The Income-tax Officer has jurisdiction to initiate proceedings under Section 34(1)(a) of the Income-tax Act, 1922, if there are reasonable grounds to believe that there has been under-assessment due to omission or failure to make a return or to disclose material facts, and the belief is held in good faith and has a rational connection to the formation of the belief.

Judgment

RAMASWAMI, J. : The appellant was carrying on business in jewellery, copper wire and money lending. The books of accounts of the appellant were closed on the 30th of June every year. For the assessment year 1951-52 (for which the previous year ended on .30th June 1950) the appellant did not comply with the notice issued under S. 22 (2) or S. 22 (4) of the Incometax Act. No return was filed by the appellant. The assessment was completed by the Income-tax Officer on such material as was available on the 23rd February 1955 and the income was assessed at Rs. 36,068. Subsequently, while making assessment for the assessment year 1955-56, the appellant had made investments for Rs. 39,000 during the previous year on the 30th June 1954. From the wealth statement it was found that the appellant had made investments for Rupees 39,000 during, the previous year which ended on the 30th June 1950, though in respect of that previous year, the appellant s income was assessed only at Rs. 36,068. A scrutiny of the wealth statement and the Bank account and the extensive nature of the business carried on by the appellant led the Income-tax Officer to entertain a belief that the income of the year 1951-52 had been under assessed. He accordingly issued a notice under S. 34 (1) and after examining the return made, he assessed the income of the appellant at Rs. 89,002 by his order, dated the 3lst March 1960. The appellant filed an appeal against the assessment order to the Appellate Assistant Commissioner, but the appeal was dismissed. The appellant preferred a further appeal to the Income-tax Appellate Tribunal, Madras Bench. The appellant did not dispute the quantum of the assessment but only the jurisdiction of the Income-tax Officer to initiate proceedings under S. 34 (I). The Tribunal by its order, dated the 31st January l962 over-ruled the objection and dismissed the appeal. At the Instance of the appellant, the Tribunal referred the following question of law for the opinion of the High Court:

"Whether the Income-tax Officer had jurisdiction to initiate proceedings for the assessment year 1951-52 under the provisions of S. 34 (1) (a) of the Indian Incometax Act of 1922".

The High Court answered the question against the appellant holding that the Income-tax Officer had Jurisdiction to initiate proceedings against the appellant under S. 34 (1) (a) of the Act for the assessment year 195l-52. This appeal is brought by special leave against the judgment of the High Court, dated the 24th July 1963.

2. On behalf of the appellant Mr. Gopalakrishnan contended in the first place that the reasons which induced the Incometax Officer to initiate the proceedings under S. 34 were justiciable. It was submitted that those reasons should have been communicated by the Income-tax Officer to the assessee before the assessment was made. In this connection, the further argument of the appellant was that those reasons "must be sufficient for a prudent man to come to the conclusion that the income had escaped assessment". In our opinion there is no substance in any one of these arguments. It is true that two conditions must be satisfied in order to confer jurisdiction on the Income-tax Officer to issue the notice under S. 34 in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year. The first condition is that the Incometax Officer must have reason to believe that the income, profits or gains chargeable to income -tax had been under-assessed. The second condition is that he must have reason to believe that such under-assessment had occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under S. 22, or (ii) omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Offic