Reopening, valid service, and best judgment assessment upheld where new material, authorised notice, and reliable profit estimate supported the Revenue.

Reopening of assessment under section 34(1)(b) was held valid because the Income-tax Officer later obtained material from the company's memorandum and articles showing that a financial year ending 31 March existed, and the earlier view had been founded on suppression of a vital fact rather than a mere change of opinion. Service of notice on the secretary of the managing director was also treated as effective service on the company, since a principal officer may include such an authorised recipient and the company acknowledged receipt. The best judgment estimate of gross profits at 15% was upheld because the accounts were unreliable and the Tribunal's reduced estimate was based on relevant material, not arbitrariness.

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Issues: (i) Whether reopening of the assessment under section 34(1)(b) of the Income-tax Act, 1922 was valid on the basis of information obtained by the Income-tax Officer; (ii) Whether service of the notice under section 34 on the secretary of the managing director of a company was sufficient compliance with the requirement of service on the principal officer; (iii) Whether the estimate of gross profits at 15 per cent was justified on the materials available.

Issue (i): Whether reopening of the assessment under section 34(1)(b) of the Income-tax Act, 1922 was valid on the basis of information obtained by the Income-tax Officer.

Analysis: Reopening under section 34(1)(b) required information in the Income-tax Officer's possession leading to a reason to believe that income had escaped assessment. The assessee had represented that no previous year existed for the relevant assessment year, but the later examination of the memorandum and articles of association showed that the company had adopted a financial year ending 31 March. That material had not been placed before the officer earlier and the earlier view was based on a suppression of a vital fact. The later discovery was therefore not a mere change of opinion on the same record.

Conclusion: Reopening under section 34(1)(b) was valid and the objection failed against the assessee.

Issue (ii): Whether service of the notice under section 34 on the secretary of the managing director of a company was sufficient compliance with the requirement of service on the principal officer.

Analysis: Under the Act, notice to a company must be served on its principal officer, and a principal officer may include the secretary, treasurer, manager or agent. The notice in this case was addressed to the company and served on the secretary of the managing director, who received it on behalf of the company and whose receipt was later acknowledged by the company. Service on an authorised recipient on behalf of the principal officer was treated as effective service.

Conclusion: Service was sufficient and the objection failed against the assessee.

Issue (iii): Whether the estimate of gross profits at 15 per cent was justified on the materials available.

Analysis: The accounts were found unreliable and the proviso to section 13 was attracted, permitting a best judgment estimate. The Tribunal reduced the department's estimate from 20 per cent to 15 per cent having regard to the assessee's business as an importer and not a manufacturer. The estimate was based on material and was not shown to be arbitrary.

Conclusion: The estimate of gross profits at 15 per cent was justified and the objection failed against the assessee.

Final Conclusion: The reference was answered wholly in favour of the Revenue, with all three questions decided against the assessee and the assessed gross-profit estimate sustained.

Ratio Decidendi: For reopening under section 34(1)(b), the information must be newly obtained and material to escapement of income, and service of notice on a company is effective when made on an authorised principal officer or a person duly receiving it on the company's behalf.

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