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PETITIONER: ICE & GENERAL MILLS

       Vs.

RESPONDENT: INCOME TAX OFFICER, CENTRAL CIRCLE II, MEERUT

DATE OF JUDGMENT20/11/1979

BENCH: TULZAPURKAR, V.D. BENCH: TULZAPURKAR, V.D. VENKATARAMIAH, E.S. (J)

CITATION:  1980 AIR  377            1980 SCR  (2) 236  1980 SCC  (1) 346  CITATOR INFO :  RF         1990 SC 334  (34)

ACT:      Escaped income-Reopening  of assessment  under  section 147 of  the 1961  Act not permissible when in respect of the self-same escaped income, proceedings under section 34(1) of the 1922  Act had  been undertaken and were pending on April 1, 1962  i.e. the date of coming into force of the 1961 Act- Income Tax  Act, 1961,  Section  297(2)(d)  (ii)  refers  to factual pending  of a proceeding under section 34(1) of 1922 Act.

HEADNOTE:      The appellant-assessee  is a  firm carrying on business of manufacturing  ice 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 on a  total income  of Rs. 53,548/-. The Income Tax Officer, in his  proceedings  started  on  December  21,  1961  under section 34(1) of the 1922 Act, found certain property income and income to the extent of one lakh from potato transaction 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  in appeal, on May 10, 1967 on  the ground  that the initiation of reassessment was not justified. This order became final as the department did not take  further steps.  On July  14, 1967  the Income  Tax Officer issued  a notice under section 148 of the Income Tax Act, 1961  in respect of the self same assessment year after obtaining the  sanction of  the Commissioner  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  the 1961  Act no  reassessment proceedings 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 on the  ground that  in order  that S.  297(2)(d)(ii) should

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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]      In the  instant case:  (a) 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) were factually pending on April 1, 1962 and therefore, the notice under s.  148 of the 1961 Act would be incompetent, and [239 C-D] 237      (b) The  initiation of the proceedings under section 34 by the  Income Tax  Officer  cannot  be  regarded  as  being without jurisdiction  and hence  non est.  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 section 34(1) (b) i.e., in consequence of  information gathered  by him  from Assistant Appellate Commissioner’s  order for  earlier  year  and  not under section 34(1)(a). [239 F-H]      S. B.  Jain v.  Mahendra, 83  I.T.R. 104 (SC) and Gujar Mal Modi  v. Commissioner  of Income  Tax,  84  I.T.R.  261; applied.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2015 of 1972.      From the  Judgment and  Order dated  18-1-1971  of  the Allahabad 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 certificate 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 ice  and preservation  of potatoes in its cold storage. It  was assessed  to income-tax  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  the extent  of one  lakh 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 on  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  the Income-Tax Act,  1961 in respect of the self-same assessment year after  obtaining the  sanction from the Commissioner of

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Income-Tax. Admittedly, while seeking sanction for reopening the assessment  under s.  147, the Income-Tax Officer in his report categorically stated that 238 the assessee  had concealed  the income of Rs. 1,00,000 from undisclosed 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 reassessment 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 the case here.      It is  difficult to  sustain this  decision of the High Court in  view of  two decisions of this Court in S. B. Jain v. Mahendra(1)  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  respondent-assessee  on January 5, 1962 under s. 34(1) (a) of the 1922 Act to reopen his assessment  for the  assessment year  1946-47. The  High Court quashed  the notice  by its 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 the factual pendency of a proceeding under s. 34 of the repealed Act, on  April 1, 1962. The question whether that proceeding was barred  by limitation  or not was irrelevant. Though the earlier proceeding was quashed for the reason that notice on which the  proceeding was  based was  issued 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 time when the 1961  Act came  into force  and  since  the  proceedings initiated 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 competent  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 Appellate Commissioner set aside the assessment made pursuant to that notice on the ground that  it was  necessary to  issue notices  to all the legal representatives  of  the  deceased  assessee.  In  the meantime the  1961 Act  came into  force and, thereafter 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) of  the 1922 Act

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were pending  on  April  1,  1962,  the  second  notice  was incompetent. In  other words  in both  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 proceedings under s. 34(1) 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 be incompetent.      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  Commissioner  had annulled the  revised  assessment  made  by  the  Income-tax Officer on the ground that the initiation of the proceedings (which was  in respect  of property  income that had escaped assessment) 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  the  property  income.  The submission,  in   our  view,  is  factually  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 information gathered by him from Assistant Appellate Commissioner’s 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 disclosure 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  under s.  34(1) (a).  Therefore, the initiation of  the proceedings under s. 34 by the Income Tax Officer cannot be regarded as being without jurisdiction and hence 240 non est.  As  stated  earlier  the  Department  allowed  the Assistant  Appellate   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 1922 Act  was issued,  which, in  our view,  the  Income-tax Officer was  not entitled  to do  in view  of the  fact that proceedings under  s. 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 is  obvious, that  if any  orders are passed pursuant to  the impugned  notice, those will be of no avail to  the   Revenue.  The   appeal  is   allowed  but  in  the circumstances there will be no order as to costs. S.R.                                         Appeal allowed. 241