- (1.)IN this case a notice was served under section 22(2) of the INcome-tax Act upon the assessee on the 24th April, 1946, for filing the return of its income for the accounting year ending on the 9th April, 1946, corresponding to the assessment year 1946-47. The assessee prayed for time for complying with the notice and, accordingly, time was granted by the INcome-tax Officer till the 30th June, 1946. The assessee prayed for time again and it was granted time till the 31st July, 1946, for complying with the notice. It appears that the assessee was again granted time till the 10th September, 1946, but no return was filed within the time granted and, therefore, the INcome-tax Officer made the assessment on the 28th September, 1946, under section 23(4) of the INcome-tax Act on a total income of Rs. 1,20,000. The assessee took the matter in appeal to the Appellate Assistant Commissioner, who considered that the estimate of the INcome-tax Officer was excessive and held that the income of the assessee should be estimated property at Rs. 50,000. The assessee presented an appeal to the INcome-tax Appellate Tribunal which further reduced the estimated income to the sum of Rs. 42,000. It appears that after the order of assessment made by the INcome-tax Officer on 28th September, 1946, there was a proceeding for excess profits assessment in which the assessee filed a return and after scrutiny of the accounts the INcome-tax Officer estimated the income for the accounting year at Rs. 1,37,947. There was an appeal before the Appellate Assistant Commissioner who reduced the income from Rs. 1,37,947 to Rs. 1,07,946. On further appeal to the Tribunal the income was further reduced to Rs. 35,614 for the purpose of excess profits assessment. The order of the Tribunal is dated 21st January, 1955. The appeal which was filed by the assessee against the income-tax assessment under section 23(4) was heard by the Appellate Assistant Commissioner and by the INcome-tax Appellate Tribunal after the 21st January, 1955, which was the date of the appellate order of the INcome-tax Appellate Tribunal in the excess profits assessment proceeding. The contention of the assessee in the appeal under section 23(4) of the INcome-tax Act was that the amount fixed in the excess profits assessment proceeding should be taken into consideration in the appeal preferred against the income-tax assessment under section 23(4) of the INcome-tax Act. The Appellate Assistant Commissioner took the appellate order of the INcome-tax Tribunal dated the 21st January, 1955, into consideration in making the estimate of income, but the Appellate Tribunal held that the proceedings in the excess profits assessment "cannot legitimately be taken into consideration."
(2.)UNDER section 66(2) of the Income-tax Act the Income-tax Appellate Tribunal has stated the case and referred it to the High Court on the following question of law :
"Whether in the facts and circumstances of this case the estimate of the income of the assessee at Rs. 42,000 under section 23(4) of the Income-tax Act is legally valid ?"

After hearing learned counsel for both the parties we are of opinion that this question should be referred in the following manner so as to bring out the real point in controversy between the parties :

"Whether in the facts and circumstances of this case the Income-tax Appellate Tribunal was erroneous in law in not taking into consideration the order of the Tribunal dated the 21st January, 1955, in the excess profits tax proceeding in disposing of the appeal ?"

On behalf of the assessee it was submitted by learned counsel in the first place that the Income-tax Appellate Tribunal has committed an error of law in not fixing the estimated income at the amount of Rs. 35,614 which was the amount determined in the proceeding for excess profits tax. We do not think that there is any warrant for this submission. In the proceeding under section 23(4) of the Income-tax Act, the Income-tax Officer has made an assessment to the best of his judgment after taking into consideration all the materials available to him. It is true that the assessment made in the excess profits tax proceeding constitutes some material which is relevant for consideration by the Income-tax Officer for the purpose of estimate of income of the assessee. But that is not tantamount to saying that the Income-tax Officer is bound to make his estimate according to the income determined in the proceeding for excess profits tax. We are, therefore, unable to accept the submission of learned counsel for the assessee on this point. On the contrary, we are of opinion that the Income-tax Appellate Tribunal was right in saying that the contention of the assessee that the income should be fixed at Rs. 35,614 which was the amount determined in the proceeding for excess profits tax "cannot be acceded to." It was also submitted on behalf of the assessee that in any event the Income-tax Appellate Tribunal was erroneous as a matter of law in not taking into consideration the assessment made in the proceeding for excess profits tax. In our opinion the argument put forward by the assessee on this point is correct. It is true that the material was not available to the Income-tax Officer at the time of making assessment under section 23(4) of the Income-tax Act on the 28th September, 1946, but the Appellate Assistant Commissioner took into consideration the assessment in the excess profits tax proceeding in deciding the appeal on the 3rd April, 1957. In our opinion the Income-tax Appellate Tribunal has fallen into an error of law in holding that the assessment in the excess profits tax proceeding "cannot legitimately be taken into consideration". It is manifest that the appeal before the Tribunal under section 33 of the Act was by way of re-hearing of the whole case and the Appellate Tribunal was in the same position as the Income-tax Officer who made the assessment under section 23(4) of the statute. It was, therefore, the duty of the Appellate Tribunal in this case to take into account all relevant material before the estimate of the income of the assessee under section 34(4) of the statute.

For these reasons we hold that the question of law referred by the Income-tax Appellate Tribunal and as reframed by us must be answered in favour of the assessee and against the income-tax department. The result is that the appeal will now go back to the Income-tax Tribunal which will rehear the appeal and decide it in accordance with the legal position as explained in this judgment. There will be no order as to costs in this case.

Reference answered accordingly.