Failure to disclose material facts justifies reassessment under S. 34 of the Indian Income-tax Act.

Judgment

SHAH, J. : This appeal with certificate of fitness granted by the High Court of Judicature of Mysore is from an order rejecting the petition of the appellant for a writ to quash a notice of reassessment under S. 34 of the Indian Income-tax Act.

2. The appellants are a Hindu Undivided Family carrying on business in groundnuts and other commodities at Goribidnur, Kolar District, in the territory which formed part of the former State of Mysore. The Mysore Income-tax Act was repealed and the Indian Income-tax Act was brought into force in the Part-B State of Mysore as from April 1, 1950. The appellants had adopted as their year of account July 1 to June 30 of the succeeding year and they were assessed under the Mysore Income-tax Act on that footing for the year of assessment 1949-50 corresponding to the year of account July 1, 1948, to June 30, 1949. After the Indian Income-tax Act was applied to the State of Mysore on December 26, 1950, notice under S. 22(2) of the Indian Income-tax Act was served upon the appellants requiring them to submit their return of income for the assessment year 1950-51. On September 8, 1952, the appellants submitted their return stating that for the year ending June 30, 1949, corresponding to the assessment year 1949-50, they were assessed under the Mysore Income-tax Act, that their income for year ending June 30, 1950, was assessable under the Indian Income-Tax Act in the assessment year 1951-52 and that they had no assessable income of the assessment year 1950-51. The Income-tax Officer passed on that return an order "no proceeding" and closed the assessment. For the assessment year 1951-52, the appellants submitted their return of income. In the books of account produced by the appellant an opening cash credit balance of Rs. 1,87,000/- odd on July 1, 1949, was disclosed. The Income-tax Officer called upon the appellants to produce their books of account of previous years, but the books were not produced on the plea that the same were lost. In assessing the income of the appellants for the year of account 1949-50, the Income-tax Officer held that Rs. 1,37,000/- out of the opening balance in the books of account dated July 1, 1949, represented income from an undisclosed source. In appeal, the Appellate Assistant Commissioner observed that the appellants not having exercised their option under S. 2 (ii) of the Indian Income-tax Act, and in the absence "of any system of accounting adopted" by them, the only course open to the Income-tax Officer was to take the financial year ending March 31, 1950, as the previous year for the income from an undisclosed source, and directed the Income-tax Officer to consider this credit in the assessment for the year 1950-51 after giving opportunity to the appellants to explain the nature and source thereof. Before the appeal was disposed of by the Appellate Assistant Commissioner, the appellants had submitted a fresh return for the assessment year 1950-51 purporting to do so under S. 22(3) of the Indian Income-tax Act. Pursuant to the direction of the Appellate Assistant Commissioner, the Income-tax Officer issued a notice of reassessment under S. 34 of the Income-tax Act and served it on October 15, 1957, calling upon the appellants to submit a fresh return. The appellants thereupon, submitted a petition under Art. 226 of the Constitution to the High Court of Mysore praying for an order declaring that the notice under S. 34 was without jurisdiction and for quashing the notice and proceeding consequent thereon. This petition was dismissed by the High Court, but the High Court, on the application of the appellants, certified that the appeal was a fit one for appeal to this court.

3. Section 34(1) of the Indian Income-tax Act at the relevant time in so far as it is material provided :

"1. If -

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his income under S. 22 for any year or