Judgement

MAHAJAN C.J.I.: The appellant is a public limited joint stock company incorporated under the Indian Companies Act, 1913, with its registered office at Calcutta. It carries on the business of manufacture and sale of cotton yarn and piece-goods On the 28th of July, 1944, the Income-tax Officer issued a notice to it under section 22(2) of the Indian Income-tax Act calling upon it to file the return of its income for the assessment year 1944-45 (account year being 1943-44), Before the expiry of the due date due for filing the return the account books of the appellant company together with the documents relevant to the accounts, were taken into custody by the Sub-Divisional Officer, Narayanganj and it is alleged that these remained in the custody of the court of the Sub-Divisional Magistrate till January 1950, when they were handed back to the appellant.

In this situation the assessee pleaded for extension of time to furnish, the return. This request was refused, and a show cause notice was issued under section 23(3) of the Act calling upon the appellant company why penalty should not be imposed upon it for its failure to file the return. An officer of the company appeared before the Income-tax Officer and explained the cause for this default. In order to ascertain whether the explanation furnished by the assessee was genuine, the Income-tax Officer made inquiries from the court concerned about this matter. He also made a request to the court to allow him access to the hooks of account. The court, however, neither acceded to the demand that hooks of account be made available to the assessee nor did it permit the Income-tax Officer to have access to them. The Income-tax Officer having thus satisfied himself about the genuineness of the assessee s explanation, condoned the default in filing the return and dropped the proceedings taken against the company under Section 28(3) of the Act.

2. It seems that no further action in the matter was taken by the department till the year 1947. During that year the company requested the department to revive the proceedings. The proceedings having been revived the appellant company furnished the return of its income for the assessment year 1944-45 on the 16th March, 1948. This return, however, was not a complete document as without the assistance of the books the profits could not be computed according to the provisions of law. On receipt of the return the Income-tax Officer issued a notice under Section 23(2) of the Act calling upon the company to supply further information on a number of points and to prepare certain statements indicated in the notice. This requisition had to he complied with by the 19th March, 1948.

On that date the Chief Accounts Officer of the company appeared before the Income-tax Officer and asked for further time till the middle of the following week for furnishing the requisite particulars. This request was, however refused and assessment was completed on the 20th March, 1948. The excess profits assessment was also made final on the 23rd March, 1948. The relevant part of the assessment order is in these terms :

"From the point of view of profits, 1943, was a very good year, if not the best, for all cotton mills. Expenses on cotton & fuel shows that production was undoubtedly higher whereas it is found that the gross profit by this company is low. I conclude that full amount of sales have not been accounted for. It is expected that actually the rate of gross profit should have been higher this 67 year. In view of the higher costs of establishment, I take it that the rate of about 40 per cent, i.e., near about the rate disclosed in 1942 accounts should have been maintained. I add back the Rs. 36 lakhs for unaccounted sales".

It may be mentioned that in the return the company had disclosed a gross profit of 28 per cent on sales amounting to Rupees 1,78,96,122/. The total amount of sales in the year 1942 was of the amount of Rupees 1,15,69,582/., disclosing a gross profit