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

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 tox for the assessment year2 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 thee 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 thee 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 here

Reasoning: 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