Nil income assessment orders can validly close proceedings even without communication where no tax liability is fastened.

An assessment order under section 23(3) of the Income-tax Act, 1922 may validly close a return by recording that the income returned does not belong to the assessee and is nil, and such disposal ends the assessment proceedings. The Madras HC held that a speaking order is not required merely because the order is quasi-judicial and in writing. It also held that non-communication of the closing order did not render it void or leave the return pending, since no tax liability was fastened on the assessee and service was not made a condition of validity. On that basis, reassessment under section 34(1)(b) was treated as justified.

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Issues: Whether orders closing the assessee's individual returns with an entry of nil income or "N.A." were valid orders under section 23(3) of the Income-tax Act, 1922, so as to terminate the assessment proceedings and permit action under section 34(1)(b); and whether failure to communicate those orders rendered them non est or left the returns pending.

Analysis: The assessment power under section 23 is directed to determining total income and tax payable, and it is wide enough to include a finding that the income returned does not belong to the assessee and that the assessable income is nil. An order under section 23(3) need not be a speaking order merely because it is quasi-judicial and in writing. Where the Income-tax Officer, on examining the evidence, closes the return on the footing that the income belongs to another taxable entity, that is a valid disposal of the return and not a case of a pending return. Non-service of the closing order did not invalidate it in the circumstances, because the assessee was not fastened with any tax liability by that order and the Act did not make communication of such an order a condition of its validity.

Conclusion: The orders marked "N.A." were valid orders under section 23(3), the returns were not pending, and reassessment under section 34(1)(b) was justified in favour of the Revenue.

Ratio Decidendi: An assessment order under section 23(3) of the Income-tax Act, 1922 may validly determine that the income returned is not the assessee's and is nil, thereby terminating the proceedings; such validity is not destroyed merely because the order was not communicated to the assessee where no tax liability was fastened by it.

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