1964 (4) TMI 124 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the assessment pursuant to the notice issued under section 34 of the Indian Income-tax Act, 1922.
2. Competence of the Income-tax Officer to issue a second notice under section 34 after a return was filed in response to the first notice.
3. Application of statutory provisions and relevant case law to the facts of the case.

Issue-Wise Detailed Analysis:

1. Validity of the Assessment Pursuant to the Notice Issued Under Section 34:
The primary question was whether the assessment made in pursuance of the notice issued under section 34 on February 12, 1958, was valid. The assessee, a Hindu undivided family, initially submitted a return for the assessment year 1949-50, showing an income below the taxable limit. Years later, the Income-tax Officer discovered that the assessee failed to include business profits earned as a procurement agent for the Government. Consequently, a notice under section 34 was issued on March 22, 1957, and the assessee filed a return. However, the Income-tax Officer issued a second notice under section 34 on February 12, 1958, and made an assessment including Rs. 60,000 as escaped income. The Appellate Assistant Commissioner found the proceedings under the second notice invalid due to the expiry of the statutory period, and the Tribunal later set aside this order, directing the appeal to be heard on merits.

2. Competence of the Income-tax Officer to Issue a Second Notice Under Section 34:
The court examined whether it was competent for the Income-tax Officer to issue a second notice under section 34 after a return was already filed in response to the first notice. The assessee argued that once a return is filed pursuant to a notice under section 34, the Income-tax Officer must proceed with the assessment based on that return and cannot issue a fresh notice. This argument was supported by case law, including Parimisetti Seetharamamma v. Commissioner of Income-tax [1963] and Commissioner of Income-tax v. Ranchhoddas Karsondas [1959]. The court agreed, stating that the principle governing assessments initiated by a notice under section 34 is not substantially different from that governing original assessments. Therefore, issuing a second notice under section 34 was improper as the assessment machinery was already set in motion by the first notice.

3. Application of Statutory Provisions and Relevant Case Law:
The court analyzed the statutory provisions of section 34 and relevant case law to determine the correct legal position. Section 34(1) allows the Income-tax Officer to issue a notice if income has escaped assessment due to the assessee's failure to disclose material facts. Once a notice under section 34 is issued, the Income-tax Officer must follow the same procedure as in the case of the original assessment, as observed in Parimisetti Seetharamamma v. Commissioner of Income-tax [1963]. The court held that the return filed in compliance with the first notice under section 34 could not be ignored, and the Income-tax Officer was obliged to complete the assessment based on that return. The issuance of a second notice was therefore invalid, and the assessment made under the second notice was not a valid assessment.

Conclusion:
The court concluded that the assessment made pursuant to the notice issued under section 34 on February 12, 1958, was invalid. The Income-tax Officer was not competent to issue a second notice under section 34 after a return was filed in response to the first notice. The principle enunciated in relevant case law applied with full vigor, and the assessment based on the second notice was not proper. The court answered the reference in the negative, holding that the assessment was not valid, and ordered the department to pay the costs of the assessee, fixing the advocate's fee at Rs. 100.