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Issues Involved:
1. Validity of the notice of re-assessment under Section 34 of the Income-tax Act. 2. Whether a part of the applicant's income had escaped assessment within the meaning of Section 34 of the Indian Income-tax Act. Issue-wise Detailed Analysis: 1. Validity of the Notice of Re-assessment under Section 34 of the Income-tax Act: The first question addressed whether the notice of re-assessment issued to the applicant under Section 34 of the Income-tax Act was invalid or illegal for failure to specify the particular source of income that had escaped assessment. The notice stated that the Income-tax Officer had reason to believe that the assessees' income from all sources had partially escaped assessment. The argument was that the notice should have specified the particular source of income. However, it was determined that the form of notice in the Income-tax Manual, which specifies the source, is not statutory. The essential requirement under Section 34 is that the notice should sufficiently draw the attention of the assessee to the case they have to meet. Since the assessees had only one source of income, namely business, a notice stating that income from all sources had escaped assessment was deemed sufficient. Therefore, the first question was answered by stating that the notice was valid. 2. Whether a Part of the Applicant's Income Had Escaped Assessment: The second question involved whether a part of the applicant's income had escaped assessment within the meaning of Section 34, allowing it to be reassessed by the second Income-tax Officer. The initial assessment for the year 1936-37 allowed a deduction of approximately Rs. 3 lacs for a loss sustained in the previous year. The same Income-tax Officer later concluded that this deduction was a mistake and issued a notice under Section 34, leading to a re-assessment by another Income-tax Officer who agreed with the initial officer's revised opinion. The legal debate centered on whether income could be said to have escaped assessment if the Income-tax Officer merely changed his opinion or if a new Income-tax Officer disagreed with the previous assessment. The court considered various precedents, including decisions from the Rangoon High Court, which suggested that once a source of income had been assessed, it could not be said that any income from that source had escaped assessment. However, this view was not widely accepted in India. Other High Courts and the Privy Council had held that the only question under Section 34 is whether, in fact, income had escaped assessment. The court noted that an Income-tax Officer or his successor could re-assess income if they believed, in good faith, that income had escaped assessment, even without new facts or changes in the law. However, the court emphasized that income could not be held to have escaped assessment merely on the ipse dixit of the Income-tax Officer. The Income-tax Officer must establish to his own satisfaction and before any Appellate Tribunal that income had escaped assessment. In this case, the Tribunal found that the assessees' books for the relevant year were produced during the initial assessment but were not available during the re-assessment due to their destruction. The second Income-tax Officer differed from the first officer's conclusion without the relevant books, which led the court to conclude that there was no evidence that any income had escaped assessment. Therefore, the second question was answered in the negative. Conclusion: The court concluded that the notice under Section 34 was valid, but there was no evidence that any income had escaped assessment. The Commissioner was ordered to pay three-fourths of the costs, and a certificate was issued that no question under Section 205 of the Government of India Act arose in this case.
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