Scope of reassessment proceedings: confined to escaped items, so loss-recording relief cannot be granted in such limited proceedings.

Whether an assessing officer can record a loss and grant relief under the provision for recording losses during assessment when acting under the provision permitting notice and assessment only for income that escaped assessment is answered in the negative. The article applies statutory interpretation: the loss-recording provision operates "in the course of assessment of total income" while the escaped-income provision is confined to specific escaped or understated items; consequently proceedings confined to escaped income do not permit reassessment of the total income or invocation of loss-recording relief, and the officer may discontinue if no escaped income is found.

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Issues: Whether, in proceedings initiated under Section 34 of the Income-tax Act, 1922 for assessment or reassessment of income that has escaped assessment, the Income-tax Officer can grant relief under Section 24(3) and record a loss of profits or gains for the assessee.

Analysis: Section 24(3) contemplates recording a loss "in the course of the assessment of the total income of any assessee", whereas Section 34 permits notice and assessment only in respect of "such income, profits or gains" that have escaped assessment, were under-assessed, or assessed at too low a rate. A proceeding under Section 34 is therefore confined to the escaped or understated items and is not a procedure for re-opening or reassessing the assessee's total income. If, upon issuance of notice under Section 22(2) read with Section 34, the Income-tax Officer is satisfied that no income had escaped assessment, he may drop the proceedings and is not obliged to proceed to assess the total income or to record losses under Section 24(3). The statutory language and the limited scope of Section 34 preclude treating a Section 34 proceeding as an occasion to grant the relief envisaged by Section 24(3).

Conclusion: The Income-tax Officer cannot, in proceedings under Section 34 of the Income-tax Act, 1922 confined to assessing income that had escaped assessment, grant relief under Section 24(3) to record a loss; the issue is answered in the negative and against the assessee.

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