1979 (11) TMI 3 - SC - Income Tax

Notice issued u/s 148 by annulling the earlier assessment completed on 22/12/65 - When reassessment proceedings under s. 34 of 1922 Act were pending on April 1, 1962, as per s. 297(2)(d)(ii) issue of notice under s. 148 would be incompetent - notice is liable to be quashed

Summary

Issues:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act, 1961.
2. Interpretation of section 297(2)(d)(ii) of the Income Tax Act, 1961.
3. Factual pendency of proceedings under section 34 of the Indian Income Tax Act, 1922.

Analysis:
The appellant, a firm engaged in the business of manufacturing ice and preserving potatoes, was assessed for the assessment year 1961-62. Subsequently, the Income Tax Officer (ITO) initiated reassessment proceedings under section 34(1) of the Indian Income Tax Act, 1922, for certain escaped income. The Appellate Assistant Commissioner (AAC) annulled the ITO's order, stating that the initiation of reassessment proceedings was not justified. The department did not challenge this decision, making the AAC's order final. However, the ITO issued a fresh notice under section 148 of the Income Tax Act, 1961, for the same assessment year, alleging concealed income. The appellant challenged this notice, arguing that as per section 297(2)(d)(ii) of the 1961 Act, no reassessment proceedings could be undertaken since proceedings under section 34(1) of the 1922 Act were already pending. The High Court rejected this contention, leading to the appeal before the Supreme Court.

The Supreme Court referred to two previous decisions, S. B. Jain, ITO v. Mahendra and Gujar Mal Modi v. CIT, where it was held that section 297(2)(d)(ii) focuses on the factual pendency of proceedings under section 34 of the 1922 Act, not their legality. The Court emphasized that the legality of the proceedings was not the determining factor. In the present case, it was established that proceedings under section 34(1) of the 1922 Act were factually pending on April 1, 1962, making the notice under section 148 of the 1961 Act invalid. The Court dismissed attempts to distinguish the previous decisions, clarifying that the initiation of proceedings by the ITO was not without jurisdiction, and the AAC's decision did not render them non est. The Court concluded that the notice under section 148 of the 1961 Act was unauthorized due to the factual pendency of proceedings under section 34 of the 1922 Act.

In light of the above analysis, the Supreme Court set aside the High Court's decision and quashed the notice under section 148 of the 1961 Act. It was emphasized that any orders passed based on the impugned notice would not be valid for revenue purposes. The appeal was allowed, and no costs were awarded in the circumstances.