1973 (8) TMI 25 - HC - Income Tax

Reassessment notice issued without the satisfaction of the commissioner - Validity of reassessment notice issued under section 34(1)(a) of the Indian Income-tax Act, 1922 - Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the assessment made on the assessee under section 34 was not valid in law ?

Summary

Issues: Validity of assessment under section 34 of the Indian Income-tax Act, 1922.

Analysis:
The judgment pertains to a reference under section 66(1) of the Indian Income-tax Act, 1922, initiated by the Income-tax Appellate Tribunal, Patna Bench, at the request of the Commissioner of Income-tax, Patna. The central question raised in this case was whether the assessment conducted on the assessee under section 34 was legally valid. The assessee had undertaken new constructions and installed new machinery in the years 1956 and 1957. The initial assessment order for the year 1959-60 allowed a higher rate of depreciation. However, a successor-Income-tax Officer issued a notice under section 34(1) without specifying the clause, leading to a fresh assessment order in 1962 with reduced depreciation rates, resulting in alleged escaped income being included.

The Appellate Assistant Commissioner upheld the assessment order, prompting the assessee to appeal to the Tribunal. The Tribunal deemed the notice and proceeding under section 34(1) invalid, citing discrepancies in the notice and failure to fulfill necessary conditions for initiating such proceedings. The Tribunal quashed the fresh assessment order, leading to the reference to the High Court.

The High Court analyzed the provisions of section 34(1) of the Act, emphasizing the requirement for the Income-tax Officer to obtain approval from the Commissioner before issuing a notice under clause (a). The court highlighted the conditions specified in the proviso to section 34(1), emphasizing the necessity of Commissioner's approval for initiating proceedings after eight years, especially when the escaped income is less than a lakh of rupees. The High Court rejected the department's argument that Commissioner's approval was unnecessary in cases with escaped income below a lakh, citing a previous court decision and Supreme Court rulings emphasizing the significance of fulfilling conditions precedent for reassessment proceedings.

Ultimately, the High Court ruled in favor of the assessee, affirming the Tribunal's decision that the assessment under section 34 was not valid in law due to the lack of Commissioner's approval and failure to fulfill statutory requirements. The court awarded costs to the assessee and concluded the judgment by affirming the Tribunal's decision regarding the validity of the assessment under section 34.