1971 (1) TMI 16 - SC - Income Tax

Counsel conceded that the question whether by virtue of the second proviso to sub-section (3) of section 34 the assessment could be completed outside the bar of that sub-section was not argued and not even raised before the Tribunal or before the High Court. We do not, therefore, deem it necessary to record our answer to the question raised - Revenue s appeal is dismissed

Summary

Issues:
1. Validity of the proceedings under section 34(1)(a) for the assessment year 1948-49.
2. Interpretation of the second proviso to section 34(3) of the Income-tax Act, 1922.
3. Application of the second proviso to section 34(3) in cases where the assessment is directed against a person other than the assessee.
4. Compliance with the period of limitation prescribed under sub-section (3) of section 34 for completing the assessment.

Analysis:
The Supreme Court addressed the issue of the validity of proceedings under section 34(1)(a) for the assessment year 1948-49 in a case involving undisclosed income invested in a partnership. The court emphasized that for a valid assessment under section 34, two conditions related to limitation must be satisfied: serving a notice within the prescribed period and completing the assessment within the limitation period. The court referred to the interpretation of the second proviso to section 34(3) in previous judgments to determine the applicability of the limitation period. It was held that the second proviso was an exception to the entire section, allowing assessments beyond the limitation period in certain circumstances, such as to give effect to a finding or direction in an order under specified sections.

Furthermore, the court discussed the application of the second proviso to section 34(3) in cases where the assessment is directed against a person other than the assessee. The court differentiated between cases where the original assessee was reassessed and cases where a different person was assessed based on a direction given in an appeal. The court clarified that if the assessment period is not extended as per section 34(3), issuing a notice under section 34(1)(a) will not save the assessment order. The court highlighted that the real dispute in the case was not the validity of the notice under section 34(1)(a) but whether the Income-tax Officer could initiate an assessment after the limitation period following a direction from the Appellate Assistant Commissioner.

In conclusion, the court dismissed the appeal, emphasizing that the question referred did not encompass the crucial issue of whether the assessment could be completed outside the limitation period based on the second proviso to section 34(3. The court highlighted that this crucial question was not argued or raised before the Tribunal or the High Court, leading to the dismissal of the appeal without delving into this unaddressed aspect.