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Report No. 12

Notes to clauses 147, 148 and 149


Existing section 23 deals with the three possible situations that may arise when an assessee is called upon to make a return of income-(1) the return is made by the assessee, and accepted by the Income-tax Officer; (2) the return is made by the assessee, but is not accepted by the Income-tax Officer, who wants to make further enquiry; (3) no return is made.

Slight verbal additions have been made in the opening portion of sub-sections (1) and (2) to bring out the fact that these three situations are being dealt with separately by the section.

Clause 147

Sub-clause (1).- Apart from verbal additions already referred to, the only change made is the addition of a reference to "loss" of the assessee so that the assessment would determine the amount of loss which can be carried forward under existing section 24(2) read with existing section 22(2A). It has also been made clear that if any sum is to be refunded, that should also be mentioned in the assessment 'order.

Sub-clause (2).- The only change made is the verbal addition already referred to.

Sub-clause (3).- An assessment under existing section 23(3) is made after a consideration of the material which the Income-tax Officer has gathered. The draft sub-clause, therefore, makes it clear that in addition to the evidence produced in the case, the Income-tax Officer is also to take into account such materials. The definition, given as a separate clause, gives some indication of the material which the Income-tax Officer is competent to take into account.

Apart from this change of importance, the other changes are minor and are on the same lines as those made in sub-section (1).

Clause 148

Sub-clause (1).- It has been made clear that the "best judgment assessment" is to be made after a consideration of the relevant material which the Income-tax Officer has gathered. The definition, given as a separate clause, will apply for this sub-clause also.

The other verbal changes follow the lines on which verbal changes have been made in sub-section (1) of existing section 23.

Sub-clause (2).- This is new, and is consequential on the addition of a reference in sub­sections (3) and (4) of existing section 23 to the relevant material gathered by the Income-tax Officer.

Clause 149

See notes to the main clauses relating to assessment1.

1. Clause 147 and 148.

Sub-section (5) of existing section 23 has been dealt with in the Chapter relating to firms, in view of its subject-matter.

Sub-section (6) of existing section 23 deals with a step consequential on assessment, and has been placed later in this Chapter.

Notes to clause 150

Existing section 13 has been embodied here, with the changes explained below:-

Sub-clause (1).- Section 13, Proviso, provides for the power to compute the income upon such basis and in such manner as the Income-tax Officer may determine. In a case, however, where the accounts are not correct and complete, the assessment is practically a best judgment assessment. The power to assess under the proviso to section 13 can be exercised only where the accounts are correct and complete.

This has been made clear in the draft, by dealing in separate sub-clauses with (i) the case where the accounts are correct and complete and (ii) the case where they are not correct or complete.

Sub-clause (2).- See notes to sub-clause (1) above.

Notes to clause 151

Existing section 27, which empowers the reopening of an assessment at the instance of the assessee, is confined to cases where the assessment was made under existing section 23(4). This limitation, though not expressly contained in the section, follows obviously from the words "he was prevented by sufficient cause from making the return".

The only kind of assessment in such cases would be one under section 23(4), which begins with the words "If any person fails to make the return ". This has been made clear in the draft.

The existing words "within one month from the service of a notice satisfies the Income-tax Officer" are misleading; if construed literally, they would require that the satisfaction of the Income-tax Officer himself must be completed within one month. This is not, however, the intention. It should suffice if the assessee applies within one month for cancellation of the assessment. The section has been, therefore, slightly redrafted to make the intention clear.

It has been held by the Nagpur High Court in a recent case1 that where an assessee is called upon by the Income-tax Officer to produce accounts and fails to do so because he does not in fact maintain any accounts, and the assessee is consequently assessed under section 23(4), he is not bound to make an application under section 27 for reopening the assessment. He can raise the point again in an appeal before the Appellate Assistant Commissioner who is bound to entertain the point. No alteration in the law is required.

1. Suganchand Kanhaiya Lal Rathi, Jobalpur v. C.I.T. Judgment dated 20-9-1957 in Misc. Civil Case No. 115 of 1955 (not yet reported).

Income-Tax Act, 1922 Back

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