1965 (12) TMI 12 - HC - Income Tax

Tax assessment upheld under section 34(1)(a) but Tribunal overstepped authority in changing basis.

Raghubar Dayal Ram Kishan Versus Commissioner of Income-Tax, Uttar Pradesh.

The department was correct in making the assessment under section 34(1)(a) as the assessee failed to disclose fully and truly all material facts. However, ... Tribunal cannot exercise the functions of the ITO and decide that an assessment can be sustained under cl. (a) or cl. (b) of sub-s. (1) of section 34 - If the Tribunal does not enjoy that jurisdiction, subsequenlty it does not have jurisdiction to convert an assessment made under cl. (a) to one under cl. (b). Issues Involved:1. Whether the department was correct in making the assessment under section 34(1)(a).2. Whether the Tribunal was correct in altering the assessment made under section 23(3)/34(1)(a) into an assessment under section 23(3)/34(1)(b).Detailed Analysis:Issue 1: Whether the department was correct in making the assessment under section 34(1)(a).The Income-tax Appellate Tribunal held that the previous year for the income, being from an undisclosed source, was the financial year 1954-55 and that it could not be included in the assessment for the assessment year 1955-56. The Tribunal reduced the assessed income accordingly. The Income-tax Officer then started proceedings under section 34 by issuing a notice on August 2, 1958. The notice's clause (a) or (b) was not specified. The assessee contended that including the income in the assessment for 1955-56 was an error of law, not fact, and that action under section 34 could only correct an error of fact. The Income-tax Officer held that the return for 1954-55 was false or incorrect and proceeded under clause (a). The Tribunal held that clause (b) applied, not clause (a).Clause (a) applies when the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return or to disclose fully and truly all material facts, income has escaped assessment. Clause (b) applies when the Income-tax Officer has information leading him to believe that income has escaped assessment, despite no omission or failure by the assessee. The Tribunal found that the Income-tax Officer did not have information in his possession as required by clause (b) and that clause (a) applied because the assessee failed to disclose fully and truly all material facts.The Tribunal's finding that the Income-tax Officer had in his possession information leading to the belief about the escape was not supported by the record. The Tribunal's earlier order did not amount to information that the income had escaped assessment for 1954-55. The information required for clause (b) is different from the facts disclosed in the return. Since the assessee did not disclose fully and truly all material facts, clause (a) applied. The Tribunal could not alter the assessment to clause (b) because the conditions for its application did not exist.Issue 2: Whether the Tribunal was correct in altering the assessment made under section 23(3)/34(1)(a) into an assessment under section 23(3)/34(1)(b).The Tribunal's jurisdiction under section 33(4) allows it to pass orders it thinks fit. However, the power to take action in respect of escaped income under section 34 vests exclusively in the Income-tax Officer. The Tribunal cannot alter the assessment from one under clause (a) to one under clause (b) because it does not have the jurisdiction to do so. The Tribunal's power is limited to confirming, reducing, enhancing, or annulling the assessment or directing the Income-tax Officer to make a fresh assessment. It cannot assume jurisdiction under section 34 when the Income-tax Officer has refused to do so.The essential conditions for clause (b) are that the Income-tax Officer has information leading to the belief that income has escaped assessment. The Tribunal cannot substitute its judgment for that of the Income-tax Officer. The Tribunal's power under section 33(4) is controlled by the provisions of the Act and does not extend to altering the basis of the assessment from clause (a) to clause (b).The Tribunal's decision to alter the assessment was not legally correct. The Tribunal should have judged the validity of the assessment with reference to clause (a) and not clause (b). The Tribunal's power is conterminous with that of the Income-tax Officer in the assessment process, but it cannot assume the Income-tax Officer's jurisdiction to proceed under a different clause.Conclusion:1. The department was correct in making the assessment under section 34(1)(a).2. The Tribunal was not correct in altering the assessment from section 23(3)/34(1)(a) to section 23(3)/34(1)(b). The Tribunal does not have the jurisdiction to alter the basis of the assessment from one clause to another.