Demand notice validity and limited reopening appeal scope upheld where default assessment remained operative.

A second notice of demand issued after a valid assessment completed under default procedure was held valid, because it merely communicated the operative assessment and an earlier mistaken notice did not affect the underlying order. An appeal from refusal to reopen that assessment was confined to whether sufficient cause existed for reopening; once the application was rejected, the merits of the return did not have to be examined. The assessment and demand notices were therefore upheld, and the questions were answered against the assessee.

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Issues: (i) Whether a second notice of demand issued after a valid assessment made under Section 23(4) of the Income-tax Act, 1922 was legally valid; (ii) whether, in an appeal from the refusal to reopen an assessment under Section 27 of the Income-tax Act, 1922, the Assistant Commissioner was bound to examine the merits of the assessee's return.

Issue (i): Whether a second notice of demand issued after a valid assessment made under Section 23(4) of the Income-tax Act, 1922 was legally valid.

Analysis: Once a valid assessment had been completed in default of the filing of the return, the subsequent notice of demand was merely an intimation of that assessment. A mistaken or inaccurate earlier notice did not affect the validity of a fresh notice issued after the error was discovered, because the underlying assessment order remained operative.

Conclusion: The second notice of demand was valid.

Issue (ii): Whether, in an appeal from the refusal to reopen an assessment under Section 27 of the Income-tax Act, 1922, the Assistant Commissioner was bound to examine the merits of the assessee's return.

Analysis: The appeal before the Assistant Commissioner was confined to the question whether sufficient cause existed for reopening the assessment and setting aside the order made under Section 23(4). Where the application under Section 27 was rejected for want of sufficient cause, the assessment order stood, and there was no occasion to investigate the substantive merits of the return or the assessee's status.

Conclusion: The Assistant Commissioner was not bound to consider the merits of the return.

Final Conclusion: The questions referred were answered against the assessee, and the assessment and demand notices were upheld.

Ratio Decidendi: An appeal against refusal to reopen an assessment under Section 27 is confined to the existence of sufficient cause for reopening and does not extend to the merits of the return once the assessment under Section 23(4) remains in force.

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