Y NARAYANA CHETTY Vs. INCOME TAX OFFICER NEILORE

JUDGEMENT

(1.) J. : These four appeals arise from four petitions filed against the Income-tax Officer, Nellore Circle, Nellore, respondent 1, in respect of the proceedings taken by him against three firms under S. 34, Income-tax Act (hereinafter called the Act). The firm M/s. Bellapu Audeyya and Chilla Pitchayya was formed on 20-4-1936, and it was dissolved on 31-3-l948. It consisted of two partners, Chilla Pitchayya and Bellapu Audeyya. Chilla Pitchayya had started another firm in the name and style of G. Pitchayya & Co. with another partner R. Subba Rao. This firm was formed on 30-7-1941, and it was dissolved on 31-3-1949. Bellapu Audeyya and Chilla Pitchayya had also formed another firm along with five other partners which carried on its business in the name and style of Prabhat Textiles. This firm was formed on 1-12-1941, and it was dissolved by a decree of the civil Court passed on 22-12-1949, the dissolution having taken effect from 1-1-1949. All the three firms were carrying on business in yarn and cloth and all of them were registered under S. 26A of the Act. It appears that for the purpose of assessing the income of these firms for the years 1943-44 and 1944-45, respondent 1 was satisfied on making enquiries that each of the three firms was a separate entity and so separate assessment orders were passed in respect of the income of each one of them for the said two years.

(2.) SUBSEQUENTLY on 14-8-1951, respondent 1 issued notice against the firm of Prabhat Textiles under S. 34 of the Act. In the proceedings thus commenced, respondent 1 held that the firm of Prabhat Textiles was a fictitious firm and that the real partners were C. Pitchayya and B. Audeyya. As a result of this finding, respondent 1 cancelled the registration of the said firm under R. 6B of the Income-tax Rules and passed fresh orders of assessment against the said firm on the basis that it was an unregistered firm for the assessment years 1943-44 and 1944-45.on 14-8-1952, and 25-2 1953, respectively. Similar action was taken by respondent 1 in respect of the two other firms on the same dates.

(3.) THE first point raised by Mr. Sastri is that the proceedings taken by respondent 1 under S. 34 of the Act are invalid because the notice required to be issued under the said section has not been issued against the assessees contemplated therein. In the present case the Income-tax Officer has purported to act under, S. 34 (1) (a) against the three firms. THE said sub-section provides inter alia' that "if 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 to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax has been under-assesse ," he may, within the time prescribed, "serve on the assessee a notice containing all or any of the requirements which may be included in the notice under sub-s. (2) of S. 22 and may proceed to re-assess such income, profits or gains." THE argument is that the service of the requisite notice on the assessee is a condition precedent to the validity of any re-assessment made under S. 34; and if a valid notice is not issued as required, proceedings taken by the Income-tax Officer in pursuance of an invalid notice and consequent orders of re-assessment passed by him would be void and inoperative. In our opinion, this contention is well-founded. THE notice prescribed by S. 34 cannot be regarded as a mere procedural requirement; it is only if the said notice is served on the assessee as required that the Income- tax Officer would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be illegal and void. That is the view taken by the Bombay and Calcutta High Courts in the Commr. of I. T., Bombay City v. Ramsukh Motilal, 1955-27 I. T. R. 54 : A. I. R. 1955 Bom 227) and R. K. Das & Co. v. Commissioner of I. T., West Bengal, 1956-30 I.T. R. 439 : (A. I. R. 1956 Cal 161) and we think that that view is right.