1968 (12) TMI 12 - HC - Income Tax

Issues Involved:
1. Validity of assessments made for the years 1953-54 and 1954-55 on February 2, 1962.
2. Applicability of the second proviso to section 34(3) read with section 31.
3. Notice and opportunity for representation prior to the passing of the orders.
4. Quantum of income determined and its excessiveness.
5. Bar of limitation on assessments.
6. Validity of directions given by the Appellate Assistant Commissioner.

Issue-wise Detailed Analysis:

1. Validity of Assessments:
The primary issue was whether the assessments made for the years 1953-54 and 1954-55 on February 2, 1962, were valid in law. The assessees, members of a Hindu undivided family (HUF), claimed a partition had taken place on January 1, 1952, and filed individual returns. The Income-tax Officer (ITO) initially rejected the partition claim and assessed the HUF. The Appellate Assistant Commissioner (AAC) later accepted partial partition and directed the ITO to consider individual assessments of the coparceners. The ITO completed these assessments on February 2, 1962, without issuing fresh notices under section 34 or any other section.

2. Applicability of the Second Proviso to Section 34(3):
The assessees contended that the second proviso to section 34(3) read with section 31 was not applicable. The Tribunal held that the assessments were barred by limitation as they were completed in 1962, beyond the permissible period. The department argued that the second proviso to section 34(3) lifted the bar of limitation due to the AAC's directions. The court found validity in the department's contention, stating that the ITO's order rejecting the partition was not a closure of assessments but a precautionary measure anticipating an appeal.

3. Notice and Opportunity for Representation:
The assessees argued they were not given notice or opportunity for representation before the orders were passed. The AAC agreed, stating that the procedure adopted by the ITO did not render natural justice, and set aside the assessments, directing the ITO to "redo them according to law."

4. Quantum of Income Determined:
The assessees also contended that the quantum of income determined was excessive. However, the AAC did not express any views on this contention as he had already set aside the assessments for lack of natural justice.

5. Bar of Limitation:
The Tribunal pointed out that the individual returns filed under section 22(1) for the financial years 1953-54 and 1954-55 should have been assessed by March 31, 1958, and March 31, 1959, respectively. Since the assessments were completed in 1962, they were barred by limitation. The department's argument that section 28(1)(d) applied was rejected by the Tribunal as there was no concealment to attract this provision.

6. Validity of Directions by the AAC:
The department contended that the AAC's directions lifted the bar of limitation under the second proviso to section 34(3). The court agreed, referencing the Supreme Court's decision in Income-tax Officer, "A" Ward, Sitapur v. Murlidhar Bhagwan Das, which held that members of a coparcenary or partners of a firm are not strangers to the assessment and are covered under "any person" in the second proviso to section 34(3). The court concluded that the assessments were valid as the AAC's directions were proper and lifted the limitation bar.

Conclusion:
The court answered the question in the affirmative, validating the assessments made on February 2, 1962, in favor of the department, with costs. The second proviso to section 34(3) applied, lifting the bar of limitation due to the AAC's directions, and the procedural lapse of not giving notice did not invalidate the assessments.

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