Patna High Court
Raghubar Mandal Harihar Mandal vs The State Of Bihar on 8 January, 1952
Equivalent citations: AIR1952PAT235, AIR 1952 PATNA 235
JUDGMENT Narayan, J.
1. This is a case which has been stated under Section 21(3) of the Bihar Sales-tax Act, 1944. The assessee is a firm which carries on its business at Laheria Sarai, Darbhanga, under the name and style of Messrs. Raghubar Mandal Harihar Mandal and they were assessed to sales-tax for the quarters ending 31-12-1945, 31-3-1946, 30-6-1946, 30-9-1946, 31-12-1946, 31-3-1947 and 30-6-1947. With regard to the quarters ending 31-12-1945, 31-3-1947 and 30-6-1947 the assessment was made under Section 10(4) of the Act and with regard to the remaining quarters under Section 10(2) (b) of the Act. There was an appeal preferred to the Commissioner of Sales-tax against these assessments, but the appeal was dismissed. The Board of Revenue was then moved in revision, but by its order dated 31-7-1948 it rejected the petitions in revision. The Board was then moved with the request to refer the cases to the High Court on two questions, but by its order dated 10-12-1948 it refused to make a reference to this Court.
The assessee then moved this Court, and by its order dated 27-4-1949 passed in miscellaneous Judicial Cases Nos. 13 to 19 of 1949, this Court asked the Board of Revenue to state a case on the following point formulated by it: "Whether the Sales-tax Officer is entitled under Section 10(2) (b) to make an assessment on any figure of gross turnover without giving any basis to justify the adoption of that figure.
A slight inaccuracy has crept in this order, inasmuch as, as I have already pointed out, three of the assessments were made not under Section 10(2) (b) but under Section 10(4) of the Act. The Board of Revenue has reported that the assessee firm was continually engaged in the "dishonest practice of suppressing some of their transactions from their account-books, and for this purpose they adopted more than one device even going to the sinful extent of disposing of some of the silver as having gone to the temple."
The Board of Revenue thinks, that in such circumstances the Sales-tax Officer was justified in rejecting the entire account for all the quarters concerned as false and unreliable and "in making determination according to the best of his judgment for each and every one of these quarters". The Board of Revenue was not inclined to hold that there had been any gross over-assessment.
2. Before I answer the question formulated I should like to point out in brief as to how the assessment with regard to each of these quarters was made. With regard to the first quarter, which is the quarter 1-10-1945 to 31-12-1945, the dealer did not furnish any return and he produced his books of account in response to the notice issued to him under Section 10(4) of the Act. The books of account showed a gross turnover of Rs. 72,762/- only, and the Sales Tax Officer made the assessment on the basis of a gross turnover of Rs. 3,00,000/-. In his order he says that there were irregularities in the account-books which could not be satisfactorily explained and that through enquiry from private sources it had appeared to him that the dealer had imported by rail large quantities of bullion in the names of his confederates. The Sales Tax Officer says that the dealer had adopted several devices for concealing almost all his large imports of bullion and their sales and that "it is with enormous labour that the few above mentioned irregularities and dexterous devices of concealment have been detected."
3. With regard to the quarter 1-1-1946 to 31-3-1946 the assessment was made under Section 10 (2) (b) of the Act, on a gross turnover of Rs. 3,00,000/-, though the return submitted showed a gross turnover of Rs. 1,10,700/15/0 only. The returns were found to be untrustworthy, and in the order with regard to the quarter also it had been stated that it had transpired after confidential enquiries that the dealer had imported very large quantities of bullion in his own name and in the names of -several confederates. A certain purchase was said to have been wrongly shown as purchase on account of temple.
With regard to the third quarter 1-4-1946 to 30-6-1946, the assessment was made on a gross turnover of Rs. 4,00,000/- though the return had indicated a gross turnover of Rs. 2,48,370/-only. The dealer produced his accounts in verification of the return which showed a gross turnover of Rs. 1,48,204/- as against Rs. 2,48,370/- as shown in the return. These discrepancies and differences were not explained satisfactorily and hence the return and the accounts were rejected as unreliable. With regard to the quarter 1-7-1946 to 30-9-1946, it is stated that the return was not submitted in time and that when the dealer was proceeded against under Section 10(4), after the expiry of about one year from the due date of furnishing the return, the return was presented showing a ridiculously low turnover. Tn the order with regard to this quarter also it is said that the accounts were not properly kept by the dealer. The assessment was made on a gross turnover of Rs. 3,00,000/- though the return indicated a gross turnover of Rs. 68,445/12/0 only.
4. With regard to the quarter 1-10-1946 to 31-12-1946, the assessment was made under Section 10 (2) (b) of the Act, on a gross turnover of Rs. 3,00,000/- though the return showed a gross turnover of Rs. 48,519/15/0 only. The papers produced were found to be unreliable and the return was not accepted as correct.
5. With regard to the quarter 1-1-1947 to. 31-3-1947 and the quarter 1-4-1947 to 30-6-1947, the assessment was made under Section 10(4) of the Act, after the accounts were found to be incorrect, the assessment with regard to these two quarters having been made on the gross turnover of Rs. 3,00,000/- and Rs. 4,00,000/- respectively.
6. The dealer has no case whatsoever so far as the first, the sixth and seventh quarters are concerned with regard to which the assessment was made under Section 10(4) of the Act. The principles laid down by the Judicial Committee in 'COMMISSIONER OF INCOME-TAX, U P & C P v. BADRIDAS RAMRAJ SHOP', 64 Ind App 102 (P C), would apply so far as these assessments are concerned. Their Lordships observed as follows in this case: "Their Lordships find it impossible to extract these requirements from the language of the Act, which after all is, in such matters, the primary and safest guide. The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by & assessments of the assesses, & all other matters which he thinks will assist him in arriving at a fair and proper estimate and though there must necessarily be guess-work in the matter, it must be honest guess-work.
In that sense, too, the assessment must be to some extent arbitrary. Their Lordships think that the section places the officer in the position of a person whose decision as to amount is final and subject to no appeal; but whose decision, if it can be shown to have been arrived at without an honest exercise of judgment, may be revised or reviewed by the Commissioner under the powers conferred upon that official by Section 33." It need hardly be pointed out that the provisions of Section 23(4) of the Income-tax Act are analogous for our present purpose to the provisions of Section 10(4) of the Bihar Sales Tax Act. When no return is submitted the assessment has to be made under both these Acts by the Officers concerned to the best of their judgment, and their Lordships have tried to explain how the judgment has to be formed. There must necessarily be guess-work in the matter and the only thing required is that the guess-work should be honest guess-work. Their Lordships' observation that the assessment must be to some extent arbitrary is an important observation, because if the dealer does not furnish correct returns or correct accounts, the assessment must be a pure guess-work. An assessment under Section 10 (4) like an assessment under Section 23(4) of the Income-tax Act, has to be made upon inadequate materials. Their Lordships of the Judicial Committee agreed with the views expressed by the High Court at Rangoon in 'ABDUL BARI v. COMMISSIONER OF INCOME-TAX, BURMA', 9 Rang 231 (F B), in which the following observation of Lord Mackenzie was quoted: "With regard to the practical difficulty of finding out the amount of profits upon which the assessment is to be laid, I can only say this, that it is not necessary to arrive at any satisfactory conclusion upon that matter, because it is not a matter with which the Court is concerned. If the Act of Parliament says the amount of profits is to be ascertained, ascertained they must be whether that can be done in a satisfactory method or not." In this case the several orders of the Sales Tax Officer very clearly go to show that this dealer had resorted to several dishonest devices. Mr. A.B.N. Sinha, who appeared before us on behalf of this dealer made a grievance that the assessing officer referred to the accounts of previous years for coming to the conclusion that the accounts submitted for these questions were not correct and that the import of bullions had not been shown in the papers. In the order with regard to the first quarter 1-10-1945 to 31-12-1945, there is mention of the accounts of 1353 fasli, and it is noted that the purchases of silver were not recorded in the purchase account-book of the dealer but "had been carried underground by showing in the account of temple." I need hardly repeat that if the assessing officer is not satisfied with the account, then after following the procedure laid down he alone has to determine the amount of the assessment and the sum payable. It is a pure question of fact of which he has been made the sole judge, and he is compelled to draw inferences and to consider materials which would not be justified by the Indian Evidence Act. Even the general repute of the man and local knowledge have been regarded as good materials for making the assessment.
7. The next question is as to whether the assessment with regard to the remaining four quarters made under Section 10 (2) (b) of the Act, is justified. It is necessary here to refer to some of the sub-sections of Section 10. Sub-section (1) lays down that if the Commissioner is satisfied without requiring the presence of a registered dealer or the production by him of any evidence that the returns furnished in respect of any period are correct and complete, he shall assess the amount of tax due from the dealer on the basis of such returns. This, of course, is not the case here. Sub-section (2) (a) lays down that if the Commissioner is not, satisfied without requiring the presence of a registered dealer who furnished the returns, he shall serve on him a notice requiring him on a date and at a place to be specified therein, either to attend in person or to produce or to cause to be produced there any evidence on which such dealer may rely in support of such returns.
And Sub-section (2) (b) says that on the day specified in the notice or as soon afterwards as may be, the Commissioner, after hearing such evidence as the Commissioner may require on specified points, shall assess the amount of tax due from the dealer. Sub-section (4) will be applicable when the registered dealer does not produce any return by the prescribed date. The learned counsel contended that Sub-section (2) (b) of Section 10, cannot be regarded as analogous to Sub-section (3) of Section 23 of the Indian Income-tax Act, inasmuch as in Section 13 of the Income-tax Act, there is a proviso which lays down that if the method of accounting adopted by the dealer is such that profits and gains cannot properly be deducted therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine.
In my opinion in construing Section 23(3) of the Indian Income-tax Act, we can have no assistance from the wordings of Section 13 of the Act. As was pointed out by a Full Bench of the Madras High Court in 'SUBBAYYA v. COMMR., OF INCOME TAX, MADRAS', (1939) 7 I T R 21 (Mad) (F B), Section 13 adds nothing to and takes nothing away from Section 23(3), and that all that the section says is this that if the method of accounting employed by the assessee is a method which does not properly disclose the income, profits and gains of the assessee the Income-tax Officer, can adopt his own method. In 'COMMISSIONER OF INCOME TAX, BOMBAY v. SARANGPUR COTTON COMPANY LTD., ALLAHABAD', 1938-6 I T R 36 (P C)', their Lordships of the Judicial Committee observed that the section relates to a method of accounting regularly employed by the assessee for, his own purposes and does not relate to a method of making up the statutory return for assessment to income-tax. Their Lordships further pointed out that the section clearly makes such a method of accounting a compulsory basis of computation, unless, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom and that it is misleading to describe the duty imposed on the Income-tax Officer, under the proviso to Section 13 as a discretionary power.
In face of these authoritative pronouncements we would be disinclined to follow; any decision in which any contrary observation might have been made: Our' considered opinion, therefore, is that in construing Section 23(3) of the Income-tax Act, we can get no help from Section 13 of the Act. And we find ourselves in respectful agreement with the view that was taken by the Madras High Court in the case Of 'SUBBAYYA', (1939) 7 I T R 21 (MAD) (FB). This case is also an authority in support of the proposition that in substance there is little difference between an assessment under Section 23(3) of the Income-tax Act, and an assessment under Section 23 (4) of that Act, In either case the assessment has to be made according to the best of judgment. Whether it is an assessment under Section 23(3) or an assessment under Section 23(4), the assessment must be to the best of judgment and it must be based on a consideration of the facts relating to the income of the assessee.
The principle, as indicated by their Lordships of the Madras High Court, applies equally when the Income-tax Officer is acting under Sub-section (3) and if the Income-tax Officer has got materials before him on which he can assess, he must consider them and make an assessment to the best of his judgment. Material is, of course, not the same thing as evidence in a Court of law. We respectfully agree with their Lordships' view that the only difference between an assessment under Sub-section (3) in a case in which the accounts have been found to be incorrect and dishonest and as assessment under Sub-section (4) is that the Act contemplates a more summary method when the Income-tax Officer is acting under Sub-section (4) on account of the deliberate default of the assessee.
As pointed out by the Allahabad High Court in 'BHAGAT HALWAI, 3 I T C 48 (All), Section 23 (1) and Section 23 (2) deal with the two cases in which, on the one hand, the Income-tax Officer is satisfied with the return and in which, on the other hand, he is not satisfied with the return, and in each case, after following the procedure laid down, he, and he alone is to determine the amount of the assessment and the sum payable. It is only if he is dissatisfied with the return that he has to issue notice to the assessee and the determination has to be made after hearing the evidence produced by the assessee or alter considering such other evidence as the Income-tax Officer may require on specified points. As was observed by their Lordships of the Allahabad High Court, 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.
I respectfully agree with the observation of a well-known Judge in England, quoted with approval in this Allahabad case, that there is no rule of law compelling a Judge to accept evidence, even though it is uncontradicted, which he believes to be a pack of lies, and, similarly, if the Income-tax Officer makes fair observation of his own in an honest attempt to arrive at a decision, he is perfectly justified in doing so and in acting upon it. L further agree with their; Lordships' view that the sooner- it is understood that these are questions of fact the better it is arid that the application to state cases must be discouraged in matters which, on ultimate analysis, are really only questions of a lair figure of assessment. The Privy Council decision in 'MALIK DAMSAZ KHAN v. COMMR. OF INCOME-TAX, PUNJAB & N.W.F.P.', (1947) 15 I T R 445 (P C) also adds strength to the view which I have taken. If in substance there is no difference between an assessment under Section 23 (3) and an assessment under Section 23 (4) of the Income-tax Act, on the same principle there is no real difference between an assessment under Section 10 (2) (b) and an assessment under Section 10 (4) of the Bihar Sales Tax Act.
8. In the result, the question raised is answered in the affirmative. There will be no order for the costs of this proceeding.
Reuben, J.
9. I agree.