1962 (3) TMI 115 - HC - Income Tax

Summary

Issues Involved: Legality of the assessment made on August 24, 1956, for the assessment year 1951-52; Jurisdiction and limitation under Section 34(3) of the Indian Income Tax Act; Applicability of Section 27 for reassessment; Validity of reassessment under Section 27; Bar of limitation under Section 34(3).

Issue-Wise Detailed Analysis:

1. Legality of the Assessment Made on August 24, 1956:
The primary issue is whether the assessment made on August 24, 1956, for the assessment year 1951-52 is legal. The Income Tax Officer (ITO) initially assessed the assessee for the year 1951-52 and treated certain sums as income from undisclosed sources. The assessee's failure to comply with statutory notices led to a "best judgment assessment" under Section 23(4) of the Act. The assessee filed an appeal and an application under Section 27 to cancel the assessment, arguing non-receipt of the notice under Section 22(4). The ITO canceled the initial assessment and reassessed on the same day, holding the sums as income from hidden sources.

2. Jurisdiction and Limitation under Section 34(3):
The assessee contended that the reassessment was beyond the four-year limitation period prescribed under Section 34(3). The court noted that the reassessment order dated August 24, 1956, was beyond the permissible period, making it prima facie illegal. However, the department relied on the second proviso to Section 34(3), which exempts reassessments under Section 27 from the four-year limitation.

3. Applicability of Section 27 for Reassessment:
Section 27 allows an assessee to have an assessment canceled if they can show they were prevented by sufficient cause from complying with statutory notices. The court examined whether the facts warranted a reassessment under Section 27. The court noted that the ITO had jurisdiction to resort to Section 23(4) if the assessee failed to comply with the notice under Section 23(2). The cancellation of the initial assessment was based on the assessee not having a reasonable opportunity to comply with the notice under Section 23(2).

4. Validity of Reassessment under Section 27:
The court held that the ITO acted within jurisdiction in invoking Section 27. The assessee had initially moved for cancellation under Section 27 and succeeded. It was inconsistent for the assessee to later contest the ITO's jurisdiction under the same provision. The court emphasized that the reassessment was a direct consequence of the order under Section 27, and the second proviso to Section 34(3) applied, making the reassessment valid despite the time bar.

5. Bar of Limitation under Section 34(3):
The court concluded that the second proviso to Section 34(3) clearly exempts reassessments under Section 27 from the four-year limitation. The court stated that any reassessment following proceedings under Section 27 could be considered a reassessment under that section, thereby nullifying the limitation argument. The court also noted that invalidating the reassessment would only revive the earlier assessment, which was also adverse to the assessee.

Conclusion:
The court found no grounds to vitiate the reassessment order dated August 24, 1956. The reassessment was in conformity with the law, and the addition of income was supported by materials on record. The question was answered in the affirmative and against the assessee, who was ordered to pay costs to the department. The reassessment was deemed valid, and the bar of limitation under Section 34(3) did not apply due to the applicability of Section 27.