Escaped assessment and limitation control reassessment where time-barred notices cannot be saved by an invalid proviso.

Reassessment under section 34 could be initiated where income had escaped assessment because the ordinary assessment period had expired, even though returns had been filed, so the notices were valid in principle. However, the notices and resulting assessments were ultimately barred by limitation because they were issued after the four-year period under section 34(1)(b), and the second proviso to section 34(3) could not save them once it was treated as void for authorising time-barred proceedings against a person other than the assessee. The reassessment proceedings therefore could not stand.

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Issues: (i) Whether the Income-tax Officer could issue notices under section 34 and make reassessment despite the assessee having already filed returns for the relevant years. (ii) Whether the notices and assessment orders were within limitation, including whether the second proviso to section 34(3) could save the proceedings.

Issue (i): Whether the Income-tax Officer could issue notices under section 34 and make reassessment despite the assessee having already filed returns for the relevant years.

Analysis: The assessee had filed returns, but the Income-tax Officer had taken no action because he had treated the income as assessable in the hands of the parent Hindu undivided family. By the time proceedings were initiated, the ordinary period for completing assessments had expired, so the officer could no longer act under his normal assessment jurisdiction. In those circumstances, the income was treated as having escaped assessment, not because of any default in filing returns, but because assessment had become impossible within the ordinary time limit.

Conclusion: The notices under section 34 were validly issued in principle and the first question was answered in the affirmative, in favour of the Revenue on that issue.

Issue (ii): Whether the notices and assessment orders were within limitation, including whether the second proviso to section 34(3) could save the proceedings.

Analysis: The notices were issued after the expiry of the four-year period applicable to proceedings under section 34(1)(b). The attempt to rely on the second proviso to section 34(3) failed because, as already declared by the Supreme Court, that proviso was void to the extent it authorised proceedings against a person other than the assessee beyond the period of limitation. Once that proviso was treated as non-existent for that purpose, neither the notices nor the assessments made pursuant to them could be sustained.

Conclusion: The notices and assessment orders were barred by limitation and the second question was answered in the negative, in favour of the Assessee on that issue.

Final Conclusion: The reassessment proceedings could not ultimately stand because they were initiated beyond the permissible period and the saving proviso could not be invoked against the assessee.

Ratio Decidendi: Where reassessment is sought against a person other than the assessee beyond the statutory limitation period, a proviso extending time only for such third-party action, if declared void, cannot be relied upon to validate the notices or resulting assessments.

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