1965 (9) TMI 79 - HC - Income Tax

Tribunal upholds assessment under Income Tax Act despite voluntary return

Commissioner of Income Tax, Gujarat Versus L.A. Patel

The case involved an assessment under section 34(1)(a) of the Income Tax Act, 1922 for the assessment year 1946-47. The Tribunal held that the voluntary ... - Issues:Assessment under section 34(1)(a) of the Income Tax Act, 1922 for the assessment year 1946-47 based on undisclosed income sources and validity of voluntary return filed by the assessee.Analysis:1. The case involves an assessment under section 34(1)(a) of the Income Tax Act, 1922 for the assessment year 1946-47. The assessee, a Deputy Engineer in the Public Works Department, was assessed for the first time for the subsequent year, 1947-48, without any notice issued for prior years. The Income Tax Officer initiated proceedings under section 34(1)(a) due to large deposits made by the assessee in earlier years. The assessee filed a voluntary return after the notice was issued, but the Income Tax Officer ignored it and proceeded with the assessment. The Appellate Assistant Commissioner partially allowed the appeal, and the Tribunal set aside the assessment based on the submission of the voluntary return. The issue was whether the voluntary return precluded action under section 34(1)(a) as per the decision in Ranchhoddas Karsondas v. Commissioner of Income Tax, upheld by the Supreme Court.2. The Tribunal relied on the Ranchhoddas Karsondas case, which held that a voluntary return disclosing income below the taxable limit could be considered valid under section 22. The submission of a voluntary return before the expiration of the period for assessment precludes the Income Tax Officer from invoking section 34(1)(a). However, if the voluntary return is filed after the assessment period, the Income Tax Officer can proceed under section 34(1)(a). The Madras High Court also supported this view in Santosha Nadar v. First Additional Income Tax Officer. In this case, the voluntary return was submitted after the assessment period for the year 1946-47, allowing the Income Tax Officer to proceed under section 34(1)(a) for undisclosed income sources.3. The first question raised in the reference was reframed to inquire if the Income Tax Officer was bound to act on the return filed by the assessee under section 22(3) for the assessment year 1946-47. The answer to this question was negative, indicating that the voluntary return did not preclude action under section 34(1)(a). The second question was answered in the affirmative, upholding the Tribunal's decision to set aside the assessment. The assessee was directed to pay the costs of the reference to the Commissioner.