1968 (8) TMI 37 - HC - Income Tax

Proceedings u/s 34(1)(a) - Income-tax Officer is not entitled to the benefit of the second proviso to section 34(3) and the notices under section 34(1) reopening the assessments must be held to be barred by limitation

Summary

Issues Involved:
1. Whether income had escaped assessment within the meaning of section 34.
2. Whether the Appellate Assistant Commissioner could give a direction under section 34(3) to take action against the assessee.
3. Applicability of the second proviso to section 34(3) for the assessment years 1945-46 to 1951-52.
4. Validity of assessments for the years 1945-46 to 1951-52 based on sections 31 and 34.

Detailed Analysis:

Issue 1: Whether income had escaped assessment within the meaning of section 34.
The court examined whether the income had escaped assessment when the Income-tax Officer did not act on the returns filed by Mohd. Shakoor and Mohd. Bashir. The Tribunal had held that since the period of limitation for making the assessment had expired, the Income-tax Officer could not act on the voluntary returns, thereby causing the income to escape assessment. The court affirmed this view, stating that income could escape assessment due to various reasons, including the Income-tax Officer erroneously treating the income as belonging to another assessee or failing to act on a return within the limitation period. Thus, the first question was answered in the affirmative.

Issue 2: Whether the Appellate Assistant Commissioner could give a direction under section 34(3) to take action against the assessee.
The court considered the applicability of the second proviso to section 34(3), which allows reassessment beyond the limitation period to give effect to any finding or direction in an appellate order. The court noted that the association of persons, Allah Bux and Zahur Bux, was distinct from the assessee, Mohd. Shakoor and Mohd. Bashir. Citing the Supreme Court's interpretation in Murlidhar Bhagwan Das, the court held that the second proviso to section 34(3) applies only to persons intimately connected with the assessment under appeal. Since the assessee was not connected in this manner, the second proviso was not applicable, and the notices under section 34(1) were barred by limitation. Thus, the second question was answered in the negative.

Issue 3: Applicability of the second proviso to section 34(3) for the assessment years 1945-46 to 1951-52.
Given the court's negative answer to the second question, it deemed it unnecessary to address the third question regarding the applicability of the second proviso to section 34(3) for the specified assessment years.

Issue 4: Validity of assessments for the years 1945-46 to 1951-52 based on sections 31 and 34.
Similarly, due to the resolution of the second question, the court found it unnecessary to express an opinion on the fourth question concerning the validity of the assessments for the years 1945-46 to 1951-52.

Conclusion:
The court provided the following answers to the questions referred:
1. Affirmative.
2. Negative.
3. Not answered.
4. Not answered.

The court directed the parties to bear their own costs and assessed the counsel's fee at Rs. 200.