S.C.MANCHANDA J. - (1.) THIS is a writ petition under article 226 of the Constitution directed against the notice issued under section 34(1)(a) of the Indian Income-tax Act, 1922, (hereinafter referred to as the Act), for the assessment year 1949-50 on the 27the of September, 1958.
(2.) THE facts are not in dispute. Briefly stated they are that the petitioner No. 1 is one of the ex-partners of firm, Messrs. Mayaram Durga Prasad, which was a registered firm carrying on business of commission agency, speculation business and business in gur in his own account. THE firm filed a return showing a loss of Rs. 6,099 for the assessment year the Income-tax Officer noticed certain cash credits in the books of the firm in various names totalling Rs. 45,500. THE firm failed to prove the genuineness of the cash credits and the Income-tax officer, therefore, added a sum of Rs. 45,500 as income for the assessment year 1950-51 as from an undisclosed source. THE Appellate Assistant Commissioner confirmed this finding. On further appeal to the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal) the appeal was allowed on the short ground that if the cash credits were the income of the assessee-firm they could not be assessed in the assessments year 1950-51. THE order of the Tribunal is a short one and may be reproduced with advantage as the entire point in this writ petition turns on the question as to whether the impugned notice under section 34(1)(a) issued on the 27th September, 1958, was a notice which could be said to have been issued in consequence of the finding given by the Tribunal. THE order of the Tribunal reads : THE unexplained cash credits which have been included in the total income as suppressed income appear in the books of the assessee prior to April 1, 1949, and are not, therefore, liable to considered in the assessment year 1950-51. We have pointed out in many cases that on a true interpretation of sub-section (11) of section 2 of the Indian Income-tax Act the previous year for income from some undisclosed year of the business in the books of which the credits appear. As the cash credits are liable to be considered in the assessment year 1949-50, they must be excluded from the total income of the assessment year 1950-51. THE addition is accordingly deleted and the appeal is allowed. This order of the Tribunals is dated 4th August, 1958. As already observed a notice under section 34(1)(a) was issued on the 27th of September, 1958, for the assessment year 1949-50. The period of eight years, which is the normal period for making an assessment under the provisions of section 34(3) as it then existed was eight years. That eight years period expired on the 31st March, 1958. The notice, therefore, which was issued on the 27th September, 1958, was, prima facie, barred by time. The only way in which the Income-tax Officer could have obtained jurisdiction to issue such a notice was by invoking the second proviso to section 34(3) of the Act. The relevant portion of this proviso reads : Provided further that nothing contained in this section, limiting the time within which may action may be taken or any order, assessment or reassessment may be made, shall apply.... to assessment or reassessment any finding or direction contained in an order under section 31, section 33... The issue of a notice under section 34 beyond the period limitation of eight years is justified on the ground that action was taken in the present case in consequence of the findings contained in the order of the Tribunal. Prima facie, the order of the tribunal does not contain any finding that the impugned cash credits were the undisclosed income of the assessment year 1949-50. It is, therefore, difficult it not impossible to hold that the action under section 34(1)(a) was in consequence of the order passed by the Tribunal. The words in consequence of came up for consideration by a Division Bench of this court in Pt. Hazari Lal v. Income-tax Officer Kanpur. The interpretation of these words caused some difficulty but the Bench held that the words in consequence of required not merely a remote connection between the order under section 31 or section 33 of the Act but a casual connection. In other words, notice under section 34 must automatically or directly flow from the order under section 31 or section 33.
(3.) THE attention of the bench which decided in Hazari Lals case does not appear to have been drawn to an earlier case decided by the Bombay High Court v. R. Indurkar v. Pravinchandra Hemchand, where the dame view had already been taken. In that case the Appellate Assistant Commissioner in allowing the appeal for assessment year 1945-46, had further stated : THEy could be assessed. if at all for the tax year 1944-45, for which the Income-tax Officer may make assessment if so advised. The words if so advised and "if at all were held not to amount to a finding or direction in consequence of which or to give effect to which the notice was issued.;