1985 (1) TMI 21 - HC - Income Tax

Summary

Issues Involved
1. Validity of the initiation of proceedings under section 147(a) for the assessment year 1953-54.
2. Validity of the notice under section 148 served on the assessee.
3. Impact of the demand notice being served on the karta of the erstwhile Hindu undivided family.

Detailed Analysis

1. Validity of the Initiation of Proceedings under Section 147(a) for the Assessment Year 1953-54
The Tribunal held that the initiation of proceedings under section 147(a) was valid for the assessment year 1953-54. The discrepancy was found in the accounts for the year 1953-54, as evidenced by the documents seized during a raid, which showed that the assessee was maintaining duplicate sets of account books. The original return had shown an opening balance of Rs. 3,48,841, while the seized books showed Rs. 4,51,648, indicating a discrepancy of Rs. 1,02,807. The Tribunal found that this discrepancy justified the reopening of the assessment for the year 1953-54 and not for 1954-55. The court upheld this view, stating that the concealment was in the account of 1953-54 (A.Y.), and thus the reassessment proceeding was legal and within jurisdiction.

2. Validity of the Notice under Section 148 Served on the Assessee
The Tribunal held that the notice under section 148 was validly served. The notice was issued to Manilal Raghavji Kothari, the karta of the erstwhile joint family, and it fulfilled the requirements of section 148 of the Income-tax Act. The court agreed, noting that the notice clearly indicated that the assessee was required to file a return for the Hindu undivided family. The fact that Manilal Raghavji Kothari was not explicitly described as the karta in the notice was deemed immaterial. The court found that there was no vagueness in the notice and that the assessee was not misled in any manner. Therefore, the reassessment proceeding was not invalidated by the notice.

3. Impact of the Demand Notice Being Served on the Karta of the Erstwhile Hindu Undivided Family
The Tribunal held that the demand notice served upon Manilal Raghavji Kothari, the karta of the Hindu undivided family, did not vitiate the assessment proceedings. The court agreed, stating that the demand notice is a process of recovery of tax after the assessment proceeding has been completed and does not affect the validity of the assessment itself. The court noted that section 283(1) of the Income-tax Act, 1961, provides that notices must be served on the last manager of the Hindu undivided family or on all adult members if the last manager is dead. In this case, there was only a partial partition, and the demand notice to the assessee alone was valid. The court also referenced section 297(2)(j) of the 1961 Act, which allows for the recovery of sums payable under the repealed 1922 Act, thereby supporting the validity of the demand notice under either statute. The court concluded that the demand notice was valid and did not vitiate the assessment.

Conclusion
The court answered all the questions referred by the Tribunal in the affirmative, in favor of the Department and against the assessee. The initiation of proceedings under section 147(a) for the assessment year 1953-54 was valid, the notice under section 148 was duly served, and the assessment was not vitiated by the demand notice being served on the karta of the erstwhile Hindu undivided family. The reference was answered accordingly, with costs of Rs. 250 payable by the assessee to the Department.