ICE & GENERAL MI.LLs v. Escaped income-Reopening of Gssessment under section 147 of lite 1961

. The appclloot·assessee is a firm carrying on business of manufacturing ico and preservation of potatoes in its cold storage. By an assessment order dated July 5, 1961 it was assessed to income tax for the .assessment year 1961-62 oo a total income of Rs. 53,548/-. The Income Tax Officer, in his proceedin~ started on Dcceraber 21, 1961 under section 34(1) of the 1922 Act, income and income to the -extent of one la·kh from potato certain property tramaction put through in the name of benami persons by the assesseo bad escaped assessment and therefore, by his order dated December 22, 1965 be brought them to tax:. The said order of the Income Tax Officer was annulled in arp¢al, on May 10, 1967 on the ground that the initiation of reassessment wa_, not justified. This order became final as the department did not take furt.h.:r steps. On July 14, 1967 the Income Tax Officer issued a notice under sectio11. 148 of the IncoI;ne Tax Act, 1961 in respect of the self same assessment year after obtaining the sanction of the Com.missioner of Income Tax.. Pursuant to the notice the appellant filed a return under protest on August 14, 1967. The appellant challenged the said notice by filing a writ petition in the Allahabad High Court, inter alia on the ground that under section 297(2)(d)(ii) of tho ~~ 1961 Act no reassessment pr.oceedings could be undertaken under section 147 of. the 1961 Act inasmuch as in respect of the self-same escaped income, proceed- ings under s. 34{ 1) of the 1922 Act had been undertaken and were Pending on April 1; 1962 when the 1961 Act came into force. The High Court rejected the contention oii the ground that in order that S. 297(2)(d)(ii) should apply, proceedings under section 34 of the 1922 Act must be legal proceedings with jurisdiction. . Allowing the appeal by certificate, the Court HELD : The factual pendency of the proceedings under Section 34 of the 1922 Act on the relevant date, and not their legality is material for purposes of __.._.... _ S. 297(2)(d)(ii) of the 1961 Act. [238 D-E] · II In the instant case: (ai) admittedly proceedings under s. 34(1) of the 1922 Act ·in respect of the item of Rupees one lakh (which was said to have escaped .. assessment) v:ere factually pending on April 1, 1962-and therefore, the notice under s. 148 of the 1961 Act would be incompete1't, and [239 C-DJ ' ICE & GENERAL MILLS v. H.O. (Tulzapurkar, !.) 237 (b) The initiation of the proceedings under section 34 by the Income Tax; A • • Officer cannot be regarded as being without jurisdiction and hence non est. Tho reassessment order rllade by the Income Tax Officer on December 22, 1965 clearly income) shows that he had initiated the proceedings (in respect of property under section· 34(1) (b) i.e., in consequence of information gathered by him from Assistant Appellate Commissioner's order for earlier year and not undet" •ection ~4(1)(a). [239 F-HJ S. B. Jain v. Mahcm/ra, 83 I.T.R. 104 (SC) and Gujar Mal Modi v. Commis si•1'er of Income Tax, 84 I.T.R. 261; applied~ CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2015 of 1972. From the Judgment and Order dated 18-1-1971 of the Allahabul High Court in Civil Misc. Writ Petition No. 4632/70. S. T. Desai, B. R. Agrawala and P. C. Gokhale for the Appellant. V. S. Desai, Miss. A. Subhashini, J. Ramamurthy and Miss R. Vaigai for the Respondent. The Judgment of the Court was delivered by TULZAPURKAR, J. The point raised in this appeal by certificat~ seems to be covered by two decisions of this Court in favour of the assessee and hence we propose to dispose of the appeal by a short Judgment. The appellant, a firm, carries on business of manufacturing iee an<l preservation of potatoes in its cold storage. It was assessed to income· tu for the assessment year 1961-62 by an assessment order dated July 5, 1961 on a total income of Rs. 53,548. In proceedings started on December 21, 1961 under s. 34(1) of the Indian Income Tax Act, 1922, the Income Tax Officer found certain property income and income to tlie extent of one Jakh from potato transactions put through in the name of benami persons by the assessee had escaped assessment and, therefore, by his order dated December 22, "1965 he brought them to tax. The said order of the Income Tax Officer was annulled by the Appellate Assistant Commissioner in appeal on May 10, 1967 ou the ground that the initiation of reassessment proceedings was not justified. The Department allowed the' matter to rest there and the Assistant Appellate Commissioner's order became final. On July 14, 1967 the Income Tax Officer issued a notice under s. 148 of Income-Tax Act, 1961 in respect of the self-same assessment year after obtaining the sanction from the Commissioner of Income-Tax. A;:lmittedly, while seeking sanction for reopening the assessment under s. 147, the lncome-Tax Officer in his report categorically stated that ' B c D E F G H ______ .,,.., _ _..,,.. - ' • 238 SUPREME COURT REPORTS [1980) 2 S.C.R. \ A B c D E the assessee had concealed the income of Rs. 1,00,000 from undis closed source on account of benami storage of potatoes in various names and the same had escaped assessment owing to the failure on the part of the assessee to disclose his income fully and truly. Pursuant to the notice the appellant filed a return under protest on August 14, 1967. The appellant challenged the notice by filing a writ petition in the Allahabad High Court, inter alia, on the ground that no reassess ment proceedings could be undertaken under s. 147 of the 1961 Act inasmuch as in respect of the self-same escaped income proceedings under s. 34(1) of the 1922 Act had been undertaken and were pending on April 1, 1962, when the 1961 Act came into force and in this behalf reliance was placed on s. 297(2) (d) (ii) 'of the 1961 Act. The High Court rejected the contention on the ground that in order that s. 297 (2) (d) (ii) should apply, the proceedings under s. 34 of the 1922 Act must be legal proceedings with jurisdiction which was not tl1c case here. It is difficult to sustain this decision of the High Court in view o! two decisions of this Court iD' S. B. Jain v. Mahendra(') and Gujar Mal Modi v. C.I.T.( 2 ) where it has been held that s. 297 (2) (d) (ii) is concerned with the factual pendency of proceedings under s. 34 of the 1922 Act and not with their legality. It must in fairness be stated that none of these decisions on the proper construction of s. 297(2) (d) (ii) had been rendered by this Court when the Allahabad High Court decided the matter. In S. B. Jain v. Mahendra (supra) the Income-Tax Officer had issued notice to the respoudent-assessee on January 5, 1962 under A s. 34(1) (a) of the 1922 Act to reopen his assessment for the assessment year 1946-4 7. The High Court quashed the notice by its F · - order dated March 6, 1963, on the ground that the notice was barred by limitation. In the meantime the 1961 Act came into force on April 1, 1962, whereafter the Income Tax Officer again issued a notice on March 26, 1963. under s. 148 of the 1961 Act. This Court held that what s. 297(2) (d) (ii) of the 1961 Act, required was factual pcndency of a proceeding under s. 34 of the repealed Act, on April 1, 1962. The question whether that pri>ceeding was barred by lim.ita· tion or not was irrelevant. Though the earlier proceeding Wall quashed --..f. for the reason that notice on which the proceeding was based was i&sued beyond time, it could not be said that no proceeding under s. 34 of.the 1922 Act was either factually or legally pending at the H when the 1961 Act came into force and since the proceedings initiated G (I) 83 I.T.R. 104. (2) 84 I.T.R. 251. I . ICE & GENERAL MILLS v. r.r.o. (Tulzapurkar, J.) 239 under s. 34(1) (a) of the 1922 Act were pending at the time when 1961 Act came into force, the Income-Tax Officer was not compe- tent to issue any fresh notice under s. 148 of the 1961 Act. In Gujar Mal Modi's case (supra) the notice under s. 34(1) (a) of the 1922 Act for reopening the assessment of the deceased assessee was served only on one of the heirs of the deceased assessee. The Assistant Appel late Commissioner set aside the assessment made pursuant to notice on the ground that it was necessary to issue notices to all legal representatives of the deceased assessee. In the meantime the 1961 """-Act came into force and, t)lereafter the Income-Tax Officer issued notice , under s. 148 of that Act to all the heirs of the deceased assessee. This Court held that since the proceedings under s. 34(1}(b) bf the 1922 Act were pending on April 1, 1962, the second notice was incompe tent. In other words in bo):h the cases this Court laid emphasis on the factual pendency of the proceedings under s. 34 on the relevant date, and not their legality as being material for purposes of s. 297(2)(d) (ii) of the 1961 Act. In the case before us admittedly proceetlings under s. 34( l) of the 1922 Act in respect of the item of Rs. 1,00,000 (which was said to have escaped assessment) were factually pending on April 1, 1962 and, therefore: the notice under s. 148 of the 1961 Act would he incompetent. , Commissioner had annulled the revised assessment made by An attempt was made by counsel for the Revenue to distinguish the aforesaid. decisions on the ground that in the instant case the earlier proceedings under s. 34 of the 1922 Act being without jurisdiction, must be regarded as non est inasmuch as the· Assistant Appellate Income-tax Officer on the ground that the initiation of the proceed ings (which was in respect of property income that had escaped assess meµt) was not justified inasmuch as it was not a case of omission or failure on the part of the assessee to furnish full particulars of property income. The submission, in our view, is factua!y incorrect. The reassessment order made by the Income Tax Officer on December 22, 1965 clearly shows that he had initiated the proceedings (in respect of property income) under s. 34(1) (b) i.e. in consequence of informa· tion gathered by him from Assistant Appellate Commissioner'8 order .._,.for an earlier year and not under s. 34(1)(a) on account of any omission or failure on the part of the assessee to make a full discl~ure and during the proceedings so initiated he came across the item of Rs. 1,00,000 being the income from undisclosed source which he held had been concealed and was liable to be included wider s. 34(1)(a). Therefor9, the initiation of the proceedings under s. 34 by the Income Tax Officer cannot be regarded as being without jurisdiction and hence A - B c· D E F G 8 24 0 SUPREME COURT REPORTS [1980] 2 S.C.R. \ non est. As stated earlier the Department allowed the Assistant Appel- \.?-'"· late Commissioner's order whereby the reassessment order was quashed to become final. Instead of challenging that order a fresh notice under s. 148 of the 1961 Act was issued, which, in our view, the Income-tax Officer was not entitled to do in view of the fact that proceedings under 11. 34 of the 1922 Act were factually pending on April 1, 1962 when the new Act came into force. In the result the order passed by the High Court is set aside and the impugned notice under s. 148 of the 1961 Act is quashed. It obvious, that if any orders are passed pursuant to the impugned notice~· tho11e will be of no avail to the Revenue. The appeal is allowed but in the circumstances there will be no order as to costs. . A B c S.R. Appeal allowed. f