1962 Supreme(Cal) 9

HIGH COURT OF CALCUTTA
G. K. MITTER, RAY, JJ.
Bidu Bhusan Sarcar - Appellant
Versus
Commissioner Of Income Tax - Respondent
IT Ref. No. 22 of 1960
Decided on : Jan 10, 1962

A notice under s. 34 of the IT Act cannot be issued after the expiry of eight years from the end of the year in which the income, profits or gains were first assessable.

Headnote:

INCOME TAX - Assessment - Notice under s. 34 - Validity - Limitation - Transfer of case from one ITO to another - Effect - Whether notice issued by the transferee ITO is valid - Whether assessment is barred by limitation.

Fact of the Case:

The assessee filed a voluntary return for the asst. yr. 1947-48 declaring a net loss of Rs. 330. No notice under s. 22(2) of the Indian IT Act was issued to the assessee though a general notice had been issued. Subsequently, on account of the change in the assessee's field of business, the territorial jurisdiction of the assessee fell within the office of the ITO, District I (Calcutta). The file of the assessee was transferred to the ITO, District I(2), where it came within the jurisdiction of the 8th Addl. ITO. On or about January 16, 1949, the 8th Addl. ITO, District I(2), took action under s. 34 of the IT Act, presumably because he considered that the voluntary return declaring a loss of Rs. 330 filed before the ITO, 24-Parganas, was invalid and could not be acted upon. The notice under s. 34 was issued on February 23, 1950, by the Addl. ITO. The 8th Addl. ITO issued a notice under s. 22(4) of the IT Act, perhaps on January 15, 1952. Meanwhile, on March 31, 1949, the assessee had voluntarily filed another return for the same assessment year with the ITO, District I(2), declaring a loss of Rs. 11,33,940. ON receipt of this return a new file was started by the ITO, District I(2). ON February 4, 1952, the 8th Addl. ITO passed an order filing the case as there was already another file of the assessee in the same district. The ITO, District I(2), acting on the return filed on 31st March, 1949, issued a notice under s. 23(2) on August 1, 1950. On February 12, 1952, he cancelled the proceeding on the view that a voluntary return of loss was not valid. He thereafter took action under s. 34 and issued a notice under that section on February 12/14, 1952. These proceedings resulted in an assessment under s. 23(4)/34 on January 31, 1953. Against this assessment the assessee filed an appeal before the AAC. In appeal it was pointed out by the ITO that he had no jurisdiction over the assessee as there was already a file with the 8th Addl. ITO. The AAC on 27th December, 1955, set aside the assessment dated January 31, 1953, made by the ITO, District I(2), with a direction that the assessment should be completed according to law by an officer having proper jurisdiction over the case. Against the decision of the AAC the assessee went up on appeal before the Tribunal because the assessee's grievance was that the AAC ought to have annulled the assessment without giving a direction for making a fresh assessment. The Tribunal on 23rd April, 1957, held that the assessee's contention was well founded and cancelled the assessment. ON December 30, 1955, the CIT passed an order under s. 5(7A) of the Act transferring the case of the assessee from the 8th Addl. ITO to the ITO, District I(2). Thereafter, the ITO, District I(2), issued a fresh notice to the assessee under s. 34 on 11th February, 1956, and made an assessment under s. 23(4)/34 on May 2, 1956. The assessee filed an appeal against the assessment contending that the 8th Addl. ITO had jurisdiction when he issued the notice on 23rd February, 1950, and unless and until the assessment was completed in pursuance of that valid notice it could not be said that the assessee escaped assessment. The assessee further contended that if assessment was to be completed in pursuance of the notice dated February 23, 1950, it should have been completed on or before March 31, 1952, or March 31, 1956, as the case fell within the purview of s. 34(1)(a) or s. 34(1)(b). It was submitted that on the date of the issue of the notification by the CIT transferring the jurisdiction over the assessee to the ITO, District I(2), the 8th Addl. ITO who had jurisdiction over the assessee had started valid proceedings in pursuance of a notice under s. 34, dated February 23, 1950, and these proceedings did not lapse but remained alive. The assessee contended in appeal that the ITO, District I(2), should have continued those proceedings instead of taking recourse to fresh proceedings under s. 34 by the issue of notice dated 11th February, 1956. The AAC accepted the contention of the assessee and held that the notice dated 11th February, 1956, was void ab initio and the assessment should have been completed by March 31, 1956, and was barred because it was completed on May 2, 1956.

Finding of the Court:

The notice dated February 23, 1950, issued by the 8th Addl. ITO was valid and the Revenue authorities cannot extend the period of limitation by assessing after the expiry of eight years by issuing a second notice on the eve of the expiry of eight years to obtain a period of one additional year from the date of the service of the second notice. The assessment is therefore barred by limitation because the assessment should have been completed by March 31, 1956.

Issues: 1. Were the notice under s. 34 issued by the principal ITO on February 11, 1956, and the assessment raised in pursuance thereof valid in law in view of the fact that the proceedings commenced by the 8th Addl. ITO under s. 34 on the basis of notice dated February 23, 1950, were filed ? 2. Whether on the facts and circumstances of the case the assessment dated May 2, 1956, made by the principal ITO, District 1(2) was barred by time ?

Ratio Decidendi: 1. The notice dated February 23, 1950, issued by the 8th Addl. ITO was valid and initiated assessment proceedings which were pending on the date of the transfer of the case to the principal ITO. 2. There could not be escapement of income to attract another notice under s. 34. 3. The assessment is barred by limitation because the assessment should have been completed by March 31, 1956.

Final Decision: The assessment is barred by limitation.