DWARKA PRASAD, J. - (1.) THE Tribunal, Jaipur Bench, Jaipur, has referred the following two questions of law, arising out of its order dt. 15th Nov., 1976, to this Court for its opinion : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified to remit the case to the ITO for investigation properly, when the assessment was made under s. 144 of the Act ? If the answer to the above question is in the affirmative : 2.Whether, on the facts and in the circumstances of the case, the order of the Tribunal was valid and sustainable in law ?" In our view, the two questions are overlapping, as the answer to the first question would also constitute the answer to the second question.
(2.) THE assessee, M/s. Tulsilal Manilal, is a registered firm. THE assessee filed its return under s. 139 of the IT Act, 1961, and in pursuance of a notice issued by the ITO under s. 142(1) r/w s. 143 (3), the assessee appeared on some of the dates fixed before the ITO and produced some documents, including its books of account. However, on 17th Jan., 1974, the assessee did not appear, although the authorised representative of the assessee attended the office of the ITO and submitted that the assessee could not appear nor could he produce his books of account on that date. THE ITO thought that the assessee was deliberately withholding his books of account and as such he decided to proceed to make an assessment to the best of his judgment, in accordance with the provisions of s. 144(c) of the Act. One of the questions considered by the ITO related to the income of the assessee from the business of sale and purchase of silver ornaments and bullion. THE ITO made an addition of Rs. 4,000 in round figure in the silver trading account of the assessee by his assessment order dt. 21st April, 1974. THE assessee filed an application under s. 146 before the ITO for reopening the assessment made under s. 144. However, the application was rejected by the ITO who refused to reopen the best judgment assessment. The assessee thereupon preferred two appeals before the AAC, Udaipur Range, Udaipur. One appeal was preferred by him under s. 246(1)(d), against the order passed by the ITO under s. 146 refusing to reopen the assessment made by him under s. 144. The other appeal was preferred by the assessee under s. 246(1)(c) challenging the order of assessment passed under s. 144, objecting to the amount of income assessed. The AAC dismissed the appeal preferred by the assessee against the order under s. 146 and held that the ITO was fully justified in making an order under s. 144 and in rejecting the application under s. 146. In the quantum appeal, as regards the addition of Rs. 4,000 in the silver trading account, it was argued before the AAC, on behalf of the assessee, that the addition was arbitrary and there was no basis for making the said addition. The AAC noted the fact that a copy of the silver trading account was produced by the assessee before the ITO and on one of the dates of hearing, the account books had also been produced by the assessee before the ITO, who had in fact examined the account books. The AAC also made certain observations indicating that the addition in the silver trading account could be more than Rs. 4,000 and further that the material called for a closer scrutiny. He, therefore, set aside the assessment order on this limited question of addition in the silver trading account and remitted the matter to the ITO with the direction to re-examine the question afresh and thereafter to give a proper and judicious finding in accordance with the settled procedure of law about the making of addition in the silver trading account. The addition of Rs. 4,000 was deleted until the ITO gave fresh finding in respect of that issue. The assessee filed a further appeal before the Tribunal against the order passed by the AAC dt. 5th April, 1965, in the quantum appeal. The Tribunal upheld the order passed by the AAC in the matter on the ground that the order passed by the ITO was vague in that respect and it was necessary to examine fully the account books of the assessee for arriving at a proper estimate of the income in the silver trading account. The Tribunal, however, while dismissing the appeal of the assessee by its order dt. 15th Nov., 1976, observed that certain observations made by the AAC indicating that addition in the silver trading account could be more should not influence the ITO while making a fresh assessment. The question which arises in this reference primarily relates to the jurisdiction or authority which can be exercised by the appellate court while remanding a case wherein assessment has been made by the assessing authority under s. 144 of the Act on the basis of his best judgment. The assessee has raised an objection that the Tribunal and the AAC could not direct the ITO by the order of remand to take into consideration, the account books of the assessee while making a fresh assessment in a case where the earlier assessment was made by the assessing authority to the best of his judgment under s. 144. Sec. 251(1) authorised the AAC while disposing of an appeal against an order of assessment, to either confirm, reduce, enhance or annul the assessment or to set aside the assessment and refer the case back to the ITO for making fresh assessment in accordance with the directions given by him and after making such further enquiry as may be necessary, the ITO would, therefore, proceed to make further enquiry and determine, where necessary, the amount of tax payable on the basis of such fresh assessment. Similarly, the Tribunal, while deciding an appeal before it, is authorised under s. 254(1) of the Act to pass such orders thereon as it thinks fit. Thus, it appears that while passing an order of remand, the powers of the AAC or the Commissioner(A) or the Tribunal are wide enough and they are authorised to give directions to the ITO to make such further enquiry as may be necessary and thereafter proceed to make a fresh assessment and on the basis thereof determine afresh the amount of tax payable by the assessee, in a case where an assessment order is made by the ITO under s. 144 to the best of his judgment, on the failure of the assessee to file a return in compliance with a notice under s. 139(2) or a revised return on the receipt of a notice under cl. (4) of sub-s. (5) of s. 139 or on his failure to comply with a notice under s. 142(1) or having made a return, on the failure of the assessee to comply with the terms of a notice issued under s. 143(2). Even where further enquiry is made after an order of remand, the fresh assessment order that may be passed by the ITO shall continue to remain as a best judgment assessment under s. 144. The nature of the order of assessment would not change because of further enquiry that may be made by the ITO in pursuance of the order of remand passed by the AAC or the Tribunal. But, the further enquiry that may be made by the ITO in pursuance of the order of the AAC or the Tribunal may be utilised by the ITO for assisting him for the purpose of arriving at a reasonable basis for making a proper best judgment assessment.
(3.) A similar question was raised before their Lordships of the Punjab High Court in Brij Mohan Rameshwar Dass vs. CIT (1953) 23 ITR 31 (Punj) : TC7R.264. In that case, the assessee failed to comply with the notice issued under ss. 22(2) and 22(4) of the Indian IT Act, 1922. A best judgment assessment was made by the ITO under s. 23(4). The assessee filed an application under s. 27 for reopening the assessment which was dismissed. Then appeals were preferred against the order refusing to reopen the assessment under s. 27 as also against the order of assessment passed under s. 23(4). The AAC dismissed the appeal against the refusal to reopen the assessment, while in the appeal against the assessment order made under s. 23(4), the AAC remanded the case to the ITO for further enquiry limited to certain matters. The ITO was directed to recompute the income of the assessee on the basis of further enquiries as well as the assessee's accounts. Further appeals to the Tribunal were dismissed. The question was referred to the High Court. It may be observed that the provisions of s. 23(4) of the Indian IT Act, 1922, correspond to the provisions of s. 144 of the IT Act, 1961, and the provisions of s. 27 of the 1922 Act are similar to the provisions of s. 146 of the 1961 Act, relating to the reopening of the assessment. Moreover, s. 31 of the 1922 Act corresponds to s. 251 of the 1961 Act. Learned Chief Justice of the Punjab High Court, while deciding the aforesaid case, observed as under : "There is nothing in s. 31(2) which limits the scope of the further enquiry ordered under cl. (2). Further inquiry by its very nature implies that fresh evidence should be led, and the account books of the assessee undoubtedly are fresh evidence.... The answer, in my opinion, is that in law there is no bar to the AAC when making a remand order permitting or directing the ITO to take into consideration account books of the assessee when making his reassessment, and I would return the reference accordingly." The same view was expressed by Chagla, Chief Justice, as he then was, of the Bombay High Court in the case of Girdher Javer & Co. vs. CIT & CEPT (1953) 24 ITR 540 (Bom) : TC7R.273. It was observed by him as under in the aforesaid case : "It must be borne in mind that when the books of account are produced by the assessees and the assessment is an ordinary normal assessment under s. 23(3), unless the books are rejected under s. 13, the assessment proceeds on the basis of the books produced by the assessees. Under s. 23 (4), the assessment is one according to the judgment of the ITO, and even though books of account may be looked at by him under the direction of the AAC, they would be looked at for an entirely different purpose, from the purpose for which he would look at them if he was proceeding to assess the assessees under s. 23(3). Therefore, if the AAC directed the ITO to look into the books of account, it could only be for the purpose of arriving at his best judgment. It is true that the further inquiry contemplated by s. 31(2) must be an inquiry for the purposes of disposing of the appeal, and the question in appeal before the AAC must be whether the judgment of the ITO was properly exercised under s. 23(4) and whether the quantum arrived at by the ITO was properly and fairly arrived at. But can it be said that under no circumstances is the AAC permitted to direct the ITO to look into the books of account which books have not been and cannot be produced for the purpose of ordinary assessment ?...... What we are considering in this reference is not the right of the assessees to produce their books, but it is the power and the jurisdiction of the AAC to direct the ITO to look into these books of account. The right that the assessees had to produce their books of account was taken away when their appeal under s. 27 was dismissed. They could not insist on the assessment being made on the basis of their books of account. But the question of the jurisdiction and the power of the AAC is entirely a different one. Even though in practice it may be in extremely rare cases that the AAC would direct the ITO to look into the books of account of the assessee which the assessee has failed to produce, however rare the cases may be, we have got to answer the question of law on the provisions of the statute and not from the point of view of its practical application." The aforesaid decision was followed by a Bench of the Madras High Court in M.M. Muthuwappa vs. CIT (1962) 46 ITR 1107 (Mad) : TC7R.641 and it was observed that the passage cited above from the judgment of Chagla, J. correctly indicates the jurisdiction of the AAC. It was also pointed out that even in the case of a best judgment assessment, it is not improper to look into the books of account of the assessee so that the judgment of the Assessing Officer may be properly directed and that a capricious and unjustified assessment may not be made. Thus, the AAC has jurisdiction to make an order of remand and he can, while doing so, direct the examination of books of account even in the case of a best judgment assessment, but such examination of books of account shall be only for the purpose of enabling a proper best judgment assessment being made. The fresh assessment that would be made by the Assessing Officer shall not be an assessment made on the basis of the books of account of the assessee but the account books shall be used only for a limited purpose to enable the ITO to pass a proper best judgment assessment. ;