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TMI Blog1965 (2) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm, the share income from the said firm was returned by the assessee as his separate income. The Hindu undivided family, of which the assessee is a member, also filed its return. The assessee claimed that he was carrying on the partnership business in the Andhra Trading Company in his individual capacity, and the firm had nothing to do with the Hindu undivided family. His father, Narayanaswami Iyer, also wrote a letter to the Income-tax Officer stating that he had no claim to the income from the Andhra Trading Company, as it belonged exclusively to his son, the assessee. The Income-tax Officer, after making enquiries, satisfied himself that the share income from the firm represented the individual income of the assessee, and accordingly separately assessed it in the hands of the assessee for the assessment years 1942-43, 1943-44 and 1944-45. But, in the assessment for the year 1945-46, the Income-tax Officer came to the conclusion, on the basis of the conduct of the parties and the entries in the account books of the family business and those of the Andhra Trading Company, that the assessee was a partner in the firm on behalf of himself and the other members of the family, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Hindu undivided family. The assessee preferred appeals to the Appellate Assistant Commissioner and contended that he had already filed the returns, that the Income-tax Officer was not justified in ignoring them and invoking the provisions of section 34(1)(a) of the Act and that the assessments made on 13th March, 1954, and 7th May, 1954, were barred by limitation, as four years had expired from the end of the relevant year of assessment. The Appellate Assistant Commissioner upheld the action of the Income-tax Officer under section 34. He was of the view, however, that the case came under the provisions of section 34(1)(b). Finally, he set aside the orders of the Income-tax Officer, to enable him to re-work the income of the assessee according to law. There were further appeals to the Tribunal, objecting to the validity of the assessments under section 34(1)(a) of the Act. The Tribunal held that the appeals had become otiose, as the Appellate Assistant Commissioner had vacated the assessments appealed against. Thereafter, the Income-tax Officer, in accordance with the order of the Appellate Assistant Commissioner, made fresh assessments for the two years, viz., 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery of assessment. In interpreting provisions of this kind, the rule is that that construction should be preferred with makes the machinery workable, ut res valeat potius quam pereat. Therefore, this section gives power to the Income-tax Officer to take proceedings, when the assessee did not disclose fully the total income in his return or did not reveal the sources of income or did not submit a voluntary return of income under section 22(1) or when income, profits or gains chargeable to tax is omitted tot has been under-charged, and he has reason to believe in consequence of information that the income has escaped assessment or full assessment. Section 34 is intended to vest in the Income-tax Officer a power to amend the assessment, when, he has reason to believe that any income, profits or gains chargeable to income-tax have escaped assessment for any year, and, in a such a case, he may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowances. Before he exercises his power, he should have some material to form his opinion that the assessee suppressed the relevant facts to escape assessment, or that he himself inadvertently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment within the statutory meaning. In the instant case, it is common case that the assessee made a return for the assessment years in question. But the department was hesitant to assess him individually, as it was of opinion that this income should have been included in the return made by the joint family, of which he was a member. In Mannalal Modi v. Commissioner of Income-tax [1956] 29 ITR 30, when the assessee filed a return of his income, as an individual, it was transferred to the officer who was dealing with the return of the family income of the assessee. Subsequently, it was found that there was a partition in the family. The Income-tax Officer issued a fresh notice under section 34 calling upon him to file the return. He objected that he had already submitted his return. The question for consideration was whether the assessment under section 34 was valid. The learned judges observed at page 41: ... the assessment proceedings had not come to an end. The return was still pending. Whether it was pending before the territorial Income-tax Officer or the Income-tax Officer, Special Circle, is immaterial so far as the assessee is concerned. He had filed a return and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dships further observed at page 576: There is nothing to prevent the Income-tax Officer from taking up the return and proceeding to assess the income of the assessee. It was open to him, if there was sufficient justification for it, to hold that the amount noted in the foot-note was really the assessee's income, in which case an assessable income would have been found and the tax could be charged thereon. If the Income-tax Officer had acted on that return and assessed the assessee before 31st March, 1950, the assessment would have been valid. He chose to ignore the return, and served on the assessee a notice under section 34(1). This notice was improper, because with the return already filed, there was neither an omission nor a failure on the part of the assessee nor was there any question of assessment 'escaping'. The notice under section 34(1) was, therefore, invalid and the consequent assessment equally so. Therefore, when a return has been filed but no assessment has been made, it cannot be said that the income escaped assessment, so as to confer a jurisdiction on the Income-tax Officer to invoke the aid of section 34. Once we come to the conclusion that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment, to issue directions. But it is unthinkable that a direction can be made in the exercise of the powers under section 31 of the Act which goes to the extent of conferring jurisdiction upon the Income-tax Officer if he is not lawfully seized of jurisdiction. To our minds, the direction issued by the Appellate Assistant Commissioner travels far beyond the scope of section 31 of the Act in the circumstances of the case. If the direction is neither lawful nor valid; it cannot come within the scope of the saving proviso and serve to remove the bar of limitation. Relying on this principle, we are of opinion that the direction given by the Appellate Assistant Commissioner while setting aside the order of assessment, that the Income-tax Officer should invoke the provisions of section 34(1)(b), and the action of the Income-tax Officer in reassessing the income is neither lawful nor valid. The proceeding under section 34 initiated by the Income-tax Officer even in the first instance is wholly void, irregular and illegal. It was next contended by learned counsel for the department that, once the assessee himself withdrew the appeal for the year 1949-50 before the Appellate Assi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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