finding should disappear. But I do not consider that that consequence necessarily follows in every case. If the material that could not be used is so mixed up with the material that could be used as to make it impossible to separate one from the other, or, to put it in a different way, if the inadmissible material is the main foundation of the entire superstructure raised by the Income-tax Officer, no doubt the finding will vanish as soon as the basis is destroyed. But if this is not the case and the admissible material is quite independent of the inadmissible material, the same result will follow as did even in the case of a second appeal in Womesh Chunder Chatterjee v. Chundee Churn Roy Chowdhry (1881) I.L.R. 7 Cal. 293). I would hold, therefore, that if there is any admissible material to support the finding of the Income-tax Officer quite apart from the result of the confidential inquiries made by him and not communicated to the assessee, it will not be open to the High Court to declare the finding altogether vitiated. The Commissioner shall pay the c....
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....nder Section 9. But when the Income-tax Officer assesses profits and gains of business, profession or vocation, taxable under Section 10 or income from other sources taxable under Section 12, he is directed by the Act to compute for the purposes of assessment the profits and gains or the income in a certain manner: vide Sections 10 and 12. Now, Section 13 provides as follows: "Income, profits and gains shall be computed for the purposes of Sections 10 and 12 in accordance with the method of accounting regularly employed by the assessee: Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Incometax Officer may determine." It is clear from the terms of this section and the position of the section in the Act that it only deals with computation of profits and gains of business, profession or vocation and of income from other sources. Thus the section is complimentary to the provisions of computation detailed in Sections 10 and 12 and has ....
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....determine the sum payable by him on the basis of such assessment. It is, therefore, clear that when evidence is produced by the assessee in support of his return, it has to be examined and accepted or rejected by the Income-tax Officer while assessing the total income of the assessee under Section 23, sub-section (3). The subsection does not say-and it was wholly unnecessary to say-how evidence, oral or documentary, which has been produced by the assessee in support of his return or on points specified by the Income-tax Officer under sub-section (3) of Section 23, has to be examined or appraised. These are matters on which the Act contains no provision and which have been rightly left by the Act to the judgment of the Income-tax Officer making the investigation about the total income of the assessee. The power to reject the books produced by the assessee in support of his return is implied in the Income-tax Officer's power to inquire into the total income of the assessee and does not Deed to be specifically conferred. I shall presently come to the question what the Income-tax Officer may do when he rejects the evidence produced by the assessee. All that I wish to point out and ....
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....ot evidence of the true income of the assessee for the previous year and are, therefore, no evidence of the correctness of the return. It seems to me, therefore, that Section 13 is relevant to and only operates in cases where the books are accepted as correct in regard to the transaction recorded therein and the entries appearing therein can in some manner be made the basis of computing the true income of the assessee for the previous year. Where the books are false, they can in no manner be made the basis of computing the true income of the assessee for the previous year. I respectfully agree with the opinion of Sir Lionel Leach, C.J., in Gunda Subbayya v. Commissioner of Income-tax (1938) 7 I.T.R. 21; I.L.R. 1939 Mad. 404), that Section 13 adds nothing to and takes nothing away from Section 23(3) and with the view of Davis, J.C., and Weston, J., in Commissioner of Income-tax, Bombay v. Khem, Chand Ram Das (1940) 8 I.T.R. 159), that Section 13, and in consequence the proviso to that section, relates to the method of accounting and that alone, though the word "method" must be given a broad and reasonable interpretation. A distinction must be drawn between books of account that are ....
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....e Income-tax Officer as a discretionary power." But though this is my view of the scope and f unction of Section 13 of the Act, I do not mean to say that in all cases where the books of account correctly record the business transactions of the assessee but have not been kept according to any method of accountancy, the Income-tax Officer must, in some manner, however complicated or laborious, make them the basis of computation of the assessee's income for the previous year. If an assessee maintains no more than a memorandum of his transactions merely showing receipts and expenditure without any capital account or without drawing any distinction between capital and revenue income and expenditure and mixes up such income and expenditure with his other income and expenditure, the Income-tax Officer is under no obligation to examine the entries item by item and to rearrange them in such a manner as to prepare for the assessee a profit and loss account for the previous year. The proviso to Section 13 only applies to those cases where by some method, not involving unreasonable amount of labour, the Income-tax Officer can discover the true income of the assessee for the previous yea....
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....a judiciaI trial arid that the Income-tax Officer cannot base the assessment except on the "evidence" produced by the assessee and such "evidence" as he himself calls in the presence of the assessee. All that this sub-section requires is that if, not accepting the assessee's return of income as correct, the Income-tax Officer has issued a notice under sub-section (2) requiring the assessee's presence or the production of evidence by the assessee in support of his return, he must take all such evidence as the assessee may produce in support of the return or on the points specified by the Income-tax Officer. The proceedings before the Income-tax Officer are not judicial proceedings in the ordinary acceptation of that term. They neither take the form of the trial of a suit nor are they proceedings inter Partes the assessee and the Income-tax Officer. The comma before the words "on specified points" in sub-section (3) would seem to indicate that the evidence before the Income-tax Officer when he is making an investigation under sub-section (3) of Section 23 must be limited to specified points, whether such evidence is called by the assessee or by the Income-tax Officer himself.....
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.... this is the meaning of the words "such other evidence as the Income-tax Officer may require on specified points "seems to me to be perfectly clear. The right to call such evidence, documentary or oral, as the Income-tax Officer wishes is already given to him by Section 37, and I do not think that the words "such other evidence as the Income-tax Officer may require" mean that the Incometax Officer acting under Section 37 should himself call in the presence of the, assessee all the evidence on which he intends to base his assessment. Read in this way, the sub-section is not exhaustive or definitive of the material on which an assessment may be based. The sub-section does no more than entitle the assessee to produce all evidence that he wishes to produce in support of his return and such other evidence as the Income-tax Officer may require him to produce on the points specified by the Income-tax Officer. The intention of the subsection is that if the Income-tax Officer has reasons to doubt the correctness of the return or the evidence produced by the assessee in support of the return, he should draw the attention of the assessee to that doubt in order to enable him to remove it by su....
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.... correct either in the particulars specified, or for the reasons specified, he will have to do his best to ascertain the assessable income of the assessee but in determining such income he will not be confined to the evidence actually produced on the specified points in the presence of the assessee though, since the Income-tax Officer is required to pass an order in writing, he will have to state the reasons for rejecting the evidence of the assessee. If the evidence produced by the assessee is unreliable, the Incometax Officer may reject the return in the particulars specified or the whole return on the ground that the objections to the return raised by the Income-tax Officer have not been satisfactorily met by the assessee and base the assessment on the information with him provided the nature of the information is disclosed to the assessee to enable him to rebut it. and the inferences arising therefrom. What is important to bear in mind is that the sub-section says nothing about the material on which assessment may be based and does no more than give to the assessee the right to be heard and to produce evidence on the specified points. When an assessee produces books of accou....
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....false evidence. If in the cases contemplated namely, where the assessee produces false evidence or does not keep or produce books of account, the Income-tax Officer can make an assessment under subsection (3) of section 23, without having recourse to the proviso to Section 13, I do not see why he should not be able to do the same when the books of account that have been produced before him are false. In fact the case where the assessee produces books of account that are false is, in one respect, stronger for the Incometax Officer, because in such a case lie can draw his own inferences against the assessee which a Court of law may draw against a party who fabricates a mass of false evidence in support of his claim or defence. If, for instance, the books of the assessee written and purporting to be kept on a strict mercantile or cash basis and accompanied by a profit and loss account and a balance-sheet disclose the assessable income of the assessee to be Rs. 10,000 but the Income-tax Officer from the evidence furnished by the books themselves or by evidence dehors the books comes to the finding that the accounts have been "cooked" for the purposes of assessment to income-tax and ....