Case: Johri Lal (H.U.F.) Vs. Commissioner of Income Tax, Uttar Pradesh

For the assessment year in question the assessee was assessed without any objection. Thereafter theOfficer issued a notice to him under Section 34 of the Act without mentioning therein whether he was taking action under Section 34 (1) (a) or 34 (1) (b). The assessee filed its objection to the notice in question. It pleaded that it had supplied to theOfficer correct information and there was no justification for taking action against it under Section 34. TheOfficer in his order opined that it had not given the full particulars but all the same it was not necessary to go into that question as he was taking action under Section 34 (1) (b). The assessees objection that proceedings under Section 34 (1) (b) were barred by limitation, was rejected by theOfficer. The assessee went up in appeal to the Appellate Assistant Commissioner against the order of theOfficer. The only point considered by the Appellate Assistant Commissioner was whether proceedings under Section 34 (1) (b) were barred by limitation or not. He did not go into the question whether the proceedings taken by theOfficer could be justified under S. 34 (1) (a). The Appellate Assistant Commissioner agreeing withOfficer came to the conclusion that the required notice had been served within time and therefore the proceedings taken under Section 34 (1) (b) were valid proceedings.

Court's reasoning:
4. Our answer to the third question depends upon our answer to the first question. If we come to the conclusion that the proceedings were not validly initiated under Section 34 (1) (a) then we will have to answer the third question also in favour of the assessee.In the instant case, as seen earlier, theOfficer did not choose to proceed under S. 34 (1) (a). Consequently, he may or may not have recorded the reasons as required by this section nor do we know whether those reasons were submitted to the required authority and his sanction obtained on the basis of those reasons. This court also has ruled that the Commissioner or the Board of Revenue, while grantnig sanction will have to examine the reasons given by theOfficer and come to an independent decision and the authority in question should not act mechanically. From the material on record there is no basis to hold that those requirements had been fulfilled. Possibly they could not have been fulfilled because theOfficer proceeded only on the basis of S. 34 (1) (b) and not on the basis of section 34 (1) (a). He himself had declined to proceed on the basis of Section 34 (1) (a) for whatever reason it may be. Therefore, it was not open to the Tribunal to justify the proceedings taken by theOfficer under Section 34 (1) (a). The Tribunal could not have initiated proceedings under Section 34 (1) (a). If the Tribunal converts the proceedings into one under Section 34 (1) (a) then the conditions prescribed in Section 34 (l) (a) cannot be satisfied.7. We are of the opinion that the Tribunal erred in upholding the impugned proceedings under S. 34 (1) (a). The High Court also did not address itself to this question properly.8. For the reasons mentioned above this appeal is allowed. The answers given by the High Court on questions 1 and 3 are discharged and in their place we answer question No. 1, that the proceedings taken were invalid. Consequently, we answer the third question in the negative and in favour of the assessee. The Revenue to pay the costs of the assessee both in this court as well as in the High Court.