1973 (2) TMI 48 - HC - Income Tax

Rectification notices beyond time limit deemed illegal. Section 34(3) proviso not applicable.

The court held that the rectification notices issued by the Income-tax Officer under section 35 of the Indian Income-tax Act, 1922, were beyond the ... Assessment Order, Rectification Proceedings Issues Involved:1. Validity of rectification notices issued under section 35 of the Indian Income-tax Act, 1922.2. Applicability of section 34(3), second proviso, to rectification proceedings under section 35.3. Jurisdiction of the Income-tax Officer to issue rectification notices beyond the four-year limitation period.Issue-wise Detailed Analysis:1. Validity of Rectification Notices Issued Under Section 35:The petitioner challenged the notices dated October 24, 1969, issued by the Income-tax Officer under section 35 of the Indian Income-tax Act, 1922, for rectifying mistakes in the assessment orders for the years 1955-56, 1956-57, and 1957-58. The petitioner argued that the rectifications were barred by time and thus, the notices were without jurisdiction and illegal. The court examined the facts, noting that the assessments of the firm were completed in 1960, and the Income-tax Officer had initially rectified the petitioner's assessments under section 155 of the new Act without issuing a show-cause notice, which was later annulled by the Appellate Assistant Commissioner. Subsequent rectifications were also annulled as they were made under the new Act instead of the old Act. The court concluded that the notices issued under section 35 after more than nine years from the completion of the firm's assessments were time-barred and without jurisdiction.2. Applicability of Section 34(3), Second Proviso, to Rectification Proceedings Under Section 35:The court considered whether section 34(3), second proviso, which allows reassessment beyond the limitation period in certain cases, applies to rectification proceedings under section 35. The petitioner argued that section 34 deals with assessments and reassessments, while section 35 pertains to rectification of mistakes, and there is no similar provision in section 35 extending the limitation period. The court agreed, stating that section 34(3), second proviso, does not apply to rectification proceedings under section 35. The court emphasized that section 35(5) specifically deals with rectification of a partner's share in a firm's income and mandates that such rectifications must be completed within four years from the date of the firm's final assessment order.3. Jurisdiction of the Income-tax Officer to Issue Rectification Notices Beyond the Four-Year Limitation Period:The court examined whether the Income-tax Officer had jurisdiction to issue rectification notices beyond the four-year limitation period. The petitioner contended that the Appellate Assistant Commissioner's order did not extend the limitation period for rectification. The court noted that the Appellate Assistant Commissioner had annulled the rectifications made under the new Act but did not give any direction to redo the rectifications under the old Act. The court held that the Income-tax Officer's power to rectify mistakes was exhausted once he complied with the Appellate Assistant Commissioner's direction. Therefore, the subsequent notices issued under section 35 were beyond the limitation period and without jurisdiction.Conclusion:The court concluded that the rectification notices issued by the Income-tax Officer were beyond the four-year limitation period and thus, without jurisdiction and illegal. The writ petitions were allowed, and the Income-tax Officer was directed not to take further action in pursuance of those notices. The court also held that section 34(3), second proviso, does not apply to rectification proceedings under section 35, and the rectification proceedings must be completed within the specified four-year period. The appeals were dismissed, and the parties were directed to bear their respective costs.