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Issues Involved:
1. Validity of the Appellate Assistant Commissioner's finding that the sum of Rs. 6,151 was the income of the assessee. 2. Validity of the assessment made against the assessee to give effect to the Appellate Assistant Commissioner's direction. 3. Whether the assessment was made within the time limit prescribed by the second proviso to sub-section (3) of section 34 of the Income-tax Act, 1922. Issue-wise Detailed Analysis: 1. Validity of the Appellate Assistant Commissioner's Finding: The core issue was whether the finding of the Appellate Assistant Commissioner (AAC) that Rs. 6,151 was the income of the assessee was valid. The AAC had deleted the sum from the firm's assessment on the grounds that it appeared on the first day of the accounting period and could not be treated as the income of the firm from an undisclosed source. The AAC observed, "I do not think that the Income-tax Officer had any material from which a conclusion could be arrived at that a credit of Rs. 12,454 was the profit made in the period October 1, 1943, to October 15, 1944." This finding was crucial as it underpinned the subsequent actions taken under section 34. 2. Validity of the Assessment Made Against the Assessee: The assessment against the assessee was made to give effect to the AAC's direction. The AAC had directed that the sum of Rs. 12,454 should be brought into assessment in the hands of the partners and not the firm. This direction was issued on October 9, 1957, after the period of limitation had expired for taking any further action under section 34 against the partners. The Income-tax Officer (ITO) took action under section 34 against the individual partners based on this direction. However, the AAC's direction was challenged on the grounds that it was beyond his jurisdiction and could not remove the bar of limitation under the second proviso to section 34(3). The Tribunal initially upheld the AAC's direction but later reversed its stance, following the decision in Pt. Hazari Lal v. Income-tax Officer, which held that "any person" in the second proviso to section 34(3) would cover those intimately connected with the proceedings against the assessee. 3. Timeliness of the Assessment: The third issue was whether the assessment was made within the time limit prescribed by the second proviso to sub-section (3) of section 34. The ITO argued that the action was justified under the second proviso to section 34(3), which does not prescribe a time limit for assessments made to give effect to any finding or direction contained in an order under sections 31, 33, etc. However, the AAC's direction to assess the partners was found to be beyond his jurisdiction, as it concerned a different assessable entity and was not merely a consequential order. The Supreme Court in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das, held that a direction must be necessary for the disposal of the appeal and must concern a person liable to be assessed for the income that went into the assessment of the year under appeal. Conclusion: The High Court concluded that the direction given by the AAC was beyond his jurisdiction and could not remove the bar of limitation. Therefore, the subsequent proceedings taken under section 34 were not saved by the second proviso to section 34(3). The questions were answered in favor of the assessee, and the department was directed to pay the costs of the assessee, assessed at Rs. 350. Question answered in favor of the assessee.
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