Case: Ice & General Mills Vs. Income Tax Officer, Central Circle Ii, Meerut

TULZAPURKAR J. 1. 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. 53, 548. In proceedings started on December 21, 1961, under s. 34(1) of the Indian I.T. Act, 1922, the ITO 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 ITO was annulled by the AAC 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 AACs order became final. On July 14, 1967, the ITO issued a notice under s. 148 of the I.T. Act, 1961, in respect of the self-same assessment year after obtaining the sanction from the CIT. Admittedly, while seeking sanction for reopening the assessment under s. 147, the ITO in his report categorically stated that the assessee had concealed the income of Rs. 1, 00, 000 from undisclosed sources 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 s. 147 of the 1961 Act inasmuch as in respect of the self-same escaped income proceedings under s. 34(1) of the 1922 Act had been undertaken and were pending on April 4, 1962, when the 1961 Act came into force and in this behalf reliance was placed on s. 297(2)(d)(ii) of the 1961 Act. The High Court rejected the contention on the ground that in order that s.297(2)(d)(ii) should apply, the proceedings under s. 34 of the 1922 Act must be legal proceedings with jurisdiction which was not the case hereIt is difficult to sustain this decision of the High Court in view of two decisions of this court in S. B. Jain, ITO v. Mahendra [1972] 83 ITR 104 and Gujar Mal Modi v. CIT [1972] 84 ITR 261 , where it has been held that s. 297(2)(d)(ii) is concerned with the factual pendency of proceedings under s. 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 s. 297(2)(d)(ii) had been rendered by this court when the Allahabad High Court decided the matter. 2. In S. B. Jain, ITO v. Mahendra [1972] 83 ITR 104 (SC), the ITO had issued notice to the respondent-assessee on January 5, 1962, under s. 34(1)(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 ITO again issued a notice on March 26, 1963, under s. 148 of the 1961 Act. This court held that what s.297(2)(d)(ii) of the 1961 Act required was the factual pendency of a proceeding under s. 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 s. 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 under s. 34(1)(a) of the 1922 Act were pending at the time when the 1961 Act came into force the ITO was not competent to issue any fresh notice under s 148 of the 1961 Act. In Gujar Mal Modis case [1972] 84 ITR 261 (SC) the notice under s. 34(1)(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 AAC set aside the assess in 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 ITO issued notice under s.148 of that Act to all the heirs of the deceased assessee. This court held that since the proceedings under s. 34(1)(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 s. 34 on the relevant date, and not their legality as being material for purposes of s. 297(2)(d)(ii) of the 1961 Act. In the case before us admittedly proceedings under s.34(1) of the 1922 Act in respect of the item of Rs. 1, 00, 000 (which was said to have escaped assessment) were factually pending on April 1, 1962, and, therefore, the notice under s. 148 of the 1961 Act would be incompetentAn 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 s. 34 of the 1922 Act being without jurisdiction, must be regarded as non est inasmuch as the AAC had annulled the revised assessment made by the ITO 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 ITO on December 22, 1965, clearly shows that he had initiated the proceedings (in respect of property income) under s. 34(1)(b), i.e., in consequence of information gathered by him from the AACs order for an earlier year and not under s. 34(1)(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. 1, 00, 000 being the income from undisclosed sources which he held had been concealed and was liable to be included under s. 34(1)(a). Therefore, the initiation of the proceedings under s. 34 by the ITO cannot be regarded as being without jurisdiction and hence non est. As stated earlier, the department allowed the AACs order whereby the reassessment order was quashed to become final. Instead of challenging that order a fresh notice under s. 148 of the 1961 Act was issued, which, in our view, the ITO was not entitled to do in view of the fact that proceedings under s. 34 of the 1922 Act were factually pending on April 1, 1962, when the new Act came into force.

Decision:
1[ds]is difficult to sustain this decision of the High Court in view of two decisions of this court in S. B. Jain, ITO v. Mahendra [1972] 83 ITR 104     and Gujar Mal Modi v. CIT [1972] 84 ITR 261  , where it has been held that s. 297(2)(d)(ii) is concerned with the factual pendency of proceedings under s. 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 s. 297(2)(d)(ii) had been rendered by this court when the Allahabad High Court decided the matterThe submission, in our view, is factually incorrect. The reassessment order made by the ITO on December 22, 1965, clearly shows that he had initiated the proceedings (in respect of property income) under s. 34(1)(b), i.e., in consequence of information gathered by him from the AACs order for an earlier year and not under s. 34(1)(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. 1, 00, 000 being the income from undisclosed sources which he held had been concealed and was liable to be included under s. 34(1)(a). Therefore, the initiation of the proceedings under s. 34 by the ITO cannot be regarded as being without jurisdiction and hence non est. As stated earlier, the department allowed the AACs order whereby the reassessment order was quashed to become final. Instead of challenging that order a fresh notice under s. 148 of the 1961 Act was issued, which, in our view, the ITO was not entitled to do in view of the fact that proceedings under s. 34 of the 1922 Act were factually pending on April 1, 1962, when the new Act came into force