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Al. Vr. St. Veerappa Chettiar Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 32 of 1967 (Reference No. 9 of 1967)
Judge
Reported in[1973]91ITR116(Mad)
ActsIncome Tax Act, 1922 - Sections 34(1)
AppellantAl. Vr. St. Veerappa Chettiar
RespondentCommissioner of Income-tax
Appellant AdvocateK. Parasaran, Adv.
Respondent AdvocateV. Balasubrahmanyan, Adv.
Cases ReferredPulavarthi Viswanadham v. Commissioner of Income
Excerpt:
direct taxation - reassessment - section 34 (1) of income tax act, 1961 - question of limitation period with regard to section 34 (1)(b) - assessee challenged order of tribunal - order relating to reassessment of assessee - assessee challenged cancellation of allowance of loss suffered in reopening of original assessment done after prescribed period of 4 years - section 34 (1) makes distinction between clauses (a) and (b) - no time limit for cases falling under clause (a) but time limit provided for cases falling under clause (b) cannot be ignored - items falling under clause (b) cannot be brought into charge ignoring specified time limit - reassessment made by assessing officer under section 34 (1) (b) cancelling allowance for losses cannot be sustained as it infringes bar of 4 years. .....ramanujam, j. 1. the assessee was originally assessed in the status of a hindu undivided family for the assessment year 1953-54 on august 31,1954, on a total income of rs. 4,915 and for the year 1954-55 on a total loss of rs. 4,087 on april 15, 1955. in its original assessments the assessee had claimed losses of rs. 9,167 and rs. 19,283 in the assessment years 1953-54 and 1954-55 respectively from its thatchanallur sugar mill business, and those losses were allowed as claimed in the original assessments. in those original assessments the interest received by the assessee from one of the debtors, sri rm. ar. ar. rm. ramanathan chettiar, had not been disclosed and the assessments were completed without including these interest receipts. 2. subsequently, in the course of the assessment for.....
Judgment:

Ramanujam, J.

1. The assessee was originally assessed in the status of a Hindu undivided family for the assessment year 1953-54 on August 31,1954, on a total income of Rs. 4,915 and for the year 1954-55 on a total loss of Rs. 4,087 on April 15, 1955. In its original assessments the assessee had claimed losses of Rs. 9,167 and Rs. 19,283 in the assessment years 1953-54 and 1954-55 respectively from its Thatchanallur Sugar Mill business, and those losses were allowed as claimed in the original assessments. In those original assessments the interest received by the assessee from one of the debtors, Sri RM. AR. AR. RM. Ramanathan Chettiar, had not been disclosed and the assessments were completed without including these interest receipts.

2. Subsequently, in the course of the assessment for the year 1955-56, it was found that one of the debtors, the said Ramanathan Chettiar, had credited the assessee with Rs. 24,165 as interest for a number of years. When that interest receipt was included in the income of the assessee for that year, the assessee went on appeal, and the Appellate Assistant Commissioner held that the said sum represented interest income for various years and that only Rs. 4,126 should be considered in the assessment for 1955-56. He also held that regarding the earlier years the amounts credited in the books of the debtor as interest due to the assessee should be related to the respective years, On this basis Rs. 4,037 related to 1954-55 and Rs. 4,412 related to 1953-54.

3. Similarly, in the course of the assessment proceedings for the assessment year 1957-58, the Income-tax Officer found that the loss claimed by the assessee from the sugar mill business cannot be allowed as that business had become defunct even prior to the assessment year 1953-54. He was of the view that the loss from the sugar mill business had thus been wrongly allowed to the assessee in the assessment years 1953-54 and 1954-55.

4. The Income-tax Officer, therefore, reopened the original assessment for the two years, 1953-54 and 1954-55, by issuing a notice under Section 22(2) read with Section 34(1)(a) of the Indian Income-tax Act, 1922. In response to the said notice the assessee filed revised returns for the said two years. In these revised returns the assessee admitted the interest income of Rs. 4,412 during the assessment year 1953-54 and Rs. 4,037 during the assessment year 1954-55. The assessee, however, objected to any interference with the original assessments in respect of the losses from the sugar mill business. It was contended by the assessee that the original assessments so far as they relate to the losses from that business had become final and that they could not be reopened after the expiry of four years. The Income-tax Officer overruled the said objection and completed reassessments for these years after disallowing the losses claimed by the assessee from the sugar mill business and also including the interest receipts in the income of the assessee for the above two years which has been admitted by the assessee in its revised returns.

5. The assessee preferred appeals to the Appellate Assistant Commissioner against the orders of the Income-tax Officer and contended, (1) that the revision of the original assessment under Section 34(1)(a) of the Act in respect of the losses from the sugar mill business was illegal, and (2) that the disallowance of the losses was not justified even on merits. The Appellate Assistant Commissioner held that all information relating to the functioning of the Thatchanallur Sugar Mill had been placed before the Income-tax Officer during the course of the original assessment proceedings and that if the latter chose to allow the losses, it could not be said that there had been a misrepresentation or concealment on the part of the assessee attracting Section 34(1)(a), that at best the assessments could have been revised under Section 34(1)(b) within the four years allowed under that section, that the proceedings under Section 34 initiated after the expiry of four years by the assessing authority for the purpose of disallowing the loss from the sugar mill business which was originally allowed cannot be sustained. The Appellate Assistant Commissioner, therefore, without going into the question of the disallowance of the loss on merits, cancelled the additions made by the Income-tax Officer in respect of the losses from the sugar mill business, purporting to follow the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta, : [1961]41ITR191(SC) .

6. Aggrieved against the order of the Appellate Assistant Commissioner the revenue preferred appeals before the Appellate Tribunal. The Tribunal, however, took the view that the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies Dist. I, Calcutta, relied upon by the Appellate Assistant Commissioner was not applicable to the facts of the assessee's case and that, on the other hand, the decision of the Andhra Pradesh High Court in Pulavarthi Viswanadham v. Commissioner of Income-tax, : [1963]50ITR463(AP) was applicable, and in that view held that, since the original assessments had been validly reopened under Section 34(1)(a) on the ground of non-diclosure of interest received, the Income-tax Officer had acted well within his powers to make the assessments for these two years de novo including therein such items of income, as in his opinion, had wrongly escaped assessment at the time of the original assessments. The Tribunal, therefore, set aside the orders of the Appellate Assistant Commissioner and directed him to dispose of the appeals filed by the assessee on merits.

7. The assessee thereafter sought a reference to this court under Section 66(1) of the Indian Income-tax Act, 1922, and the following question has been referred to us for decision :

' Whether, on the facts and in the circumstances of the case, it was open to the Income-tax Officer under Section 34(1)(a) of the Indian Income-tax Act, 1922, to reconsider the assessee's claim in respect of the losses from the That chanallur Sugar Mill business for the assessment years 1953-54 and 1954-55?'

8. It is contended on behalf of the assessee that so far as the losses from the sugar mill business are concerned, there is no question of any omission or failure on the part of the assessee to disclose fully or truly all material facts necessary in relation to the claim for allowance of the losses incurred in the sugar mill business and that, therefore, it cannot be brought in for reassessment under Section 34(1)(a). It is also contended that even if the notice issued under Section 34(1)(a) is considered as one under Section 34(1)(b) the period of limitation of four years having elapsed, the Income-tax Officer cannot set aside his original assessment so far as it relates to the allowance of loss from the sugar mills. But, according to the revenue, once the proceedings under Section 34 have been validly initiated by the issue of a notice under Section 34(1)(a), all the items which may fall either under Clause (a) or Clause (b) of Section 34(1) can be brought to charge by way of reassessment, and in this case in respect of the items of interest receipts which have been admittedly suppressed by the assessee at the time of the original assessment, the proceedings under Section 34(1)(a) have properly been initiated and, therefore, the Income-tax Officer is entitled to make a de now assessment in respect of all the items found to have escaped assessment whether they fall under Clause (a) or Clause (b) of Section 34(1). In view of these rival contentions, we have to consider the relative scope of Clauses (a) and (b) of Section 34(1).

9. Section 34(1), so far as it is relevant for the purpose of the present discussion, is set out below :

' 34. Income escaping assessment.--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 as 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 loss or depreciation allowance has been computed,

he may in cases falling under Clause (a) at any time within eight years 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 principal 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 :......'

10. We are not concerned in this case with the amendments made to this section by Section 18 of the Finance Act of 1956. A close reading of the said section indicates that so far as the cases falling under Clause (a), there is no time limit for the issue of a notice proposing reassessment of income, profits and gains or recomputation of the loss or depreciation allowance, while in respect of cases falling under Clause (b) there is a time limit of four years for the issue of a notice proposing reassessment. In this case the notice proposing reassessment purporting to be one under Section 34(1) included not only interest receipts in respect of which there is no disclosure by the assessee at the time of the original assessment but also the losses from the sugar mills business in respect of which there has been full disclosure. The assessee does not question the reassessment so far as it relates to the interest receipts. Therefore, it has to be taken that the proceedings under Section 34(1)(a) have rightly been initiated. But the question is whether in those proceedings validly initiated under Section 34(1)(a) cases falling under Section 34(1)(b) can also be dealt with particularly after the four years period mentioned in that section was over.

11. It is well-established that where the Income-tax Officer validly initiates reassessment proceedings by issuing a notice under Section 34(1)(a) in respect of a particular item, he can, during the reassessment proceedings, deal with all items falling under Clause (a) though they have not been dealt with specifically in the notice, and that his jurisdiction is not limited only to the item in respect of which a notice under Clause (a) of Section 34(1) had been issued. This proposition has clearly been laid down in the following decisions.

12. In Commissioner of Income-tax v. Jagan Nath Maheshwary, a notice had been issued under Section 34 based on a certain item of income that had escaped income-tax. The question was whether it is permissible for the Income-tax Officer to include other items of escaped income in the assessment in addition to the item which was the basis for the issue of a notice under Section 34. The Punjab High Court held that it is permissible for the Income-tax Officer to include other items of escaped income in theassessment in addition to the item referred to in the notice under Section 34, that it is not necessary that a notice under Section 34 should specify the item of income or the source of that income which has escaped assessment and that it is no less a discovery when the actual omission is of some different kind to the supposed omission contemplated in the notice. According to the learned judges in that case the word ' such ' occurring in the expression ' assess or reassess such income, profits, gains, etc.', in Section 34, has to be attributed to the last antecedent, namely, the escaped or under-assessed income, profits or gains without in any way further linking it with any particular escapement that was discovered in consequence of any definite information, that the word 'such' particularises the immediately preceding antecedent and not everything that has gone before so that it could be confined to that escaped income which the Income-tax Officer had discovered in consequence of definite information. In Seth Kalekhan Mahomed Hanif v. Commissioner of Income-tax, : [1958]34ITR669(MP) it has been held that when once an assessment was reopened under Section 34 of the Income-tax Act, the Income-tax Officer was not limited to the items in respect of which he had obtained sanction for reopening the assessment and that if he discovered other items during the course of the reassessment proceedings he was entitled to take them into account and assess them if they had escaped assessment earlier. K.S. Abdul Sattar v. Commissioner of Income-tax, : [1963]47ITR621(AP) laid down the proposition that once a case is reopened under Section 34 of the Income-tax Act, the Income-tax Officer is entitled to take into account new items not contemplated in the notice and to assess the same if it had escaped assessment originally, and that the term ' such income ' in Section 34 refers not only to that part of it with reference to which the Income-tax Officer had definite information in consequence of which he discovered the escapement but the entire escaped income. This case followed the earlier decisions in Commissioner of Income-tax v. Jagan Nath Maheshwary8 and Seth Kalekhan Mahomed Hanif v. Commissioner of Income-tax.

13. V. A. M. Sankaralinga Nadar v. Commissioner of Income-tax, : [1963]48ITR314(Mad) is a case where a notice has been issued for reassessment under Section 34(1)(b) of the Indian Income-tax Act, 1922, on the ground that a certain item of income had escaped assessment. At the time of the reassessment proceedings it was however found that the particular information which gave rise to his belief that income has escaped assessment proved to be ill-founded but there were other items of escaped income which did not come to light earlier. The question was whether the Income-tax Officer had the power to bring to charge such other items of escaped income. This court ruled that the non-existence of the original ground which led the officer to believe that income had escaped assessment is not a bar to reassessment of escaped income which came to light as a result of the enquiry and that such reassessment will not be vitiated on the ground that the original ground on which the proceedings were intitiated did not survive, and that the statutory requirement of reasonable belief rooted in information in the possession of the officer is only to safeguard the assessee from vexatious proceedings and is not a mantle of protection against taxation of income found to have escaped assessment. In K. E. M. Mohammad Ibrahim Maracair v. Commissioner of Income-tax, : [1964]52ITR890(Mad) this court held that the fact that the Income-tax Officer has reassessed the assessee's income once under Section 34 does not prevent him from taking proceedings again under Section 34 if he finds that another item of income has escaped assessment or has been under-assessed. Once the assessing officer has the power to invoke Section 34 whenever he finds an item of income had escaped assessment, there is no reason as to why the Income-tax Officer should be disabled from including the items of income which have escaped assessment and which came to light in the reassessment proceedings which have been validly initiated by the issue of a notice under Section 34. In V. Jagan-mohan Rao v. Commissioner of Income-tax, : [1970]75ITR373(SC) their Lordships of the Supreme Court had expressed :

'Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year,'

14. From the above decisions it is clear that once the reassessment proceedings are validly initiated by the Income-tax Officer in respect of an item of income either under Section 34(1)(a) or under Section 34(1)(b), the jurisdiction of the Income-tax Officer to reassess is not confined to the items of income in respect of which notice has been issued, but extends to all items of income which have escaped assessment and which may fall either under Section 34(1)(a) or Section 34(1)(b).

15. In this case the learned counsel for the assessee fairly concedes, inview of the above decisions, the power of the Income-tax Officer to bring initems of income falling under Section 34(1)(b) to charge in proceedings validly initiated by him in respect of items coming under Section 34(1)(a). But what he contends is that though the Income-tax Officer has got power to bring to charge items falling under Section 34(1)(b) in reassessment proceedings validly initiated under Section 34(1)(a), such power could not be exercised after the period of four years mentioned as regards the cases falling under Clause (b). According to the learned counsel the object of providing a time limit for the issuance of a notice in cases falling under Section 34(1)(b) is to take away the power of the Income-tax Officer to reassess the items of income coming under Clause (b) after a specified time limit, and that, therefore, the contention of the revenue that once the reassessment proceedings have been validly initiated in respect of the items falling under Clause (a), the items of income falling under Clause (b) could also be brought to charge without any time limit, overlooks the said object. We are inclined to agree with the contention of the learned counsel for the assessee in this regard. The statutory provision in Section 34(1) makes a distinction between cases falling under Clauses (a) and (b). That provision, as it stood at the relevant time, did not provide any time limit as regards cases falling under Clause (a), but it provided a time limit for cases falling under Clause (b). The contention of the learned counsel for the revenue that once the reassessment proceedings have been validly initiated under Clause (a), the time limit of four years provided for cases coming under Clause (b) will not apply clearly overlooks the statutory distinction between cases falling under Clauses (a) and (b). If that contention were to be accepted, the Income-tax Officer can always bring to charge items falling under Clause (b) after the period of four years by initiating proceedings in respect of an alleged item pf income falling under Clause (a) and proceed with the reassessment of items falling under Clause (b) in those reassessment proceedings. It is not a condition precedent that the items in respect of which proceedings were initiated under Clause (a) should survive for conferring jurisdiction on the Income-tax Officer to assess other items of escaped income falling under Clause (a) or under Clause (b). Thus, the Income-tax Officer can virtually defeat the object of the provision in Section 34 prescribing a period of four years before which reassessment proceedings are to be commenced in respect of cases falling under Clause (b). It is not, therefore, possible for us to ignore the time limit fixed for reassessment of items falling under Clause (b) and to hold that once the proceedings for reassessment have been validly initiated under Clause (a), the cases falling under Clause (b) could be brought in at the stage of reassessment without any time limit.

16. The learned counsel for the revenue would, however, contend that the court must always keep in mind the distinction between the chargingsection and the machinery provisions in the taxing statutes, and that so far as the machinery provisions are concerned, the court must give a liberal interpretation with a view to give full scope and effect to the charging section. According to the revenue, Section 34 is a part of the machinery provisions and it is only an enabling provision for making reassessments or original assessments in certain circumstances, and once the proceedings are initiated under Section 34 either for reassessment or for original assessment, there should be a de now assessment, and the enabling provision in Section 34 does not operate on the nature of the assessment to be made. In other words, the revenue contends that once the doors of the assessment are opened for reassessment by invoking Clause (a) of Section 34(1) that section does not concern itself as to what are the items that can be subject to reassessment, and that such reassessment may include not only items falling under Clause (a) but also items falling under Clause (b). There is no difficulty in accepting this contention so long as the reassessment of items falling under Clause (b) is within time. But the question on hand is whether in a proceeding initiated either under Clause (a) or under Clause (b) of Section 34(1) reassessment would cover the items in respect of which a notice under Clause (b) could not be validly issued in view of the time limit of four years having expired. The learned counsel for the revenue could not but concede that in cases falling under Clause (b), a notice of reassessment cannot be issued after the period of four years. But, what is contended by the revenue is that if proceedings are initiated under Clause (a) of Section 34(1), the items falling under Clause (b) can be brought to charge in such reassessment proceedings without any limitation as to time. This contention involves a fallacy and has no merit. The acceptance of such a contention would mean, that what the revenue cannot do directly, it can do indirectly. The Income-tax Officer cannot directly issue a notice for reassessment in cases falling under Clause (b) after the four year period. But those cases can be brought in indirectly by issuing a notice purporting to be under Clause (a).

17. Mr. Balasubrahmanyan, for the revenue, further contends that it is imperative on the part of the Income-tax Officer to include all items of escaped income falling either under Clause (a) or (b) at the stage of the reassessment proceedings without issuing separate notices, one for items falling under Clause (a) and another for items falling under Clause (b), that the entire escaped income which is before him at the stage of reassessment proceedings should be dealt with without postponing the reassessment in respect of the items falling under either of the clauses until the conclusion of the pending reassessment proceedings. To make the position clear he gives an instance: Suppose an Income-tax Officer initiates reassessment proceedings in respect of items falling under Clause (a). During the reassessmentproceedings the Income-tax Officer comes to know of the escapement from income of some items falling under Clause (b). The Income-tax Officer in such circumstances cannot be compelled to complete the reassessment only in respect of items falling under Clause (a) and to start fresh reassessment proceedings under Clause (b) after the completion of the pending reassesssment proceedings under Clause (a). It is pointed out by him that it is well-established that Section 34 cannot be invoked in cases where there is a pending assessment or reassessment proceeding and he relies on the following decisions in support of that proposition : Commissioner of Income-tax v. Ranchhoddas Karsondas, : [1959]36ITR569(SC) , Commissioner of Income-tax v. S. Raman Chettiar, : [1965]55ITR630(SC) , Estate of the late A, M. K. M. Karuppan Chettiar v. Commissioner of Income-tax, : [1969]72ITR403(SC) and Commissioner of Income-tax v. M. K. K. R. Muthukaruppan Chettiar, : [1970]78ITR69(SC) . It is true the above decisions clearly lay down the principle that Section 34 cannot be invoked in cases where the original assessments or reassessments have not been completed. But that will not solve the point at issue. As we have expressed already, the power of the Income-tax Officer to probe into and bring to charge items of escaped income falling under Clause (b) in proceedings validly initiated by the issuance of a notice under Clause (a) cannot be, and is not, disputed even by the learned counsel for the assessee. But the question is whether that power could be exercised beyond the time limit of four years prescribed by the same section with reference to cases coming under Clause (b).

18. We are not inclined to accept the contention of the learned counsel for the revenue that the period of four years mentioned in the section is only for the issuance of a notice under Clause (b), but that it will not debar a reassessment in respect of items falling under Clause (b) after four years, if those items come to the knowledge of the Income-tax Officer in connection with the proceedings validly initiated by the issuance of a notice under Clause (a). The object of a time limit for the issuance of a notice under Clause (b) is in effect to take away the power of the Income-tax Officer to deal with items falling under Clause (b) after the said period of four years. The further contention of the revenue is that the period of four years mentioned in respect of cases falling under Section 34(1)(b) cannot be considered to be a period of limitation so as to create a vested right in the assessee. Even if this contention were td be accepted, the object of providing a time limit before which the proceedings are to be initiated cannot be overlooked. As pointed out by the Supreme Court in S. S. Gadgil v. Lal & Co., : [1964]53ITR231(SC) , the period prescribed by Section 34 for assessment may not be a period of limitation. However, the section in terms imposes afetter upon the power of the Income-tax Officer to bring to tax escaped income. It prescribes different periods in different classes of cases for enforcement of the right of the State to recover tax.

19. The learned counsel for the revenue cited various decisions to show how the machinery sections in a taxing statute have to be understood and contended that the interpretation of a machinery section should be such as to fully effectuate the charging section. There cannot be two opinions on this. The machinery section in a taxing statute is intended to make the charging section workable., that is, ut resmagis valeat potius quam pereat. But, even in interpreting a machinery section in a reasonable and workable manner, the courts cannot ignore a statutory provision which puts a fetter on the enforcement of the charge. Section 34(1) fixes a period of four years before which a notice proposing reassessment in cases falling under Clause (b) has to be issued. That means that reassessment proceedings should commence in respect of such cases before the period of four years. In the guise of giving a reasonable interpretation to Section 34(1) we cannot overlook the time limit fixed therein and uphold the exercise of power under the section even if it contravenes the time fixed therein. If we do so it will be more or less rewriting the statutory provisions contained in Section 34(1). We are, therefore, of the view that though the Income-tax Officer has got the power to bring, in to charge the cases falling under Clause (b) in reassessment proceedings validly initiated by the issuance of a notice under Clause (a), such power is subject to a limitation that the reassessment proceedings initiated should be within the period of four years mentioned in that section. It is not in dispute in this case that the initiation of reassessment proceedings by the issue of a notice under Clause (a) was long after the period of four years had expired. Therefore, it has to be taken that the Income-tax Officer has acted beyond his jurisdiction when he brought to charge for reassessment the items falling under Clause (b) of Section 34(1).

20. The above view finds support from the following two decisions. In P. R. Mukherjee v. Commissioner of Income-tax, : [1956]30ITR535(Cal) the court, while considering the question as to whether it is necessary or imperative that a notice under Section 34 must specify under which of the two sub-sections, namely, Clause (a) or Clause (b) the notice was issued, expressed the view thus :

' The statute does not prescribe any form in which the notice contemplated by Section 34 should be issued. The principal fact in both Clause (a) and Clause (b) of Section 34(1) is that income has escaped assessment for any year or has been under-assessed or assessed at too low a rate. That fact is common to both the clauses. The difference between the two clauses is that clause (a) contemplates a case where the assessment or underassessment was caused by an omission or failure on the part of the assessee to do certain things and Clause (b) contemplates a case where such escape from assessment or under-assessment occurred in spite of there having been no such omission or failure. The practical consequence of the presence of such omission or failure in one case, and the absence thereof in the other is that, in the first case, the period within which the notice contemplated by the section can be issued is longer. I do not see how that difference makes it necessary or imperative that the notice itself must specify under which of the two clauses of the section it is being issued. . . . It is true that when answering a notice issued under the section, the assessee may take a plea of limitation and for the purpose of such a plea, it may be necessary for him to know whether his case is being treated as one under Clause (a) or as one under Clause (b). It appears to me, however, that whether the case is treated as coming under one clause or the other will transpire in the course of the assessment proceedings and it is neither required of the Income-tax Officer, nor is it necessary, that he should specify the clause in the notice itself. . . . Whether or not there had been an omission or failure to disclose income, the fact that the income had escaped assessment will remain and if the income which ought to have been assessed is discovered as having remained unassessed, that will be a sufficient ground for proceeding to its assessment, provided, however, the period of limitation has not already expired. '

21. The court further expressed that even if the Income-tax Officer specifies a clause in the notice, he cannot possibly be tied down to that clause which he mentioned in the notice and that he is free to make reassessment, provided that there is some escaped or under-assessed income and that the time for making the assessment or reassessment has not run out. Seth Kirorimal Adwani v. Income-tax Officer, was a case where the Income-tax Officer issued a notice under Clause (a) of Section 147 of the Income-tax Act, 1961, which corresponds to Section 34 of the Indian Income-tax Act, 1922, and initiated reassessment proceedings. But it was found on facts that the case really fell within the four corners of Clause (b) of Section 147. The question arose as to whether the notice issued under Section 147(a) could confer jurisdiction on the Income-tax Officer to assess the items falling under section 147(b) beyond the period of four years. In that case the reassessment notice under Clause (a) of Section 147 was issued on 14th March, 1966, in respect of the assessment year 1958-59 and the assessee's contention was that as the case clearly came within Section 147(b) of the Act, the proceedings initiated though under Clause (a) of Section 147 is barred by limitation and, therefore, the notice itselfwas bad. It has been held in that case that where a period of limitation for initiation of proceedings has been prescribed under the statute, it should be taken to be a fetter upon the Income-tax Officer to take action beyond a certain date, and that the notice issued in that case having been found to come within the ambit of Clause (b) of Section 147, the jurisdiction of the Income-tax Officer to reassess cannot extend beyond four years from the end of the assessment year.

22. Their Lordships of the Supreme Court in Calcutta Discount Co. Ltd. v. Commissioner of Income-tax had also specifically laid down that if the Income-tax Officer who issued a notice under Section 34 did not have any material before him for believing that there had been any material nondisclosure by reason of which an under-assessment has taken place, he had no jurisdiction to issue a notice after the expiry of four years from the end of the assessment year and that the Income-tax Officer cannot take any action on the basis of the said notice. This is clearly an authority for the proposition that in relation to items falling under Clause (b) of Section 34(1), the Income-tax Officer cannot initiate reassessment proceedings after the expiry of four years from the end of the assessment year. We, therefore, hold that the reassessment made by the Income-tax Officer under Section 34(1)(b) cancelling the allowance for losses in the sugar mill business cannot be sustained, as it infringes the bar of four years period prescribed by Section 34(1)(b).

23. As already stated, the Tribunal has relied on the decision of the Andhra Pradesh High Court in Pulavarthi Viswanadham v. Commissioner of Income-tax, wherein it has been held that once an assessment is validly reopened under Section 34(1), no distinction can be made between items falling under Clause (a) of that sub-section and those falling within Clause (b) and that the position obtaining after invoking Section 34(1)(a) is the same as it was prior to the completion of the original assessment, and, therefore, the Income-tax Officer would have jurisdiction to assess the items falling under Section 34(1)(b). But this decision can be treated only as an authority for the proposition that when reassessment proceedings are initiated by invoking Clause (a) of Section 34(1), it is open to the Income-tax Officer to assess in those proceedings items falling under Clause (b) also. Though the observations of the court in that case were to the effect that once an assessment is reopened the Income-tax Officer has to follow the same procedure as in the case of the original assessment, the court has not gone specifically into the question whether the period of four years mentioned in Clause (b) could be ignored by the Income-tax Officer in those reassessment proceedings.

24. The question is, therefore, answered in the negative and in favour of the assessee. The revenue will pay the costs of the assessee. Counsel'sfee Rs. 250.


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