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Darbar Saheb Harishchandra Sinhji Dansinhji Vs. Suraj Bhan, Income-tax Officer, Ward h, Rajkot - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 595 of 1970
Judge
Reported in[1974]95ITR350(Guj)
ActsIncome Tax Act, 1961 - Sections 139, 139(2), 142(1), 144, 146, 147, 147(1) and 148; Indian Income Tax, 1922 - Sections 22(2) and 34(1)
AppellantDarbar Saheb Harishchandra Sinhji Dansinhji
RespondentSuraj Bhan, Income-tax Officer, Ward "h", Rajkot
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredMohd. Shakoor Mohd. Bashir v. Commissioner of Income
Excerpt:
(i) direct taxation - reassessment - sections 22 (2) and 34 (1) (a) of indian income tax, 1922 and sections 147 and 148 of income tax act, 1961 - notice under section 22 (2) served on petitioner with regard to income which escaped assessment - once proceedings initiated for assessment of income of particular assessee either by assessee filing voluntary return or by income-tax officer issuing notice under section 22 (2) - income-tax officer cannot reopen assessment proceedings under section 34 (1) (a) or under sections 147 and 148 without finalizing assessment in proceedings initiated earlier. (ii) notice - sections 22(2) and 34 (1) (b) of indian income tax, 1922 and section 147 (1) (b) of income tax act, 1961 - notice issued under section 22 (2) proceedings did not result in assessment -.....divan, c.j. 1. the petitioner herein has challenged the notice dated march 18, 1970, issued by the respondent herein under the provisions of sections 147 and 148 of the income-tax act, 1961. in order to appreciate the rival contentions it is necessary to set out certain facts. 2. the relevant year for which the assessments are under consideration is assessment year 1961-62. on march 22, 1962, a notice under section 22, sub-section (2), of the indian income-tax act, 1922, was served upon the petitioner, by the income-tax officer concerned calling upon the petitioner to file his return of income for the assessment year 1961-62, within the time mentioned in the said notice. however, in spite of the said notice, the petitioner, who is the assessee in question, did not file any return because.....
Judgment:

Divan, C.J.

1. The petitioner herein has challenged the notice dated March 18, 1970, issued by the respondent herein under the provisions of sections 147 and 148 of the Income-tax Act, 1961. In order to appreciate the rival contentions it is necessary to set out certain facts.

2. The relevant year for which the assessments are under consideration is assessment year 1961-62. On March 22, 1962, a notice under section 22, sub-section (2), of the Indian Income-tax Act, 1922, was served upon the petitioner, by the Income-tax Officer concerned calling upon the petitioner to file his return of income for the assessment year 1961-62, within the time mentioned in the said notice. However, in spite of the said notice, the petitioner, who is the assessee in question, did not file any return because according to him he had no income which could be subjected to Income-tax. Even though the petitioner did not file any return of income is demanded by the notice under section 22(2), no order on best judgment basis was passed by the Income-tax Officer under section 23(4) and no further action appears to have been taken in connection with that notice under section 22(2). On April 1, 1962, the Income-tax Act, 1961, came into force. On March 5, 1966, the Income-tax Officer issued a notice under section 148 of the Income-tax Act, 1961, calling upon the petitioner to file his return as in the notice under section 139(2) of the Act of 1961 and this was on the basis that income of the petitioner for the assessment year 1961-62 had escaped assessment. This notice was served on the petitioner on March 15, 1966. Nothing appears to have been done for nearly two and a half years, but on November 27, 1968, the Income-tax Officer issued a notice under section 142, sub-section (1), of the At of 1961, calling for certain details from the petitioner regarding the assessment year 1961-62. On this, it was contended on behalf of the petitioner in reply to the said notice that the notice under section 148, dated March 5, 1968, was bad as the earlier notice of March 22, 1962, issued under section 22(2) of the At of 1922 was still pending. In spite of this objection, however, on December 6, 1968, the Income-tax Officer passed an order assessing the income of the petitioner at Rs. 27,654 under section 144 on the best judgment assessment basis. Under section 146 of the Act of 1961, where an assessee has been assessed under section 144 on the best judgment assessment basis, he can make an application to the Income-tax Officer for the cancellation of the assessment and after the order of assessment dated December 6, 1968, the petitioner applied under section 146 paying that the assessment under section 144 should be cancelled. On February 11, 1969, the Income-tax Officer rejected the application under section 146. Thereafter, the petitioner filed two appeals to the Appellate Assistant Commissioner. One was under the order of assessment passed on December 6, 1968, and the other was against the order rejecting his application under section 146. On August 18, 1969, the Appellate Assistant Commissioner passed orders in each of these two appeals. The main order was passed in the appeal relating to the order under section 146 and similar order passed in the other appeal. The Appellate Assistant Commissioner set aside the order of assessment dated December 6, 1968, and he held that the assessment proceedings under the Act of 1922 commenced when either a voluntary return was filed by an assessee or an individual notice under section 22(2) of the 1922 Act was served by the Income-tax Officer whichever was earlier. The Appellate Assistant Commissioner further held that since in the instant case the notice under section 22(2) had been served, the assessment proceedings for the assessment year 1961-62 were initiated by the Income-tax Officer by issuing the notice under section 22(2) on March 5, 1966, and he further held that in view of the decision of the Supreme Court in Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax the assessment proceedings having been initiated, income could not be said to have escaped assessment unless a final order of assessment was passed in the pending proceedings. Since in the instant case the proceedings had been initiated by issue of notices under section 22(2) and the final order on such proceeding had not been passed by the time the Income-tax Officer initiated reassessment proceedings by the notice dated March 5, 1966, the Income-tax Officer had no jurisdiction to reopen the assessment under section 147(a) of the Act and, therefore, there was no legal duty on the petitioner to comply with the notice issued in excess of jurisdiction, and hence he allowed the appeal and set aside the order of the Income-tax Officer.

3. Against this order of the Appellate Assistant Commissioner, two appeals were filed by the revenue before the Income-tax Appellate Tribunal and those appeals were pending when the present special civil application was filed in this court on April 28, 1970. Those two appeals were decided by the Appellate Tribunal by orders dated April 19, 1971. Both the appeals were dismissed by the Appellate Tribunal and the finding of the Appellate Assistant Commissioner that the initiation of proceedings under sections 147 and 148 was bad in law was upheld and the Tribunal held that the assessment must be cancelled. As regards the appeal against the order of the Appellate Assistant Commissioner cancelling the Income-tax Officer's order under section 146, the Tribunal held that the orders of the Appellate Assistant Commissioner had become infructuous since the Tribunal had held in the main appeal that the proceedings initiated under section 147 were bad in law.

4. During the pendency of the appeals before the Appellated Tribunal, the Income-tax Officer issued a new show cause notice on January 20, 1970, calling upon the petitioner to show cause why a notice under section 148 should not be issued and ultimately he issued the notice on March 18, 1970, under section 148. Thereafter, on April 28, 1970, the present special civil application was filed challenging the notice which has been referred to as the notice dated March 20, 1970, because it appears that though the notice was actually issued on March 18, 1970, it was received by the petitioner on March 20, 1970.

5. On these facts Mr. Kaji for the petitioner has made the following submissions before us at the time of the hearing of this special civil application :

(1) Since proceedings initiated by the Income-tax Officer under section 22, sub-section (2) of the Act of 1922, were not disposed of and were, therefore, pending, no, proceedings for reassessment could be commenced.

(2) So long as the Appellate Assistant Commissioner's order setting aside the order of assessment had no been set aside, the second notice under section 148 could not be issued as was purported to be done by the Income-tax Officer by the notice dated March 18, 1970.

6. Mr. Kaji contended in support of the first argument that it is well-settled by now, and that contention of Mr. Kaji is correct, that under the Act of 1922 which was in force up to March 31, 1962, proceedings could be initiated for assessment for any particular year by the party filing voluntarily a return or by the Income-tax Officer issuing a notice under section 22(2) of the Act of 1922. It is also clear that once the proceedings are initiated no reassessment can be done until the proceedings initiated by the notice under section 22(2) or by the assessee filing his return voluntarily, have been disposed of by an assessment order; if there is no assessment order in such pending proceedings there cannot be a reopening of the assessment.

7. In Commissioner of Income-tax v. Ranchhoddas Karsondas the Supreme Court held that where in respect of any year a return has been voluntarily submitted before assessment, the Income-tax Officer cannot choose to ignore the return and any notice of reassessment and consequent assessment under section 34 ignoring the return is invalid. Section 34 of the Act of 1922 was in the same terms as sections 147 and 148 of the Act of 1961 and, therefore, in view of this decision it is obvious that once the proceedings have been initiated either by the assessee filing a voluntary return or by the Income=Tax Officer and any notice for reassessment would be invalid and, consequently, the assessment order in such purported reassessment proceedings would also be invalid. The Supreme Court also there held that a return in answer to the general notice under section 22(1) of the Income-tax Act could, under section 22(3), be filed at any time before assessment and for this there was no limit of time. At page 575 of the report, Hidayatuallah J., as he then was, delivering the judgment of the Supreme Court, observed :

'It is a little difficult to understand how the existence of a return can be ignored, once it has been filed. A return showing income below the taxable limit can be made even in answer to a notice under section 22(2). The notice under section 22(1) requires in a general way what a notice under section 22(2) requires of an individual. If a return of income below the taxable limit is a good return in answer to a notice under section 22(2), there is no reason to think that a return of a similar kind in answer to a public notice is no return at all.'

8. At page 576 it was pointed out that in that particular case in the assessment year no return of income was filed, nor was any notice served under section 22(2). There was, however, the general notice under section 22(1). A return in answer to that notice could be filed under section 22(3) before assessment, and for this there was no limit of time. The assessment year under consideration before the Supreme Court was 1945-46 and, therefore, the assessment order could be made for the assessment year 1945-46 till March 31, 1950. The return in that particular case was filed on January 5, 1950, and there was nothing, according to the Supreme Court, to prevent the Income-tax Officer from taking up the return and proceeding to assess the income of the assessee. It was open to him, if there was sufficient justification for it, to hold that the amount noted in the foot-note was really the assessee's income, in which case an assessable income would have been found and the tax could be charged thereon. If the Income-tax Officer had acted on that return and assessed the assessee before March 31, 1950, the assessment would have been valid. He chose to ignore the return, and served on the assessee a notice under section 34(1) which was issued on February 27, 1950, under section 34 of the Act of 1922 calling upon the assessee to submit his return. Thus, without having assessed the assessee, he had purported to open reassessment proceedings and the Supreme Court held that the notice was improper, because with the return already filed, there was neither an omission nor a failure on the part of the assessee, nor was there any question of income escaping assessment and the notice under section 34(1) was, therefore, invalid and the consequent assessment, equally so.

9. Mr. Kaji for the petitioner has very strongly relied on the following paragraph from the judgment of Hidayatullah J. on page 576 of the report :

'Before leaving this case, we may refer to two other arguments, which were raised. Mr. Rajagopala Sastri pointed out that an assessee might file the 'voluntary' return on the last day showing income less than the taxable limit, and the department would, in that case, be driven to complete the assessment proceedings within a few hours or lose the right to send a notice under section 34(1). An argument ab inconvenienti is not a decisive argument. The Income-tax Officer could have avoided the result by issuing a notice under section 23(2) and not remaining inactive until the period was about to expire. Further, all laws of limitation lead to some inconvenience and hard cases. The remedy is for the legislature to amend the law suitably. The courts can administer the laws as they find them, and they are seldom required to be astute to defeat the law of limitation. This argument is thus no an answer to the clear meaning and implications of the Act'.

10. Mr. Kaji pointed out that under the Act of 1922, the period of limitation for passing the assessment order was four years from the end of the assessment year in question and the same is the position under section 153 of the Act of 1961. Therefore, in the instant case the assessment order should have been passed by the Income-tax Officer on or before March 31, 1966. He further contended that since no assessment order was passed by the Income-tax Officer prior to March 31, 1966, though the proceedings had been initiated by the issuance of the notice under section 22(2) on March 22, 1962, the Income-tax Officer could not take advantage of his own wrong in failing to pass the order of assessment before March 31, 1966, and seek to reopen the proceedings under sections 147 and 148 on the ground that the income of the petitioner for assessment year 1961-62 had escaped assessment. Under section 147(a) if 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 under section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year then the reassessment proceedings can be started after following the appropriate procedure in that behalf. It is equally clear that under section 23, sub-section (4) of the Act of 1922, since the assessee had failed to make a return required by notice given to him under section 22(2) of that Act and had not made a return, the Income-tax Officer should have made the assessment to the best of his judgment and determined the sum payable by the assessee on the basis of such assessment, the words of section 23(4) being 'the Income-tax Officer shall made the assessment to the best of his judgment'. However, as pointed out, no order under section 23(4) on best judgment basis was passed by the Income-tax Officer before March 31, 1966.

11. We may point out that the principle laid down by the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas, has been explained and followed in several subsequent decisions of the Supreme Court and the High Courts in India. In Commissioner of Income-tax v. Raman Chettiar, decided by the Supreme Court, the facts were that for the assessment year 1944-45, the assessee, Hindu undivided family, had not filed any return. On April 3, 1948, the Income-tax Officer issued a notice under section 34 of the Act of 1922 for which he had not obtained the sanction of the Commissioner of Income-tax. Pursuant to that notice the assessee filed a return on September 4, 1948, showing an income of Rs. 4,058, which was below the taxable limit of Rs. 7,200, and proceedings for assessment were dropped as infructuous. Later, in proceedings relating to the assessment year 1945-46, the Appellate Tribunal held that a sum of Rs. 46,760 was assessable in 1944-45, and thereupon the Income-tax Officer issued a notice under section 34 on February 27, 1953, in respect of the assessment year 1944-45, and passed an order on June 30, 1953, assessing the assessee to tax on an income of Rs. 51,523. The question before the Supreme Court was, whether the assessment under section 34 made on June 30, 1953, was valid. The Supreme Court held that the return dated September 4, 1948, submitted pursuant to notice under section 34 issued on April 3, 1948, was invalid, still it was a return within section 22(3) and the Income-tax Officer could not ignore or disregard that return and issue a notice under section 34 on the assumption that there had been an omission or failure on the part of the assessee to make a return of his income under section 22. Therefore, the assessment under section 34 completed on June 30, 1953, was invalid.

12. Again, in Estate of Late A.M. Karuppan Chettiar v. Commissioner of Income-tax, the question came up before the Supreme Court and it held that notices under section 34 could not be issued against the assessee in his individual capacity unless the returns which had already been filed by him were disposed of and the assessments made pursuant to the notice under section 34 were invalid and the decision of Commissioner of Income-tax v. Ranchhoddas Karsondas was applied.

13. In Commissioner of Income-tax v. M. K. K. R. Muthukaruppan Chettiar, decided by the Supreme Court, the facts were that K, his son, M, and M's two minor sons formed a Hindu undivided family which was assessed as such till the end of the assessment year 1948-49. In the proceedings for the assessment year 1949-50 the family claimed that there was a partition between K on the one hand and M and his sons forming a separate family on the other, and, following up his claim, pursuant to notices issued on the family, K filed returns in his individual capacity for the assessment years 1950-51, 1951-52 and 1952-53. M and his minor sons, forming the respondent-family, filed separate returns voluntarily for the assessment years 1950-51, 1951-52 and 1952-53. The Income-tax Officer rejected the claim of partition and treating K's returns as the proper returns assessed the family as before. He closed the assessments relating to the returns filed by the respondent-family formed by M and his sons as 'no assessment' by his notes in his order sheet, dated June 18, 1953, holding that as the partition had not been accepted by him there was no source of income to be separately assessed in the hands of the respondent and that the file had to be clubbed with the file of the father, K; that if for any reason it was ultimately held that a separate assessment should be made it would be possible to take action under section 34 of the Indian Income-tax Act, 1922; and that, since there was no separate income the pending proceedings would be closed as 'N.A', that is, not assessed. The respondent-family again filed voluntary returns for the three years on February 23, 1955, and March 30, 1956. The Appellate Assistant Commissioner, however, accepted the partition and, thereafter, on March 2, 1957, the Income-tax Officer issued notices under section 34 to the respondent-family for the assessment years 1950-51 to 1952-53 and completed the assessments for those years. On these facts the Supreme Court held that the order of the Income-tax Officer, dated June 18, 1953, was not an order terminating the proceedings, with the result that there was no disposal of the voluntary returns submitted by the respondent-family for the assessment years 1950-51 to 1952-53. Ignoring those returns the Income-tax Officer could not issue notices of reassessment under section 34 and the reassessment proceedings for the three years were, therefore, invalid. Here also the Supreme Court referred to and applied the principles laid down in the decisions in Commissioner of Income-tax v. Ranchhoddas Karsondas, and Estate of Late A.M. K. M. Karuppan Chettiar.

14. In B. R. Bamasi v. Commissioner of Income-tax, a similar problem arose before the Bombay High Court. The decision of the Division Bench was delivered by Mody, Actg. C. H., and at page 244 it has been pointed out that the assessee in that case had filed a voluntary return on March 28, 1952. Nonetheless, the Income-tax Officer issued a notice to the assessee under section 34(1) (a) on July 9, 1952 and then proceeded to assess the assessee under that section. The assessee raised before the Tribunal a contention that the notice under section 34(1) (a) having been issued in spite of the assessee having filed a return in proper time, it was invalid and that the appeal filed by the department before the Tribunal should be dismissed. The relevant assessment year in that case was 1947-48. In support of his contention that the notice was invalid in law, the assessee relied upon the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas. The Tribunal, however, did not allow the assessee to raise that contention on the ground that it had been raised only at the time of the arguments in the appeal before the Tribunal as a fresh ground and that if the ground was allowed to be urged and it succeeded, the result would be that the entire assessment proceedings would have to be held invalid and even the assessment on the undisputed amount of the income against which the assessee had not appealed would thereupon go by the board. The assessee had contended before the Tribunal that he wanted to urge that ground only for having the appeal of the department dismissed and stated that he did not want to disturb the assessment as already made by the Appellate Assistant Commissioner. The Tribunal, however, held that it could not permit a legal and an illegal order to stand side by side because once the plea was allowed to be raised and it was accepted, the entire order of the Appellate Assistant Commissioner would stand vitiated. The Tribunal refused to allow the assessee to raise and argue that ground because of such a difficulty which the Tribunal felt would arise. The Bombay High Court held that, as the assessee had already filed a voluntary return, the notice under section 34(1) (a) was wrongly issued and the proceedings of assessment which took place in pursuance of that notice were invalid. This was held relying upon the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas.

15. Thus, these different decisions of the Supreme Court and of the Bombay High Court clearly go to show that once the proceedings are initiated for the assessment of income of a particular assessee either by the assessee filing a voluntary return or by the Income-tax Officer issuing the notice under section 22(2), it is not open to the Income-tax Officer to resort to reassessment proceedings under section 34(1) (a) or under sections 147 and 148 of the Act of 1961 without finalising the assessment in the proceedings initiated earlier either by the action of the assessee or by the action of the Income-tax Officer.

16. The question next arises as to whether the expiry of the period of limitation prescribed by the relevant section of the Act of 1922 or the Act of 1961 would make any difference. Relying on the passage from the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas, at page 576, which we have already cited, Mr. Kaji contended that the Income-tax Officer could have avoided the bar of limitation by issuing the notice under section 23(2) and not remaining inactive until the period was about to expire. He also pointed out that an argument ab inconvenienti is not a decisive argument as held by the Supreme Court in that passage and all laws of limitation leas to some inconvenience and hard cases and the Supreme Court had there held that the argument about bar of limitation was no answer to the clear meaning and implications of the Act.

17. In Smt. Suniti Devi Jaipuria v. Income-tax Officer, K. L. Roy J. of the Calcutta High Court, sitting singly, has relied upon this passage from the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas, and held that even if the return be filed on the last day of limitation the Income-tax Officer has got to deal with it and he could not take recourse to reassessment proceedings ignoring such a return. The relevant assessment year in that case was 1956-57 for which the corresponding accounting year was Samvat year 2013 and the petitioner filed a return for that year before the Income-tax Officer, Refund Circle, on March 29, 1961, that is, only two days before the time to file a return expired. At this stage we may mention that there was no time fixed by law to file a return but the time was fixed to assess the income and the limitation would prevent the Income-tax Officer from assessing the income for the year 1956-57 after March 31, 1961. At page 394 of the report, the learned judge of the Calcutta High Court referred to the decisions of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas, and S. Raman Chettiar's case and at page 395 it was pointed out that the petitioner had voluntarily filed the return on March 29, 1961, which gave the department little time to deal with such a return and the learned judge held that the Supreme Court has specifically dealt with this question and said that even if the return be filed on the last day of limitation, the Income-tax Officer has got to deal with it and he could not take recourse to reassessment proceedings ignoring such a return.

18. As against these two decisions, one of the Supreme Court where certain observations were made at page 576 of the report and the other of the Calcutta High Court in Smt. Suniti Devi Jaipuria v. Income-tax Officer there are two decisions of the Supreme Court which require consideration in this context. The first of these two decisions is in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax. The judgment of the court was delivered by Gajendragadkar J., as he then was, and at page 7 of the report the question as to what is meant by 'income escaping assessment' has been dealt with by the Supreme Court. It was urged before the Supreme Court that the word 'assessment' does not mean only the order of assessment, but includes all steps taken for the purpose of levying the tax and during the process of taxation. The Supreme Court held that no doubt that was true but the wide denotation of the word 'assessment' did not really assist the appellant before the Supreme Court; it only showed that along with the order of assessment which is an important act in the process of taxation, other acts and steps adopted in the course of taxation are also included in the word; but it is with this 'most critical act in the process of taxation' with which they were concerned in the appeal. Then it was further contended before the Supreme Court on behalf of the assessee that the word 'escaped' in 'income escaping assessment', according to the Oxford English dictionary meant' to elude (observations, search, etc.); to elude the notice of a person'; and the contention was that it is only where income has not been returned for assessment that it can be reasonably said that income has escaped assessment. The dictionary meaning of the word did not support this contention according to the Supreme Court. According to the same dictionary, the word 'escape' also meant 'to get clear away from (pursuit or pursuer); to succeed in avoiding (anything painful or unwelcome) '; so that judging by the dictionary meaning alone it would be difficult to confine the meaning of the word 'escape' only to cases where no return has been submitted by the assessee. Even if the assessee has submitted a return of his income, cases may well occur where the whole of the income has not been assessed and such part of the income as has not been assessed and such part of the income as has not been assessed can well be regarded as having escaped assessment. On the facts of the case before it the Supreme Court held that there was no doubt that a part of the assessee's income had not been assessed, and, in that sense, it had clearly escaped assessment. The Supreme Court observed :

'Can it be said that, because the matter was considered and decided on the merits in the light of the binding authority of the decision of the Patna High Court, no income has escaped assessment when the said Patna High Court decision has been subsequently reversed by the Privy Counci We see no justification for holding that case of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted. In our opinion, even in a case where a return has been submitted, if the Income-tax Officer erroneously fails to tax a part of assessable income, it is a case where the said part of the income has escaped assessment. The appellant's attempt to put a very narrow and artificial limitation on the meaning of the word 'escape' in section 34(1) (b) cannot therefore succeed'.

19. According to this passage, therefore, in the decision of the Supreme Court, it is obvious that there is no justification for holding that cases of income escaping assessment must always be cases where income has not been assessed, inter alia, owing to the fact that no return has been submitted. In the instant case, though no return was submitted by the assessee, the petitioner herein, at least the proceedings had been initiated by the action of the Income-tax Officer in issuing notice under section 22(2) of the Act of 1922. Under these circumstances once those proceedings had been initiated and subsequently it is found that for some reason or another or oversight on the part of the Income-tax Officer the income has escaped assessment, then the case would certainly fall, according to this decision of the Supreme Court, under section 34(1) (b).

20. In Commissioner of Income-tax v. Narsee Nagsee & Co., the case was again considered by the Supreme Court and the words 'escaping income' were interpreted by the Supreme Court. At page 313 of the report, Kapur J., delivering the judgment of the Supreme Court, has observed :

'The words 'escaping income' in the Indian Income-tax Act, 1922, were interpreted as being applicable to a case where a person received notice under section 22(2) of the Income-tax Act but the process ended in no assessment as to a case where there was no assessment at all because no notice was issued under section 22(2) of the Income-tax Act; in other words, it includes cases where the process of assessment did not commence because no notice was given under section 22(2) of the Income-tax Act due to inadvertence, oversight, negligence or any other cause as to cases where such notice proved abortive or ineffective. Both are cases of escaped assessment'.

21. In this connection the Supreme Court referred to the case of Commissioner of Income-tax v. Pirojbai N. Contractor, and also to its own earlier decision in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax. The words 'escaping income', according to the Supreme Court, had been interpreted to comprise a case of no notice being given for the assessment and notice being given and resulting in no assessment and ultimately after reviewing the authorities, the Supreme Court held that in those cases the words 'escaping assessment' applied equally to cases where a notice was received by the assessee but resulted in no assessment at all and to cases where due to any reason no notice was issued to the assessee and, therefore, there was no assessment of his income.

22. In the light of these two decisions of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax and Commissioner of Income-tax v. Narsee Nagsee and Co., it is clear that after a notice has been issued under section 22(2), but the proceedings have resulted in no assessment at all, the result would still be that the income for the relevant year would escape assessment and, therefore, the provisions of section 34(1) (b) of the Act of 1922 and of section 147(1)(b) of the Act of 1961 would be attracted.

23. We find that in Mohd. Shakoor Mohd. Bashir v. Commissioner of Income-tax, a Division Bench of the Allahabad High Court has taken the same view as we are taking. There it was held that income had escaped assessment within the meaning of section 34 when the Income-tax Officer did not take cognizance of the returns filed by the assessee and allowed the assessment to lapse by the bar of limitation. At page 548 of the report, Pathak J., delivering the judgment of the Allahabad High Court, has pointed out that income may escape assessment for any of several reasons. He may not have filed a return of the income. He may have omitted to disclose fully and truly all material facts necessary for his assessment. There may be no default on the part of the assessee and yet income may escape assessment. It may escape assessment because the Income-tax Officer may erroneously decline to accept an item returned by the assessee as his income and treat it as the income of another assessee. The Income-tax Officer may also erroneously decline to act upon the return filed by the assessee in the view that the entire income disclosed in the return is liable to tax in the hands of another. The return filed by the assessee may remain undisposed of an the Income-tax Officer would then be precluded by the bar of limitation from making the assessment on the basis of that return. In every case, whenever the Income-tax Officer seeks to invoke the jurisdiction under section 34(1), he must ask himself the question whether it is open to him to bring the income to assessment by exercising his powers under section 23. If he cannot, either because the assessment order under section 23 has been made and is, therefore, final, so far as he is concerned or, although no assessment order has been made, he is precluded from making an assessment because of the bar of limitation, income which was liable to assessment must be said to have escaped assessment. We thus find support for our conclusion in this decision of the Allahabad High Court.

24. In view of these conclusions of ours, it is clear that at least as regards the notice issued on March 18, 1970, which was received by the assessee on March 20, 1970, income for the assessment year 1961-62 had escaped assessment even though it had so escaped assessment because after March 31, 1966, the Income-tax Officer was precluded by the bar of limitation from passing any assessment order for that particular year. It is true, as has been emphasized by Mr. Kaji on behalf of the petitioner, that the proceedings had in fact been initiated by the Income-tax Officer concerned by issuing the notice under section 22(2) on March 22, 1962. But, for reasons best known to himself, instead of completing that assessment before March 31, 1966, on March 5, 1966, he chose to issue a notice under section 148 and he allowed time to lapse so far as the assessment year 1961-62 was concerned without completing the assessment before March 31, 1966, as he could have done in view of the notice under section 22(2). Still, in view of our conclusion that the income for the assessment year 1961-62 can be said to have escaped assessment by the Income-tax Officer having allowed the period of limitation to expire, there is no doubt that income can be said to have escaped assessment for the assessment year 1961-62 and, therefore, the provisions of section 147(1)(b) can apply to the facts of this particular case.

25. The result, therefore, is that the challenge to the notice under section 147 read with section 148 issued on March 18, 1970, and served upon the petitioner on March 20, 1970, fails and it must be held to be a valid notice. We are expressing no opinion regarding the invalidity of the notice dated March 18, 1970, on any other ground since it is not necessary for us in the light of our conclusions regarding that particular notice to do so. It is also not necessary for us in the light of the conclusions that we have reached so far to deal with the second contention of Mr. Kaji that so long as the Appellate Assistant Commissioner's order had not been set aside in proceedings arising out of the notice of March 5, 1966, the second notice under section 148 could not be issued once it is held that the notice dated March 18, 1970, could be validly issued as income for the assessment year 1961-62 had escaped assessment, there is no question of any estoppel or bar of res judicata or any such bar preventing the Income-tax Officer from issuing notice on March 18, 1970.

26. One of the contentions urged on behalf of the petitioner was that the conditions for the exercise of the jurisdiction by the Income-tax Officer as laid down in section 147 did not exist in this case inasmuch as the income had escaped assessment not by reason of any omission or failure on the part of the assessee to file a return for the assessment year 1961-62, but by reason of the fact that the Income-tax Officer had allowed the period of limitation to expire even after initiating assessment proceedings by issuing notice under section 22(2). This contention has not been raised in the petition and, therefore, we have not permitted Mr. Kaji to raise this contention before us but we are pronouncing upon the validity of the notice under section 147 only in the light of the contentions in the terms taken in the petition and dealt with by us in the course of this judgment.

27. In the result this special civil application fails and is dismissed. Rule is discharged with costs.

28. Application dismissed.


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