TMI Blog1962 (1) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... y 16, 1949, the 8th Additional Income-tax Officer, District I(2), took action under section 34 of the Income-tax Act, presumably because he considered that the voluntary return declaring a loss of ₹ 330 filed before the Income-tax Officer, 24-Parganas, was invalid and could not be acted upon. The notice under section 34 was issued on February 23, 1950, by the Additional Income-tax Officer. The 8th Additional Income-tax Officer issued a notice under section 22(4) of the Income-tax Act, perhaps on January 15, 1952. Meanwhile, on March 31, 1949, the assessee had voluntarily filed another return for the same assessment year with the Income- tax Officer, District I(2), declaring a loss of ₹ 11,33,940. On receipt of this return a new file was started by the Income-tax Officer, District I(2). On February 4, 1952, the 8th Additional Income-tax Officer passed an order filing the case as there was already another file of the assessee in the same district. The Income-tax Officer, District I(2), acting on the return filed on 31st March, 1949, issued a notice under section 23(2) on August 1, 1950. On February 12, 1952, he cancelled the proceeding on the view that a voluntary retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2), the 8th Additional Income-tax Officer who had jurisdiction over the assessee had started valid proceedings in pursuance of a notice under section 34, dated February 23, 1950, and these proceedings did not lapse but remained alive. The assessee contended in appeal that the Income-tax Officer, District I(2), should have continued those proceedings instead of taking recourse to fresh proceedings under section 34 by the issue of notice dated 11th February, 1956. The Appellate Assistant Commissioner accepted the contention of the assessee and held that the notice dated 11th February, 1956, was void ab initio and the assessment should have been completed by March 31, 1956, and was barred because it was completed on May 2, 1956. The Income-tax Officer being aggrieved filed an appeal before the Appellate Tribunal. It was contended there on behalf of the department that there is no bar against the issue of more than one notice under section 34 and as the assessment dated May 2, 1956, was actually completed within one year from the date of the issue of notice under section 34 dated 11th February, 1956, the assessment was within time. The assessee on the other hand contended that once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; [1960] 1 S.C.R. 114. The contention on behalf of the assessee were developed to mean that when the two voluntary returns submitted by the assessee initiated assessment proceedings, so long as these proceedings were not time-barred or ended in an assessment order, no income escaped assessment and there could be no action under section 34. It was submitted that the returns were there and there might be or might not have been concealment and, if there was no concealment, assessment would become time-barred after March 31, 1952, and, if there was concealment of income on the returns, then section 28(1)(c) applied and proceedings would remain open for eight years till March 31, 1956. On behalf of the assessee it was contended that if the voluntary returns submitted by him were ignored then the notice under section 34 dated February 23, 1950, opened assessment proceedings which would be alive and assessment would have to be completed before March 31, 1956. If no return was submitted pursuant to the notice dated February 23, 1950, it was said that the assessee could have been assessed but without assessment there could not have been another notice under section 34 of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed on the same. The decision of the Calcutta High Court was given on January 6, 1956, and the decision of the Bombay High Court had been made on March 18, 1954. The Bombay decision was referred to by this court in the case of R.K. Das [1956] 30 I.T.R. 439 and was explained and distinguished. Counsel for the department contended that at the relevant time in the present case the Income-tax Officer at Calcutta followed the view of the Calcutta High Court and, therefore, ignored the voluntary returns which showed no assessable income. The Supreme Court in the case of Ranchhoddas [1959] 36 I.T.R. 569 ; [1960] 1 S.C.R. 114 accepted the view of the Bombay High Court and held that voluntary return showing income below assessable limits was valid. The decision of the Supreme Court was given on May 8, 1959. In this view of the law, counsel for the Commissioner conceded that the entire proceedings would be bad if it was open to the assessee to contend on the question referred that the notice dated February 23, 1950, had been impeached by the assessee before the Tribunal on the ground that it was issued in the absence of completing assessment on the returns filed. Counsel for the depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t open to the assessee to contend that the notice dated February 23, 1950, under section 34 was invalid on the ground that the same was issued without completing the assessment on the voluntary returns submitted on December 22, 1947, and March 31, 1949. The question referred is also whether the notice dated February 11, 1956, and the assessment thereto was valid in view of the fact that proceedings commenced on the basis of notice dated February 23, 1950, were filed . The validity of the notice dated February 11, 1956, is impeached on the question referred. The order of the 8th Additional Income-tax Officer by which the notice dated February 23, 1950, was filed is tied up with the question of limitation of the notice dated February 11, 1956. The Commissioner of Income-tax transferred the case from the 8th Additional Income-tax Officer to the principal Income-tax Officer, District I(2), on December 30, 1955. This transfer was made under section 5(7A) of the Income-tax Act. Under this section such transfer may be made at any stage of the proceeding and shall not render invalid any notice already issued by the Income-tax Officer from whom the case has been transferred. It was cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of any system of accounting adopted by the assessee and the assessee not having exercised the option under section 2(11) of the Indian Income-tax Act, the Income-tax Officer should take the year ending March 31, 1950, as the previous year for the income of the undisclosed source and directed the Income-tax Officer to consider the credit in the assessment for the year 1950-51 after giving an opportunity to the assessee to explain the nature and source thereof. Before the appeal was disposed of, the assessee had submitted a fresh return for the assessment year 1950-51. The Income-tax Officer pursuant to the direction of the Appellate Assistant Commissioner issued a notice of reassessment under section 34 and served it on October 15, 1957. The assessee applied under article 226 and challenged the notice under section 34 to be without jurisdiction. It was held there that the order of the Income- tax Officer to the effect no proceeding , in the circumstances of the case, meant that the Income-tax Officer accepted the return and assessed the income as nil and thereafter the Income-tax Officer could issue a notice for reassessment under section 34 if he had reason to believe that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated by the notice in the month of February, 1950, resulted in no assessment and therefore there should be another notice under section 34. The word filed has no legal significance in the income-tax law. It is a word coined by the Income-tax Officer. The provisions contained in section 34 of the Income- tax Act attract the provisions contained in section 22 of the Income-tax Act with the result that the Income-tax Officer in the event of the assessee not making a return or failing to make a return under section 34 shall make the best judgment assessment. The duty to assess is specifically cast on the Income-tax Officer. He cannot at his will or pleasure drop the proceedings and if he does so the consequence thereof will follow. It was open to the principal officer to proceed to assess when the case was transferred to him because the proceedings were there. To accede to the contention of the Commissioner that it was open to the Income-tax Officer to complete the assessment on the 2nd May 1956, because the notice was issued in the month of February, 1956, would be to ignore the existence of the proceedings initiated by the notice dated February 23, 1950, and to confer on the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be more than one notice under section 34 of the Income-tax Act. In the case of Atmaram v. Commissioner of Income-tax [1960] 39 I.T.R. 418, it has been held that there is no bar to a fresh notice of reassessment even though proceedings on a previous notice which are still pending have not been finally disposed of. The income in that case was assessed for the year 1947-48 on August 8, 1951. Subsequently, on examination of the books of the assessee in other proceedings, it transpired that the assessee's personal account had escaped consideration in the assessment. A notice under section 34 was issued. Sometime later on February 8, 1954, while proceedings on the notice were pending, the Income-tax Officer served another notice under section 34. A revised assessment in pursuance of both the notices was then made. The assessee's contention was that the issue of the second notice on February 8, 1954, was illegal as the proceedings commenced on the first notice dated March 12, 1952, were pending and not yet completed. There was no aspect of limitation and the assessment was proceeding. In the present case the second notice even if issued in the course of proceedings will not sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-assessment of income itself. In the Darbhanga case [1952] 21 I.T.R. 382 the assessee submitted a return and claimed a deduction under the Bihar Agricultural Income-tax Act. The deduction was allowed by the Income-tax Officer on December 28, 1945, in respect of the assessment year 1944-45. On March 22, 1946, the Income-tax Officer issued a notice under section 26 of the Bihar Agricultural Income-tax Act that some agricultural income escaped assessment and thereafter a supplementary order was passed. Section 26 of the Bihar Agricultural Income-tax Act is substantially the same as section 34 of the Indian Income-tax Act prior to its amendments. In the Darbhanga case [1952] 21 I.T.R. 382 the question was whether the income which was returned but was held to be exempt from tax could be said to have escaped assessment. The language of section 26 of the Bihar Agricultural Income-tax Act was that if for any reason an agricultural income chargeable to agricultural income-tax escaped assessment for any definite year the Agricultural Income-tax Officer might proceed to assess such income. The words any reason were held to be of wide import to dispense with the conditions laid down in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to continue because the case is transferred and therefore he is to continue. Secondly, sub-section (7A) is the basis of the order in the present case. Thirdly, sub-section (7C) deals with the succession of officers and continuance of proceedings with a right on the part of the assessee to be reheard. Even if both the sub-sections (7A) and (7C) are read together, these do not have the effect of putting out of existence or nullifying the proceedings started by the 1950 notice. Fourthly, the question of limitation is not answered by these sub- sections. In the case of Rajendranath Mukerjee v. Commissioner of Income-tax [1934] 2 I.T.R. 71; L.R. 61 I.A. 10 it was said that income could not be said to have escaped assessment within the meaning of section 34 if assessment proceedings in respect of that income were pending and not yet terminated in a final assessment. Therefore, the notice dated February 23, 1950, initiated assessment proceedings which were pending on the date of the transfer of the case to the principal Income- tax Officer and there could not be escapement of income to attract another notice under section 34. In deciding the questions of limitation the validity of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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