NYALCHAND MALUKCHAND DAGLI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE short question that arises in this reference relates to the validity of a notice issued by the ITO under S. 34(1)(a) of the IT Act, 1922. In order to appreciate the question, it is necessary to notice briefly the facts giving rise to the reference. On 9th March, 1959, the ITO issued a notice under s. 34(1)(a) to the assessee reciting: "Whereas I have reason to believe that your income assessable to income tax for the year ending 31st March, 1950, has escaped assessment, I, therefore, propose to reassess the said income that has escaped assessment" and calling upon the assessee to deliver "within 35 days of the receipt of the notice a return in the attached form of your total income and total world income assessable for the said year ending 31st March, 1950". There was enclosed in the same envelope along with this notice another notice of the same date headed "Notice under ss. 22(2) and 38 of the Indian IT Act, 1922" and this latter notice in express terms related to the asst. year 1950 51. Though the assessee was called upon to file a return of his income, the assessee, it appears, did not do so and the ITO, therefore, issued another notice dt. 15th July, 1959, under S. 22(4) against the assessee. The assessee in the meantime finding that there was a discrepancy in the assessment years mentioned in the two notices sent by the ITO on 9th March, 1959, addressed a letter dt. 15th July, 1959, to the ITO pointing out the discrepancy and requesting him to issue a fresh notice setting out the correct assessment year for which the assessment was sought to be reopened.

(2.) THE ITO by his letter dt. 16th July, 1959, pointed out to the assessee that proceedings under s. 34(1)(a) had been initiated against the assessee for, the asst. year 1950 51 and not for the asst. yr. 1949 50 and that if no return was filed, the ITO would proceed to make a best judgment assessment under S. 23(4). The ITO then proceeded to assess the escaped income of the assessee for the asst. year 1950 51 and made an order of assessment under S. 34(1)(a) in respect of that assessment year. The assessee contended before the ITO that the notice under S. 34(1)(a) issued by the ITO was bad since it related to the asst. year 1949 50, whereas the assessment that was sought to be reopened was for the asst. year 1950 51, but the contention was negatived by the ITO who held that the notice under S. 34(1)(a) was for the asst. year 1950 51. The assessee carried the matter in appeal to the AAC, but the appeal was unsuccessful and the assessee thereupon preferred an appeal to the Tribunal. The Tribunal also took the same view as the AAC and held that reading the two notices, one headed under S. 34(1)(a) and the other headed under S. 22(2) as a whole, it was clear that the intention was to reopen the assessment for the asst. year 1950 51 and the matter was also clarified by the ITO by his letter dt. 16th July, 1959, and, moreover, the main notice under S. 34(1)(a) being the notice under S. 22(2), the impugned notice was valid, since the notice under S. 22(2) mentioned the correct assessment year, namely, 1950 51. It is this decision of the Tribunal which is now challenged before us on the present reference.

(3.) NOW , in order to arrive at a proper determination of this question, it is necessary to refer to s. 34(1) which provides for reopening of assessment of an assessee in certain specified cases. Where the conditions set out in cl. (a) or cl. (b) of S. 34(1) are satisfied and the ITO purposes to initiate proceedings for assessment of escaped income of an assessee, the ITO is required to issue a notice containing all or any of the requirements which may be included in a notice under S. 22(2). This notice, it is now well settled, is a condition precedent to the validity of any assessment or reassessment made under either clause of S. 34(1). The notice prescribed by S. 34(1) is not a mere procedural requirement; it is only if the notice is served on the assessee as required that the ITO would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid, the validity of the proceedings taken by the ITO without the notice or in pursuance of an invalid notice would be illegal and void [see the decision of the Supreme Court in Narayana Chetty vs. ITO Nellore (1959) 35 ITR 388 (SC)]. The question which, therefore, arises is whether the notice issued in the present case was a valid notice under S. 34(1).