Dayaldas Khushiram Vs. Commissioner of Income-tax, (Central), Bombay. - Court Judgment

JUDGEMENT OF APPELLATE TRIBUNAL

Under Section 33 of the Indian Income-tax Act (XI of 1922) the Income-tax Appellate Tribunal, (Bombay Branch) (consisting of N. R. GUNDIL, Judicial Member, and P. C. MALHOTRA, Accountant Member) delivered the following judgment on August 23, 1941 :-

'These two appeals arise out of a supplementary assessment of the appellant, Mr. Dayaldas Khushiram, for the assessment year 1937-38, made by the Income-tax Officer, Section II (Central), under Section 23(4) and Section 34 of the Income-tax Act. The appellant applied, under Section 27, to cancel the best judgment assessment, but the Income-tax Officer dismissed the application. The appellant took that order, as well as the order of assessment, in appeal to the Appellate Assistant Commissioner who, in each case, declined to interfere. These two appeals are respectively taken from his orders, and involve common facts. They were heard together, and may be conveniently disposed of in one judgment. The facts will make a long narration. We shall therefore confine ourselves at the outset only to such as will help of outline the case, and notice others in their proper place in the course of this judgment.

2. The first assessment of the appellant for the year 1937-38 was made by the Income-tax Officer, C Ward, Section II, Bombay. The appellant did not return any income, and submitted the form of the return with the remark 'Accounts not kept; income to be estimated.' Considering the past assessment which, under similar circumstances, had been made on a progressively higher income as estimated, and also the fact that the appellant had been re-assessed under Section 34 in the proceeding two years, the Income-tax Officer assessed him on an estimated income of Rs. 25,000, under Section 23(4) of the Act, on October 8, 1937.

3. In November 1938, the Commissioner of Income-tax, Bombay, Sind and Baluchistan, in exercise of the powers under Section 5(4) of the Income-tax Act (as it them stood), appointed a set of Officers called Income-tax Officers, Special Provincial Circle. These Officers were not appointed to function over any specified local areas, but to deal with cases of assessment that might be specifically made over to them by the Commissioner from all over the Province or area over which his own jurisdiction extended. One of them was Mr. V. T. Shah to whom the Commissioner made over the appellants case, along with several others. The case made over was apparently the assessment for the year 1938-39 which was then due to be made. On going through the record, and, after making certain enquiries, the Income-tax Officer thought that the appellant had been under-assessed for the assessment year 1937-38. Accordingly, he commenced the present re-assessment proceeding after serving the appellant with a notice under Section 34 of the Act, on December 21, 1938. In the notice, it was expressly stated that the appellants business income for the Samvat year 1992 had partially escaped assessment, and that from property, interest, interest on securities and dividends had wholly done so; and called upon him to make a fresh return of income from these sources. On January 20, 1939, the appellant filed a return declaring an income of Rs. 25,000, without details, with the remark 'As settled and already assessed and agreed to by the Income-tax Officer, inclusive of property, dividends, interest and wifes income', implying that a proper assessment had been made by the Income-tax Officer, C Ward, Section II, and that it could not be reopened. It may also be mentioned here that by an application, dated February 20, 1939, the appellant questioned the jurisdiction of the Income-tax Officer to assess or re-assess him. On a reference under Section 64(3) the Commissioner passed an order, dated March 9, which will be discussed later.

4. With the advent of the amended Income-tax Act, on April 1, 1939, the organisation of the Special Provincial Circle became unnecessary, inasmuch as the new sub-section (2) of Section 5 gave power to the Central Government to appoint a Commissioner of Income-tax without reference to area, and to exercise the functions of a Commissioner of Income-tax to the exclusion of a commissioner of Income-tax appointed of specific area, in respect of cases or classes of cases that might be made over to him by the Central Board of Revenue. In exercise of these powers the Government appointed Mr. Bird as Commissioner of Income-tax (Central) without reference to area, with effect from April 1, 1939. He organised six sections, called Sections I to VI (Central), with headquarters at Bombay and appointed a set of Income-tax Officers to deal with cases that would be made over to him by the Central Board of Revenue, and, in turn, assigned by him to these Officers. One of them was Mr. Shah who was assigned Section II (Central), and was charged with the cases of the appellants assessment and re-assessment, under Section 5(5). In this manner, Mr. Shah who had been in charge of the appellants assessment as Income-tax Officer, Special Provincial Circle, continued to function over them as Income-tax Officer, Section II (Central). In June 1939, the appellant once again raised the question of Mr. Shahs jurisdiction which he referred to the Commissioner of Income-tax, Central, under Section 64(3) of the Act. On July 12, 1939, the Commissioner made an order that Mr. Shah was 'correctly vested' with the power to assess and re-assess the appellant. The appellant thereafter took the matter to the High Court of Bombay by means of a petition, under Section 45 of the Specific Relief Act, praying that the Commissioner of Income-tax, Central, and the Income-tax Officer, Section II (Central), be restrained from proceeding with his assessments. On December 15, 1939, their Lordships made the rule absolute holding that the Commissioner of Income-tax, Central, had not power under Section 5(5) of the new Act to make over the appellants case to the Income-tax Officer, Section II (Central), because the latter was not the Income-tax Officer for the local area in which the appellant did business and who alone could validly assess the appellant under Section 64(1) of the Act which had not been amended to correspond with the changes in Section 5; and that consequently, the Income-tax-Officer Section II (Central) had equally no jurisdiction to make the appellants assessments. On December 30, following, the Governor General promulgated Ordinance No. IX of 1939, which broadly speaking, validated the proceedings of the Commissioner of Income-tax, Central, as well as those of the Income-tax officers charged by him with the assessments such as those of the appellant. Shortly afterwards, a question as to the effect of the Ordinance upon the judgment already obtained came under the consideration of the Bombay High Court at the instance of another assessee similarly placed as the appellant, and their Lordships held that the Ordinance in question overrode the judgment of the December 15. Accordingly, the Income-tax Officer, Section II (Central) proceeded with the assessments, and finally re-assessed the appellant according to his best judgment on an income of Rs. 1,66,600, under Section 23(4), of the Act owing to the appellants failure to produce books of account, document and papers specifically called for by repeated notices under Section 22(4).

5. We shall first deal with the appeal from the order under Section 27 of the Act. After the appellant had filed a supplementary return, the Income-tax officer issued the first set of notices under Section 23(2) and Section 22(4), calling upon him to produce evidence in support of his return, also books of account for the Samvat year 1992, as well as all his bank pass-books, counterfoils of cheques, rent and tax bills, Ankdas of ready and forward business an all accounts showing investments. These requisitions were repeated not less than five times, till February 1940. The only compliance that the appellant made was to produce two pass-books of the Central Bank, Zaveri Bazar Branch, and the Bank of India, respectively. The letter did not relate to the accounting period which was Samvat year 1992, and was therefore useless.

6. Under Section 27 of the Income-tax Act, the two grounds which entitle an assessee to ask for cancellation of a best judgment assessment made under Section 23(4) are that the had no reasonable opportunity to comply, or, that he was prevented by a sufficient cause from complying, with a notice under Section 22(4). It is only the second ground that the learned counsel has relied on. Thus the only question for decision is whether the appellant was prevented by a sufficient cause from complying with the terms of the notices. His main contention is that he does not maintain books or any kind of accounts; and that such documents that he had were duly produced by him. These documents were the two pass-books just alluded to. It is admitted that he had account with the Baroda and Allahabad Banks. But the pass-books of these accounts were not produced, and the excuse that is offered is a lapse of memory due to the accounts having been closed for some time past. Admittedly, these accounts had not been closed in the accounting year, Samvat 1992. Thus, except producing the two pass-books one which was not relevant, the appellant failed to comply with the requisitions of the notices in question. It is argued that a compliance was out of the question, because he did not possess accounts or documents of any sort. That amounts to saying that the appellant had a sufficient cause or justification for not complying with the notices. But Section 27 of the Income-tax Act requires an assessee to prove that he was prevented by a sufficient cause from complying with the terms of a notice under section 22(4). The phrase 'prevented by sufficient cause from complying' does not have the same meaning as 'having sufficient cause for not complying.' They are not convertible expressions. In other words, Section 27 can be invoked only when an assessee possesses the books and papers called for by a notice under Section 22(4), but is prevented by a sufficient cause from producing them from the Income-tax Officer. It follows that a justification for non-compliance with the requisitions of such a notice can be no ground for canceling an assessment under Section 27. In such a case an appellants remedy will be a regular assessment appeal asking to be assessed under section 23(3) instead of Section 23(4). This view is supported by the case of Commissioner of Income-tax, C.P. & U.P. v. Laxminarain Badridas 1. Therefore, it seems to us that the present application under Section 27 was incompetent. It is also argued that the notices under Section 22(4) were illegal having been made without jurisdiction, and that, therefore, there was no obligation on the appellants part to comply with them. We shall presently discuss the question of illegality of the notices. Here it suffices to say that the plea of illegality as a sufficient cause for non-compliance amounts to a justification, and must also be rejected for reasons just stated.

7. Apart from this, we can scarcely believe that the appellant has not maintained books of account, or did not possess most of the rest of the documents called for. Admittedly he was doing extensive business, both ready and forward, in silver, cotton, shares, etc., in London, Shanghai, Liverpool and Bombay, through an number of brokers. In this connection, we shall refer to a couple of instances. In an account styled S. D. Chandani with the brokers M/s. Jeewatlal Pratapsey, which is proved to be a personal account of the assessee, one finds total credits of over two lacs of rupees against total debits of Rs. 1,96,000. Similar is the case in the appellants account with M/s. C. B. Mehta. It is admitted that the appellant has been doing transactions not only in cash, but by means of hundies, cheques and havalas. All this colossal business cannot possibly be done without the assistance of accounts. The appellant was first brought on the list of assesses in 1930-31. He then returned a loss which he supported by a set of account books, and was not assessed to tax. He was similarly exempted in the following year. From 1932-33 onwards the books disappeared, and the appellant used to be assessed to the basis of an estimated progressively higher income, as was, in more than one year, re-assessed under Section 34. All the while he persisted in denying that he had accounts although in 1935-36 he was definitely warned to maintain them. He had to admit at a later stage of these proceedings that he had maintained note-books of his transactions, but stated that he had destroyed them as being no longer useful. A similar plea is trotted out in regard to the Ankdas of forward business, and clearing house statements of the Bullion Exchange. Speaking of the former, it is remarkable that the appellant produced some of them in the assessment years 1935-36, 1936-37, 1938-39 and 1939-40, but he pretends that he destroyed only those for the assessment year 1937-38 in question. He produced several Ankdas before the Appellate Assistant Commissioner, but cannot explain why he did not do so earlier before the Income-tax Officer. Regarding his banking accounts, we have stated before that the only relevant pass-book that he produced was that of the Central Bank, Zaveri Bazar Branch, although he had accounts with three others. He also resented the Income-tax Officers efforts to obtain an extract of his accounts from the Bank of India for the material period. It is, we think, unnecessary to dwell on the appellants story longer than to say that it is highly improbable and unconvincing. The irresistible conclusion is that he deliberately failed to comply with the requirements of the notices under Section 22(4) issued from time to time. We therefore decline to interfere with the Appellate Assistant Commissioners order under appeal.

8. This brings us to the other, i.e., the assessment appeal. At the outset, it will be well to dispose of two small points that the learned counsel for the appellant raised at the outset. In the first place, he contended that the notice under Section 34, dated December 20, 1938, was illegal on the ground that it aimed at re-assessing the income that had been already assessed in 1937 by the Income-tax Officer, C Ward, Section II. But it is clear from the assessment note of the Income-tax Officer, as well as the rest of the assessment record, that the income that was then assessed was the business income alone, exclusive of any of the other sources specified in the notice under Section 34. In view of this fact the learned counsel gave up further contest upon the point. The second contention was that the Commissioner of Income-tax, Bombay, Sind and Baluchistan, had no power to make over the case of the appellants re-assessment to the Income-tax Officer, Special Provincial Circle, as no such case was pending in November 1938, the appellants assessment having been completed before, as just stated. Section 5(4) of the Act then in force gave power to the Commissioner to allocate and distribute work among his Income-tax Officers. What he did in the present case was to allocate the work of assessing the appellant to the Income-tax Officer, Special Provincial Circle. Whether he could legally do so by reason of the latter not being the Income-tax officer of the area in which the appellants place of business was situate is not material to the present point. Really speaking, the work thus allocated was the assessment for the year 1938-39. But the Income-tax officer on going through the records and making enquiries thought that the appellant had been under-assessed for the year 1937-38, and, accordingly, started to make a supplementary assessment, side by side with the assessment for the year 1938-39. As far as we can see, there is nothing in Section 34 or any other provision of the Income-tax Act to prevent an Income-tax officer in such circumstances to take action for re-assessing the assessee, provided he does so under conditions mentioned in that section, and within the time prescribed by it. To adopt any other view would be to render the machinery provided by Section 34 to set right an under-assessment wholly nugatory. Therefore the point has no substance.

9. Broadly stated, the two main questions argues in this appeal are, first, that the supplementary assessment is illegal and void a initio, having been made by the Income-tax Officer, Section II (Central), without jurisdiction to assess the appellant under Section 64(1) of the Income-tax Act; and secondly, that the assessment itself is excessive and arbitrary. Before coming to discuss the first question which is a question of law, it is necessary to consider a preliminary objection taken by the learned departmental representative to the appellants raising the question of jurisdiction in appeal before this Tribunal. Mr. Mehrotra contends that under Section 64(3) of the Act the Commissioner of Income-tax alone has the power to determine a question as to the place of assessment of an assessee, except in certain circumstances in which it may be exercised by Commissioners of more provinces than one, or the Central Board of Revenue; and that it is not open to an assessee to raise the point of jurisdiction, or call in question the Commissioners order in this respect, either in an appeal to the Appellate Assistant Commissioner or the Appellate Tribunal. We think that the position taken up by the learned departmental representative is correct.

10. Taking up the second of the two points in this case we have two orders passed by two different Commissioners of Income-tax under Section 64(3) of the Act; the first, dated March 9, 1939, by the Commissioner, Bombay, Sind and Baluchistan, and the second, dated July 12, 1939, by the Commissioner of Income-tax, Central, on respective references made by Mr. Shah as Income-tax Officer, Special Provincial Circle, and Income-tax Officer, Section II (Central). The first order is :-

'A question of proper place of assessment having arisen, under Section 64(3) of the Income-tax Act the assessment of the assessee for the year 1938-39 is made over to the Income-tax Officer, C Ward, Section II, Bombay.'

Unfortunately, the order is altogether silent with regard to the re-assessment of 1937-38, and it is difficult to conjecture the reason for the omission. If the Commissioner thought that the Income-tax Officer, special Provincial Circle, had no jurisdiction to make the appellants assessments for 1938-39, it is not easy to imagine how he could hold otherwise in the case of the supplementary assessment of the same assessee that was being made side by side with the other by the same Income-tax Officer, under the same circumstances. We are not at the present moment concerned with the effect of the omission upon the present proceeding, but it must be held as a fact that there was no order determining the place of appellants re-assessment under Section 64(3) of the Income-tax Act. The Second order, however, specifically deals with the point. Mr. Bird held that the income-tax Officer, Section II (Central), was 'correctly vested' with the power to levy the appellants re-assessment for the year 1937-38, and the assessments for 1938-39 and 1939-40 which last had then become due. The appellant successfully contended before the High Court of Bombay that the Commissioner of Income-tax, Central, had no power to direct his assessment to be made by the Income-tax Officer, Section II (Central) Bombay, and that the latter had equally no jurisdiction to assess him, having regard to Section 64(1) of the Act. But it is conceded that the Governor-Generals Ordinance IX of 1939 validated the acts of both these Officers in connection with the assessments at any rate, from April 1, 1939. Mr. Birds order in question, having been passed on July 12, following, must be taken to be equally validated and must, for the present purpose, be regarded as a valid order. Thus, we have an order of the Commissioner of Income-tax, Central, under Section 64(3) of the Act holding that the Income-tax Officer, Section II (Central), had jurisdiction to assess and re-assess the appellant.

11. The material provisions of the income-tax Act that deal with the place of assessment of an assessee are Section 64, sub-sections (1) and (2), in which no change was made by the amendments of 1939. It may be mentioned that amendments were made in these sub-sections in 1940 to cover a case like the present, but we are not concerned with them in this case. Under sub-sections (1) and (2) as they stood at the material time, an assessee had a right to be assessed by the Income-tax Officer of that area, which means the local area, in which he did business or resided. Sub-section (3) is to the effect that where any question arises as to the place of assessment such question shall be determined by the Commissioner, and, in certain circumstances, by more Commissioners than one, or, the Central Board of Revenue. It is therefore clear that in case, of a dispute regarding the place of assessment, that is to say, the jurisdiction of the Income-tax Officer to assess a particular assessee the Commissioner of Income-tax is the sole authority to decide it. Now Section 30 of the Income-tax Act gives an assessee a right of appeal to the Appellate Assistant Commissioner against the Income-tax Officers orders, but such a right is confined to certain points only, i.e., those enumerated in the section. The right has been enlarged by the section as amended in 1939, but those points do not cover a decision of the Commissioner under Section 64(3) in virtue of which an Income-tax Officer assumes jurisdiction to assess an assessee. Evidently, the intention of the Legislature in not allowing an appeal from a Commissioners order under Section 64(3) was to obviate the anomaly of an Assistant Commissioner sitting in appeal over the orders of the superior officer. Doubtless, under Section 30 an assessee may appeal to the Assistant Commissioner denying his liability to be assessed under the Act, but it has been substantially held by the decided authorities to which we shall presently refer that the phrase does not cover a point of jurisdiction such as the one taken in this case. The power of the Appellate Tribunal are defined by Section 33 of the amended Act. An appeal lies to the Tribunal from an order passed by an Appellate Assistant Commissioner under Section 28 or 31. The latter section is alone material for the present purpose. An order under Section 31 can be passed by the Assistant Commissioner only in appeal provided by Section 30. Therefore, if an order of the Commissioner under Section 64(3) determining a point of jurisdiction cannot be the subject of an appeal under Section 30, it cannot equally be the subject of an Appellate Assistant Commissioners order under section 31; and consequently, the Tribunal has no power to entertain an appeal on that point under Section 33. That is the view taken by the Allahabad High Court in two cases-Seth Kanhaiyalal v. Commissioner of Income-tax, C.P. and U.P. 1 and Seth Kanhaiyalal Goenka, In re 2. In both these cases their Lordships held that an assessee had no right of appeal from an order passed by the Commissioner of Income-tax under Section 64(3) of the Income-tax Act; and also that there was no power in the High Court on interfere with such an order, on a reference under Section 66. In the present case the appellant raised the point in his appeal before the Appellate Assistant commissioner who also dealt with it, probably without adverting to the limited right of appeal under Section 30. But that will make no difference to the appellants case. The learned Counsel, however, pointed out that the question of jurisdiction was raised and decided by the High Court of Bombay in the appellants petition in Dayaldas Khushiram v. Commissioner of Income-tax, Central 3 notwithstanding the contrary view expressed by the Allahabad High Court. On the other hand, the learned departmental representative tried to distinguish the case from the latter pointing out that the appellants petition was under Section 45 of the Specific Relief Act, and not a reference under Section 66 of the Income-tax Act. But we think that a better answer to the learned counsels argument will be that we are at the moment not considering the powers of the High Court, but those of the Appellate Tribunal which is constituted under the Income-tax Act, and whose powers are defined and circumscribed by Section 33(1). Those powers do not permit our entertaining a question of jurisdiction such as the one that has been raised by the appellant. We therefore hold that the point cannot be taken in appeal before us.

12. In the view that we take of this question it should be unnecessary to deal with the learned departmental representatives first point that. Even in the absence of a Commissioners order under Section 64(3), neither the Appellate Assistant Commissioner nor the Appellate Tribunal has power to entertain an appeal from an Income-tax Officers wrong assumption of jurisdiction. But since we are invited to express an opinion on that point, we think that the contention is correct. Under Section 64(3) of the Act, it is the Commissioner or the Central Board of Revenue alone that has the power to determine the place of assessment, and no other authority is vested with that power. Therefore, it seems to us that in a case of wrong assumption of jurisdiction by an Income-tax Officer, the only remedy of the assessee is to get the question determined by the Commissioner.

13. This conclusion should have sufficed to dispose of the first of the two main points, but we would prefer to deal with it on the merits also. The learned counsels main argument is focused on the scope of the Validating Ordinance IX of 1939. It contains three sections which we shall briefly notice. It is expressed to be an Ordinance for the removal of certain difficulties experienced, and for validating certain proceedings taken, in connection with assessments of income for the purposed of the Indian Income-tax Act, 1922. Then the preamble recites that an emergency has arisen which makes it necessary to provide for the removal of those difficulties. The difficulties were obviously those that were created by the judgment of the High Court of Bombay in the appellants petition under Section 45 of the Specific Relief Act. Section 2, clauses (a) and (b), of the Ordinance provide that sub-sections (1) and (2) of Section 64 of the Indian Income-tax Act, 1922, shall not apply and shall be deemed never at any time to have applied to any assessee on whom an assessment or re-assessment for the purposes of that Act has been or is being made in the course of any case or class of cases in respect of which a Commissioner of Income-tax appointed without reference to area under sub-section (2 of Section 5 of the said Act is exercising functions of a Commissioner of Income-tax under the said Act, or where by any distribution or allocation of work made by the Commissioner of Income-tax under sub-section (5) of Section 5 of the said Act a particular Income-tax Officer has been charged with the function of assessing that assessee. There is no doubt or dispute that the description of an assessee contained in these clause includes the present appellant. Then the section goes on to lay down a very important provision :- 'But the assessment of such person, whether the proceedings for such assessment began before or after the first day of April 1939, shall be made by the Income-tax Officer for the time being charged with the function of making such assessment by the Commissioner of Income-tax to whom he is subordinate.' Obviously, the Income-tax Officer referred to in these words was the Income-tax Officer, Section II (Central). The judgment of the Bombay High Court directed that Officer not to proceed with the assessment of the appellant, and the Ordinance directed him to proceed with it. That the Ordinance validated the proceedings taken and the assessment made by the Income-tax Officer, Section II (Central).

14. The learned counsel, however pointed out that the proceedings of the appellants re-assessment were initiated under the Income-tax Act before its amendment. He divided the entire proceedings into two parts, i.e., those initiated and carried on under the old Act up to March 31, 1939; and those that were continued under the amended Act from April 1, 1939 on wards, and contended that the Ordinance in question only validated the latter. He tried to support this position relying upon clauses (a) and (b) of Section 2 of the Ordinance which speak of the functions of a Commissioner of Income-tax appointed without reference to area under Section 5(2) of the amended Act, and the Income-tax Officer charged by him with a particular assessment under Section 5(5). He stressed that these sections and sub-sections are the sections and sub-sections of the amended Income-tax Act, which came into force on April 1, 1939. Therefore, while conceding that the Ordinance had the effect of validating the proceedings of the appellants reassessment on and from April 1, 1939, it was contended that it has no retrospective effect upon those prior to that date; so that, if the latter were invalid from the start they could not be regularised or validated by the Ordinance in question. The first question therefore is whether, as a matter of fact, the proceedings of the appellants re-assessment commenced in November 1938 were invalid, being contrary to law. For this purpose it is necessary to consider the provisions of Section 5(4) and Section 64(1) of the Income-tax Act as they stood at the material time. Under Section 5(4), a Commissioner of Income-tax had power to allocate or distribute the work of assessment among his different Income-tax Officers. But Section 64(1) gave a right to an assessee to be assessed by the Income-tax Officer of the area, i.e., the local area, in which his place of business was situate. This right of an assessee was safeguarded by restricting a Commissioners power of making over an assessment from one Income-tax Officer to another by providing that he could distribute or allocate the work in this manner provided that there were two Income-tax Officers appointed for the same area. In the present case, the Commissioner could make over the appellants case to the Income-tax Officer, Mr. Shah, if he had been an Income-tax Officer of the area, i.e., C Ward, Section II, Bombay, in which, admittedly, the appellants place of business was situate, and if there was another Income-tax Officer functioning over the same area. But it is admitted that Mr. Shah was not appointed for any specific area, but to a much larger area called the Special Provincial Circle which was co-extensive with that over which the Commissioner, Bombay, Sind and Baluchistan, exercised jurisdiction. There is thus no escape from the conclusion that the Income-tax Officer, Special Provincial Circle, had no jurisdiction over the appellants assessment or re-assessment. That is also implied in the Commissioners order, dated March 9, 1939, by which he made over the appellants assessment for 1938-39 back to the normal Income-tax Officer.

15. But this conclusion does not avail the appellant in this case. The learned counsels argument might have held the field if Section 2 of the Ordinance did not contain the concluding portion which we have quoted before. Those words definitely directed the Income-tax Officer charged by the Commissioner of Income-tax, Central, with assessment such as that of the appellant to proceed with and make the assessment or re-assessment, whether the proceedings began before or after the April 1, 1939. Thus, in our opinion, those words validated the assessments made by the Income-tax Officer, Section II (Central), irrespective of the validity or otherwise of the proceedings taken before April 1, 1939. Further, Section 3 of the Ordinance also furnishes a complete answer to the appellants contention. It is to the effect that no assessment made in accordance with Section 2 before the commencement of the Ordinance and no proceedings taken in course of or for the purposes of so making an assessment before the commencement of the Ordinance shall be or continue to be invalid by reason of anything contained in Section 64 of the Indian income-tax Act, 1922. The words 'before the commencement of the Ordinance' do not limit its operation to the proceedings taken from April 1, 1939 alone. They clearly cover also those that were taken at any time before, provided they were continued and the assessment was made in accordance with Section 2.

16. Lastly, it is contended that, at any rate, there was no proceeding for re-assessment of the appellant under Section 34 before the Income-tax Officer, Section II (Central), such as could be validated by the Governor-Generals Ordinance. We are afraid that this contention is mainly based upon an erroneous notion as to the effect of the order passed by the Commissioner of Income-tax, Bombay, Sind and Baluchistan, on March 9, 1939, under Section 64(3) of the Income tax Act, in regard to the assessment proceedings of the appellant. The learned counsel appears to think that the order in question related to the transfer of the present re-assessment proceedings of 1937-38 to the Income-tax Officer, C Ward, Section II, Bombay, along with the assessment of 1938-39. On this supposition he argues that no sooner the re-assessment proceedings went back to the normal Income-tax Officer than the action taken by the Income-tax Officer, Special Provincial Circle, without jurisdiction came to an end; so that a further action for re-assessment could only be taken by issuing a fresh notice under Section 34; that no such notice having issued within the period of one year prescribed by section 34 as it then stood, i.e., one year from the end of the assessment year 1937-38, the proceedings could not be revived; and that therefore there was no proceeding under Section 34 for re-assessment of the appellant when his case was made over to the Income-tax officer, Section II (Central), on April 1, 1939. But we have made it plain before that the Commissioners order, dated March 9, 1939, related to the transfer of the appellants assessment for 1938-39 alone, and left the question undecided as to the present reassessment proceedings. Therefore, rightly or wrongly, the re-assessment proceedings for 1937-38 were left with Mr. Shah, Income-tax Officer, Special Provincial Circle, without any order in regard to their transfer. The same Officer came to be appointed as Income-tax Officer, Section II (Central), on and from April 1, 1939, so that there was a continuity of the proceeding taken in November 1938, without there being any termination or break such as the one that the learned counsel assumed. Thus the Income-tax Officer, Special Provincial Circle, initially charged with the re-assessment for 1937-38, continued to hold charge of it from April 1, 1939, although under a different designation, in virtue of the Commissioners order. Therefore, no question of initiation of a fresh proceeding under Section 34 arises in this case. Further, Section 3 of the Ordinance is clearly to the effect that no proceeding taken in course of ar for the purpose of so making an assessment before the commencement of the Ordinance shall be or continue to be invalid be reason of anything contained in Section 64 of the Indian Income-tax Act, 1922. We therefore think that, as long as the appellants re-assessment proceedings were started before the commencement of the Ordinance and were completed in accordance with Section 2 of it, no question of invalidity can arise by reason of any break in these proceedings, even if there was any. Here it may be noted that the normal Income-tax officer, C Ward, Section II, Bombay, as a matter of fact, placed in charge of the appellants re-assessment of 1937-38, but it is equally clear from the record that that was not by reason of any transfer of that proceedings from the Income-tax Officer Special Provincial Circle. It appears that the latter was temporarily absent from his duties, and that consequently the Commissioner made an order, dated April 1, 1939, placing Mr. Variava, Income-tax Officer, C Ward, Section II, in charge of the duties of the Income-tax Officer, Special Provincial Circle, in addition to his own. Thus the point made by the learned counsel fails.

17. The only remaining question argued in this appeal is regarding the quantum of assessment. It is contended that the Income-tax Officer did not proceed in a judicial manner in estimating the appellants assessable income, and that the estimate is unfair and arbitrary. We have detailed before the circumstances in which the assessment came to be made under Section 23(4) of the Income-tax Act, and it is unnecessary to repeat them. Briefly speaking, the appellants persistent non-compliance with the requisitions under Section 22(4) from time to time left the Income-tax Officer no alternative except to assess the appellant according to his best judgment. Speaking of judicial fairness, it must be admitted that an Income-tax Officer must proceed in a judicial spirit and come to a fair and reasonable conclusion upon ascertained facts, although he is not a Court, and, is to a certain extent, a Judge in his own case. At the same time, it is absurd for a person, who, as in this case, has presumably books of account and other proof and deliberately withhold them to complain of not being judicial treated. Further, as observed by their Lordships of the Privy Council in Commissioner of Income-tax, C.P. & U.P. v. Laxminarain Badridas, a best judgment assessment must necessarily be a matter of some guess-work and to a certain extent arbitrary also. But Section 23(4) places an Income-tax officer in a position to make such guess-work; and if it is established that an assessment is made after a proper enquiry and an honest exercise of judgment it will not be open to inference by a higher authority. In the present case, we are fully satisfied that far from being random the assessment was made after an exhaustive enquiry as far as it was practicable, as the Income-tax Officers detailed notes clearly show. He called for and examined the books of various parties with whom the appellant had dealings in his own name and also in the names of his various nominees and based his estimate upon the results so obtained. In short his proceedings are, to our mind, characterized by fairness and impartiality which the appellants case very little deserved, Indeed, a part of the assessment is based on ascertained facts, and in that respect it looks to be more an assessment under Section 23(3) than under Section 23(4).

And if we have slightly interfered with it, the interference is not owing to any error of principle but an error of detail on the part of the Income-tax Officer.

18. We shall briefly review the material facts upon which the Income-tax Officer made the assessment. For that purpose we propose to reproduce a statement of 'approximate' profit and loss which the assessee produced before the Income-tax Officer, on August 11, 1939, that is to say, 8 months after he had submitted his supplementary return. It is :-

Approximate profit

Approximate loss.

Rs.

Rs.

M/s Jiwatlal Pratapsey

47,500

Sitaram Biyani

1,700

Wadilal Chunilal

33,000

Sakalchand Damodar

1,300

Vithaldas Thakoredas

13,000

C.B. Metha & Co

63,000

Ambalal Chanda

5,600

Loss in Indore Cotton through

Bisheshwarlal Chirawa

12,500

Miscellaneous parties

5,000

Magniram Hemraj

4,000

Vishandas Khushiram

23,000

94,000

Estimated expenses

2,400

96,400

Balance of profit

19,200

1,15,600

1,15,600

It will be seen that the net profit of Rs. 19,200 shown by the statement fell substantially short of Rs. 25,000 which the appellant showed in the supplementary return,

19. The Income-tax Officer started by verifying these figures from the books of various parties mentioned in the statement, i.e., such books as they could produce, or chose to produce, before him, as regards the alleged losses incurred in respect of transactions in Indore cotton and paid to the appellants brothers Vishandas Khushiram, no books were forthcoming. The results of the Income-tax Officers verification may be summarized in a tabular form as below :-

Profits,

Losses.

Rs.

Rs.

M/s Jiwatlal Pratapsey

47,003

Sitaram Biyani

1,228

Wadilal Chunilal

33,000

Sakalchand Damodar

1,312

Vithaldas Thakoredas

13,225

C.B. Metha & Co

61,765

Ambalal Chanda

5,665

Indore Cotton

Nil

Bisheshwarlal Chirawa

13,588

Vishandas Khushiram

Nil

Magniram Hemraj

4,580

1,17,061

64,245

The slight excess in the figure of the total profits over that shown by the appellants own approximate statement is not in contest, nor are the figures representing the losses in the first three cases. The dispute remains in regard to the last two items alone. The Income-tax Officer disallowed them in the absence of proof. We shall consider this part of the case presently.

20. The Income-tax Officer did not accept the result on the profit side remarking that the appellant had earned a large income in undisclosed cotton and share business through various brokers, chief among them being M/s Jiwatlal Pratapsey. It is contended on Behalf of the respondent that Rs. 47,003 represent the appellants profit from silver transaction alone. On the other hand, the appellant maintains that this figure represents the net profit from all his transactions with M/s Jiwatlal Pratapsey. Thus the main contest in this case is focused upon the appellants transactions with M/s Jiwatlal Pratapsey.

21. Admittedly, the appellant speculated in cotton through the brokers in question. The account maintained in the appellants own name in their books in this respect shows a lost of Rs. 4,650. But the respondent contends that the appellant made large profits in the accounts of his two nominees Shrichand Nandlal and v. Beharilal. Similarly, it is said that he made equally large profits in share business in the account maintained in the name of S. D. Chandani, v. Beharilal, Hariram Shrichand, V. K. Chabaria and Hariram Vishandas. The appellant, however, denied his having any connection with these several accounts.

22. Therefore, it is necessary in the first place to see whether all these accounts are really those of the appellant. He has two brothers, Hariram and Vishandas, Shrichand, Nandlal and Beharilal are the three minor sons of Hariram. Thus Shrichand Nandlal is apparently an account in the joint names of the two of the appellants nephews. The appellants wifes name is Mrs. Saduribai, and her surname is Chandani alias Chabaria. Thus S. D. Chandani would stand for Saduribai Dayaldas Chandani. The fact that these several persons are appellants close relations is not disputed. But the appellants contention is that his brother Hariram himself might have dealt with the brokers in the names of his two sons, sometimes combining them with his own. As regards S. D. Chandani, it is suggested that is the name of the appellants niece, i.e., daughter of Vishandas. But it is very curious that she should be a namesake of the appellants wife. We should have been most reluctant to countenance an inference in favour of the identity of the several accounts with that of the appellant, if the respondents case had solely rested upon the close relationship. But there is both direct and circumstantial proof going to support the view that these several accounts were the appellants own, and that he was himself operating them. In the first place, we have a note of the Income-tax Officer at the foot of the assessment order to the effect that both Seth Jiwatlal Pratapsey and his munim admitted before him that business in all these accounts was done by the appellant himself. Further intrinsic proof is provided by the brokers; books in connection with these transactions. We shall cite only a few instances more important than the rest. The Shrichand Nandlal account was opened on June 9, 1936 by no less a person than the appellant, and on that day a transfer of a contract of purchase of 1,500 bales of cotton was made from his own account to the other, at his instance. Next, we have a transfer entry of Rs. 18,000 from Shrichand Nandlal account to the credit of S. D. Chandani account on Bhadarwa, Sud 8. Thirdly, a sum of Rs. 3,000 received by M/s Jiwatlal Pratapsey on behalf of the appellant from M/s Vithaldas Thakoredas is found credited into S. D. Chandani account. Fourthly, a number of shares which the appellant bought through M/s Jiwatial Pratapsey are entered in the name of S. D. Chandani in their books, and the purchase price is found paid out of this account. Fifthly, on July 28, 1936, a sum of Rs. 2,000 is credited in the appellants silver account by making a corresponding debit in the S. D. Chandani account. Lastly, the price of several Tata deferred shares bought by the appellant is paid out of the S. D. Chandani account. Jiwatlal Pratapseys munim also told the Income-tax Officer that the appellant was operating all these accounts. At the hearing of this appeal the fact of appellants operating several of these accounts was admitted, although the explanation was that the appellant did so in his brothers absence. There is no proof whatever that the appellants brothers, Hariram and Vishandas, were doing business with M/s Jiwatlal Pratapsey. Therefore, the irresistible conclusion is that these different accounts were those of the appellant himself, being maintained in the names of his different relations.

23. As stated before, M/s Jiwatlal Pratapseys books show a loss of Rs. 4,650 is respect of cotton dealings in the appellants own name. But they also disclose a net profit of Rs. 27,275 in the account of Shrichand Nandlal and Rs. 3,730 in that of V. Beharilal, amounting in all to Rs. 31,005. But the Income-tax Officer, while estimating the cotton profits at this figure, does not appear to have taken into account the loss of Rs. 4,650 incurred by the appellant in respect of transactions done in his own name. It is not suggested that the profits could be estimated at a higher figure so as to ignore the loss in question. On the Income-tax Officers own estimate, therefore, the net profit in respect of cotton business would be Rs. 26,355.

24. Coming to the share business, the Income-tax Officer estimated the total profit in the accounts of S. D. Chandani and others at Rs. 20,000. This was doubtless a pure estimate, because M/s Jiwatlal Pratapsey were not able to produce their subsidiary books which were necessary for a more precise ascertainment. The S. D. Chandani account in itself showed that the profits made by the appellant in that account in respect of share business amounted to something over Rs. 8,000. Further, the turnover in Chandani account amounted to over 2 lacs of rupees. In our opinion therefore, the estimate was not at all arbitrary or excessive. The brokers books also showed that the appellant was also doing ready business in shares the profits from which it was difficult to ascertain. In a business like this there may be an interval between the purchases and sales of shares, and also the purchases might have been made through different brokers. Therefore, in the absence of proper books of account it was impossible for the Income-tax Officer to ascertain the profit even approximately. He therefore estimated it at Rs. 5,000 which estimate, in our opinion, is fair.

25. Next, on enquiry the Income-tax Officer discovered that the appellant had done business, chiefly in silver, with a number of persons, the addresses of most of whom he could not find out. As far as could be ascertained, the appellant earned profit of Rs. 988 from C. Parekh & Co., Rs. 1,324 from Bhagwandas Motilal; Rs. 1,763 from Ganpatlal Madhavji; and Rs. 133 from V. Kasalchand, amounting in all to Rs. 4,188.

26. Thus the appellants total business income which the Income-tax Officer computed, partly by estimates and mostly on reference to the books of the various parties with whom the appellant dealt. Aggregated to Rs. 1,72,604. Out of this amount the appellant was obviously entitled to be allowed a total loss of Rs. 64,245 admitted and verified by the Income-tax officer as shown above. But it is contended on behalf of the appellant that he must be allowed two more items of alleged losses, namely, Rs. 23,000 paid to Vishandas and Rs. 5,000 in respect of Indore cotton. Vishandas is appellants brother, and in the accounting year was living in the family home at Shikarpur, Sind. There was nothing whatsoever to indicate that the appellant had done any business with him. When question by the Income-tax Officer on the point, Vishandas admitted that he had no proof to support the story, From his pass-book of the Bank of India, Bullion Exchange Branch, it appears that the total credits amounted to hardly Rs. 13,000 and the debits Rs. 8,000, in the accounting year. He told the Income-tax Officer that he had received two cheques from his brother, on July 27, 1936 and August 5, 1936, for Rs. 9,403 and and Rs. 3,500, respectively. But the amounts of these cheques do not appear to have been credited into the bank account. M/s Karanjawalla & Co., who were the appellants Income-tax representatives in these proceedings made no allusion to the payment of Rs. 23,000 to Vishandas in their letter, dated August 11, 1938, in which they detailed the amounts received from and paid to various parties. The appellant produced a written declaration of his brother before the Appellate Assistant Commissioner to the effect that he had been paid a sum of Rs. 23,000 but it was both vague and lacking in detail. Therefore, a broad allegation of payment to a brother for losses did not at all carry conviction, and the Appellate Assistant Commissioner was perfectly right in disallowing the item. Similar is the case with the alleged loss in Indore cotton. The appellant told the Income-tax Officer that he had paid the loss to miscellaneous parties whom, however, he could not name. Before the Appellate Assistant Commissioner he told a somewhat different story that the alleged loss was from business done with the Kantilal Mehta, a representative of Radhakisan Kanmal firm. But he added at the same time that the firm had been dissolved, and that he was not able to produce any proof in support of the loss. In these circumstances, this item too, in our opinion, was rightly disallowed. We therefore think the appellants business income should have been estimated at Rs. 1,08,359. Out of this amount a further item of Rs. 1,200 was allowed to the appellant on account of expenses. Thus the net total business income comes to Rs. 1,07,159. The Income-tax Officer computed the income at Rs. 1,50,000 on an estimated basis. He tried to support this estimate remarking that his enquiries had disclosed that the appellant had earned as much profit in 1936-37. But speculation business has its own vicissitudes, and it would be unfair to adopt such a basis as the Income-tax Officer has done, especially in view of the detailed investigation which he carried out. At any rate, the details of his own estimate do not take the figure of income higher than that just reached by us with the assistance of his own notes.

27. Coming to the second main source of income, i.e., from dividends, the Income-tax Officer estimated it at Rs. 15,000 which included Rs. 3,000 as 'wifes income'. Except the business done by the appellant in the name of his wife in the S. D. Chandani account, the respondent is unable to point out to us any source from which the appellants wife might have earned the income in question. In this respect, therefore, we are constrained to hold that the Income-tax Officers estimate was more or less a surmise. There is, however, sufficient indication on the record to support his estimate of the appellants own dividend income of Rs. 12,000. In his assessment order, the Income-tax Officer has traced the growth of the appellants investments in shares and securities. In the accounting year in question, he collected not less than Rs. 6.500 through Bank of India and Rs. 1,000 through Parekh & Co. The total dividend collected by the appellant was ascertained to be Rs. 8,717. It was also admitted before us that he had received dividends through other parties in respect of his shares standing in their names. Considering also that he bought Rs. 35,000 worth Tata deferred shares, we do not think that the Income-tax Officers estimate of dividend at Rs. 12,000 was either unfair or improper.

28. The last two items of the income are interest and income from property which the Income-tax Officer calculated at Rs. 1,000 and Rs. 600, respectively. There is no substantial contest in regard to the latter. But we think that the Income-tax Officer over-estimated the interest income. The several bank books examined by him disclosed that the appellant had earned not more than Rs. 148 as interest and bonus in the accounting year. It therefore seems to us that the estimate of Rs. 1,000 under this head was excessive.

29. In the view that we have taken the appellants assessable income comes to Rs. 1,19,907 as below :-

Rs.

(i) Profit as per appellants statement verified by the Income-tax Officer

1,17,061

(ii) Cotton business profits earned from M/s Jiwatlal Pratapsey in the names of Srichand Nandlal and V. Beharilal, less loss in the appellants own name (in Reji-Mandi)

26,355

(iii) Share profit, on ready and forward, from M/s Jiwatlal Pratapsey in thi names of S. D. Chandani and others estimated

20,000

(iv) Share profit, in ready in on name M/s Jiwatlal Pratapsey estimated

5,000

(v) Profit from business from persons undisclosed, but discovered by the Income-tax Officer:-Parekh & Co., Bhagwandas Motilal; Ganpatlal Madhavji, V. Kasalchand, and others

4,188

1,72,604

Less:- Loss admitted and verified by the Income-tax Officer

64,245

1,08,359

Less:- Expenses allowed by the Income-tax Officer

1,200

Add:-

1,07,159

Dividend

12,000

Interest

148

Property income

600

Total

1,19,907

30. On a careful consideration of all the contentions and the material proof in this case, we partially allow Regular Assessment appeal R.A.A. No. 13/Bombay of 1940-41 by reducing the appellants assessable income from Rs. 1,66,600 to Rs. 1,19,907, and order that the assessment be modified accordingly. Rest of this appeal, as well as the other appeal, 27 C.A.A. No. 1/Bombay of 1940-41, have no substance, and are dismissed.'

On the application of the assessee under Section 66(1) of the Indian Income-tax Act (XI of 1922), the appellate Tribunal (Bombay Branch) referred the case tog the Bombay High Court :-