RAJAMANNAR, C.J. - The question for decision in this case has been framed by the Tribunal in the following manner :-
'Whether on the assessees failure without reasonable cause to furnish a return of his total income as required by a notice under Section 22 (1), the Income-tax Officer was legally right in levying a penalty under Section 28 (1) (a) in the course of proceedings taken by him under Section 34 read with Section 22 (2) to assess such income, which had not previously been assessed at all ?'
The facts are not in dispute. The applicant is spite of a general notice under Section 22 (1) of the Act did not within the prescribed time submit his returns for two successive years ending 12th April, 1942, and 12th April, 1943. The department, however, did not proceed to issue notices under Section 22 (2) of the Act within the respective years of assessment. Subsequently on the 25th January, 1945, the Income-tax Officer issued notices under Section 34 of the Act calling upon the assessee to deliver to him within 35 days of the receipt of the notices the returns in forms attached to the notices of the respective years. In pursuance of these notices, the assessee submitted his returns for the two years within the specified time on the basis on which assessments were made in respect of the two years. Pending these proceedings notices under Section 28 of the Act were also issued by the officer for levying penalty for failure of the applicant to file his returns pursuant to the general notices under Section 22 (1) of the Act and eventually imposed a penalty of Rs. 1,226-7-0 for the year ending 12th April, 1942, and Rs. 7,981-3-0 for the year ending 12th April, 1943. The penalty levied was confirmed by the Appellate Assistant Commissioner and the Tribunal. An application was made for a reference to this Court but it was confined to the penalty in respect of the assessment year ending 12th April, 1943, with which alone we are concerned in this reference.
Before us it was contended by the learned counsel for the applicant that it was not competent for the Income-tax Officer to levy a penalty in the course of a proceeding under Section 34 of the Act for a default not committed in the course of that proceeding. He developed his contentions thus : The proceeding under Section 34 relates to escaped assessment, i.e., assessment which escaped totally partially, and is separate and distinct from a prior proceeding which generally culminates in an assessment order or in a declaration that no assessment can be levied on the person concerned. If there has been as assessment under Section 23 of the Act and thereafter there is a proceeding under Section 34 because of the scale of any item of income from assessment, then penalty can be levied only in respect of defaults and other acts committed in the course of that proceeding only and not in the course of the proceeding which ended with the assessment. He relied upon the ruling of the Allahabad High Court in Mayaram Durga Prasad v. Commissioner of Income-tax, United Provinces, in support of this contention. In that case (which was decided under the old Act of 1922) the assessee submitted a return for the year in question showing an amount of Rs. 2,650 as his income. This return was accepted and a tax levied on that basis. Subsequently it was discovered that the assessee had made a much larger income and proceedings under Section 34 of the Act were commenced and the assessee was called upon to make a fresh return. This time he made a return showing an income of Rs. 38,327 and the Income-tax Officer accepted the figure. In addition to an assessment made on the assessee for concealing particulars of his income and for furnishing inaccurate particulars of his income. The question of law referred to the High Court on these facts was as follows :-
'When an assessee in answer to an original notice under Section 22 (2) has returned his income below its real amount and has been assessed accordingly, and later in reply to a notice under Section 22 (2)/34 returns his income at the correct figure, is the imposition of a penalty in respect of the concealment of income in the former return authorised by sub-section (1) of Section 28.'
The learned Judges answered the question in the negative. They point out that there are three ingredients which go to make up a condition precedent to the inflation of a penalty, namely, (1) that the Income-tax Officer should be satisfied that the assessee has deliberately furnished inaccurate particulars and returned an income below the real amount, (2) that there was a determination by the Income-tax Officer that the assessee has furnished inaccurate particulars of the income, and (3) a refusal on the part of the Income-tax Officer to accept the return as correct. They then point out that in that case the return of the income in pursuance of Section 34 has been accepted as correct and has formed the basis of the assessment. The main ground on which they held that the levy of penalty was wrong appears to us to be this : that the proceedings which terminated in the original assessment were no longer before the Income-tax Officer and the proceedings under Section 34 of the Act were fresh proceedings in respect of escaped income and as these two proceedings are distinct from one another, no penalty can be imposed in the latter proceedings for anything committed in the course of the former proceeding. Reliance was placed on the use of the present perfect tense, namely, 'has concealed and has furnished.' One apparent difference between the facts in that case and the facts in the present case is that in that case there was originally an assessment which was final but for the provisions of Section 34 of the Act. In the case before us, admittedly there has been no such assessment; not has there been any order that the applicant was not liable to be assessed to income-tax. In these circumstances it becomes difficult to accept the contention of the learned counsel for the assessee that there is a separate proceeding for the assessment of the income for the concerned period distinct and separate from the proceeding which must be deemed to be initiated with the publication of the general notice under Section 22 (1) of the Act.
But apart from this difference in the facts between the present case and the facts in the Allahabad case, we are inclined to the view, that so long as the proceedings under Section 34 relate to the assessment for the same period as the original assessment, the Income-tax Officer will be competent to levy a penalty on any ground open to him under Section 28 (1), even though it relates to the prior proceeding. There may be one possible qualification of his power, and that is when the default or the act which is they basis of the imposition of the penalty was within the knowledge of the officer had failed to exercise his power under Section 28 during the course of the proceeding before him. Possibly in that case he would have no power. But it appears to us that there is nothing in the language of Section 28 which prevents an Income-tax Officer, if he is satisfied in the course of a proceeding under Section 34 relating to a particular period of assessment that a default has occurred under Section 22 (1), from levying a penalty. With due respect to the learned Judges of the Allahabad High Court we do not agree that for the purpose of Section 28, the two proceedings are separate and distinct. It is true that it has been pointed out that once an assessment is made or an order is passed by the Income-tax Officer that no assessment can be levied, the proceedings are closed and these proceedings cannot be reopened and the result of these proceedings cannot be altered in any manner except in the manner provide by Section 34 and 35 of the Act : vide In re, Burn & Co. and Commissioner of Income-tax, Bombay & Aden v. Khemchand Ramdas. It is also clear that under Section 34 of the Act there is no de novo assessment in the sense that it is open to the assessee also to show that he has been wrongly assessed in respect of matters which are not covered by the notice under Section 34. Essentially the proceedings under Section 34, whether partially or totally, relate to the same proceeding which must be deemed to have commenced with publication of the general notice under Section 22 (1). In some respects and in some cases it may lead to a supplemental assessment. In other cases it may result in assessment for the first time, as in this case where there has not been any assessment before. We do not find any justification for the artificial separation of a proceeding under Section 34 from a proceeding relating to the original assessment or to proceedings which started before a notice under Section 34, so long as they all relate to the same assessee and the same period. In any event, such an artificial distinction cannot be imported into a construction of Section 28 of the Act. The language is very wise, because it says that 'if the Income-tax Officer................ in the course of any proceedings under the Act is satisfied.' Of course, the expressions 'any proceedings' must mean proceedings relating to a particular period of assessment in respect of a particular assessee.
It was further contended by learned counsel for the assessee that in this case because there was no notice under Section 22 (2) and no action was taken by the Income-tax Officer during the year of assessment, the general notice under Section 22 (1) and the default committed by him in not submitting a run as require by that notice lapsed, as it were, at the end of the year. We are unable to accept this contention which does not appear to have any legal basis to support it. There is not lapse in the sense that after a year there could not be valid assessment at all by the Income-tax Officer. It has been held by a Bench of the Bombay High Court that if the assessee himself submits a return, though after the end of the year of assessment, the Income-tax Officer can proceed to make a valid order of assessment without an individual notice served upon him under Section 22 and taking action under Section 34. See Harakchand Makanji & Co. v. Commissioner of Income-tax, Bombay City. This shows that there could be no lapse of what was a valid general notice under Section 22 (1) which initiated the assessment proceedings. Once assessment proceedings have thus commenced, they can only come to an end by either an order of assessment or an order declaring that no assessment can be made. In this case admittedly there is no such order and when eventually proceedings are taken under Section 34, such proceedings must be deemed to relate to the proceedings which commenced with the public notice under sub-section (1) of Section 22.
Finally the learned counsel for the applicant asked us to treat the notice under Section 34 calling upon the assessee to submit his return within 35 days of its receipt as an extension of time granted to him in his discretion for the delivery of the return within the meaning of the proviso under Section 22 (1). This point was not raised before the Tribunal and the applicant cannot be permitted to raise it before us; nor do we think that there is any substance in this point.
The answer to the question must be in the affirmative. The applicant will pay the costs of this reference Rs. 250.
Reference answered in the affirmative.