S.C.MANCHANDA AND M.H.BEG JJ. - (1.)THE Income-tax Appellate Tribunal, Allahabad Bench, has, at the instance of the assessee, submitted under section 66(1) of the Income-tax Act this statement of case inviting this court to answer the following two questions:
"1. Whether, on the facts and in the circumstances of the case, was the department correct in making the assessment under section 34(1)(a)? 2. If the answer to the first question is in the negative, then was the Tribunal correct in alternating an assessment made under section 23(3)/34(1)(a) into an assessment under section 23(3)/34(1)(b) when it was satisfied that the requisites of section 34(1)(b) were found on the record?"

(2.)THE assessee is a Hindu undivided family. In its capital account there were two credit entries, one of Rs. 12,000 and odd made on December 12, 1953, and the other of Rs. 14,000 and odd made on January 13, 1954. The assessee's explanation for the credit entries was disbelieved and the amounts were held by the Income-tax Officer to be its income from an undisclosed source. It has selected the Diwali year as its previous year. If the previous year for the undisclosed source with gave rise to the income was the financial year, the income could be assessed in the assessment year 1954-55, whereas if it was the Diwali year (on the ground that the income was from the disclosed business), it could be assessed in the assessment year 1955-56. The income was included in the assessment for the assessment year 1955-56 by the Income-tax Officer and the Appellate Assistant Commissioner, but the Tribunal on second appeal of the assessee held that the previous year for the income, it being an income from an undisclosed source, was the financial year 1954-55 and that it could not be included in the assessment for the assessment year 1955-56 and reduced the assessed income accordingly. When the order of the Tribunal was received by the Income-tax Officer, he started proceedings under section 34 by issue in a notice on August 2, 1958. The notice is not included in the statement of the case and it is known whether it was expressed to be under clause (a) of section 34(1) or under clause. (b). In reply to the notice the assessee filed a return under protest showing a loss. It contended before the Income-tax Officer that, once the income was included in the assessment for 1955-56, it could not be included in the assessment for another year, that including it in the assessment for 1955-56 was an error of law and not of fact, that action under section 34 can be taken only to correct an error of fact and not of law, that clause (1)(a) did not apply to the facts of the case and that, consequently, the notice was illegal. The Income-tax Officer rejected the objection, holding that, as it did not disclose the income in its return for the assessment year 1954-55, the return was false and, in any case, incorrect, that the income came to light during the assessment for 1955-56 and that the facts came within the scope of clause (a). Accordingly, he reopened the assessee for 1954-55, included the income in the assessment, reassessed the assessee for 1954-55 and served it with a notice required by clause (c) of section 28(1). His order was maintained by the Appellate Assistant Commissioner; he held that the reassessment for 1954-55 was correctly done by the Income-tax Officer under clause (a) The assessee carried the matter on second appeal to the Tribunal. It rejected the assessee's contention that section 34 was not applicable at all, but held that clause (b), and not clause (a), was applicable. It observed that in was competent to alter the reassessment from one under clause (a) to one under clause (b) because all the necessary facts were on the record and no further investigation was necessary and the assessee could not be said to be taken by surprise by the alteration. With this alteration, it dismissed the appeal. Then, at the assessee's requisition, it submitted this statement.
Clause (a) of section 32(1) applies when "the Income-tax Officer has reason to believe that by reason of the omission of failure on the part of an assessee to make a return of his income.. for any year or to disclose fully and truly all material facts necessary for his assessment for that year income, profits....have escaped assessment for that year", whereas clause (b) applies when notwithstanding that there has been no omission or failure as mentioned in clause (a) "the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits... have escaped assessment for any year". Action is be taken under section 34 by serving on the assessee a notice "containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22" and the notice may be served at any time if it is under clause (a) and only within four years of the end of the year if it is under clause (b). Before issuing a notice under clause (a), the Income-tax Officer is required (vide proviso (iii) to record his reasons for issuing it and to obtain the approval of the Central Board of Revenue in certain circumstances or the Commissioner in other circumstances. A notice issue under section 22(2) calls upon a person to furnish within a certain period (of not less than 30 days) a return in the prescribed form and verified in the prescribed manner setting forth his total income and total world income during the previous year along with such other particulars as may be provided for in the notice. An Appellate Assistant Commissioner, in disposing of an appeal under section 31 from an order of assessment, has the power to "(a) confirm, reduce, enhance or annual the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further enquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct." An appeal lies to the Tribunal under section 33(1) by an assessee objecting to an order passed by an Appellate Assistant Commissioner under section 31. Under sub-section (4) of section 33, the Tribunal may, in disposing of it, "pass such orders thereon as it thinks fir, and shall communicate any such order to the assessee and to the Commissioner."

(3.)THE power to take action in respect of escaped income under section 34 vests exclusively in the Income- tax Officer and does not vest in the Appellate Commissioner or the Tribunal. Not only can the Tribunal not take action on its own under section 34 but also no appeal lies to it from the Income-tax Officer's refusal (or failure) to take it. An appeal lies to in only from an order passed by the Appellate Assistant Commissioner and an appeal lies to the Appellate Assistant Commissioner only from certain orders of the Income-tax Officer specified in section 30. An order refusing to take action under section 34 is not one of the orders specified in section 30. When an Income-tax Offiicer proceeds under clause (a), it amounts to his refusing to proceed under clause (b), and since no appeal lies from the refusal, it is not possible for the Appellate Assistant Commissioner and the Tribunal to require him to proceed under clause (b). It they cannot require him to proceed under clause (b), they cannot treat his proceeding under clause (a) as his proceeding under clause (b). What cannot be done directly cannot be done indirectly. The sole jurisdiction of the Appellate Assistant Commissioner and the Tribunal is to see whether his proceeding under clause (a) is correct or not, to maintain it if it is correct and to quash it if it is not. Passing any other such as directing the Income-tax Officer to prosed under clause (b) or treating the proceeding as one under clause (b) is outside the scope of their jurisdiction. The essential conditions for the application of clause (b) ar: (1) the Income-tax Officer has certain information in his possession, (2) he forms the belief that a certain income has escaped assessment, and (3) the belief is based on the information. I take it that "having reason to believe" means that not only there is a reason for the belief but also that the belief is entertained or formed. Having reason to believe means that there is a reason coupled with the belief. In the instant case, the Income-tax Officer had formed the belief that certain income had escaped assessment for the assessment year 1954-55, but that fact alone would not justify his proceeding under clause (b). He could proceed under clause (b) only if he had certain information in his possession and information furnished a reason for the belief. Even if he had certain information which could furnish a reason for the belief, it would not justify his proceeding under clause (b) unless he actually formed the belief on account of the information. If he formed the belief, but not on account of the information, the connection between the information and the formation of belief did not exist and without the connection he could not proceed under clause (b).