Escaped income and limitation: omitted sales can justify revision, but reassessment must be initiated within the statutory time limit.

Income omitted from the return and books may constitute income that has escaped assessment, including where later enhancement is based on undisclosed sales. The reassessment limitation runs from the close of the assessment year after completion of the assessment, so a notice issued beyond the statutory period is time-barred. The revisional power is a separate statutory authority distinct from appellate power and may be exercised after disposal of the appeal, but only within the applicable limitation period. On that basis, the enhancement failed for limitation, while the post-appeal revisional power itself was upheld.

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Issues: (i) Whether the difference between the income originally assessed and the higher figure later adopted by the Commissioner constituted income that had escaped assessment within the meaning of the limitation provision; (ii) Whether the Commissioner's action was barred by time because notice was not issued within one year of the close of the assessment year; (iii) Whether the Commissioner could, after disposing of the assessee's appeal, proceed under the revisional power to enhance the assessment.

Issue (i): Whether the difference between the income originally assessed and the higher figure later adopted by the Commissioner constituted income that had escaped assessment within the meaning of the limitation provision.

Analysis: The higher figure was based on alleged omitted sales which found no place in the return or the books. Income may be treated as having escaped assessment where it was not brought to charge in the course of assessment, including where the omission is discovered only later. The distinction urged between a mere enhancement of an existing figure and escaped income was rejected, because the enhancement necessarily proceeded on the footing that part of the sales had been left out of the accounts and therefore had eluded notice.

Conclusion: The omitted amount was income that had escaped assessment.

Issue (ii): Whether the Commissioner's action was barred by time because notice was not issued within one year of the close of the assessment year.

Analysis: The relevant limitation under the reassessment provision runs from the close of the assessment year and is attracted once income has escaped assessment after the assessment is concluded. Proceedings after the demand notice do not form part of the assessment itself. The authorities relied on by the Revenue were distinguished on the ground that they dealt with cases where no final assessment had yet been made. Here, the assessment had been completed and notice under the reassessment provision was issued after the statutory period.

Conclusion: The Commissioner's enhancement was barred by limitation.

Issue (iii): Whether the Commissioner could, after disposing of the assessee's appeal, proceed under the revisional power to enhance the assessment.

Analysis: The appellate power was confined to the subject-matter of the appeal, whereas the revisional power was a separate statutory power exercisable after the appeal had been disposed of. The revisional power could therefore be invoked even after appellate disposal, but it remained subject to the limitation applicable to escaped income. The bar of limitation did not curtail the existence of the power itself, only its timely exercise.

Conclusion: The Commissioner could invoke the revisional power after disposal of the appeal.

Final Conclusion: The reference was answered partly in favour of the assessee: the income enhancement failed on limitation, while the Commissioner's power to act in revision after the appeal was upheld.

Ratio Decidendi: Income omitted from the return and books may constitute income that has escaped assessment, but reassessment or enhancement on that basis must be initiated within the statutory period after completion of the assessment; the revisional power is distinct from the appellate power and may be exercised after appellate disposal, subject to that limitation.

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