Case: Commissioner of Income Tax, Mysore Vs. Segu Buchiah Setty

1. 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.      2. For the assessment year 1953-54 the assessee was served with a notice under Section 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 Section 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 Section 23 (4) of the Act. The assessee moved the Income-tax Officer under Section 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-compliance with the notices issued under Section 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 Section 22 (2) even for several preceding years for which the assessments had to be completed under Section 23 (4) of the Act. He declined to reopen the assessment under Section 27. Appeals to the Appellate Assistant Commissioner were filed.

Reasoning: 4. The High Court considered that the provisions of Section 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 non-compliance with a notice issued under Section 22 (2) so long as there was sufficient reason for non-compliance with the notice issued under Section 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 Section 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 Section 22 (2)and he has further not made a return or a revised return under sub-section (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 Section 22 (4) or if he fails to comply with all the terms of the notice issued under Section 23 (2) 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 cause has to be shown for each default. For the sake of illustration, if an assessee makes a default under Section 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 Section 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 disjunctive is used in Section 27 it has to be read in a reasonable and harmonious way and in conjunction with Section 23 (4). It is inconceivable that the legislature could have even 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. Commr. of Income-tax. Bombay City II, (1966) 59 ITR 42 (Bom)  was right in holding that in the circumstances similar to the present case the assessee cannot ask for cancellation under S. 27 of an assessment made under Section 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.