(1) This is a reference under S. 66 (1) of the Indian Income-tax Act, 1922. The question for determination is :
'Whether on the facts and in the circumstances of the case the assessment in pursuance of the notice issued under S. 34 on 12-2-1958 is a valid assessment?
(2) The facts of the case are few and may be briefly stated. The assessee is a Hindu undivided family consisting of K. Ankineedu and his two sons. For the assessment year 1949-50 for which the previous year is the financial year ending on 31-3-1949, he submitted his return in response to the notice sent to him. The Income-tax Officer computed his total income as only Rs. 2,429/- which was far below the taxable limit and declared accordingly. Years later, he came to know that the assessee had failed to include in his return the profits of business earned by him in that year as procurement agent for the Government. Accordingly, he issued a notice under S. 34 of the Act on 22-3-1957. The assessee in response thereto sent his return on 30-4-1957 showing as before his status as the Hindu undivided family. But the Income-tax Officer did not proceed with the assessment of the basis thereof. Instead, a few months later, on 12-2-1958 he issued a fresh notice purporting to be under Section 34. The assessee submitted a second return with enclosures to the same effect as before. Then the Income-tax Officer proceeded to assess and ultimately made his order of assessment on 16-8-1958. He included in the assessment a sum of Rs. 60,000/- as the income escaping from the original assessment. The assessee went in appeal to the Appellate Assistant Commissioner disputing this addition of Rs. 60,000/- He questioned the validity of the proceedings taken under S. 34 of the Act. such a plea was not taken before the Income-tax Officer nor was it included in the grounds of appeal. Yet, being a pure question of law the Appellate Assistant Commissioner permitted it to be raised and eventually accepted it on the ground that no such notice could be issued after the expiry of eight years from the close of the 'previous year' as distinct from the assessment year. Consequently, he thought it unnecessary to go into the question as to the quantum of the income earned. It did not appear from the record whether the supplemental assessment was concluded in pursuance of the proceedings under the first notice or the second notice. The Income-tax Officer however stated before the Assistant Commissioner at the time of hearing that the assessment was concluded on second notice and that the proceedings on the first notice issued on 22-3-1957 still remained pending. This gave further scope to the assessee for an argument in favour of the invalidity of the proceeding and when the matter was carried in appeal by the Income-tax Officer before the Tribunal, the assessee in support of the order under appeal urged that the proceedings on the second notice under S. 34 dated 12-2-1958 were bad in law as there was already a return made by the assessee on 30-4-1957 in pursuance of the earlier notice under S. 34 issued on 22-3-1957 and that had not been dealt with.
(3) The Income-tax Appellate Tribunal found in view of the decision of this Court in Gowra Venkayya Chetty v. Commr. of Income-tax, Andhra Pradesh, Referred Case No. 47 of 1959 (Andh Pra) that the Appellate Assistant Commissioner's order based on the point of limitation was wrong in law and was therefore liable to be set aside. It further found that the supplemental assessment in pursuance of a second notice under S. 34 was not invalid. In the result, it set aside the order of the Commissioner and directed that the appeal filed before him be heard by him on merits in relation to the computation of the income. On the requisition of the assessee, however, the Tribunal has referred the above question for decision.
(4) The point then for consideration is, whether it was competent for the Income-tax Officer to issue a notice under S. 34 and continue proceedings thereunder ignoring the return already filed in pursuance of a previous notice under the same section. It is contended on behalf of Mr. Ramarao, learned counsel for the assessee that when a return is filed in pursuance of a notice under Section 34 the assessment was validly reopened, it was not then competent for the Income-tax Officer to ignore the return and notice and issue a fresh notice and proceed thereunder. For this proposition, he relied strongly on : 36ITR569(SC) the dictum of a Division Bench of this Court in Parimisetti Seetharamamma v. Commr. of Income-tax : 50ITR450(AP) which has been approved of in Pulavarthi Viswanadham v. Commr. of Income-tax : 50ITR463(AP) , Reliance was also placed on Commr. of Income-tax v. Ranchhoddas Karsondas : 36ITR569(SC) and a few other cases. On the other hand it has been urged on behalf of the department that since the return made was not a voluntary return, for original assessment, made under S. 22 (3) of the Act which the Income-tax Officer could not possibly ignore no invalidity did attach to the assessment made under the second notice. It was also urged that the principle enunciated in the above cited rulings had no application to the facts of the present case. That also seems to be the line of argument adopted by the Income-tax Appellate Tribunal in its order dated 2-11-1961.
We have therefore to examine the correct position in the light of the statutory provisions. Of course, the facts in the above cited cases are somewhat different and none of them cited cases are somewhat made under S. 34 was impugned on the ground that there was a previous notice under S. 34 itself served on the assessee in pursuance of which a formal return was filed warranting assessment thereunder, but that makes no difference in the application of the principle enunciated as that should apply with equal vigour to the circumstances of the present case as well. True it is that the return in question is not a voluntary return submitted in pursuance of general notice under Section 22 (1). Nor is it a return first of its kind for the original assessment, for a return was in fact submitted at the time original assessment in pursuance of a notice under S. 22 (2). An assessment on 10-2-1955 was also made in pursuance thereto. When the income was computed on the basis therein it was found that it fell below the essential minimum for taxation and the assessee therefore was declared nor liable to tax. Such a return even though it does not show any taxable income filed whether in response to a general notice under S. 22 (1) or under individual notice under Section 22 (2) is a good return. This position of law no longer admits of any controversy as it is well settled by the Supreme Court in : 36ITR569(SC) (Supra). It is not the case of the assessee either that S. 34 has no application because a return for the first time was filed for original assessment which is still pending. What he contends is that the reason of the issue of notice under S. 34 and the consequent filing of the return, it was not competent for the Income-tax Officer to initiate fresh proceedings by issuing another notice under S. 34. It was obligatory on him to take the proceedings already initiated under Section 34 to final determination in accordance with the provisions of the statute. How far this contention is tenable upon the language and the scheme of the statute. Section 34 so far as it is material reads thus:
'34. (1) If-
(a) The Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or
(b) notwithstanding that there has been no omission or failure mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year serve on the assessee, or, if the assessee is a company, on the principle officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.' XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX
It is clear therefore that if a notice under S. 34 conforming to the requirements under S. 22 (2) is given, the machinery for assessment or assessment is set in motion. The Income-tax Officer has then to adopt the procedure for assessment as laid down in the Act. All the provisions of the Act relevant in this behalf will apply as though it were a notice under s. 22 (2) itself. So then, even if a return is not filed within the time allowed or if the person having furnished a return discovers an omission or wrong statement therein he is at liberty to furnish a return or a revised return as the case may be, at any time before the assessment is made. Thus, the return filed in compliance with the terms of the notice issued whether within the time fixed in the notice or at any time before the assessment as contemplated by S. 22 (3), shall not be ignored, and the Income-tax Officer shall proceed to make his assessment following the same procedure as in the case of the original assessment. That is what has been observed by this Court in : 50ITR450(AP) . It was pointed out therein that :
'It is manifest that when once an assessment is reopened under section 34, the Income-tax Officer proceeds de novo under the relevant sections of the Income-tax Act, i.e., he issues notice under section 22 (2) and proceeds to assess the assessee. He has to follow the same procedure as in the case of the first assessment as is clear from the clause in S. 34 'and the provisions of this Act shall, so far as may be, apply accordingly as if the notice issued under that sub-section.'
It is therefore clear that the principle governing the assessment initiated by the issue of a notice under S. 34, will not be substantially different from that governing the original assessment. We feel therefore that the contention of the learned counsel for the assessee to this extent is well founded. If that be the case, the principle enunciated in the above cited authorities will apply with full vigour to the present case as well. It follows therefore that when a notice under S. 34 has been issued and the return is filed in compliance with the terms of the notice, issue of a second notice under the same S. 34 (1) will not be proper because with the return already filed it cannot be said that there has been an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the year in question. In this view also it was not competent for the Income-tax Officer to ignore the return and initiate fresh proceedings under S. 34 (1) (a) by issuing a notice dated 12-2-1958. Thus even though the above authorities cited including S. Raman Chettiar v. Commr. of Income-tax : 42ITR700(Mad) , Santosh Nadar v. First Addl. Income-tax Officer : 42ITR715(Mad) , K. S. Ratanaswamy v. Addl. Income-tax Officer : 48ITR568(Mad) and R. P. Kandaswami v. Commr. of Income-tax : 49ITR344(Mad) were cases which dealt with voluntary original returns made within four years, the principle enunciated having regard to the clear provisions of S. 34 so far as may be shall apply, inasmuch as the notice given under S. 34 shall attract all the provisions of the Act relating to the assessment as though the notice was one under S. 22 (2). The matter would of course be different if the notice itself is invalid for issue of a valid notice under S. 34 is a condition precedent to the validity of any assessment or has been under-assessed. Therefore if no valid notice is issued the assessment would be bad in law. Learned counsel for the department has failed to show how the notice dated 22-2-1957 is invalid in law.
(5) It has no doubt been represented that the Income-tax Officer, subsequent to the original assessment had taken a view that the correct status of the assessee is not Hindu undivided family but an individual and that on that basis issue notice under S. 34 as an individual. But the Assistant Commissioner on appeal came to a different conclusion. The result was that the Income-tax Officer had to issue another notice with a change in status. That is how the second notice was given. But it is pointed out that both the notices issued to the assessee were identical in terms. Both of them were addressed to him in his name. So then, the issue of second notice made no difference in that its contents to the knowledge of the assessee were the same. It may be remembered that the section does not prescribe any standard from of notice. All that it requires is that it should contain all the requirements of a notice under s. 22 (2). That being done, we do not think that the original notice was in any way invalid. In fact, he filed his return as a Hindu undivided family. The same return was sent once again.
When the notice was not invalid and the assessee had submitted his return in compliance with the notice given, the Income-tax Officer had a duty to complete the assessment in accordance with law. He could not ignore the return which was complete in itself. Of course, the mere issuance of a second notice would have been immaterial if the Income-tax Officer purported to act upon the return filed in pursuance of the first notice; but that he has not admittedly done for he had categorically stated before the Assistant Appellate Commissioner that he concluded the supplemental assessment on the second notice. That being the case, the assessment on the basis of an invalid notice cannot be effective. It cannot be said to be a valid assessment. Our answer to the question therefore must be in the negative. We answer the reference accordingly. The department shall pay the costs of the assessee. The advocate's fee is fixed at Rs. 100/-
(6) Answer accordingly.