1962 (2) TMI 114 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the Income-tax Officer in including income from undisclosed sources in the reassessment for the year 1946-47.
2. Validity of the notice under section 34 of the Indian Income-tax Act.
3. Applicability of the financial year versus the Dewali year for assessment purposes.

Detailed Analysis:

1. Justification of the Income-tax Officer in including income from undisclosed sources in the reassessment for the year 1946-47:
The core issue was whether the Income-tax Officer (ITO) was justified in including income from undisclosed sources in the reassessment for the year 1946-47. The assessee had not disclosed his money-lending business, which was later discovered by the ITO. The ITO reassessed the income, including sums from undisclosed sources, estimating an investment of Rs. 1,50,000 in the money-lending business, generating an income of Rs. 8,000. The Appellate Assistant Commissioner confirmed this estimate but reduced the income from undisclosed sources.

2. Validity of the notice under section 34 of the Indian Income-tax Act:
The notice under section 34 was issued on July 6, 1954, stating that the ITO had reason to believe that the assessee's income for the assessment year 1946-47 had escaped assessment. The notice called upon the assessee to produce his books of account and other relevant documents. The assessee argued that the notice specified the Dewali year 2002, which ended in November 1945, and thus any income falling outside this period should not be assessed. However, the court held that the notice under section 34 was valid as it aimed to reassess the income for the entire assessment year 1946-47, which included the financial year 1945-46.

3. Applicability of the financial year versus the Dewali year for assessment purposes:
The court examined whether the income should be assessed based on the Dewali year or the financial year. The assessee had not exercised any option regarding the accounting period for his money-lending business and did not maintain accounts according to the Dewali year. Therefore, the ITO was justified in using the financial year ending March 31, 1946, as the previous year for assessment purposes. The court cited precedents, including Sushil Chandra Ghose v. Income-tax Officer and Commissioner of Income-tax v. P. Darolia & Sons, supporting the view that in the absence of any declared accounting period by the assessee, the financial year should be used.

The court further referenced Commissioner of Income-tax v. Jagan Nath Maheshwary, emphasizing that the ITO could act on "definite information" and reassess income that had escaped assessment, even if the exact period or nature of the income differed from initial assumptions, as long as it fell within the relevant financial year.

Conclusion:
The court concluded that the ITO was justified in including income from undisclosed sources in the reassessment for the year 1946-47. The notice under section 34 was valid, and the financial year 1945-46 was correctly used for assessment purposes. The answer to the referred question was in the affirmative, and the assessee was ordered to pay the costs of the reference. Ray J. concurred with the judgment.