23 April 1970
Supreme Court


Case number: Appeal (civil) 235 of 1967






DATE OF JUDGMENT: 23/04/1970


CITATION:  1971 AIR  854            1971 SCR  (1) 352  1970 SCC  (1)   1

ACT: Income-tax Act (11 of 1922) ss. 22, 23 and 27-Non-compliance with  notices  under  s. 22(2) and  s.  22(4)-Best  judgment assessment   under  s.  23(4)-Sufficient  cause   for   non- compliance shown only with respect notices under s. 22(4)-If assessment can be re-opened under s. 27.

HEADNOTE: Notices under s. 22(2) of the Income-tax Act, 1922, were not complied  with by the respondent (assessee) and the  Income- tax Officer issued notices under s. 22(4).  Since they  were also  not complied with the Income-tax Officer made  a  best judgment assessment under s. 23(4).  Thereupon, the assessee applied  under  s.  27 for reopening  the  assessment.   The Income-tax Officer found that there was sufficient cause for noncompliance with the notices under s. 22(4), but, as there was no sufficient cause for non-compliance with the  notices under  s. 22(2), he declined to reopen the assessment.   The order was confirmed in’ appeal and by the Tribunal.  But the High Court held in favour of the assessee. 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 noncompliance with the terms of a  notice under  s.  22(4) or failure to comply 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 assessee makes default  by  not filing a return pursuant to a notice under s. 22(2) and also does  not comply with a notice under s. 22(4) 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 which an ex parts 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] Chiranjilal Tibrewala v. Commissioner of Income-tax,  Bombay



City H, 59 I.T.R. 42, approved.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos. 23  5  and 236 of 1967. Appeals from the judgment and order dated March 21, 1966  of the Mysore High Court in Income-tax Referred Case No. 19  of 1964. Jagadish  Swarup, Solicitor General, G. C. Sharma and B.  D. Sharma, for the appellant (in both the appeals). R.   Gopalakrishnan,   for  the  respondent  (in  both   the appeals). 353 The Judgment of the court 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. 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 Income 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 noncompliance with  the notices  issued under s. 22(4) of the Act but he was of  the view  that  the  assessee  had  been  a  habitual  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 were 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 authorities. 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   Officer   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 assessment made under  Sec.  23(4)               and to proceed to make a fresh assessment even               though there was no sufficient cause for  non-               compliance with the notice under Sec. 22(2) ?" 354 The  High  Court  answered the question  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 assessee within  one               month  from the service of a notice of  demand               issued as hereinafter provided, satisfies  the               Income  Tax Officer that he was  prevented  by               sufficient  cause from making the  return  re-               quired  by  section  22, or that  he  did  not               receive  the notice issued  under  sub-section               (4)  of  section  22, or  sub-section  (2)  of               section  23, or that he had not  a  reasonable               opportunity  to  comply, or was  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 accor dance  with  the provisions  of  section               23." 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 by publication in the press or  in  the prescribed 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 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  the section  including,  with  the  previous  approval  of   the Commissioner,  a  statement of assets  and  liabilities  not included  in  the accounts.  Under s. 23 if the  Income  tax Officer  is satisfied without requiring 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 assessee on the basis of  the return  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 attend at his office or to produce or cause  to be produced 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 hearing such  evidence  as may be produced by the person making the return 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 assessee.  It is provided by sub-s. (4) "If  any  person fails to make the return  required  by  any notice given under sub-section (2) of section 22 and 355 has  not made a return or a revised return under  subsection (3)  of  the same Election 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 assessee on the basis of such assessment.......... The High Court considered that the provisions of s. 27  were not  cumulative  but disjunctive and so the  assessee  could 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 noncompliance  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 cancellation  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 mentioned therein  the Income  tax Officer is bound to make the assessment  to  the best  of his judgment. In other words if a person fails  to make the return, required by a notice under s. 22(2) and  he has further not made return or a revised return under sub-5. (3) of the same section the Income tax Officer must make  an assessment  under section, 23(4).  Similarly if that  person fails  to  comply with all the terms of  the  notice  issued under  s. 22(4) or if he fails to comply with all 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 empowers the Income tax  Officer  to cancel  the  assessment when sufficient cause is  shown  but such causer 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  section 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  get  the assessment cancelled merely by showing good cause for one of the two defaults.  Although the word "or" which is  disjunc- tive is used in section 27 it has to be read in a reasonable and harmonious way and in conjunction with s. 23(4).  It  is inconceivable that the legislature could ever intended  that in  case of’ multiple 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  by  merely showing cause for one of such defaults.  In our opinion  the Bombay High Court in Chiranjilal Tibrewala v.. 356 The Commissioner of Income tax, Bombay City II(1) was  right in holding that in circumstances similar to the present case the  assessee cannot ask for cancellation under S. 27 of  an assessment 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  appeals  are  accordingly  allowed  with  costs     One hearing fee. V.P.S.                           Appeals allowed. (1) 59 I.T.R. 42. 357