1964 (2) TMI 103 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the reassessment order under Section 34(1)(a) of the Income-tax Act, 1922, for the assessment year 1950-51.
2. Validity of the penalty orders under Sections 28 and 46(1) of the Income-tax Act, 1922, for the assessment years 1950-51 and 1952-53.

Detailed Analysis:

1. Validity of the Reassessment Order under Section 34(1)(a) for the Assessment Year 1950-51:
The petitioners challenged the reassessment order issued by the Income-tax Officer (ITO) under Section 34(1)(a) of the Income-tax Act, 1922, for the assessment year 1950-51. The main contention was that the notice required under Section 34(1)(a) was not issued to the firm but to an individual partner, Kesrimal Bhunch. It was argued that the service of the requisite notice on the assessee is a condition precedent to the validity of the reassessment under Section 34(1)(a), and if such a notice is not issued, the reassessment proceedings and the consequent order would be void.

The court held that the notice under Section 34(1)(a) must be issued against the firm when the firm is assessed as an unregistered firm in the original assessment proceedings. The notice in this case was addressed to Kesrimal Bhunch, partner of Messrs. Dhrangadhra Salt Trading Company, and the body of the notice indicated that it was for reassessment of the income of Kesrimal Bhunch, not the firm. The court concluded that the notice was not a valid notice under Section 34(1)(a) for reassessment of the firm's income. Consequently, the reassessment proceedings were invalid, and the order of reassessment was illegal and void.

2. Validity of the Penalty Orders under Sections 28 and 46(1) for the Assessment Years 1950-51 and 1952-53:
a. Penalty Orders for the Assessment Year 1950-51:
The penalty orders under Sections 28 and 46(1) for the assessment year 1950-51 were challenged on the grounds that they were consequent upon the reassessment proceedings. Since the reassessment proceedings were held to be invalid, the penalty orders based on those reassessment proceedings were also deemed illegal and void.

b. Penalty Order for the Assessment Year 1952-53:
The petitioners challenged the penalty order of Rs. 3,000 for the assessment year 1952-53 on two grounds:
1. The return was accepted by the ITO, and hence no penalty should be imposed for non-compliance with the notice under Section 22(2).
2. The notice for imposing the penalty was issued by one ITO, while the penalty order was passed by another ITO without giving a fresh notice or opportunity to the firm.

The court rejected both grounds. It held that the return was not filed within the period allowed by the notice under Section 22(2), constituting non-compliance. The court also held that the succeeding ITO could pass the penalty order based on the written submission filed by the firm in response to the notice under Section 28(3), as no oral evidence or arguments were presented. Therefore, the penalty order for the assessment year 1952-53 was upheld.

Conclusion:
The petition succeeded regarding the reassessment order and the penalty orders for the assessment year 1950-51, which were declared illegal and void. However, the petition failed concerning the penalty order for the assessment year 1952-53, which was upheld. The respondents were ordered to pay the costs of the petition to the petitioners.