Special accounting year and reassessment limits clarified: undisclosed income, demand notice service, and rectification objections all failed.

Undisclosed income from an unreturned source could not be carried into the assessee's special accounting year merely because it fell under a general head; the ordinary financial year applied, and that objection failed. Reassessment was held not time-barred because the relevant limit governed the making of the assessment order, not the later service of the demand notice; the limitation challenge therefore failed. The unsigned copy served on the assessee did not invalidate an assessment where the original computation was duly signed and made in accordance with law. Rectification under section 35 could be carried out by a successor Income-tax Officer if the statutory conditions were met, and the stay and contempt objections were also rejected.

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Issues: (i) whether undisclosed income from a fixed but unreturned source could be assessed on the assessee's special accounting year under the definition of previous year; (ii) whether the reassessment was barred by limitation and whether service of the demand notice had to be within the same period; (iii) whether the assessment and demand were invalid because the computation and demand notice were unsigned or otherwise not made in accordance with law; (iv) whether an amendment to the assessment order could be made by the successor Income-tax Officer under the rectification provision; and (v) whether the refusal to stay recovery pending appeal and the contempt applications were sustainable.

Issue (i): whether undisclosed income from a fixed but unreturned source could be assessed on the assessee's special accounting year under the definition of previous year.

Analysis: The special accounting year under section 2(11) of the Income-tax Act, 1922 applies only to a separate source of income in respect of which the assessee has exercised an option. Income that is wholly undisclosed in the return cannot be treated as having been brought within that option merely because it falls under a general head of income. Where the source is later identified and is not tied to any declared source, the ordinary financial year governs.

Conclusion: The income was rightly assessed according to the ordinary financial year, and the contention based on the assessee's special accounting year failed.

Issue (ii): whether the reassessment was barred by limitation and whether service of the demand notice had to be within the same period.

Analysis: The reopening was treated as one under section 34(1)(a) of the Income-tax Act, 1922, attracting the longer period under section 34(3). The proviso was read as governing the making of the assessment or reassessment order, not the separate service of the demand notice under section 29. The assessment order having been made within time, the later demand notice did not invalidate the reassessment.

Conclusion: The reassessment was not time-barred and the limitation objection failed.

Issue (iii): whether the assessment and demand were invalid because the computation and demand notice were unsigned or otherwise not made in accordance with law.

Analysis: The objection rested on a misunderstanding of the forms used in assessment. The signed original computation was duly made by the Income-tax Officer, and the copy served on the assessee did not require a signature in the same manner. The assessment was therefore completed in accordance with law, and the demand could not be struck down on that ground.

Conclusion: The challenge to the validity of the assessment and demand notice failed.

Issue (iv): whether an amendment to the assessment order could be made by the successor Income-tax Officer under the rectification provision.

Analysis: Section 35 of the Income-tax Act, 1922 did not confine rectification to the original assessing officer. A successor officer competent to deal with the assessment could correct an apparent mistake from the record, provided the statutory conditions for rectification were satisfied.

Conclusion: The amendment was valid and the objection was rejected.

Issue (v): whether the refusal to stay recovery pending appeal and the contempt applications were sustainable.

Analysis: Stay of recovery pending appeal was treated as a matter of discretion rather than an automatic consequence of filing an appeal. No prayer to quash the refusal of stay was before the Court. The contempt applications disclosed no contumacious conduct and were misconceived.

Conclusion: The request for stay was not granted and the contempt applications failed.

Final Conclusion: All substantive challenges to the reassessment and recovery proceedings were rejected, and the connected contempt matters also failed.

Ratio Decidendi: Undisclosed income not referable to any declared separate source cannot be carried into the assessee's special previous year, and for reassessment under the limitation proviso it is sufficient that the assessment order is made within time, the later demand notice not being the controlling test.

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