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Issues: (i) Whether notice under section 34 was validly issued for reopening the assessment for 1940-41 and whether the action under that provision was founded on definite information leading to a reasonable belief that income had escaped assessment; (ii) whether, after transfer of the case to another Income-tax Officer, fresh notices under sections 22(4) and 23(2) were .
Issue (i): Whether notice under section 34 was validly issued for reopening the assessment for 1940-41 and whether the action under that provision was founded on definite information leading to a reasonable belief that income had escaped assessment.
Analysis: Section 34 permits reopening only when definite information comes into the possession of the Income-tax Officer and that information leads a reasonable person to the belief that income has escaped assessment. Mere suspicion is insufficient. On the facts, the officer had information that the purchase rates shown by the assessee were materially higher than the rates shown by other dealers and that a large sum later appeared as fictitious deposits. These facts, read with the earlier finding that the declared profit rate was very low, were enough to support a belief that part of the income had escaped assessment.
Conclusion: The notice under section 34 was valid and the action taken under that provision was justified.
Issue (ii): Whether, after transfer of the case to another Income-tax Officer, fresh notices under sections 22(4) and 23(2) were necessary.
Analysis: Section 5(7A) provides that where a case is transferred from one Income-tax Officer to another, the transfer may be made at any stage of the proceedings and it does not require re-issue of any notice already issued. Since the case had been transferred during the proceedings, the prior notices continued to be effective and no fresh notices were required.
Conclusion: Fresh notices under sections 22(4) and 23(2) were not necessary.
Final Conclusion: The reference was answered in favour of the revenue, affirming the validity of the reopening notice and the sufficiency of the earlier notices after transfer of the case.
Ratio Decidendi: For reopening under section 34, the Income-tax Officer must possess definite information that can reasonably lead to the belief that income has escaped assessment, and a valid transfer of a case under section 5(7A) does not require re-issue of notices already served.
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