1970 (4) TMI 3 - SC - Income Tax

High denomination notes - assessment made upon the assessee HUF pursuant to a notice under s. 34 of the IT Act was not in accordance with law - Revenue s appeal is dismissed

Summary

Issues:
1. Validity of the second notice under section 34 of the Income-tax Act issued to the Hindu undivided family.
2. Inclusion of Rs. 1,10,000 in the assessment of the Hindu undivided family.

Analysis:

The case involved an appeal by special leave from a judgment of the Calcutta High Court in an income-tax reference. The assessee, a Hindu undivided family, had its assessments reopened by the Income-tax Officer for the assessment year 1946-47. The issue arose when high denomination notes were encashed by the family and its individual members. The Income-tax Officer included the amount encashed by the family and the individual members in their respective assessments. Subsequently, a second notice under section 34 was issued to the family to include the amount encashed by the individual members in the family's income. The validity of this notice and the inclusion of Rs. 1,10,000 in the family's assessment were the main points of contention.

The High Court held that the second notice issued under section 34 to the family was invalid. It was found that the Income-tax Officer had all the necessary facts during the first reassessment to include the entire amount in the family's assessment. The failure to do so led to the escapement of income, and issuing a second notice was deemed unnecessary. The High Court's decision was based on the requirement for the assessing authority to have all primary facts for a correct assessment, as established in previous judgments.

The judgment analyzed the provisions of section 34(1)(a) of the Income-tax Act, emphasizing the importance of the assessing authority having reason to believe that income had escaped assessment due to the assessee's failure to disclose material facts. It was highlighted that the duty of disclosing primary facts lies on the assessee, and in this case, the Income-tax Officer had all necessary facts during the initial reassessment. Therefore, issuing a second notice to the family was deemed unjustified and beyond the scope of section 34(1)(a).

In conclusion, the Supreme Court upheld the High Court's decision, stating that the second notice to the family was invalid. The appeal was dismissed, emphasizing that the inclusion of Rs. 1,10,000 in the family's assessment was not in accordance with the law. The judgment highlighted the importance of the assessing authority having all relevant facts for a proper assessment and reiterated the assessee's duty to disclose primary facts for a correct tax determination.