Commissioner of Income-tax, Mysore A v. Segu Buchiah Setty

352 **COMMISSIONER** **OF** **INCOME-TAX,** **MYSORE** **A** _v._ **SEGU** **BUCHIAH** **SETTY** _April_ 23, 1970 **B** [J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.] #### • _Income-tax_ _Aci_ ( 11 _of_ 1922},~ ..,22, ],3 _and 27-Non-compUance with_ _notices under s ._ . 22(2) _and_ _s._ 22:(4 _)-Besi_ _judgment·_ _assessme11r_ _under_ _s._ _23(4)-Sufjicient_ _cause_ _for_ _non-compliance_ _shown_ _only_ _with respect notices under_ . _s._ ·22(4)-/f _assessment_ _can_ _be_ _re-opened under_ . _s._ 27. Notices. undet s. 22(2) of the Income-tax Act, 1922, were not com**c** plied with by the respondent (assessee) and the Income-tax Officer issued notices under 's. 22(4) .. Sin·ce they were also· not complied with the - Income.tax ·amcer !flade a best judgment assessment under s. 23 ( 4). Thereupon, the assessee applied under s. 27 for reopening the assessment. The ~ncome-tai< Officer found that there was sufficient caute 'for noncompliance wiih the notices under s. 22(4), but, as there was no sufficient .cause for non-compnance with the notices under s. 22(2), he declined to reopen the assessment. The order was confirmed in appeal and by the **D** But the High Court held in favour of the assessee. _)·_ [Tribunal. ] In appeal to this Court, HELD: Under s. 23(4) on the assessee committing any of the **defaults mentioned therein. namely, failure to make a** **return** **as** **reQuired** by a notice under s. 22(2) or a revised return under s. 22(3) or non· compliance with the terms of a notice under s. 22( 4) or failure to com- **E** ply with the. terms of a notice under s. 23(2). the Income-tax Officer is bound to make a best judgment assessment. Section 27 empowers the # Income-tax Officer to cancel the assessment when sufficient cause is shown; ' by a notice under s. 22(2) or a revised return under s. 22(3) or non· compliance with the terms of a notice under s. 22( 4) or failure to com- **E** ply with the. terms of a notice under s. 23(2). the Income-tax Officer is bound to make a best judgment assessment. Section 27 empowers the Income-tax Officer to cancel the assessment when sufficient cause is shown; but, such cause has to be shown for _each_ _default._ Therefore, if the assessce makes default by not filing a return pursuant to a notice under s. 22(2) and also does not complv with a notice under s. 22(.t') he must show sufficient cause for non-compliance with both the provisions. The Legislature could not have intended that in case of multiple defaults, for each one of **F** which an _ex_ _parte_ best judgment assessment has to be made, the assessee can ask for cancellation of the assessment by merely showing cause for one of such defaults. [355 D-H] _Chiranji/al Tihrewala_ v. _Commissioner_ _of_ _Income-tax. Bombay City_ _ll,_ _59_ J.T.R. 42, approved. lf! CIVIL APPELLATE JURISDICTIOI<: Civil Appeals Nos. 235 and G 236 of 1967. Appeals from the judgment arid order dated March 21. 1966 of the Mysore High Court in Income-tax Referred Case No. 19 Of 1964. _laKadish Swarup, Solicitoi: General,_ G. C. _Sharma_ and _B._ _D._ **H** _Sharma,_ for the appellant (in both the appeals). _R._ _Gopalakrishnan,_ for the respondent (in both the appeals). r..1.T. _v._ s. B. SETTY _(Grover,!.}_ 353 A The Judgment of the cdurt was delivered by Grover, J. These appeals by certificate arise out of a common judgment of the Mysore High Court in references made with regard to the assessments relating to the assessment years 1953-54 and. 1954-55. B c D E F G H For the assessment year 1953-54 the assessee was served with a notice under s. 22 ( 2) of the Income tax Act 1922, hereinafter called the "Act", on March 5, 1954. A similar notice was served in respect of the assessment year 1954-55 on June 5, 1954. The assessee failed to file any return in compliance with the notices. Thereupon he was served with notices under s. 22 ( 4) for both the assessment years and was required to produce accounts on specified dates. None appeared on any one of those dates but applications were submitted praying for adjournment on certain grounds. The Incom~ tax Officer was not satisfied with the .reasons given for seeking adjournments and he proceeded to make the assessment under s. 23 ( 4) of the Act. The assessee moved the Income Tax Officer under s. 27 to reopen the assessments on the grounds given in the applications filed in that behalf. The Income Tax Officer appeared to be satisfied that there was sufficient cause for non-complianc.~ with the notices issued under s. 22 ( 4) of the Act but he was of the view that the assessee had been a babitual defaulter inasmuch as he had not submitted the return under s. 22(2) even for several preceding years for which the assessments had to be completed under s. 23 ( 4) of the Act. He declined to reopen the assessment under s. 27. Appeals to the Appellate Assistant Commissioner w.~re filed. According to the Appellate Assistant Commissioner sufficient cause for non-compliance with one of the statutory notices _i.e._ the notice under s. 22( 4) could not constitute sufficient cause for non-compliance with any other statutory notice (in this case the notice under s. 22 ( 2)). The appellate tribunal dismissed the appeals filed by the assessee upholding the view of the departmental authoriti.~s. On the tribunal having declined to refer the questions of law which were sought to be referred the High Court directed the Tribunal to state a case and refer the following questions of law : "Whether the Income Tax Offic.~r having recorded a finding that there was sufficient cause for non-compliance with the notice issued under Section 22 ( 4), was not bound to cancel the asse~sment made under Sec. 23 ( 4) and to proceed to malre a fresh assessment ev.~n though there was no sufficient cause for .iion-compliance with the notice under Sec. 22(2) ?" 354 SUPREME COURT.REPORTS ( 1971] l S.C.R. The High Court ahswered the quesuon in favour of the assessee. Section 27 of the Act is in the following terms : S. 27. _"Cancellation of assessment when_ _cause_ _is_ shown.-Where an as~.essee within one month from the service of a notice of demand issued as hereinafter provided, satisfies the Income Tax Officer that he was pre-· vented by sufficient cause from making the return required by section 22, or that he did not receive the notice issued under sub-section ( 4) of section 22, or sub-section (2) of~ion 23, or that he had not a reasonable cpportunity to comply, or wa~ prevented by sufficient cause from complying with· the terms of the last mentioned notices, the Income Tax Officer shall cancel the assessment and proceed to. make a fresh assessment in accordance with the provisions of section 2 3." A ##### c D Section 22 provides for return of income. Sub-section (1) relates to a general notice to be given each year by the Income Tax Officer lzy publication in the press or in the pres~ribed manner. Subsection (2) relates to an individual notice. According to sub-s. ( 4) the Income Tax Officer· may serve on any person who has made a return under sub-s. ( 1) or upon whom a notice has been served under sub-s. (2) a notice requiring him on a date to be .E specified to produce or cause to be produced such account or documents as the Income Tax Officer may require or to furnish in writing and verified in the prescribed manner in such form and on such points or matters as may be required for the purpose of thesection including, with the previous approval of the Commissioner, a staiement of assets and liabilities not included in the accounts. F Under s. 23 if the Income tax Officer is satisfied without requiri:rg the presence of the assessee or the production by him of any evidence that a return made under s. 22 is correct and complete he has to assess the total income of the asses see ..on the basis of thereturn filed by him [sub. s. ( 1) ]. If he is not so satisfied he-must serve a notice requiring the person who has made the return to G attend,at his office or to produce or cause to be produ(:ed any evidence on which such person may /rely in support of his return [sub. s. (2)]. Under sub-s. (3) the Income tax Officer after hear· ing snch evidence as may be produced by the person making theret(lm in response to the notice issued under sub-s. (2) or such· other evidence as the Income tax Officer may require to be produced on specified points has to assess the total income of the- H F G 1Ssessee. It is provided by sub-s. ( 4) : H ''If a11y person fails to make the return required by any notice given under sub-section (2) of section 22 and c.I.T. _v._ s. B. SETTY _(Grover,_ J.) 355, A B ###### c D E ## ' G H ·has not maae a return or a revised return under sub section ( 3) of the same section or falls to comply with all the terms of a notice issued under sub-section ( 4) of the same section or, having made a return, fails to comply with all the terms of a notice issued under sub-section ( 2) of this section, the Income Tax Officer shall make the assessment to the best of his judgment and determine the sum payable by the assess.ee on the basis of such assessment ........ " Ttie High Court considered that the provisions of s. 27 were not cumulative but disjunctive and so the assessee cobld claim cancellation of the assessment on one of the grounds on · which such. cancellation could be sought under the section. According to the High Court it followed that even if there was no sufficient cause for non-compiiance with a notice issued under s. 22 (2) so long as there was sufficient reason for non-compliance with the notice issued under s. 22 ( 4) the assessee could. ask for the cancel- · lation of the assessment. In our judgment the view of the High Court cannot be sustained. The clear import of s. 23 ( 4) is that on committing any one of the defaults mentione.d therein the In· come tax Officer is bound to make .the assessment to the best of his judgment. In other words if a persollJails to make the return required by a notice under s. 22 (2) and he has further not made a return or a revised return under sub-s. ( 3) of the same section the Income tax Officer must make an assessment under section 23 ( 4 ). Similarly if that iJerson fails to comply with all the terms of the notice issued under s. 22 ( 4) or if he fails• to comply with an · the terms of the notice issued under s. 23(3) the Income tax Officer must proceed to make an assessment to the best of his judgment. Section 27 emi)owers the Incoine tax Officer to cancel the assessment when sufficient cause is shown but .such cause .has to be shown for each default. For the sake of illustration, if an assessee makes a default under .s .. 22(2) by not filing a return pursuant to a notice received under that sect,ion and he also does not comply with the notice under s. 22(4) he must show sufficient cause for non-compliance with both the proviSions and he cannot ge; the assessment cancelled merely by showing good cause for one of the two defaults. Alth!Jugh the word "or" which is disjunctive is used In section 27 it has to be read in a reasonable and harmonious wav and in conjunction withs. 23.(4). It is· incon-. ceivable that the legislature coQld ever intended that in• aise of multip1.~ defaults for each one of which an _ex-parte._ best judgment assessment has to be made the assessee can ask for cancellation of the assessment 'Jy merely showin,I! cause for one of such defaults. In our opinion the Bombay High Court in _Chiranjilal Tibrewala_ v 356 SUPREME COURT REPORTS [ 1971] l S.C.R. _·The Commissioner of Income tax, Bombay City_ ll( [1] ) was right in . holding that in circumstances similar to the present case the . assessee cannot ask for cancellation under s. 27 of an asse>sment made under s. 23 ( 4). In this view of the matter the judgment of the High Court has to be set aside, and the question has to be .answered against the assessee and in favour of the appellant. The appenls are accordingly allowed with costs. On.~ hearing fee. V.P.S. _Appeals_ _allowed._ (I) 591.T.R. 42. A ll