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Issues Involved:
1. Legality and jurisdiction of section 34(1)(b) proceedings for the assessment year 1948-49. 2. Legality of the notice issued under section 34 for the assessment year 1948-49. 3. Justification for adopting 15% as the basis for ascertaining the gross profit for the assessment years 1948-49 and 1949-50. Detailed Analysis: Issue 1: Legality and Jurisdiction of Section 34(1)(b) Proceedings for Assessment Year 1948-49 The first issue concerns whether the proceedings initiated under section 34(1)(b) for the assessment year 1948-49 were illegal and without jurisdiction. The court noted that the General Commercial Corporation Limited was initially assessed as "not assessable" for 1948-49 due to the absence of a previous year corresponding to that assessment year. However, the Commissioner of Income-tax, using powers under section 33B, found that there was indeed a previous year for 1948-49 and identified serious irregularities in the accounts, such as unjustifiable commission payments and undervaluation of stock transferred to a new company. This led to the initiation of section 34 proceedings. The court held that the Income-tax Officer (ITO) had sufficient jurisdiction to initiate proceedings under section 34 of the Act. The court emphasized that the term "information" under section 34(1)(b) implied something the ITO did not know or could not have known with reasonable diligence before. The court found that the memorandum and articles of association were not initially disclosed to the ITO, constituting a fraudulent suppression of a vital fact. Therefore, the proceedings under section 34 were justified, and the answer to the first question was in the negative and against the assessee. Issue 2: Legality of Notice Issued Under Section 34 for Assessment Year 1948-49 The second issue pertains to whether the notice issued under section 34 was illegal because it was not addressed to or served on the principal officer of the assessee-company. The court noted that the notice was served on Subrahmanyam, the secretary of the managing director, who acknowledged receipt on behalf of the company. The court clarified that section 34 requires the notice to be served on the principal officer but does not mandate that it be addressed to the principal officer. The notice should be addressed to the assessee, and service on the principal officer is sufficient. The court dismissed the objection, stating that service on the secretary of the managing director, who was authorized to receive such notices, was valid. The court referenced the case of Kundan Lal Vedi v. Commissioner of Income-tax, where notice received by an authorized accountant was deemed valid. Accordingly, the answer to the second question was in the negative and against the assessee. Issue 3: Justification for Adopting 15% as Basis for Ascertaining Gross Profit for Assessment Years 1948-49 and 1949-50 The third issue concerns whether there were materials to justify adopting 15% as the basis for ascertaining the gross profit for the assessment years 1948-49 and 1949-50. The court noted that the ITO and the Appellate Tribunal found it impossible to ascertain the true profits from the accounts produced by the assessee, invoking the proviso to section 13 of the Act. The department initially estimated the gross profit at 20%, but the Tribunal reduced it to 15%, considering the assessee was an importer and not a manufacturer. The court held that the Tribunal's estimate was reasonable and based on material evidence. The court rejected the assessee's insistence on accepting the book results, which showed a gross profit of 8.1%, as the method of accounting did not meet the approval of the income-tax authorities. Therefore, the court answered the third question in the affirmative and against the assessee. Conclusion: The court ruled against the assessee on all three issues, upholding the legality and jurisdiction of the section 34(1)(b) proceedings, the validity of the notice served, and the justification for adopting a 15% gross profit estimate. The assessee was ordered to pay the costs of the department, with an advocate's fee of Rs. 150.
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