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Issues: (i) Whether a notice under section 34 of the Income-tax Act, 1922 could validly be issued after the assessee had furnished a voluntary return under section 22(3). (ii) Whether the assessment order was barred by limitation under section 34(3) of the Income-tax Act, 1922.
Issue (i): Whether a notice under section 34 of the Income-tax Act, 1922 could validly be issued after the assessee had furnished a voluntary return under section 22(3).
Analysis: Section 22(3) permitted an assessee to furnish a return at any time before assessment was made, even after the time fixed under section 22(1) or section 22(2) had expired. Once such a return was furnished, the Department was bound to proceed to assess the return under section 23. Section 34 could be invoked where no return had been made, or where income had escaped assessment after an assessment on a return, but not after a voluntary return had already been filed. A return showing income which the assessee believed to be non-assessable was still a return within section 22(3).
Conclusion: The notice issued under section 34 was invalid.
Issue (ii): Whether the assessment order was barred by limitation under section 34(3) of the Income-tax Act, 1922.
Analysis: The assessment order was made after the expiry of the statutory period prescribed by section 34(3). On the facts, the year in which the income first became assessable had already ended long before the assessment order was passed, with the result that the outer limit under the provision had been exceeded.
Conclusion: The assessment order was time-barred.
Final Conclusion: The Department could not sustain the reassessment proceedings after the voluntary return, and the assessment order was also hit by limitation; the reference was answered against the Revenue.
Ratio Decidendi: Where an assessee furnishes a voluntary return within the time allowed by law before assessment is made, reassessment machinery cannot be used merely because the Department seeks to extend limitation, and any assessment made beyond the statutory period is barred.
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