JUDGMENT MANCHANDA J. - This is a case stated under section 66(1) of the Income-tax Act of 1922 (hereinafter referred to as the Act). The question referred is :
"Whether, on the facts and circumstances of the case, the assessment under section 34 was validly made ?"
The material facts are these : The relevant year of assessment is 1955-56. No return was filed in response to the general notice under section 22(1) of the Act, nor was any notice issued under section 22(2) of the Act by the Income-tax Officer for the relevant assessment year. During the course of assessment proceedings for the assessment year 1958-59, the Income-tax Officer considered that some income had escaped assessment. He, therefore, as required by law, applied to the Commissioner of Income-tax for approved to take action under section 34(1)(a) of the Act. The approval having been obtained, the notice under section 34 of the Act was served upon the assessee on the 12th September, 1959. More than two months before the notice under section 34 of the Act was served on the assessee, the assessee had filed voluntary returns on 3rd of July, 1959, inter alia, for the relevant assessment year. Thus on the date when the section 34 notice was issued, a voluntary return under section 22(3) of the Act was already on the file. In response to the said notice under section 34, served upon the assessee on the 12th September, 1959, the assessee by his letter dated 4th of November, 1959, informed the Income-tax officer that the returns from 1951-52 to 1957-58 had already been filed on the 3rd of July, 1959, and those returns may be treated as compliance with his notice under section 34 of the Act. The assessee, on the 4th January, 1960, filed a return in response to the notice under section 34 of the Act with the following remarks :
"In response to your notice under section 34 served on September 12, 1959, the return is hereby filed, though in law and fact the return filed on July 3, 1959, was itself sufficient compliance of the said notice."
The Income-tax Officer proceeded to complete the assessment under section 34 read with section 23(3) of the Act, on the 24th March, 1960. Dissatisfied with the assessment made, an appeal was taken to the Appellate Assistant Commissioner and the contention taken before him was that when the return for the relevant assessment year, suo motu, had been filed on the 3rd of July, 1959, within the period of limitation of four years, within which the assessment would have been completed, the Income-tax Officer had no jurisdiction to issue the notice under section 34 of the Act in respect of that assessment year. Reliance for this proposition was placed on the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas [[1959] 36 I.T.R. 569 (S.C.).]. This contention was repelled by the Appellate Assistant Commissioner on the ground that :
"From the records, however, it appears that the proceedings in connection with section 34 were initiated by the Income-tax officer for all these years on June 20, 1959, i.e., before the returns for all these years were filed by the assessee. Since in order to start the proceedings under section 34 it was statutory for the Income-tax Officer to take the approval of the Commissioner of Income-tax and since the approval of the Commissioner of Income-tax was sought on June 20, 1959, the proceedings under section 34 are held to have been validly initiated. Under the circumstances, the assessments made are considered by me as validly made within law."
A further appeal to the Income-tax Tribunal was also unsuccessful. The Tribunal held that :
"The assessment has been completed within the period of limitation of four years prescribed under section 34(3). It would thus be seen that, even for this assessment year, the facts are materially different from those which were before their Lordships of the Supreme Court in the case cited above. This assessment, being made within the period of limitation of four years, is also valid in law."
Hence, this reference at the instance of the assessee. There cannot be the slightest doubt, in view of the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas [[1959 36 I.T.R. 569 (S.C.).], that no valid notice under section 34 could possibly have been issued when a voluntary return under section 22(3) had been filed within the period of limitation. The Income-tax Officer was bound to drop the proceeding under section 34 and proceed only with the assessment on the basis of the voluntary return under section 22(3) of the Act. The Income-tax Officer, however, did nothing of the sort. He stuck to his guns and proceeded to assess the assessee under section 34 read with section 23(3) of the Act. On the basis of the authority of the Supreme Court, if the notice under section 34 was invalid, the proceedings which culminated in an assessment, a fortiori, would also be void.
The Supreme Court decision has been attempted to be distinguished on two different lines of reasoning. According to the Appellate Assistant Commissioner the proceedings under section 34 had commenced not with the issue of the notice under section 34, but with the obtaining of sanction from the Commissioner of Income-tax. If the initiation of proceedings could be said to commence with the application by the Income-tax Officer for sanction of the Commissioner of Income-tax, then section 34 proceedings might be said to have been taken prior to the filing of the voluntary returns by the assessee. No authority, however, was cited by the learned counsel for the department in support thereof. There cannot be much doubt on a question such as this that, proceedings under section 22 commence only with the issue of notice under section 22(1) or section 22(2) of the Act and, in respect of proceedings under section 34, only when the notice thereunder is issued. The preliminary steps taken, which might or might not culminate in the issue of a notice, cannot possibly amount to initiation of proceedings in the eye of law.
The other line of reasoning adopted by the Tribunal was that the assessment under section 34 having been completed within the period of four years prescribed under section 34(3) of the Act, the assessment, though under section 34, would be valid in law. Their contention is again one which it is difficult, if not impossible, to uphold. It is no doubt true that in the said Supreme Court decision, section 34 action was initiated after the expiry of four years and there was an attempt to take advantage of the additional period of one year permitted thereunder for the completion of assessment proceedings. That fact, however, will not make any substantial difference nor make the ratio of the decision in Commissioner of Income-tax v. Ranchhoddas Karsondas [[1959] 36 I.T.R. 569 (S.C.).] inapplicable to the facts of the present case. If the notices are issued under section 34, which can only be issued if certain conditions are fulfilled, and when those conditions are not satisfied and yet the Income-tax Officer persists in making the assessment under section 34, it will not matter whether such an assessment is completed within the period of four years or within the additional period of one year provided under section 34 of the Act. The Supreme Court in Y. Narayana Chetty v. Income-tax Officer, Nellore [[1959] 35 I.T.R. 388; [1959] Supp. 1 S.C.R. 189.], held that :
"If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the Income-tax officer without a notice or in pursuance of an invalid notice would be illegal and void."
The notice under section 34 was undoubtedly an illegal notice as a voluntary return was already in existence. The subsequent proceedings under that section and culminating in the assessment cannot be anything else but illegal and void.
For the reasons given above, we would answer the question referred in the negative and against the department. The department will pay the costs to the assessee which we assess at Rs. 200. The counsels fee is also assessed at Rs. 200.
Question answered in the negative.