1963 (11) TMI 1 - HC - Income Tax

Relief claimed in all these petitions under article 226 of the Constitution is the issuance of a writ of prohibition, directing the Income-tax Officer to forbear from proceeding further in pursuance of the notice issued u/s 34(1A).

Issues Involved:
1. Interpretation of Section 34 of the Indian Income-tax Act.
2. Validity of notices issued for the assessment years 1943-44 to 1946-47.
3. Competence of the Income-tax Department to reopen assessments based on previously accepted cash credits.

Detailed Analysis:

1. Interpretation of Section 34 of the Indian Income-tax Act:
The judgment revolves around the interpretation of Section 34, particularly subsections (1)(a) and (1A). Section 34(1)(a) allows the Income-tax Officer to issue a notice if there is reason to believe that income has escaped assessment due to the assessee's failure to disclose material facts. Section 34(1A) was introduced to address tax evasion during the war years (1939-1946) and allowed reopening of assessments for these years if the escaped income exceeded one lakh rupees, with a deadline for issuing notices by 31st March 1956.

2. Validity of Notices Issued for the Assessment Years 1943-44 to 1946-47:
The petitioner argued that Section 34(1A) is a special provision for the war years and should override Section 34(1)(a), invoking the doctrine of "generalia specialibus non derogant." The court rejected this argument, stating that Section 34(1A) ceased to be operative after 31st March 1956, and Section 34(1)(a) governs all years subsequent to 31st March 1941. The court emphasized that Section 34(1)(a) allows the reopening of assessments at any time if the escaped income amounts to one lakh rupees or more, without a time limit, except for periods prior to 31st March 1941. The court also noted that Section 34(4), added by the 1959 amendment, reinforces that notices under Section 34(1)(a) can be issued at any time, even if the eight-year period specified earlier had expired.

3. Competence of the Income-tax Department to Reopen Assessments Based on Previously Accepted Cash Credits:
The petitioner contended that the department could not reopen assessments and question previously accepted cash credits. The court held that Section 34 is designed to cover cases where the original assessment accepted the accounts as genuine but later found them to be incomplete or misleading. The mere acceptance of returns does not preclude the Income-tax Officer from reopening assessments if there is reason to believe that material facts were not fully disclosed. The court cited precedents, including the Supreme Court's ruling in Kale Khan Mohammed Hanif v. Commissioner of Income-tax, which established that the onus is on the assessee to prove the source of cash credits and that the Income-tax Officer can treat unexplained credits as taxable income.

The court also dismissed the argument that the notices were invalid because they did not detail the material forming the basis of the belief of escapement. It stated that the Income-tax Officer is not required to disclose such material in the notice and that the assessee has the opportunity to present evidence during the reassessment proceedings.

Conclusion:
The court dismissed all the writ petitions, affirming the competence of the Income-tax Officer to issue notices under Section 34(1)(a) for the years 1943-44 to 1946-47 and to reopen assessments based on previously accepted cash credits. The petitions were dismissed with costs, and a consolidated fee of Rs. 220 was fixed towards advocates' fee.

← Previous Next →