1. In the reference, two questions stand referred to us :
'(1) Whether the Tribunal erred in law or exercised its discretion un-judicially in not deciding the applicant's first submission that the Income-tax Officer was not justified in taking action under section 34(1) of the Indian Income-tax Act, 1922, and in remanding the case without giving a decision on that submission.
(2) Whether the Tribunal erred in law or acted without any evidence and contrary to the materials on record in treating the sum of Rs. 3,00,000 (Rs. 3 lakhs) as the concealed income of the applicant ?'
2. We may add that initially the Tribunal had not accepted the assessee's application to refer the said two questions, but the assessee thereafter preferred Income-tax Application No. 32 of 1966 and on the said application an order was made in the assessee's favour and in pursuance of the said order dated August 23, 1967, the aforesaid two questions stand referred to us.
3. We are inclined to reframe question No. 1 and send back the matter to the Tribunal for eliciting its opinion thereon. However, the circumstances under which this has become necessary may be briefly adverted to.
4. The assessee before us is one P. K. Divekar (since deceased), and we are concerned with the assessment year 1947-48. The original assessment on the assessee for 1947-48 was made on March 19, 1952. It would appear from the statement of the case that the ITO subsequently came to know of an alleged purchase of Government Security for Rs. 3 lakhs by one P. G. Patankar, who was the assessee's father-in-law. These securities were purchased through the New Citizen Bank Ltd., Bombay, in September, 1946. In consequence of this knowledge, presumably, the ITO initiated the proceedings under s. 34 of the Indian I.T. Act, 1922, for reassessment, and by his reassessment order dated February 28, 1957, he treated the sum of Rs. 3 lakhs as concealed income of the assessee and assessed it under the head 'Income from other sources'.
5. The assessee disputed the reassessment order before the AAC, and before the AAC on behalf of the assessee both the pleas were urged, namely : (1) that the securities were not the assessee's property, and (2) that the proceedings under s. 34(1)(a) of the Indian I.T. Act, 1922, were invalid in law. The AAC held against the assessee on both counts.
6. The assessee then carried the matter before the Income-tax Appellate Tribunal, Bombay, which appeal was numbered as Income-tax Application No. 11352 of 1958-59. The very same pleas were taken again. The Tribunal sought a report from the ITO, as it was of the opinion that both sides, namely, the assessee and the Revenue, had failed to bring on record more convincing material in support of their submissions.
7. After the Tribunal made the aforesaid order, the assessee had applied to the Tribunal to refer three questions to the High Court under s. 66(1) of the Indian I.T. Act, 1922. These three questions are to be found in para. 9 of the statement of the case, and question No. 1 on which reference was sought is identical to question No. 1 which stands referred to us. However, by its order dated April 16, 1962, the Tribunal rejected the assessee's application on the ground that the remand order was not the final order and the application was, therefore, premature. The assessee chose to accept the aforesaid order at that stage.
8. Pursuant to the Tribunal's direction, the ITO sent his remand report on October 22, 1960. After bringing the additional material on record, the ITO in his remand report also discussed the inference to be drawn from this material.
9. After receipt of the remand report, the hearing of the appeal was fixed on October 18, 1965. It would appear from para. 21 of the statement of the case (though there is no statement to this effect in the appellate order) that, according to the Tribunal, counsel appearing for the assessee did not argue the first point, namely, that action of reassessment under s. 34 of the Indian I.T. Act, 1922, was not justified. Mr. Dastur has taken us through the appellate order, that is, the order after receipt of the report of the ITO, and we find only the second plea of the assessee dealt with and a decision given against the assessee. In the opinion of the Tribunal, on taking a collective view of the material, the story of the assessee was liable to be rejected. In the said appellate order, the Tribunal has not dealt with the first plea which was whether the ITO was justified in initiating the reassessment proceedings under s. 34(1) of the Indian I.T. Act, 1922.
10. In our opinion, this was a very vital plea, and we do not find anything on the record, except the bald statement in the statement of the case, to suggest that this plea had been given up by the assessee. The assessee does seem to have accepted the view of the Tribunal that the plea need not be gone into at the stage of ordering a remand in order to elicit further material. However, this does not mean that the assessee gave up the plea for all time. It was necessary to decide this question.
11. In our opinion, question No. 1 framed in pursuance of this High Court's order in Income-tax Application No. 32 of 1966 does not bring out properly the controversy between the parties on this aspect of the matter. We, accordingly, reframe the question as under :
'Whether the Income-tax Officer was justified in initiating reassessment proceedings under section 34(1) of the Indian Income-tax Act, 1922 ?'
12. At one stage, we had considered whether we could apply our mind to this question without having the benefit of the Tribunal's views thereon. But, on further consideration, we think it advisable to follow the normal procedure and have the Tribunal's decision on this plea. On receipt of the decision on this plea, the High Court will go into the said question as well as question No. 2 which already stands referred to us.
13. We may clarify that in order to give its decision, the Tribunal must allow to the concerned parties to bring to its notice all such material as was available to the ITO at the time the action under s. 34(1)(a) of the Indian I.T. Act, 1922, was taken by the ITO. We may mention that in the annexure, which is the copy of the reassessment order dated February 28, 1957, it has been mentioned by the ITO that he had received information that there had been escapement of the income, whereupon he took action under s. 34(1)(a) with the previous sanction of the Commissioner of Income-tax (Central). The Tribunal would certainly be entitled to and must, in our opinion, go into that material and on the basis of that material give its opinion on this question as reframed. The Tribunal also may bring this material on record for consideration of the High Court and we direct it to submit its opinion together with this further material as expeditiously as possible and preferable within three months of the order of the High Court reaching it. We direct the office to convey this order to the Tribunal expeditiously.