A return of income filed by an assessee showing merely the share in a partnership firm is a valid return and the Income-tax Officer cannot proceed under section 34 (1) (a) of the Act on the basis of such return.

MAHAJAN, J.

1. The Income-tax Appellate Tribunal, Delhi Bench, has referred the following two questions of law for our opinion under section 66 (1) of the Income-tax Act, hereinafter referred to as the Act :

"1. Whether, on the facts and in the circumstances of the case, the proceeding initiated under section 34 on November 11, 1954, were in order ?

2.In case the answer to the first question is in the negative, whether the assessment for the year 1948-49, as made on March 24, 1955, was in order regard being had to all the terms of sub-section (3) of section 34 ?"

2. In order to arrive at a correct decision with regard to the question referred for our opinion, it will be proper to set out the facts with regard to the assessment in question which had led to the present reference.

3. The assessee is a lady. She was a partner in a firm styled as National Stores, New Delhi, during the relevant year of account. She had a seven annas share in a rupee in this firm. The assessment year in question is 1948-49, the previous year being the financial year 1947-48. No notice under sub-section (2) of section 22 of the Act was issued to her to furnish a return of income during the previous year. However, on September 3, 1951, she voluntarily filed a return for that year. In the printed Form A prescribed for the filing of the return the first column at No. 4 is headed "business, profession or vocation" and part (b) of that head is as follows : "Share of profits in a registered firm", whereas part (c) of the same head is with regard to the share of profits in an unregistered firm or an association of persons. In column 2 of the aforesaid Form the amount of income, profit and gain is to be specified. The assessee in the return filed by her in column 2 of the Form merely indicated her share in the partnership, that is, seven annas in a rupee, but did not specify the amount of profits which accrued to her in lieu of that share. She did indicate that this seven annas share was in the National Stores, New Delhi. It may be mentioned that at the time when this return was filed, the assessment for the year in question had not been completed. A notice under section 23 (2) of the Act was issued to her by the Income-tax Officer on the basis of the return filed by her. It was served on her on December 20, 1951. It appears from the record that this notice was complied with, because on January 11, 1952, the following entry appears in the order-sheet in the file of the Income-tax Officer :

"A credit of Rs. 50,000 has appeared in the personal account of the lady for the first time in the books of the firm in which she is a partner. Notice under section 34 to be issued for 1948-49 estimating the income at Rs. 50,548."

4. However, no compliance was made with this direction and no notice under section 34 was issued. Nearly three years after the service of notice under section 23 (2), the Income-tax Officer issued a notice under section 34 (1) (a) with the prior approval of the Commissioner of Income-tax to the assessee. The assessee in response to this notice filed another return in which she declared a net loss of Rs. 952 for the year. In Part D of the return it was stated that the sum of Rs. 50,000 had been borrowed by her from one Manohar Singh of Jaipur for investment in the National Stores as her capital contribution, and that the said sum did not belong to her. She also pleaded that the notice issued and served on her by the Income-tax Officer under section 34 was not in accordance with law. The Income-tax Officer found that the sum of Rs. 50,000 was not borrowed by her and that it was her income from undisclosed sources. He also held that the suo motu return filed by the assessee on September 3, 1951, was an invalid return and, therefore, a nullity and thus he could proceed under section 34 (1) (a) of the Act. The assessee went up in appeal to the Appellate Assistant Commissioner of Income-tax, but without success. She came up in second appeal to t