Case: Commissioner of Income Tax, Bihar and Orissa Vs. Banwari Lal Agarwal

In proceedings for assessment offor the years9, theOfficer, Ranchi, held that Banwari Lal Agarwal, hereinafter called "the assessee", had invested Rs. 17, 425 in the year of account relating to the assessment yearand Rs. 35, 500 in the year of account relevant to the assessment yearin Indian Woollen and Silk Stores, Ranchi of which the assessee was a partner. TheOfficer included those sums as the income from undisclosed sources in the assessment of the Hindu undivided family styled M/s. Narmal Ramkumar of which the assessee was a member in the two respective assessment years. The Hindu undivided family appealed against that order. The Appellate Tribunal held in respect of the appeal for the assessment yearthat a sum of Rs. 17, 425 represented the income from undisclosed sources but it could not be assessed in the hands of the Hindu undivided family. But in respect of the appeal for the yearfollowing the decision of the Tribunal in the appeal relating to the assessment yearthe Appellate Assistant Commissioner directed that the sum of Rs. 35, 500 be removed from the assessment of the Hindu undivided family and that it be assessed in the hands of the assessee TheOfficer then commenced a proceeding for assessment of the income of the assessee for the yearunder section 34(1)(a), after obtaining the sanction of the Commissioner ofThe Commissioniers sanction was specifically given on the direction given by the Appellate Assistant Commissioner. In proceedings for assessment before theOfficer it was contended by the assessee that the proceeding under section 34(1)(a) was barred by limitation, as it was initiated more than eight years after the expiry of the assessment year. TheOfficer rejected the contention and assessed the sum of Rs. 35, 500 as the income of the assessee from undisclosed sources. The appeal filed by the assessee to the Appellate Assistant Commissioner did not succeed. The Appellate Tribunal, following the judgment of the Bombay High Court in Hiralal Amritlal Shah v. K. C. Thomas, 1std, Bombay, held that the proceeding under section 34(1)(a) had become barred and was therefore invalid. At the instance of the Commissioner ofthe Tribunal referred the following question to the High Court of Patna"Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that proceedings under section 34(1)(a) of theAct for the assessment yearin the case of the assessee was invalidHigh Court answered the question in the affirmative. Against that order the Commissioner ofhas appealed to this court

Court's reasoning:
In the present case the Appellate Assistant Commissioner gave direction for assessment of the income of the assessee which had escaped assessment. Sanction of the Commissioner was also obtained in that behalf. But the assessee was not a party to the assessment proceeding. He was a person other than the assessee. Whereas, in K. C. Thomass case an order for reassessment of income was made against the original assessee, in the case in hand assessment is directed against a person other than the assessee in appeal in which the direction wasreal dispute between the assessee and the department in this case is not whether the notice under section 34(1)(a) was valid, but whether it is open to theOfficer to commence a proceeding for assessment pursuant to a direction given by the Appellate Assistant Commissioner after expiry of the period of limitation prescribed by(3). On that part of the case, no question is raised. Counsel for fhe Commissioner has fairly conceded that the question referred does not bring oat the only plea on a favourable decision on which the department may bring to tax the income which had escaped assessment. Counsel conceded that the question whether by virtue of the second proviso to(3) of section 34 the assessment could, in the circumstances of the case, be completed outside the bar of thatwas not argued and not even raised before the Tribunal or before the High Court.