The Income-tax Officer has jurisdiction to reassess income under Section 34(1)(b) of the Indian Income-tax Act, 1922, even if the information on which the reassessment is based could have been obtained during the previous assessment from the materials on record, provided that the information came into the possession of the Income-tax Officer after the previous assessment order and led to a belief that income chargeable to income-tax had escaped assessment.

( 1 ) SECTION 34 of the Indian Income-tax Act, 1922, which has been interpreted by the Supreme Court and by different High Courts in India in a number of cases, still remains a rich germinating ground for forensic arguments. One such argument confronts us in this reference.

( 2 ) THE circumstances in which this reference has been made are hereinafter related in brief.

( 3 ) THE assessee, Messrs. Kalyanji Mavji and Co. , is a registered firm. The year of assessment, with which we are concerned in this reference, is 1956-57, corresponding to the accounting year being the Gujrati Diwali year 2011. The original assessment for the year in question was completed, on February 20, 1957, on a total income of Rs. 7,44,551, after having allowed deduction of a sum of Rs. 43,116 being interest paid by the assessee on borrowed money. This assessment was reduced by the Appellate Assistant Commissioner by a sum of Rs. 9,200, by his order dated July 3, 1958.

( 4 ) IN the course of the assessment proceedings for the year 1958-59, the Income-tax Officer discovered that the assessee's claim for payment of interest on money said to have been borrowed for the purpose of business was not sustainable. In the opinion of the Income-tax Officer the entire borrowed money had not been utilised for the purposes of the business, but for the purpose of giving interest-free advances to the partners of the assessee-firm.

( 5 ) AS a result of the discovery, the Income-tax Officer took action under Section 34 (1) (b) of the Indian Income-tax Act, 1922, on the ground that he had reasons to believe that the assessee's claim of payment of interest on money borrowed was not proper and that income to the extent of Rs. 43,116 was under-assessed. In the reassessment that followed, the Income-tax Officer added the sum of Rs. 43,116 to the total income and reassessed the total income at Rs. 7,78,467. The relevant portion of the order of the Income-tax Officer is hereinbelow set out:"in their letter dated April 22, 1961, Messrs. S. K. Sawday and Co. have given their objections to my action under Section 34. In fact no argument as regards the allowance or disallowance of the interest amount in question was placed but the entire argument of the representative proceeded on the basis that the action under Section 34 itself was illegal. I do not, however, agree with the objections raised by them. The case law cited by them is entirely a case under Section 34 (1) (a) and has nothing to do with the proceedings under Section 34 (1) (b ). The observations of the Supreme Court cited by the learned representative are, in my opinion, not relevant to the proceedings under Section 34 (1) (b ). The only conditions imposed by Clause (b) of Section 34 (1) are (i) that the Income-tax Officer should have reason to believe that income has escaped assessment and (ii) that such belief should have proceeded on the basis of information in his possession. "

( 6 ) AGGRIEVED by the order of the Income-tax Officer, particularly on the point of the power of the Income-tax Officer to reopen the assessment in the circumstances of the case, the assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner dismissed the appeal with the following observation :"mr. Chowdhury attacked the assessment on the ground that the Income-tax Officer was not justified in starting action under Section 34 (1) (b ). It was stated by him that all the facts were in the possession of the Income-tax Officer at the time of the original assessment. For this purpose he invited my attention to the balance-sheet of the Calcutta office filed at the time of the original assessment. He stated that this balance-sheet clearly showed that the total drawings for both the partners stood at Rs. 29,31,998 while the capital was only Rs. 8,70,000 and the loans stood at Rs. 6,63,292, In short, he argued that there was no additional information in the possession of the Income-