1984 (2) TMI 360 - HC - Income Tax

Court Upholds Extended Limitation Period for Tax Assessment Under Section 34(3)

The court concluded that the assessment for the year 1953-54 was made within the extended period of limitation under section 34(3) due to the application ... - Issues Involved:1. Whether the assessment for the year 1953-54 dated 27-3-1962 has been made within the time prescribed by the statute or is barred by limitation.2. Application of sections 28(1)(c) and 34(3) of the Indian Income-tax Act, 1922.3. Validity of disallowances and additions made by the Income Tax Officer (ITO).4. Requirement for the ITO to record reasons for applying section 28(1)(c).Detailed Analysis:1. Whether the assessment for the year 1953-54 dated 27-3-1962 has been made within the time prescribed by the statute or is barred by limitation:The primary issue was whether the assessment made on 27-3-1962 was within the statutory time limit. The assessee argued that the assessment was barred by limitation as it was made after four years from the end of the assessment year. However, the department contended that the extended period of eight years under section 28(1)(c) applied due to the concealment of income and furnishing of inaccurate particulars by the assessee.2. Application of sections 28(1)(c) and 34(3) of the Indian Income-tax Act, 1922:The Tribunal interpreted sections 28(1)(c) and 34(3) harmoniously, concluding that the extended period of limitation under section 34(3) could be availed if the ITO was satisfied that the assessee had concealed income or furnished inaccurate particulars. The Tribunal emphasized that the ITO's satisfaction must be based on material on record and not be illusory.3. Validity of disallowances and additions made by the Income Tax Officer (ITO):The ITO disallowed several claims by the assessee, including bad debts, loss on revaluation of shares, and deposits treated as income from undisclosed sources. The AAC initially annulled the assessment, finding that the provisions of section 28(1)(c) did not apply. However, the Tribunal later found sufficient material to support the ITO's satisfaction that the assessee had concealed income, thus justifying the extended limitation period.4. Requirement for the ITO to record reasons for applying section 28(1)(c):The assessee argued that the ITO must record reasons within the limitation period for applying section 28(1)(c). The court rejected this argument, stating that section 34(3) does not mandate the recording of reasons. It only requires that the ITO had good reasons to believe that the assessee concealed income or furnished inaccurate particulars.Conclusion:The court concluded that the assessment was made within the extended period of limitation as prescribed by section 34(3) due to the applicability of section 28(1)(c). The Tribunal's findings were based on material evidence, and the ITO's satisfaction regarding the concealment of income was justified. Consequently, the court answered the referred question in the affirmative, in favor of the department and against the assessee. The department was entitled to costs, with counsel's fee set at Rs. 250.