MALIK, J. - (1.) THIS is a reference under Section 66 (1), Income tax Act, relating to the assessment for three years, viz., 1940 -41, 1941 -42 and 1942 -43. The three questions referred to us are as follows: '1. Whether in the circumstances of the case, the issue of a notice under Section 84 for the assessment year 1940 -41 was valid in law? 2. Whether in the circumstances of the case the action taken under Section 84 was based on discovery of any definite information within the terms of Section 34 of the Act.? 3. Whether, in the circumstances of this case, the IV Additional Income -tax Officer, E. P. T. Circle, Kanpur, had authority to make assessment without issuing fresh notices under Sections 22 (4) and 23 (2) of the Act?'
(2.) THE first two questions refer to the assessment year 1940 41 only. The assessment in that year was made by Mr. H. L. Giddens, Income -tax Officer, Gorakhpur, on 12 8 -1940. In the assessment year 1839 -40, the assesses had made a number of entries of fictitious deposits and had inflated the purchase price of raw material purchased by him. The Income -tax Officer had, therefore, rejected the assessee's accounts, had made enquiries to find out the actual profits made by the assessee and bad made the assessment on the basis thereof. In the assessment year 1940 -41, with which we are concerned, there were, however, no such fictitious deposits entered in the books and most of the purchases of raw materials were made in cash and were supported by cash memorandums. Though theIncome -tax Officer found that the profits shown were very low, being only 7 1/2 per cent., he accepted the return and assesseed the tax on the basis thereof.
(3.) IN the assessment year 1941 -42, the successor of Mr. Giddens found that in the relevant account year there were again fictitious deposits amounting to a large sum of Rs. 1,22,000. This created a suspicion in the mind of the Income -tax Officer who compared the rates at which purchases had been made and found that the purchase prices of raw material given in the account books of the assessee were higher than those shown in the account books of other dealers. The Income -tax Officer then by further comparison found that in the account year relevant to the assessment year 1940 -41 the prices at which the assessee had claimed to have purchased the raw material much higher than the prices paid by other similar dealers. On discovery of the fact that the rates relating to the previous year to the assessment year 1940 -41, though they were supported by cash memorandums, had been inflated and the further fact that a large sum of money, even though not entered in his books in the previous year to the assessment year 1940 -41, was entered as fictitious deposits in the next year, the Income tax Officer believed that a part of the income in the assessment year 1940 -41 had escaped assessment. Thereupon he issued notice to the assessee under Section 34, Income -tax Act.;