The Income Tax Appellate Tribunal Nagpur in the case of Commissioner of Income Tax vs. Badridas Ramrai Shop, 1939 7 ITR 613 Nag., has held that assessing officers can take into account in past records of the assessee in making assessment.
Background s of the appeal:
The judgment delivered in the appeal also covered the cases being Misc. Civil Case No. 81 of 1936, Mis. Judicial Case No. 37B of 1935, Misc. Civil Cases No. 46 of 1937 and Misc. Judicial Case No. 66B of 1935.
The matters were all concerned with issues that arose arise under the Income Tax Act in the Assessments made upon the joint family owners of Badridas Ramrai Shop, a firm of money-lenders operating in Akola, Berar and elsewhere.
Misc. Civil Case No. 81 of 1936 and Misc. Judicial Case No. 37-B of 1935 were related to the assessment year 1932-33 and the two others were related to the year of assessment 1933-34.
The first two cases were argued before the Tribunal as the assessee had the hope that his assessment for the year 1933-34 would get reduced.
The assessee who filed the returns had died but it was clear that for the years before his death until 1933-34 he was in the habit of placing fake returns along with false books before the Income Tax Officers.
In a particular assessment year the subject of litigation went before the Judicial Committee. The case was reported in Commissioner Shop, Akola, I. L. R. 1937 Nag. 197 wherein their Lordships held that the Income Tax Officer was justified in holding that while assessing he can take into account local knowledge regarding the assessees and some special circumstances and his own knowledge in connection with the previous returns and assessments of the assessee and all details that the said Assessing Officer thinks will help him in arriving at a justified estimate. However he is not bound to hold a local inquiry to note of the details.
Their Lordships held that where the Income Tax Officer operates under a guess made in such situations may be justified.
In the following year of assessment that was under discussion in the case was that of 1932-33 and the assessee in that year made a false return supported by false books which were later on admitted.
It was urged that the return was made by the members of a Hindu Undivided Family engaged in the business of money lending. The family consisted of the assessee and a number of his brothers who were nationally imputed in a number of money-lending transactions.
Particulars of those deals were suppressed and they were not reflected in the books of accounts of the business. The books of the business only disclosed such transactions that the family thought fit to allocate to the members of the undivided family.
The result did not reflect the truth. Thereafter the return for the 1933-34 made by the assessee also was admittedly false. It stated a loss of Rs. 8,722-14-2 that was doubted by the Income Tax authorities and notice was served under section 23 (2) although some argument was made as to whether the assessee was given all the opportunity that he is entitled to for explaining his position.
It was clear from the minutes made by the officer that after the notice was served to the assessee it appeared that the books were not genuine and that the return was defective.
The assessee himself appeared to have taken his return back and presented it again in an amended form without changing the date. The amended form revealed that instead of the loss, the family had made a profit of Rs. 14,000/-.
Thereafter the Income Tax Officer scrutinised the return. An appeal was preferred by the assessee, wherein it was observed that there was no account in the books in the relevant year for one Govind Mahadeo of Kalameshwar against whom the assessee obtained a foreclosure decree which held that interest realised through transfer of a property had not been adjusted.
It was held that the claim of the assessee that the accounts were not complete since 1987-88 was not true as some accounts were inserted in the books of the year 1988-89 and there was no trace in them of the Bank account that the interest had not been adjusted and there were clear reasons to believe that the books did not represent true balance.
In view of the findings the Officer refused to consider the amended return as correct and proceeded to assess under section 13 of the Income Tax Act.
It argued that in assessing the officer was wrong in law as section 22 of the Act allows an assessee who discovers that he has made an erroneous statement in his return to file a revised return before the assessment is made.
It was held that section 23 enables a person who has made an omission or a wrong statement in his return, to rectify the wrong at any time before the assessment is made. It does not apply when a person who has knowingly made a false return that is discovered by the Income-Tax Officer.
Where the assessee has made a false return and has been given notice prove the correctness of the return by producing his books that were scrutinized and found unreliable, then the section 13 applies.
In this case the Income-tax Officer has been given a false return which has been supported by unreliable books. The position is the same when no return has been filed at all but in law there is a difference between the two. If no return has been made at all, then section 23 (4) applies and the Officer has to make an assessment which is to the best of his judgment.
But where there a return has been filed and the notice has been compiled with, then section 13 applies which a computation section. The authorities have to adopt the method in computing the profits and gains of business.
The Income Tax Commissioner in the case urged that in the circumstances of the case, there was no evidence found by the Income Tax Officer to show that the accounts filed by the assessee were unreliable in order to reject them. But past records of the assessee were bad. His books were all scrutinized in the past and had been found unreliable. He had been prosecuted earlier. The return filed by him was found to be false.
Finally it was concluded that the Income tax Officer did not act without any evidence. The answer to the question put before the Tribunal in the appeal was thus answered in the affirmative.