Civil Appeal No 2015 of 1972
From the Judgment and Order dated 18 1 1971 of the Allahabad High Court in Civil Misc
Writ Petition No 463270
section T Desai B R Agrawala and P C Gokhale for the Appellant
V section Desai Miss A Subhashini J Ramamurthy and Miss R Vaigai for the Respondent
The Judgment of the Court was delivered by TULZAPURKAR J
The point raised in this appeal by certificate seems to be covered by two decisions of this Court in favour of the assessee and hence we propose to dispose of the appeal by a short Judgment
The appellant a firm carries on business of manufacturing ice and preservation of potatoes in its cold storage
It was assessed to income tax for the assessment year 1961 62 by an assessment order dated July 5 1961 on a total income of Rs 53548
In proceedings started on December 21 1961 under section 341 of the Indian Income Tax Act 1922 the Income Tax Officer found certain property income and income to the extent of one lakh from potato transactions put through in the name of benami persons by the assessee had escaped assessment and therefore by his order dated December 22 1965 he brought them to tax
The said order of the Income Tax Officer was annulled by the Appellate Assistant Commissioner in appeal on May 10 1967 on the ground that the initiation of reassessment proceedings was not justified
The Department allowed the matter to rest there and the Assistant Appellate Commissioner s order became final
On July 14 1967 the Income Tax Officer issued a notice under section 148 of the Income Tax Act 1961 in respect of the self same assessment year after obtaining the sanction from the Commissioner of Income Tax
Admittedly while seeking sanction for reopening the assessment under section 147 the Income Tax Officer in his report categorically stated that 238 the assessee had concealed the income of Rs 100000 from undisclosed source on account of benami storage of potatoes in various names and the same had escaped assessment owing to the failure on the part of the assessee to disclose his income fully and truly
Pursuant to the notice the appellant filed a return under protest on August 14 1967
The appellant challenged the notice by filing a writ petition in the Allahabad High Court inter alia on the ground that no reassessment proceedings could be undertaken under section 147 of the 1961 Act inasmuch as in respect of the self same escaped income proceedings under section 341 of the 1922 Act had been undertaken and were pending on April 1 1962 when the 1961 Act came into force and in this behalf reliance was placed on section 2972 d ii of the 1961 Act
The High Court rejected the contention on the ground that in order that section 297 2 d ii should apply the proceedings under section 34 of the 1922 Act must be legal proceedings with jurisdiction which was not the case here
It is difficult to sustain this decision of the High Court in view of two decisions of this Court in section B Jain vs Mahendra1 and Gujar Mal Modi vs CIT2 where it has been held that section 297 2 d ii is concerned with the factual pendency of proceedings under section 34 of the 1922 Act and not with their legality
It must in fairness be stated that none of these decisions on the proper construction of section 2972 d ii had been rendered by this Court when the Allahabad High Court decided the matter
In section B Jain vs Mahendra supra the Income Tax Officer had issued notice to the respondent assessee on January 5 1962 under section 341 a of the 1922 Act to reopen his assessment for the assessment year 1946 47
The High Court quashed the notice by its order dated March 6 1963 on the ground that the notice was barred by limitation
In the meantime the 1961 Act came into force on April 1 1962 whereafter the Income Tax Officer again issued a notice on March 26 1963 under section 148 of the 1961 Act
This Court held that what section 2972dii of the 1961 Act required was the factual pendency of a proceeding under section 34 of the repealed Act on April 1 1962
The question whether that proceeding was barred by limitation or not was irrelevant
Though the earlier proceeding was quashed for the reason that notice on which the proceeding was based was issued beyond time it could not be said that no proceeding under section 34 of the 1922 Act was either factually or legally pending at the time when the 1961 Act came into force and since the proceedings initiated 239 under section 341 a of the 1922 Act were pending at the time when 1961 Act came into force the Income Tax Officer was not competent to issue any fresh notice under section 148 of the 1961 Act
In Gujar Mal Modi s case supra the notice under section 341 a of the 1922 Act for reopening the assessment of the deceased assessee was served only on one of the heirs of the deceased assessee
The Assistant Appellate Commissioner set aside the assessment made pursuant to that notice on the ground that it was necessary to issue notices to all the legal representatives of the deceased assessee
In the meantime the 1961 Act came into force and thereafter the Income Tax Officer issued notice under section 148 of that Act to all the heirs of the deceased assessee
This Court held that since the proceedings under section 341 b of the 1922 Act were pending on April 1 1962 the second notice was incompetent
In other words in both the cases this Court laid emphasis on the factual pendency of the proceedings under section 34 on the relevant date and not their legality as being material for purposes of section 2972d ii of the 1961 Act
In the case before us admittedly proceedings under section 341 of the 1922 Act in respect of the item of Rs 100000 which was said to have escaped assessment were factually pending on April 1 1962 and therefore the notice under section 148 of the 1961 Act would be incompetent
An attempt was made by counsel for the Revenue to distinguish the aforesaid decisions on the ground that in the instant case the earlier proceedings under section 34 of the 1922 Act being without jurisdiction must be regarded as non est inasmuch as the Assistant Appellate Commissioner had annulled the revised assessment made by the Income tax Officer on the ground that the initiation of the proceedings which was in respect of property income that had escaped assessment was not justified inasmuch as it was not a case of omission or failure on the part of the assessee to furnish full particulars of the property income
The submission in our view is factually incorrect
The reassessment order made by the Income Tax Officer on December 22 1965 clearly shows that he had initiated the proceedings in respect of property income under section 341 b ie in consequence of information gathered by him from Assistant Appellate Commissioner s order for an earlier year and not under section 341 a on account of any omission or failure on the part of the assessee to make a full disclosure and during the proceedings so initiated he came across the item of Rs 100000 being the income from undisclosed source which he held had been concealed and was liable to be included under section 341 a
Therefore the initiation of the proceedings under section 34 by the Income Tax Officer cannot be regarded as being without jurisdiction and hence 240 non est
As stated earlier the Department allowed the Assistant Appellate Commissioner s order whereby the reassessment order was quashed to become final
Instead of challenging that order a fresh notice under section 148 of the 1922 Act was issued which in our view the Income tax Officer was not entitled to do in view of the fact that proceedings under section 34 of the 1922 Act were factually pending on April 1 1962 when the new Act came into force
In the result the order passed by the High Court is set aside and the impugned notice under section 148 of the 1961 Act is quashed
It is obvious that if any orders are passed pursuant to the impugned notice those will be of no avail to the Revenue
The appeal is allowed but in the circumstances there will be no order as to costs
SR Appeal allowed


Summary:
The appellant assessee is a firm carrying on business of manufacturing ice and preservation of potatoes in its cold storage
By an assessment order dated July 5 1961 it was assessed to income tax for the assessment year 1961 62 on a total income of Rs 53548 
The Income Tax Officer in his proceedings started on December 21 1961 under section 341 of the 1922 Act found certain property income and income to the extent of one lakh from potato transaction put through in the name of benami persons by the assessee had escaped assessment and therefore by his order dated December 22 1965 he brought them to tax
The said order of the Income Tax Officer was annulled in appeal on May 10 1967 on the ground that the initiation of reassessment was not justified
This order became final as the department did not take further steps
On July 14 1967 the Income Tax Officer issued a notice under section 148 of the Income Tax Act 1961 in respect of the self same assessment year after obtaining the sanction of the Commissioner of Income Tax
Pursuant to the notice the appellant filed a return under protest on August 14 1967
The appellant challenged the said notice by filing a writ petition in the Allahabad High Court inter alia on the ground that under section 2972dii of the 1961 Act no reassessment proceedings could be undertaken under section 147 of the 1961 Act inasmuch as in respect of the self same escaped income proceed ings under section 341 of the 1922 Act had been undertaken and were pending on April 1 1962 when the 1961 Act came into force
The High Court rejected the contention on the ground that in order that section 2972dii should apply proceedings under section 34 of the 1922 Act must be legal proceedings with jurisdiction
Allowing the appeal by certificate the Court  HELD  The factual pendency of the proceedings under Section 34 of the 1922 Act on the relevant date and not their legality is material for purposes of section 2972dii of the 1961 Act
238 D E In the instant case a admittedly proceedings under section 341 of the 1922 Act in respect of the item of Rupees one lakh which was said to have escaped assessment were factually pending on April 1 1962 and therefore the notice under section 148 of the 1961 Act would be incompetent and 239 C D 237 b The initiation of the proceedings under section 34 by the Income Tax Officer cannot be regarded as being without jurisdiction and hence non est
The reassessment order made by the Income Tax Officer on December 22 1965 clearly shows that he had initiated the proceedings in respect of property income under section 341 b ie in consequence of information gathered by him from Assistant Appellate Commissioner s order for earlier year and not under section 341a
239 F H section B Jain vs Mahendra and Gujar Mal Modi vs Commissioner of Income Tax  applied