MANCHANDA, J. - (1.)THIS is a case stated under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act). The questions referred are :
"(1) Whether the finding of the Appellate Assistant Commissioner in Appeal No. 39/248/E that the sum or Rs. 6,151 was the income of the assessee has been rightly as a finding within the meaning of the second proviso to section 34(3) of the Income-tax Act ?

(2) Whether the assessment against the assessee made to give effect to the finding and the direction contained in the order of the Appellate Assistant Commissioner in Appeal No. 39/248/E is valid at law ?

(3) Whether the assessment against the assessee has been made within time by virtue of the second proviso to sub-section (3) of section 34 ?" (underlining ours)

(2.)THE material facts are these : THE relevant year of assessment is the assessment year 1944-45, the accounting year being S. Y. 2002, commencing on 8th November, 1942, and ending on 28th of October, 1943. THE assessee in Onkar Nath, an individual. He was a partner in the partnership firm of M/s Onkar Nath Raj Narain of Agra. This firm was duly registered under section 26A of the Act. THE firm also owned and worked a mill know a "Prem Dal Mills" (hereinafter referred to as the mills). THE accounts of the latter were separately maintained. THEre were various cash deposits aggregating Rs. 12,454 in the accounts of the different partners. THE deposits were all on the 1st October, 1943. THEy included a deposit of Rs. 6,151 in the name of the assessee. THE entire sum of Rs. 12,454 including the cash credit of Rs. 6,151 in the account of the assessee was treated by the Income-tax Officer as the income of the partnership firm of "Onkar Nath Raj Narain" from an undisclosed source in the assessment year 1945-46 which is a year subsequent to the relevant assessment year for purposes of this reference, notwithstanding the fact that the deposits stood in the capital account of the individual partners.
The firm appealed against the order of the Income-tax Officer, and the Appellate Assistant Commissioner by his order dated 31st March, 1954, deleted the sum of Rs. 6,151 in the account of the assessee on the ground that it appeared on the firs day of the accounting period, of the commencement of business by the mill, and as such it could not be treated as the income of that year of the firm "Onkar Nath Raj Narain" from an undisclosed source. In this connection the Appellate Assistant Commissioner observed :

"I do not think that the Income-tax Officer had any material from which a conclusion could be arrived at that a credit of Rs. 12,454 was the profit made in the period October 1, 1943, to October 15, 1944. I am, therefore, of opinion that the addition of Rs. 12,454 as secret profits relating to the period from October 1, 1943, to October 15, 1944, was not justified in the circumstances of the case."

Thereupon, proceedings under section 34 read with section 23(3) of the Act were taken against the firm for the relevant assessment year 1944-45 by the Income-tax Officer to bring to assessment the said sum of Rs. 12,454, being the deposit found credited in the accounts of the four partners on the 1st October, 1943. Even at that stage no attempt was made by the Income-tax Officer to assess the individual in whose name the deposits stood credited in the books of account of the mill. The Income-tax Officer would appear to have persisted in making a protective assessment against the individual partners. Against that order the firm again appealed to the Appellate Assistant Commissioner on the ground that the proceedings taken under section 34 for the relevant assessment year 1944-45 were barred by limitation and there was no direction of the Appellate Assistant Commissioner which could have removed the bar of limitation under the second proviso to section 34(3) of the Act. This contention was upheld and the appeal of the firm was allowed. But this time the Appellate Assistant Commissioner issued the following direction :

"I hold that this sum of Rs. 12,454 must be brought into assessment in the hands of the partners and that it could not be brought in the hands of the firm for assessment purposes in the circumstances noted above. The Income-tax Officer will please take action under proviso 2 of section 34(3) against the partners " (underlining ours).

(3.)THIS order was passed on the 9th of October, 1957. The period of limitation had long since expired for taking any further action under section 34 against any one of the partners and, therefore, unless such a direction was issued no action could have been taken by the Income-tax Officer.
Pursuant to the direction so given, the Income-tax Officer took action under section 34 against the individual partners to show cause why the respective deposits in their capital account should not be brought to assessment as escaped income for the relevant year of assessment. THIS time the partners took the objection that the proceedings were barred by time and the direction issued by the Appellate Assistant Commissioner was beyond his jurisdiction. The notice issued is not on the record nut it is clear from a reading of the assessment order that action was taken by the Income-tax Officer under proviso 2 to section 34(3). There is no indication as to whether the provisions of section 34(1) (a) or (b) were applied by the Income-tax Officer. There is also no indication that, if action was taken under section 34(1) (a), whether the necessary prior statutory sanction of the Commissioner of Income-tax taken before the proceedings were initiated. The opening paragraph of the assessment order reads :

"Action under proviso 2 to section 34(3) has been taken in this case as a result of order dated October 9, 1957, of the learned Appellate Assistant Commissioner, Agra, made in the case of M/s. Onkar Nath Raj Narain for the assessment year 1944-45..... It is on the above clear direction of the Appellate Assistant Commissioner that action under section 34(3), proviso 2, has been taken in the case of L. Onkar Nath, partner, to consider deposits or Rs. 6,151 made by him in the firm of M/s. Onkar Nath Raj Narain on October 1, 1943."

The objection of the assessee regarding the bar of limitation was disposed of by the Income-tax Officer in these words :

"Regarding the legality or otherwise of the action under section 34 it may be stated that action under section 34 has been taken in view of the clear directions of the Appellate Assistant Commissioner in his order dated October 9, 1957. No time limit is prescribed under proviso 2 to sub-section (3) of section 34 to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under sections 31, 33, etc...... Action under the 2nd proviso of section 34(3) thus is fully justified in the circumstances of the case."