1965 (4) TMI 135 - HC - Income Tax

Summary

Issues Involved:
1. Validity of assessment under section 34 (1) (a) of the Indian Income Tax Act.
2. Validity of service of notice under section 34 (1) (a).
3. Validity of service of notice under section 28 (1) (c) after the prescribed time limit.

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 34 (1) (a):
The primary issue was whether the assessment under section 34 (1) (a) of the Indian Income Tax Act was in accordance with law. The facts revealed that the assessee, engaged in the business of stationary, had not disclosed certain income in his return for the assessment year 1946-47. The Income Tax Officer (ITO) discovered undisclosed business activities and issued a notice under section 28 (1) (c) for the levy of penalty. The assessee made a voluntary disclosure in 1952, leading to an assessment of Rs. 49,091. Subsequently, the ITO found that the assessee had encashed high denomination notes worth Rs. 18,000 and made undisclosed deposits in the Midnapore Bank Ltd. Consequently, a notice under section 34 (1) (a) was issued on March 4, 1955, with the approval of the Commissioner of Income Tax. The Tribunal upheld the supplementary assessment under section 34 (1) (a), noting that the assessee had not disclosed the exchange of high denomination notes, which was a primary material fact relevant to the assessment.

2. Validity of Service of Notice under Section 34 (1) (a):
The service of notice under section 34 (1) (a) was challenged on the grounds of impropriety. The ITO attempted to serve the notice personally on March 9 and March 11, 1955, but the assessee was not available, and the other inmates of the house refused to accept the notice. The notice was then sent by registered post on March 14, 1955, but no acknowledgment was received by March 29, 1955. Consequently, the ITO ordered service by affixation, which was done on March 30, 1955, in the presence of two persons. The court held that the service was in order, as reasonable diligence had been used to find the assessee, and the circumstances justified the service by affixation. The court distinguished this case from the Division Bench judgment in Gopiram Agarwalla v. First Additional Income Tax Officer, noting that multiple attempts to serve the notice had been made, unlike in the Gopiram case where only one attempt was made.

3. Validity of Service of Notice under Section 28 (1) (c) after the Prescribed Time Limit:
The assessee argued that the notice under section 28 (1) (c) issued on February 21, 1952, was invalid as no assessment had been made on the return filed in 1949, and the four-year period had expired in 1951. The court referred to the Supreme Court cases of Commissioner of Income Tax v. Ranchhoddas Karsondas and Commissioner of Income Tax v. S. V. Angidi Chettiar. In Ranchhoddas Karsondas, the Supreme Court held that a return showing income below the taxable limit could not be ignored, and a notice under section 34 was invalid if there was no omission or failure on the part of the assessee. In S. V. Angidi Chettiar, the court observed that the power to impose penalty depended on the satisfaction of the ITO during the assessment proceedings. The court concluded that the assessment in 1952 was valid, as the ITO had issued the notice under section 28 (1) (c) within eight years from the end of the year in which the income was first assessable. The court also noted that the ITO came to know about the exchange of high denomination notes only after the 1952 assessment, justifying the notice under section 34 (1) (a) within the eight-year period.

Conclusion:
The court answered the question in the affirmative, upholding the validity of the assessment under section 34 (1) (a) and the service of notice under both sections 34 (1) (a) and 28 (1) (c). The assessee was ordered to pay the costs of the reference.