Case: Baladin Ram Vs. Commissioner of Income Tax, U.P

The assessee at the material time was a Hindu Undivided Family. The relevant assessment year is 1944-45 corresponding to the accounting year ending on Diwala Samvat 2000 (October 28, 1943). On February 20, 1945 the income-tax Officer made an assessment on a total income of Rupees 26,800 odd which comprised income from the share in the business of Kasi Iron Foundry and the income from the property. This order was revised under S. 34 of the Indian Income-tax Act, 1922 hereinafter called the Act. In the revised assessment order the total income of the assessee was computed at Rs. 71,731/-.In this amount a sum of Rs. 40,000/- was included as income from undisclosed sources. This assessment was challenged before the Appellate Tribunal and was set aside on the ground that there had not been proper service of a notice under S. 34. A fresh notice under S. 34 was issued in October 1951. On October 16, 1952 a revised assessment order was passed and the total income of the assessee was computed at Rs. 85,817/- which included a sum of Rs. 49,696/- as income from undisclosed sources. On March 31, 1953 the Income-tax Officer served on the assessee another notice under S. 34 in respect of the same assessment year 1944-45. On March 18, 1954 a revised assessment was made in which was included a sum of Rs. 32,000/- as the assessees income from undisclosed sources, being the alleged investment of the assessee in the Sarpat and bamboo business prior to February 18, 1944. The total income of the assessee was computed at Rs. 1,17,817/-.The income from undisclosed source which came to be included in this computation amounted to Rs. 81, 696. The assessee filed appeals against the assessment order dated October 16, 1952 contending inter alia that there had been no escapement of any income and that in any case the first revised assessment dated October 16, 1952 was barred by time under S. 34 (1) (b) of the Act as the provisions of S. 34 (1) (a) did not apply. The second revised assessment was challenged on the ground, inter alia, that the Income-tax Officer had no jurisdiction to issue the notice under S. 34 as the material facts necessary for making the assessment were fully and truly disclosed to the Income-tax Officer during the assessment proceedings for the year 1945-46. That appeal was also dismissed. There after the assessee filed two appeals before the Income-tax Appellate Tribunal. Before the tribunal it was contended by the assessee that the first revised assessment dated October 16, 1952 was barred by limitation and that the period of limitation was four years under S. 34 (1) (b) and not eight years under S. 34 (1) (a). The second revised assessment was challenged on the ground that the Income-tax Officer had no jurisdiction to issue a notice and make assessment under S. 34. It was argued that the investment, expenditure and the profits earned from the business of Sarpat and bamboo had been duly shown. As regards the first revised assessment the tribunal held that the income of the assessee from the firm Rajnarain Durga Prasad had escaped assessment by failure on the part of the assessee to disclose fully and truly all the facts necessary for making the assessment and that the provisions of S. 34 (1) (a) were attracted and therefore the period of limitation was eight years and not four years. With regard to the second revised assessment it was urged that all the materials necessary for making the assessment were before the Income-tax Officer and by issuing a notice under S. 34 the Income ax Officer had changed his opinion and a mere change of opinion did not authorise the Income-tax Officer to take recourse to S. 34. The tribunal disposed of the argument with regard to the second revised assessment in the followingIncome-tax Officer who made the assessment for 1945-46 might have had all the accounts of the business in Sarpat and bamboos before him and might have known the investments made by the assessee in that business. The question for consideration is whether the Income-tax Officer had reason to believe that by the failure on the part of the assessee to fully and truly disclose all the material facts necessary for the making of the assessment for the year 1944-45, income had escaped assessment. Surely, even if the Income-tax Officer had known that the investments made by the assessee in that business were his revenue income, he could not have procceded u/s 34 because the income could not have been assessed in the assessment year 1945-46. It could be assessed in the assessment year 1944-45. The income appearing by way of deposits in the sarpat business could be assessed only as income from some undisclosed source and the previous year for income from undisclosed source for which the assessee had not elected any previous year would be the financial year. The investments were made in the financial year relevant for the assessment year 1944-45 and were not made in the financial year relevant for the assessment year 1945-46. The Income-tax Officer had, therefore, no choice but to resort to Section 34 of thetribunal, however, found as is apparent from its order dated March 21, 1957 that the unexplained investment which was really the income of the assessee from undisclosed source was Rupees 27,875 instead of Rs. 32,000. The tribunal called for a report on certain other matters with which we are not concerned and which were disposed of by subsequent order dated August 31, 1958. On a petition filed under , 66 (1) of the Act the tribunal referred the following question to the High Court for decision;

Reasoning:
As regards the first revised assessment the High Court was of the view that even if the provisions of Section 34 (1) (b) were to apply the assessment could not be said to be barred by time nor could it be said to be barred under S. 34 (I) (a) as the assessee had failed to show that the Income-tax Officer was aware that the assessee had received income from its share in the firm. The question was consequently answered in the affirmative so far as the assessment order dated October 16, 1952 was concerned. The assessment order of March 18, 1954 was challenged before the High Court on the ground that there was no default on the part of the assessee attracting applicability of Section 34 (1) (a). It was noticed by, the High Court that although the Income-tax Officer had, during the proceedings for the assessment year 1945-46, made an enquiry about the investments in sarpat and bamboo business no action had been taken in those assessment proceedings against the assessee but it could not be presumed that he had accepted the explanation of the assessee. Having held that the investment represented income from undisclosed source be was bound to treat it as income which accrued in December 1943 when it was invested, being the income during the financial year 1943-44 and therefore it had to be taxed in the assessment year 1944-45. The question referred was answered in the affirmative with regard to the assessment order of March 18, asMr. Manchanda has called our attention to S. 68 of Income-tax Act 1961 according to which where any sum is four credited in the books an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Income-tax Officer, satisfactory the sum so oredited may be charged to income-tax as the income of the assessee of that previous year.It is, however, obvious that even under the provisions embodied under the new Act it is only when any amount is found credited in the books of an assessee that the section will apply. On the other hand if the undisclosed income was found in be from some unknown source or the amount represents some concealed income which is not credited in his books the position would probably not be different from what was laid down in the various cases decided when the Act was inis altogether unnecessary to decide whether this view is sustainable or not. At any rate, in the present case, the assessee had failed to show that he did not know and was not aware of the true position in respect of the sum of Rs. 27,000/- odd which was invested in the sarpat and bamboo business.