DHAKESWARI COTTON MILLS LTD. vs. COMMISSIONER OF INCOME TAX, WEST BENGAL

CIVIL APPEAL No. 217/1953Supreme Court[1955] 1 S.C.R. 94129 October 1954Bench: 5 JudgesAuthor: MEHR CHAND MAHAJAN, SUDHI RANJAN DAS, GHULAM HASAN, NATWARLAL HARILAL BHAGWATI, T.L. VENKATARAMA AIYYAR S.C.R. SUPREME COURT REPORTS11 pages
AI SummaryRemanded

What were the facts?

The assessee, Dhakeswari Cotton Mills Ltd., was issued a notice for assessment year 1944-45. Their account books were in court custody from July 1944 until January 1950. The assessee's request for an extension to file the return was refused, and penalty proceedings were initiated, but later dropped. The company filed its return on March 16, 1948, after proceedings were revived. The Income-tax Officer issued a notice under section 23(2) for further information, which was refused by the company. The assessment was completed on March 20, 1948, with an addition of Rs. 36 lakhs for unaccounted sales, based on an estimated gross profit rate of 40%. This order was upheld by the Appellate Assistant Commissioner, and the assessee appealed to the Tribunal. The Tribunal also upheld the assessment.

What did the Supreme Court hold?

The Supreme Court held that its power under Article 136 of the Constitution is an overriding and exceptional power that should be exercised sparingly, but it can be invoked to prevent arbitrary adjudication or to advance the cause of justice, even if domestic laws provide finality to decisions. Regarding the second issue, the Court agreed that while an Income-tax Officer is not bound by strict rules of evidence, they cannot make an assessment based on pure guess or suspicion without any material. The assessment must be supported by more than bare suspicion. The Tribunal violated fundamental rules of justice by not disclosing information from the departmental representative to the assessee, not giving the assessee an opportunity to rebut it, and refusing to consider the material produced by the assessee. The Court found the estimate of gross profit to be based on surmises and conjectures. Consequently, the appeal was allowed, the Tribunal's order was set aside, and the case was remanded to the Tribunal with directions to provide the assessee a full opportunity to present relevant material and to disclose any material on which the Tribunal intends to base its estimate, allowing the assessee to meet the substance of any private inquiries. The department was also permitted to place evidence to support the assessment. The Tribunal was given the option to remit the case to the Income-tax Officer for a fresh assessment.

What were the issues?

1. Whether the Supreme Court's power under Article 136 of the Constitution can be exercised to interfere with the finality of decisions by domestic tribunals, particularly when fundamental rules of justice are violated. 2. Whether the Income-tax Officer, in making an assessment under section 23(3) of the Indian Income-tax Act, 1922, is entitled to make an assessment based on pure guess without reference to any evidence or material, or if there must be something more than bare suspicion. Assessee's Contentions: The assessee argued that the assessment was made arbitrarily and in violation of natural justice. They contended that the Tribunal failed to disclose information received from the departmental representative, did not provide an opportunity to rebut it, and refused to consider material produced by the assessee. They relied on the principle that assessments must be based on evidence, not mere suspicion. Revenue's Contentions: The revenue, through the Solicitor-General, argued that the Income-tax Officer is not fettered by technical rules of evidence and can act on material not admissible in a court of law. However, they did not explicitly address the specific procedural violations alleged by the assessee before the Tribunal.

Which sections of the Income-tax Act were involved?

Section 22(2),Section 23(2),Section 23(3),Section 28(3)

AI-generated summary — verify with the full judgment below

- , S.C.R. SUPREME COURT REPORTS 941: DHAKESWARI COTTON MILLS LTD. v. COMMISSIONER OF INCOME TAX, WEST BENGAL [MEHR CHAND MAHAJAN C.J.,· S.R. DAs, GHuLAM HASAN, BHAGWATI and VENKATARAMA AYYAR JJ.] Constitution of India, Art.

Supreme Court's powet-lndian 23(3)-Assessm'ent when invalid. 136-Appeal by Special Leave-'- Income-tax Act (XI of 1922), s.

It is not possible to define with any precision the limitations of the powe'rs conferred on the Supreme Court by Art. 136 of the Constitution. This is an overriding and exceptional power and should be exercised sparingly and . with caution and only in special and extraordinary situation.

Beyond this no set formula or rule can stand in the way of or fetter the exercise of the power conferred on the Supreme Court under Art. 136 of the Constitu- tion.

Sufficient safeguard and guarantee for the exercise of this power lie in the trust reposed by the Constitution in the wi om and good sense of judges of the Supreme Court. This power is not hedged in by technical hurdles of any kind when it is called in aid against any arbitrary adjudication or for advancing the cause of justice or for giving a

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