P L D 1962 (W (PLP)

M. YAQUB ALI, J.‑The Income‑tax Appellate Tribunal has, at the instance of the Commissioner of Income‑tax, North Zone, West Pakistan, Lahore, referred the following question to this Court for its opinion under section 66 (1) of the Income‑tax Act (hereinafter referred to as the Act): ‑ "Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the assessment was liable to be annulled and not merely set aside ?"

2. The facts necessary to be stated for the purpose of this order are that the assessee, the Messrs Sutlej Cotton Mills Ltd., is a non‑Muslim concern with its head office at Calcutta and registered office at Okara. They own a textile Mill at Okara and do large‑scale business in cotton yarn, cotton and cotton‑seed. For the account year 1st of April 1948, to the 31st of March 1949, they submitted a return to the Income‑tax Officer, Company Ward I, Lahore, showing an income of Rs. 27,93,095 on the basis of which their assessment was completed on the 23rd of June 1953. It subsequently transpired that the assessee had concealed their income under several heads, where upon Mr. S. A. Kareem, Income‑tax Officer, with the permission of the Inspecting Assistant Commissioner of Lahore Range, issued a notice to the assessee on the 22nd of February 1954, in the following terms, :‑ "Income‑tax Officer Company Ward I, Lahore Date 22nd February 1954. To Sutlej Cotton Mills Ltd., Okara. Whereas I have reason to believe the income, profits or gains chargeable to income‑tax for the year ending 31st March 1950 have (a) escaped assessment, (b) been under‑assessed. I propose to re‑assess the said income, profits or gains and I hereby require you to deliver to me within 35 days of the receipt of this notice, a return in the attached form of your total income and total world income assessable for the said year ending 31st March 1950. The notice is being issued with the previous approval of the Inspecting Assistant Commissioner of Income‑tax, Lahore Range, Lahore. (Sd.) S.A. KAREEM, Income‑tax Officer, Company Ward I, Lahore." A perusal of the record of the assessment shows that at first Mr. Brij Lal Jajoo, Secretary of the assessee, undertook to file the return at an early date, but eventually he delayed its submis sion till the 30th of March 1954, although it was identical to the one on the basis of which the earlier assessment had been made. The date is material as, in the opinion of the Income‑tax Officer, the assessment under section 34 had to be completed by the 31st of March 1954, although it was a case of concealment of particulars of the assessee's incomes and deliberately furnishing incorrect particulars in which case the period prescribed for completion of assessment is eight years. After issue of the notice for filing of the return, Mr. Kareem called for the account books of the assessee under section 22 (4) of the Act which were produced on the 16th of March after a good deal of procrastina tion and examined by two Inspectors with the, assistance of the Accountant and other employees of the assessee. During the course of the examination of the books, certain queries were made, some of which were replied to, while others were evaded. In the result, Mr. S. A. Kareem, on the 27th of March 1954, issued two notices to the assessee, which, for facility of reference, may be reproduced at this stage. "No.

22. Office of the Income‑tax Officer, Company Ward I, Dated : Lahore the 27th March 1954. To The Sutlej Cotton Mills Ltd., Okara. Assessment‑Charge year 1949‑50‑Notice under section 23(3). Please take notice of the fact that consequent to the examination of your accounts in connection with the assessment pro ceedings under section 34 for the assessment year 1949‑50 some important points call for explanation and elucidation. You are, therefore, hereby required to explain such points as are detailed below: - (1) That in the production of yarn from cotton a total wastage of 10,36,274 lbs. has been declared. This gives an average of 15.68 percent which is considered to be excessive. There being no yarn production stock register it has been found not possible to check its total production and the textile produced and the two products sold. In these circumstances it is left to you to explain the whole position. (2) In the Kapas account the following results have been declared : 1st Part 2nd Part. April to June

48. November to March

49. Mds. Srs. Ch. Mds. Srs. Chtks. Yield of L. S. S. 0 13 0 P. Md. 0 12 4 Per md. Yield of 289‑F. 0 12 4 " 0 11 1 " Yield of 4‑F. 0 13 4 " 0 12 13 Please explain the cause of comparatively low yield in the same quality of the 2nd part of the year. Notice of the fact that original purchase vouchers and sauda behi are not available should be taken which calls for explanation. (3) Total sales of cotton valuing Rs. 1,61,41,117 were made to non‑Pakistanis including Kesho Ram Mills Ltd., Calcutta. A net profit of Rs. 2,87,242‑4‑6 has only been declared, which is not commensurate with the known margin of profit. Further it is noticed that the rates charged are below the market rates, which call for reconciliation and explanation. It is assumed that this has been your own trading with non‑Pakistani merchants and mill‑owners or your own Head Office. Please arrange to furnish all factors enabling to formulate trading account and support the purchases and sales by proper vouchers and contract or other agreements, if any. (4) The nature of the closing stock entry of Rs. 4,66,933 in the balance‑sheet of the Head Office should be explained as already directed. Why should it not be treated as a factor to augment your own income. (5) In the stores account a sum of Rs. 3,24,000 has been debited as advance paid to the Textile Machinery Corporation Ltd., Calcutta. The original voucher as well as the nature of this entry should be explained. Production of original vouchers for all purchases is also necessary. (6) The closing stock as on 31st March 1948, was valued at Rs. 2,00,000, which comprises of cloth valued at Rs. 1,50,000 and yarn at Rs. 50,

000. What is the basis of this valuation ? It has been deposed that no stock inventory existed, but why it was so. The quantity of stock is also not commensurate with closing stocks declared in the earlier and subsequent years which particularly calls for explanation. (7) The nature and the details of the Agency Commission accounts which stand as under should be furnished Dr. Rs. 91,

102. Cr. Rs. 1,92,639. (8) In the production of cloth an excess of 3,61,816 yards has resulted which should be explained. (9) The nature of the special pay made to the Secretary and the Manager should be explained. (10) On 10th May 1948, kapas `NT' 43 was purchased at Rs. 20‑14‑1 per maund for Rs.

829. The bill was revised and instead `NT 43' the quality of kapas was written as L. S. S. in red ink enhancing the rate of purchase to Rs. 22‑12‑0 per maund and the amount of bill to Rs. 898‑0‑

0. Again the stock of this particular transaction was shown in `NT 43' account in the kapas register. If the transaction was in respect of L. S. S. cotton why was it shown in `NT 43' account in the stock register and if it was `NT 43' why the rate of purchase was enhanced to Rs. 22‑12‑0 per maund? Please explain this feature. (11) You have shown total receipts of cotton‑seeds at 1,50,816 maunds as against disposal of 2,01,346 maunds (including closing stock of 34,963 maunds). Please let me know the source of receipts of excessive sales in this account. No open ing stock in the cotton‑seed account has been declared. Explain reasons for the same. (12) On 21st July 1948, lint weighing 3156 maunds was sold at Rs. 50 and Rs. 55 per maund, when the sale rates in the market were between Rs. 96 to 100 per maund. Please explain the cause of under‑selling the stocks of the Head Office. Also statements and accounts showing sales made by the Head Office in respect of the stocks in question should please be produced. (13) An excess of 4029 maunds of cotton has been shown in the stock statements submitted by you. Please explain the cause of excess and produce relevant stocks accounts and account books in support of your assertion. (14) It is noticed that substantial salary was paid to Ram Lal Rajg rhia, General Manager, which was not commensurate with his performance of the duties in respect of the Mill. Please reconcile and explain. (15) The expenditure of the overhauling of machinery to the tune of Rs. 1, 83,350 is not supported by the relevant entries in your accounts which fact calls for explanation. Please also note that compliance of this notice under section 23 (3) should be made in writing by 30th March 1954, on which date the relevant accounts should also be produced. Seal . (Sd.) S. A. KAREEM, Sales‑tax Dept. Income‑tax Officer, E Ward, Lahore. Company Ward I, Lahore. D/27‑3." Telegram. Lahore Date Hour Minutes. 27 14 15 SUTLEJ COTTON MILLS LIMITED, OKARA. Form B Notice under section 23 (2) of the Indian Income‑tax Act, 1922, dated the 27th March 1954. Dear Sir, There are certain points in connection with the return submitted by you under section 22 of the Indian Income‑tax Act, 1922 (XI of 1922) for the assessment year ending 31st March 1950, in regard to which I should be obliged therefore if you could attend my office at Lahore on 30th March 1954, at 9 a.m. either in person or by a representa tive duly authorised in writing in this behalf or there produce or cause there to be produced at the said time any documents, accounts and other evidence on which your return has been based. Income‑tax Officer, Company Ward I, Lahore. A special bailiff was deputed to effect service of the notices on Mr. Brij Lai Jajoo, Secretary of the assessee, but he was made to sit outside the registered office of the Company for the whole day until the office hours were over on one pretext or the other. 28th March being Sunday, service of the notices was effected on the 29th of March 1954. In consequence of it the income‑tax Officer issued fresh identical notices, which are Exhs. I and J in the case.

3. On the 30th of March a detailed and reasoned reply was filed by the income‑tax lawyers of the assessee. Mr. Jajoo appeared on the 31st of March and was examined by the Income- tax Officer in the presence of his lawyer Kh. Abdur Rahim, Barrister‑at‑law, who at the close of his statement asked him questions in re‑examination in support of the assessee's return. On the same day the assessment was completed, whereby as against the disclosed income of Rs. 28,65,353 the net income of the assessee during the account year 1948‑49 was estimated at Rs. 82,32,492, the difference between the two sums being Rs. 53,67,139.

4. Aggrieved by the order of the Income‑tax Officer the assessee appealed to the Appellate Assistant Commissioner of Income‑tax, `B' Range, Lahore, on the following grounds: ‑ (1) That the learned Income‑tax Officer has erred in pro ceeding under section 34 of the Income‑tax Act, as no reasons were communicated to the petitioner in spite of request made therefore, for invoking the provisions of that section. (2) That the learned Income‑tax Officer was not justified in starting proceedings under section 34 as he had no reason to believe that any income had escaped assessment or had been under‑assessed, nor was the approval of the Inspecting Assistant Commissioner proper. (3) That in any case there was no material to justify comple tion of assessment under section 34. (4) That the order is also bad in law inasmuch as‑ (a) It was made after 31st March 1954. (b) Notice under section 23 (3) was issued before hearing of the petitioner under section 23 (2). (c) Notices under sections 23(2) and 23(3) were too short. (d) Notice under section 34 was issued without proper jurisdiction. (5) That in any case the following add‑backs are arbitrary and not based on any evidence, reasons, information or material:‑ (a) Rs. 23,12,500 in cloth account. (b) Rs. 2,12,531 in kapas ginning account. (c) Rs. 1,91,375 in cotton and cotton‑seed account. (d) Rs: 18,00,000 in cotton sold to Indian parties. (e) Rs. 4,66,933 in head office account. (f) Rs. 3,24,000 in stores account. (g) Rs. 49,800 in salaries account. (h) Rs. 10,000 in States income. (6) That the learned Income‑tax Officer was not justified in taxing 50% of the Indian income for direct assessment in Pakistan as profit accruing or arising in this country. By order dated the 6th of December 1955 the learned Appellate Assistant Commissioner held that the Income‑tax Officer was competent to initiate proceedings under section 34 of the Act, which disposed of grounds Nos. 1 to

3. Under ground No. 4 (a) the contention that the impugned order was not passed on the 31st of March 1954, was found to be not correct, in the absence of any definite evidence to show that the order was actually made on some subsequent date. Under ground No. 4(b) it was held that the notice under section 23(3) could only be issued after heating the appellant under section 23(2), and inasmuch as the two notices were issued simultaneously it had rendered the assessment illegal. Lastly; under ground No. 4(c) the learned Appellate Assistant Commissioner found that the time allowed to the assessee to comply with the requirements of the two notices was too short, and in the result he set aside the order of assess ment with the direction that the Income‑tax Officer should proceed according to law to make fresh assessment after allowing the assessee a reasonable opportunity under sections 23(2) and 23(3).

5. The department did not appeal from this order, but the assessee brought it under challenge before the Income‑tax Appellate Tribunal on grounds 1 to 4 which were identical to the grounds reproduced above, and an additional ground that notices under sections 23(2) and 23(3) having been held to be illegal and invalid, the assessment should have been annulled and not set aside. While grounds No 5. to 4 failed, the last ground prevailed with the learned Members of the Tribunal, in consequ ence of which the entire assessment proceedings were annulled.

6. Feeling dissatisfied with the order of the Tribunal, the State, through the Commissioner of Income‑tax, North Zone, Lahore, moved an application under section 66(1) of the Act for referring to this Court the following questions for its opinion: ‑ (1) Whether there was sufficient evidence before the Appellate Tribunal to come to the conclusion that the assessee was denied sufficient opportunity to prove the correctness of his return of total income for the year 1949‑50? (2) Whether the notice under section 23 (2) of the Income -tax Act which was issued and served on the respondent on 29th March 1954, was invalid in the sense that it did not allow sufficient time to the assessee to comply with it? (3) Whether an assessment made undo‑ section 23 (3) of the Act would be wholly illegal and deserved to he annulled (and not merely set aside) if a notice under section 23 t2) issued in the course of valid assessment proceedings was subsequently found to be invalid ? (4) Whether an Appellate Assistant Commissioner is com petent to set aside an assessment (if he is of the opinion that the circumstances of the case suggest such a course) which relates to a year whose assessment, if annulled, the Income -tax Officer would not be competent to make under section 34 of the Act ?

7. The petition was opposed by the assessee, inter alia on the ground that the finding of the Appellate Assistant Commis sioner that the notices under sections 23 (2) and 23 (3) did not give reasonable opportunity to the assessee to comply with their requirements having one of fact could not form the subject‑matter of a reference to this Court. By order dated the 11th of January 1960, the learned Members of the Tribunal concluded that "the question of reasonable opportunity did not depend on the reasonableness of time but on the failure of the Income‑tax Officer to observe the fundamental principle of law that `a person is entitled to be heard before he can be saddled with a pecuniary liability'." Reliance was placed in this behalf on the observations of Bhandari, C. J., in M. Muhammad Ishaq v. Commissioner of Income‑tax, Delhi, Ajmer‑Marwara ((1955) 27 I T R 510), and the following remarks from Salmond on Jurisprudence, Ninth Edition, at page 84: ‑ "Thus the question as to what is the reasonable and proper punishment for murder is a question of law, individual judicial opinion being absolutely excluded by a fixed rule of law. But what is the proper and reasonable punishment for theft is (save so far as judicial discretion is limited by the statutory appointment of a fixed maximum) a question of fact on which the law has nothing to say. Whether a contractor has been guilty of unreasonable delay in building a house is a question of fact; the law contains no rule for its determination. But whether the holder of a bill of exchange has been guilty of unreasonable delay in giving notice of dishonour is a question of law to be determined in accordance with certain fixed principles laid down in the Bills of Exchange Act. The question whether a child accused of crime has sufficient mental capacity to be criminally responsible for his acts is one of fact, if the accused is over the age of eight years, but one of law (to be answered in the negative) if he is under that age. The Sale of Goods Act provides that `where by this Act any reference is made to a reasonable time, the question what is a reasonable time, the question of fact'. This means that there is no rule of law laid down for its determination." Questions Nos. 1 and 2 formulated by the Commissioner of Income‑tax were, therefore, overruled and the remaining two questions were joined together and the question reproduced in the beginning of this order was referred to this Court under section 66 (1) of the Act.

8. At the hearing of the reference Messrs M. Anwar and Hafeez‑ur‑Rahman, the learned counsel for the assessee, desired that we should confine our consideration to the abstract question of law involved in the reference but we could not agree with them, because, in our opinion unless the relevant facts were examined in detail, it was not possible to give a satisfactory reply to the reference.

9. It may be stated at the outset that the findings of the Appellate Assistant Commissioner that the notices under sections 23 (3) were vitiated, as both of them were issued simul taneously, is erroneous on the face of it. The relevant subsections read as follows: ‑ "23 (2) If the Income‑tax Officer is not satisfied without requiring the presence of the person who made the return or the production of evidence that a return made under section 22 is correct and complete, he shall serve on such person a notice requiring him, on a date to be therein specified, either to attend at the Income‑tax Officer's office or to produce, or to cause to by there produced, any evidence on which such person may rely in support of the return. (3) On the day specified in the notice issued under sub section (2) or as soon afterwards as may be, the Income‑tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income‑tax Officer may require, on specified points, shall by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment." It will be seen that in both these subsections only one notice is contemplated, namely, under subsection (2) requiring the assessee to attend the office of the Income‑tax Officer for examina tion or to produce, or cause there to be produced, any evidence as the assesee may rely upon in support of his return. After this requirement has been fulfilled, under subsection (3), except, in cases where the Income‑tax Officer may require some more evidence to be produced, he shall, by an order in writing, assess the total income of the assessee and determine the sum payable by him on the basis of such assessment. It is true that Nor. S. A. Kareem issued' two separate notices, one purporting to be under section 23(2) and the other under section 23(3), but the requirements of both were to be fulfilled originally on the 29th of March and subsequently on the 30th of March 1954. In substance, therefore, the assessee was required to reply to the fifteen questions formulated by the Income‑tax Officer as a result of the examination of the account books of the assessee, and produce such evidence as they were advised in support of the correctness of their return. We, therefore, fail to see how the learned Appellate Assistant Commissioner concluded that the notice under section 23 (3) was to be issued after Mr. Brij Lal Jajoo had been examined and that the issuance of the two notices together had vitiated the entire assessment proceedings. Be that as it may, since the Commissioner of Income‑tax did not choose to appeal from the order of the Appellate Assistant Commissioner setting aside the assessment, nothing more need be said about its correctness.

10. The Members of the Tribunal annulled the assessment proceedings, broadly speaking, on two grounds, (1) it was physically impossible for any person to comply with the requisi tion of the notice under section 23 (3) and to satisfy the Income- tax Officer as to the correctness of the return within such a short time, and (2) the second proviso to section 34 (2) covers cases where the delay is caused by reason of the afflux of time involved in the decision of the case by an appellate authority and as the notice required to be issued under section 23(2) falls within section 34 (1) of the Act, the omission of the Income‑tax Officer to comply with this part of the section could not be regularised by an appellate authority through indirect means by authorising him to do something during the extended period. In plain language it means that as there was not enough time to complete the assessment after giving an adequate opportunity to the assessee to comply with the requirements of the notices under sections 23(2) and 23 (3), the second proviso to subsection (2) of section 34 could not be availed of by the Appellate Assistant Commissioner in directing the Income‑tax Officer to hold fresh inquiry and complete the assessment after the 31st of March 1954.

11. Whether sufficient time was given to the assessee to comply with the requirements of the notice under section 23 (2) or not is of course not the subject‑matter of the reference before us, but in order to determine whether it was a fit case to set aside the assessment and direct fresh enquiry to be made or to annul the assessment altogether it is necessary to examine the cir cumstances in which the Income‑tax Officer completed the assess ment under section

34. As mentioned above, a detailed and reason ed reply to the queries made by the Income‑tax Officer was filed on the 30th of March and Mr. Jgjoo was examined on the 31st. The points formulated by the Income‑tax Officer for elucidation have been set out above. Let us now look into the reply to them to find out whether it was physically impossible for the assessee to comply with the requirements of the notices under sections 23(2) and 23(3) so as to attract the principle relied upon by the learned Members of the Tribunal that the appellate authority could not, through indirect means, authorise the Income‑tax Officer to com plete the assessment beyond the 31st of March 1954,

12. The first point raised by the Income‑tax Officer related to the percentage of wastage of yarn in the manufacture of cloth. The assessee did not maintain any yarn production stock register. In these circumstances the Income‑tax Officer asked the assessee to produce evidence in proof of the claimed wastage. This question was raised in the original assessment also, and the assessee had given his explanation on the 31st of May 1954. No fresh evidence was offered in support of the correctness of the return on this point and the assessee relied upon the previous explanation. The second point related to comparatively low yield of lint. In reply to it the assessee claimed that the cotton used in the second part of the year pertained to the cotton season 1948‑49 and represented the mixed picas of all the three periods ranging from November to March 1949, and further pleaded that the yield of lint depended upon various factors which were never constant from year to year. The purchase of cotton was not evidenced by external vouchers nor was a sauda behi maintained by the assessee. The first objection was met by the explanation that internal vouchers had been maintained, and the omission of sauda behi was ascribed to not undertaking any speculative transactions. Point No. 3 related to sale of cotton valuing at Rs. 1,61,41,117 to non‑Pakistanis in India on which the declared profit was 1.75 per cent. which, keeping in view the parallel cases and the market rate, was ridiculously low. As in the case of other items, the assessee did not offer to produce any evidence in support of the correctness of the transactions. In fact this point did not present any difficulty to the assessee, because, in their own words, it had been thrashed time and again during the original assess ment and was specifically raised in the notices issued by the Income‑tax Officer and the Inspecting Assistant Commissioner. Under point No. 4 the assessee was required to explain the item of Rs. 4,66,933 entered in the balance‑sheet of the head office as closing stock entry. The Income‑tax Officer desired to know as to why this sum should not be treated as a part of the income of the assessee. The reply to it was rather brief, namely, that the Income‑tax Officer had misconstrued the balance‑sheet of the head office. Otherwise the sum had nothing to do with the Pakistan business or Pakistan books of the assessee.

13. The reply to items Nos. 5, 6 and 7, which respectively related to an item of Rs. 3,24,000 shown as advance paid to the Textile Machinery Corporation Ltd., Calcutta, the value of the closing stock on the 31st of March 1948, and the nature of the agency commission accounts, was as follows: ‑ No. 5.‑This item has already been replied in our letter dated the 24th of March 1954, and no further explanation is called for. We have already submitted our entire record including the purchase vouchers and whatever further purchase vouchers are required they can also be submitted. No. 6.‑Attention is invited to Inspecting Assistant Com missioner's letter dated 29‑5‑53 and our reply thereto. No. 7.‑This account does not pertain to the previous year under consideration. The reply to the, last‑mentioned question was accepted as correct as in the assessment order we find no reference to it, but it will be noticed that in the case of the remaining two points the assessee relied upon their replies to the similar questions raised in the original assessment. It was of course said that whatever further purchase vouchers were required they could be submitted, but the notice under section 23 (2) required them to be produced on the 30th of March, and we fail to see that if any such vouchers were in existence, why they were held back on the due date.

14. The next item pertained to an excess of 3,61,816 yards in the production of cloth. In their reply, the assessee did not dispute its correctness, but dismissed the effect of it by the asser tion that by no stretch of imagination it could be considered a factor contributing towards under‑assessment or escapement under section 34 of the Act. Item No. 9 related to special pay given to the Secretary and Manager of the assessee. This issue too was claimed to have been discussed during the original assessment proceedings, and no fresh explanation was offered to place before the Income‑tax Officer in support of the correctness of the return on this point. Item No. 10 was an instance cited by the Income‑tax Officer of falsification of accounts , by the assessee. On the 10th of May 1948, kapas `N T 43' was purchased at Rs. 20‑14‑1 per maund for Rs.

829. The bill was revised and instead kapas `NT 43' was changed to L. S. S. in red ink enhancing the rate of purchase to Rs. 22‑12‑0, per maund, and the amount of bill to Rs.

848. There were, however, no corresponding alterations in the stock register. No evidence was offered in proof of this variation by the assessee, but in their reply the onus was thrown on the Income‑tax Officer to verify the correctness of this entry as the party from whom the cotton was purchased was very well known.

15. The next item No. 11 required explanation for excess in the cotton account, the total receipts during the relevant account being 1,50,816 maunds as against the disposal of 2,01,346 maunds. Instead of rendering an explanation for this discrepancy the assessee, as in the case of item No. 8, reiterated that such an excess could, by no stretch of imagination, be considered a factor contributing towards under‑assessment or escapement of income under section 34 of the Act.

16. Item No. 12 related to sale of cotton lint weighing 3,156 maunds at Rs. 50 and Rs. 55 per maund as against the market rate of Rs. 96 to Rs. 100 per maund. The reply to it was that the lint in question was purchased from the Deputy Custodian out of abandoned stocks at an average purchase rate of Rs. 41‑8‑0, the stock being old and damaged. As regards the production of accounts and statements showing sales made by the head office of this lint, the assessee submitted that the time allowed was "so short that it was impossible to obtain the desired information from Calcutta." This is the only point in reply to which lack of time was pleaded by the assessee. It is significant that no evidence was offered or produced in support of the assertion that old and damaged cotton lint was purchased from the Deputy Custodian at Rs. 41‑8‑0 per maund and that the lint sold to the Indian parties was out of this stock. Further, it was not offered to produce the account books of the Company if there was sufficient time to do so. Point No. 13 again pertained to excess of 4,029 maunds of cotton in the stock statements submitted during the assessment which required explanation. The reply to it was same as in the case of points Nos. 8 and 11 reproduced above. Item No. 14 related to the salary paid to Mr. Ram Lal Rajgarhia, General Manager of the Company. In reply the assessee claimed that the Company had fixed the General Manager's salary with due regard to the duties and the obliga tions he had to discharge. The nature of the duties was, however, not explained to determine whether the salary paid to him was commensurate with their performance. The last item related to expenditure of overhauling of machinery to the tune of Rs. 1,83,350 which was not supported by any entries in the account books. The reply to it was that the expenditure did not pertain to the previous year under consideration. Even if that was so, the relevant entries in the account books should have been forth coming.

17. The reply of the assessee concludes with the following omnibus clause: "In conclusion we must submit that the notice under section 23 (3) was served on us on 29th March 1954, and the reply to that has been called for on 30th of March 1954, thus giving us barely a few hours to go through voluminous records and to state categorically on points of a controversial nature. This short time cannot be considered as a reasonable and adequate opportunity as we are entitled to receive from the Income‑tax Department for elucidating of such important matters. The reply to your notice under section 23 (3) would not ordinarily have been submitted, but this reply is being submitted under protest just to facilitate the proceedings and to co‑operate with the Department."

18. It will be seen that except in the case of point No. 12, the assessee did not complain that they were handicapped by want of time in fulfilling the requirements of the two notices under sections 23 (2) and 23 (3). In fact they were made fully cognizant of all these points, partly in course of the original assessment and partly during the examination of their account books between the 16th and 26th of March 1954. For example, on the 19th of March 1954, the following note was recorded in the assessment proceedings by the Income‑tax Officer: ‑ "Statement of Accounts examined. Asked to supply average purchase cost of kapas per maund and average cost of ginning per maund and thereby prove the cost of cotton (Lint) and cost of cotton‑seed per maund to the company. Also prove average cost price of lint directly purchased for comparison with the average cost of lint produced in mills. Average yield of lint in 289.17 in the first part of the year 13 seers per maund. Average in the second part of the year. 11 seers 1 Chhs. P. Md. Average yield of lint in L. S. S. in the first part. 13 seers per maund. Average in the second part of the year. 12 seers 4 chhs. P. Md, The variation in yield in the same quality in the same season and in the same Factory is not insignificant. Asked to prove the figures from registers and explain the reasons of variation in the yield of lint. Details of the closing stocks and the rates of the valuation of such commodity to be furnished. The value of opening stock of Rs. 2,00,000 on estimate in the manufacturing Account to be explained. Explanation of Rs. 4,66,933 in the balance‑sheet to be furnished. Number of Looms and spindles actually worked and the payments made to the spinning labour with necessary details. For 22nd of March 1954, for other examination. Accounts to be examined on the 20th of March 1954." There is a letter dated the 20th of March 1954, by Mr. G. N. Dalmia, General Manager of the assessee on the record of the Income‑tax Officer, which reads as follows: ‑ "Dear Sir, The examination of accounts in our case is being continued from day to day and our accountants have thus been in Lahore since the 16th instant. They have had no time to go to Okara and take out the various books of account required to be produced on the 22nd of March 1954, nor could prepare the statements. It is, therefore, requested that our accountants may please be relieved today and the case may be taken up on the 25th of March 1954, instead of 22nd of March 1954: Yours faithfully, ' for Sutlej Cotton Mills Ltd., (Sd.) G. N. Dalmia General Manager." This brings out that during the course of the examination of the assessee's account books their accountant was duly informed of the points which required elucidation, and in support of the correctness of the return they were asked to produce account books and other relevant record as well as to prepare statements for this purpose. Our conclusion that the assessee was not all of a sudden called upon to reply to the fifteen points formulated by the Income‑tax Officer is further borne out by the fact that a detailed and reasoned reply to each one of them was filed on the 30th by the income‑tax lawyers of the assessee. In view of this it was contradictory in terms to say that the time afforded to the assessee to comply with the requirements of the notices under sections 23 (2) and 23 (3) was not adequate.

19. It is true that on the statement of the case we are not concerned with the correctness of the findings of the Income- tax Officer on the fifteen points set out above, but his view on some of his findings will bring out what would the assessee have accomplished if more time was given to them for supporting the correctness of their return by production of account books or other evidence within the scope of subsections (2) and (3) of section 23 of the Act. In the impugned order, Mr. S. A. Kareem grouped the above‑mentioned fifteen points under the headings : (1) Textile Manufacturing & Trading Account, (2) Kapas Ginning Account, (3). Trading Account of Cotton and Cotton‑seed, (4) Salary Account, (5) States Income, (6) Indian Income, (7) Abatement, and (8) Abatement on State income. The first account started with an opening stock of Rs. 2,00,000 comprising of the finished cloth of Rs. 1,50,000 and yarn cloth in process worth Rs. 50,

000. The record disclosed that the sales during the relevant account year were Rs. 1,48,50,551 on which a profit of Rs. 32,68,723 at the rate of 22% was declared. This, in the opinion of the Income‑tax Officer, bore no comparison with the profit disclosed in the subsequent years and was lower than that shown by other parallel cases. No satisfactory explana tion for this profit was rendered barring the assertion that on account of Partition, the technical labour exchanged and, therefore, better results could not be achieved. The rate of profit in 1950‑51 was 36%, in 1951‑52 29%, and in 1952‑53 32%. In order to determine the cause of lower profits in 1948‑49 soon after Partition, when the circumstances were more favourable, the point of opening stock both in respect of its rate and yardage and their valuation seemed to be important. The assessment in the charge year 1948‑49 was made in the absence of account books which were said to have been lost in. the course of disturbances. Commenting on this aspect of the case, the Income‑tax Officer pointed out that the accounts lost could not have been for the period from August or September 1947, because thereafter the mills started functioning in full swing up to the close of the year ending 31st of March 1948. Since account books for this period were not lost during disturbances and there was no reason why they were not preserved and produced during the course of assessment, the Income‑tax Officer expressed doubt about the genuineness of the opening stock on the 1st of April 1948, in his opinion the valuation of the stock was demonstrated to be false with reference to the following figures :‑ Year ending Cotton & Kapas Cloth & Yarn Yardage of Cloth. Rs. Rs. 31‑3‑47 20,54,959 8,42,946 31‑3‑48 4,50,000 2,00,0000 18,00,000 31‑3‑49 17;88,692 15,95,536 51,85,269 31‑3‑50 9,97,943 14,87,180 51,80,574 31‑3‑51 27,16,293 26,15,719 65,62,623 31‑3‑52 18,84,948 36,99,459 87,01,222 The above figures for the year preceding the relevant account year and the three succeeding years bring up sharply the low value of the opening stock both in terms of valuation and yardage. Further, the checking of stock account revealed that there was an excess of 3,61,816 yards of cloth during 1948‑49, which could not be connected with the stock produced and sold. This excess is, therefore, referable to the opening stock. The assessee maintained that the excess was due to the process of calendering of the cloth which, on the face of it, was not convincing. The actual figures, which were not controverted by the assessee, were as follows: ‑ Yrds. Opening stock of cloth 18,00,000 Cloth produced during 1948‑49. 1,59,88,632 Total 1,77,88,632 As against this, a total yardage accounted for towards sales and the closing stock on the 31st of March 1949, was 1,81,50,488 yards. Thus there is no escape from the conclusion that the opening stock described as 18,00,000 yards was incorrect. In face of it, what possible explanation the assessee would have furnished if more time was given to them to prove the correctness of their return on this point. The plea that the excess was due to calendering of cloth was too thin, and no other evidence was offered to explain this discrepancy.

20. Another important point in connection with the opening stock entry was its valuation. It was neither the cost price nor the market price. To the contrary, the opening stock of finished cloth was valued at one anna and three point six pies per yard and the closing stock at three annas and nine point six pies per yard, which the Income‑tax 'Officer rightly observed was unheard of. Further, the above valuation was against the actual cost price of annas eight and seven pies per yard and the average sale price of Rs. 1‑2‑6 per yard. The average of closing stock as on the 31st of March 1949 and the 31st of March 1950, worked out at 51,82,921 yards as against 21,61,816 yards (18,00,000 yards plus 3,61,816 yards added by the assessee as mentioned above). Making a liberal allowance to all disturbing factors during 1948‑49 which might have hampered production as claimed by the assessee, the Income‑tax Officer considered that over and above the total of 21,61,816 yards another 20,00,000 yards of cloth was not accounted and sold outside the books during 1948‑

49. The value of the unaccounted ‑ Tot opening stock was thus worked out to be Rs. 23,12,

500. By this process the rate of profit was also increased to 32% from the declared rate of 22%, which was more or less the average rate of profit declared by the assessee in the course of the preceding and the succeeding three years. As the entry of the opening stock was not supported by any record and the circumstances detailed above, particularly the excess of 3,61,8;16 yards detected during the course of assessment, it was open to the Income‑tax Officer to make a best check with estimate of its valuation. Whether the estimate arrived at by the Income -tax Officer is, on the merits of the case, right or wrong, has not been examined by either the Appellate Assistant Commissioner or the learned Members of the Income‑tax Appellate Tribunal. Be that as it may, the task before‑us is to find out whether on account of want of time the assessee was handicapped in explaining the low value of its opening stock. They did not produce their account books from September 1947 to fie 31st of March 1948, which, as pointed out by the Income‑tax Officer, must have been in the custody of the assessee. A review of those account books alone would have shown what was the correct value and yardage of the closing stock which became the opening stock during the relevant account year. The price of cloth assessed at one anna and three point six pies per yard was almost ridiculous. Then there was an excess of 3,61,816 yards detected during the assessment proceedings. Lastly, there was evidence of the yardage and valuation of the opening stock in the preceding and the three succeeding years. On the basis of this material, the Income‑tax Officer formed his conclusions from which the assessee could not have escaped even if the assessment is carried out weeks or even months later on.

21. The next account worth noticing is that of cotton ginning. The Income‑tax Officer found that the practice of the assessee was that kapas purchased was ginned within the factory primarily for their own need, but in the relevant account year kapas was also purchased for export to Indian merchants and mill‑owners. During the first quarter, April to June 1948, the yield of lint was 12 seers 15 chattaks per maund. In the same quality the yield from June 1948 to March 1949, dwindled to 12 seers and chattak. The assessee maintained that the two ginning periods should bear no comparison, because the lot worked in the first period was smaller than that in the second period, and the kapas used in the second period was of the second or third pick, which generally yielded poor results. In the opinion of the Income‑tax Officer, so far as the yield was concerned, whether a lot was smaller or larger, the result could not have been different. As regards the picks, those, other than the first pick alone, could be used between April and June, which followed the time of such picks, while in the second period it should have been the first pick in the bulk. In fact, the assessee's own statements and account books showed that the kapas of the first and the second picks was used in the second period, and yet the yield result was poorer. No market vouchers were produced, but instead of them reliance was placed on internal vouchers prepared in the Company's office. In the circumstances the account was not accepted as reliable. In the second period, there was an average shortage in the lint account of 15 chattaks per maund, which, on the total purchases of 96,707 maunds, were found to be 2,267 maunds. In this connection it was significant that in the second period the yield of cotton‑seed was higher than the known average. As mentioned above, one` of the internal voucher of N. T. 43, dated the 10th of May 1948, was found to have been interpolated with. No sauda behi was produced for such forward‑ready transactions. One Mahadeo Sharma, designated as Chief Cotton Purchaser, was paid Rs. 14,400 as salary during the relevant account year. Mr. Sharma was assessed by the Income‑tax Officer, Montgomery, on the basis of this income, but he filed a revision under section 33‑A and claimed that he was paid only Rs. 6,

000. Whatever the exact amount paid to him, it was noticed that the amount was not debited in the cotton account of 1948‑

49. These two instances, in the opinion of the Income‑tax Officer, caused grave reflection on the reliability of the assessee's account. In the result, the price of unexplained and unaccounted for lint of 2,267 maunds was added back at the rate of Rs. 93‑12‑0 per maund to Rs. 2,12,

531. On these facts it is apparent that apart from the explanation which the assessee had given in the written statement filed on the 30th of March 1954, no other evidence was contemplated to be led in support of the correctness of the report on this point. Indeed none could have been. The time factor was, therefore, immaterial in complying with the requirements of the notices under sections 23 (2) and 23 (3) on this point. Trading account of cotton and cotton‑seed.

22. There were two separate accounts for cotton and cotton‑seed which show the following position: - Mds. (a) Opening stock as on 1‑4‑48 34,717 (b) Opening stock (excess found on 31‑3‑48) 1,202 (c) Lint received (own ginned 32,472 (d) Lint received (ginned by others) 35,406 (e) Direct purchases of lint 2,10,012 3,13, 809 (f) Sale of lint to India 1,60,406 (g) Sale of lint (local) 6,163 (h) Lint consumed for production of cloth 80,292 (i) Returns outward (out of purchases) 935 (j) Closing stock as on 31‑3‑49 66,013 3,13,809 A physical check of the closing stock was carried out, which showed that as against the declared stock of 66,013 maunds on the 31st of March 1949, the actual stock was 70,042 maunds i.e., 4,029 maunds in excess.

23. Cotton‑seed account mds. (a) Opening stock. Nil exports to India 71,117 (b) Received from own Mill ginned. 72, 926 Local sales 95,366 (c) Received from other ginned. 77, 140 Closing stock 34,863 (d) Direct purchases : 750 1,50,816 2,01, 346 By comparing the two figures a difference of 50,530 maunds was found in excess, out of which 2,267 maunds were debited as the whole lot of cotton‑seed weighing 1,50,066 maunds was transferred from kapas account where its weight was shown in excess by the figures. Thus after deducting it, the excess of cotton‑seed was 48,263 maunds, which remained unexplained. In the opinion of the Income‑tax Officer the excess in these two accounts gave rise to irresistible inference that the trading in these two commodities had been done outside the account books and that such profits amounting to Rs. 1,91,375 at 20% of the value of the two commodities had been suppressed. While disposing of this item it will be recalled that in case of both these items of excess, the assessee did not offer any explanation, but by no stretch of imagination the excess could be considered a factor contributing towards under‑assessment or escapement, and as such the consideration of this matter in proceedings under section 34 was legally not permissible. Thus the time factor in furnishing an explanation of this point was immaterial as in the case of other points discussed above.

24. Cotton sold through Head Office, Calcutta.‑‑Out of the general cotton account, 1,16,406 maunds were exported to Indian mill‑owners and merchants for the price of Rs. 1,61,41,

117. A profit of Rs. 2,87,242 was declared on this transaction at the rate of 1.75%. This, in the opinion of the Income‑tax Officer, was too low a profit to be expected during the year 1948‑

49. Out of the exports, 3,151 maunds were sent to Messrs Birla Brothers, an Indian agent of the assessee, partly at Rs. 50 per maund and partly at Rs. 55 per maund. The assessee's average sale price was Rs. 93‑12‑0 per maund. Further scrutiny of the accounts revealed that in the main lots sold to India there were losses or no profits. In the case of sale of cotton valued at Rs. 3,62,860 to Bhiwani Mills, there was a loss of Rs. 12,

701. Similarly, there was a loss of Rs. 29,412 on the lot sold to Birla Cotton Factory, Gwalior, valued at Rs. 43,48,

893. In the case of cotton sold to Kesho Ram Cotton Mills, Calcutta, valued at Rs. 57,39,633 a profit of Rs. 76,966 at the rate of 1.3% was declared. These results were found to be unbelievable by the Income‑tax Officer. Agreements of sale, bills of consignments, etc., were produced by the assessee in support of their return on this point. In respect of sales made to Kesho Ram Cotton Mills, consignments were made from the 11th of January 1949, to the 18th of January 1949, at Rs. 103 per maund, including Rs. 60 per maund for custom duty. The purchases made by the assessee between the 8th of December 1948 and the 11th of January 1949, were at rates varying between Rs. 83 to Rs. 88 per maund. Thus, by adding the custom duty the average price of cotton was Rs. 145 per maund, which was purported to have been sold at Rs. 103 per maund. It was also significant that all the ‑parties to whom the cotton had been sold by the assessee were connected with Messrs Birla Brothers, their managing agents in India. Considering that the profits in the case of ginneries varied from 16% to 32.8% during the relevant account year and that the assessees mostly purchased cotton from the market after excluding the ginners' profit, the assessee's profit on the sale of cotton should have been much large. As mentioned above, in reply to this point the assessee made a bald assertion that the cotton sold to the Indian parties was out of the lot purchased by them from the Deputy Custodian of Evacuee Property at Rs. 41‑8‑0 per maund on account of its being damaged. The Income‑tax Officer asked the assessee to produce such evidence as they were advised in support of the correctness of their return on this point. The principal item of evidence would have been the record relating to the purchase of cotton from the Deputy Custodian and entries in the account books showing that cotton sold to the Indian parties was out of that particular damaged lot. No such evidence was offered to be led. No record or account books were produced. It was merely stated that as the time allowed was insufficient, they could not obtain necessary information from the Calcutta Head Office. On examination of the account books of the assessee, the Income‑tax Officer had found that the cotton in question was actually out of the lots purchased locally at rates varying between Rs. 83 to Rs. 88 per maund. We fail to see how the Calcutta Office of the assessee could throw any light on the nature of these transactions. The nature of consignments was recorded in the account books maintained in the registered office of the Company in Pakistan. If any damaged cotton was pur chased during 1948‑49, that too must have been entered in the accounts of the relevant year. The gravamen of the charge was that the cost price of the assessee was Rs. 145 against which they have sold 1,60,406 maunds of cotton to their managing agent or other parties connected with them at much lower rates, and,'' in some cases at Rs. 103 per maund. The sale having been recorded in the account books of the Company in its registered office, it was irrelevant at what price the head office had further sold it to the Indian parties. The complaint of Mr. Jajoo was, therefore, just an excuse. The Income‑tax Officer was perfectly justified in adding that Rs. 18,00,000 under this head had yielded a profit of 12.9% as against 1.75% declared by the assessee.

25. It is unnecessary to burden this order with further examination of the finding of the Income‑tax Officer on the remaining points on the basis of which he estimated total income of the assessee during the relevant year at Rs. 82,32,492 as against the declared income of Rs. 28,65,353 except to notice that the material on which the Income‑tax Officer based his conclusions was mostly contained in the account books of the assessee, and hardly any evidence of parallel cases was taken into consideration. Adverse inferences no doubt were drawn from certain omissions in the account books of the assessee on account of certain excesses or shortages discovered by physical check, but there again the basis of estimation was the income of the assessee during the previous year and the following three years. We are thus clearly of the view that the time allowed to the assessee for compliance with the requirements of the two notices under sections 23 (2) and 23 (3) was, in the circumstances of the cage, not insufficient and in any case it is wrong to say that no valid assessment could have been made by the 31st of March 1954. Let us now advert to the relevant provisions of the Act for determining whether it was a fit case to set aside the assessment or to outright annul it.

26. Section 34 of the Act as it was at the relevant time reads as follows: ‑ "(1) If for any reason income, profits or gains chargeable to income‑tax have escaped assessment in any year, or have been under‑assessed, or have been assessed as too low a rate, or have been the subject of excessive relief under this Act the Income‑tax Officer may, in any case in which he has reason to believe that the assessee or any other person on his behalf has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, or the principal Officer thereof, a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 22, and may proceed to assess or re‑assess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection: Provided that the tax shall be charged at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be: Provided further that where the assessment made, or to be made in an assessment made or to be made on a person deemed to be the agent of a non‑resident person under section 43 no notice under this subsection shall be issued after the expiry of one year of the end of that year: Provided further that unless definite information has come into his possession the Income‑tax Officer shall not initiate proceedings under this subsection without obtaining the previous approval of the Inspecting Assistant Commissioner of Income‑tax in writing. (2) No order of assessment under section 23 or of the assessment or re‑assessment under subsection (1) of this section shall be made after the expiry, except in any case in which the assessee has not filed any return under subsection (1) or subsection (2) of section 22 or concealed the particulars of his income or deliberately furnished incorrect particulars of such income, of four years from the end of the year in which the income, profits or gains were first assessable: Provided that where a notice under subsection (1) was issued within the time‑limit specified in that subsection, the assessment or re‑assessment, as the case may be, may be made in pursuance of such notice within one year from the date of service of such notice: Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or re‑assessment may be made, shall apply to an assessment or re‑assessment, as the case may be, made on the assessee or any person in consequence of, or to give effect to any finding or direction contained in an order under section 31, section 33, section 33‑A, section 34‑A, section 66 or section 66‑A." It will be recalled that both the Appellate Assistant Commissioner and the Appellate Tribunal have found that the proceedings under this section were correctly initiated by the‑ Income‑tax Officer. It will, therefore, be not necessary to examine the first part of subsection (1). We then come to the issuance of a notice "containing all or any of the requirements which may be included in a notice under subsection (2) of section 22, and may proceed to assess or re‑assess such income, profits or gains." The notice in accordance with these provisions was issued to the assessee on the 24th of February 1954, and it has been specifically men tioned paragraph in 9 of the order of the Tribunal, dated the 4th of July 1.959, that no objection to its validity was raised before them. Thereafter the assessee was required to produce their account books under section 22 (4). As a result of their examina tion the Income‑tax Officer formulated fifteen points set out above and desired the assessee to attend his office on the 30th of March 1954, at 9 a.m., either in person or by a representative duly authorised in writing in this behalf or there produce or cause there to be produced at the said time any documents; accounts and other evidence on which their return was based. The second notice issued simultaneously stated that some important points called for explanation and elucidation, and "you are, therefore, hereby required to explain such points as are detailed below." The last paragraph of the notice which has been reproduced earlier may be referred to again. It reads: "Please also note that compliance of this notice under section 23 (3) should be made in writing by 30‑3‑1954 on which date the relevant accounts should also be produced." It has been brought out above that the Secretary of the assessee did not ask for an adjournment for production of the relevant account books or express ‑his inability to attend the office of the Income‑tax Officer to reply to the questions in connection there with. To the contrary, a detailed reply to the notice under section 23 (3) was filed by the income‑tax lawyer of the Company and Mr. Brij Lal Jajoo appeared on the 31st of March in the company of his counsel Kh. Abdur Rahim, Bar‑at‑law. Thus for all intents and purposes the requirements of both the notices were complied with. In their grounds of appeal before the Appellate Assistant Commissioner, a grievance was, however, made that the time allowed for producing evidence in support of the correctness of their return was too short. When the case was remanded to the Income‑tax Officer under section 31 for making a fresh assessment after such further enquiry as he might think fit; the learned Members of the Tribunal expressed the view that as in the first instance there was not sufficient time to make a valid assessment by the 31st of March 1954, it was not open to the Appellate Assistant Commissioner to enlarge that period in exercise of his powers under the second proviso to subsection (2) of section

34. Under subsection (4) of section 31, an Appellate Assistant Commissioner may, inter alia, set aside or annul an assessment. We have, therefore, to see whether, in the circum stances of this case, the original assessment was a complete nullity, such as being without jurisdiction, and called for annul ment or that it suffered from an irregularity which could be cured by ordering a further enquiry. Take the case where an assessment under section 34 (1) is not completed within the period prescribed under section 34, as was in vain contended by the assessee in this case. It is a case where there is no jurisdiction in the Income‑tax Officer to continue with the assessment pro ceedings and if he does so his order shall be a nullity and the Appellate Assistant Commissioner will not be competent to set aside the assessment and order a fresh enquiry under section 31(4). But in the present case the notice under section 34 (1) for filing of the return was in accordance with law, the notice for produc tion of account books under section 22 (4) was equally unexcep tionable, and two notices under sections 23 (2) and 23 (3) were given originally on the 27th and subsequently on the 29th of March for production of account books and such other evidence on which the assessee relied in support of the correctness of their return on the fifteen points detailed in the notice. As has been mentioned more than once, a proper reply was given on the 30th of March and Mr. Brij Lal Jajoo appeared on the 31st of March. The nature of the replies made by the assessee to the fifteen points further made it clear that the assessee was not handicaped by want of time to comply with the requisition of these two notices. But if the Appellate Assistant Commissioner or the Income‑tax Appellate Tribunal formed a contrary view, it did not mean that the Income‑tax Officer had acted without jurisdic tion or the order of assessment made by him is a nullity in law. In fact it is to meet requirement of such cases that the legislature has provided the two alternate powers to the Appellate Assistant Commissioner, viz., to annul or to set aside an assessment order or direction.

27. The interpretation of the second proviso to subsection (2) of section 34 by the Tribunal is equally untenable. According to them if time allowed to an assessee to comply with a notice issued during the course of an assessment proceeding by the Income‑tax Officer is found to be short the proviso does not come into operation. We fail to see how such a result could be achieved in face of the plain meaning of the proviso which has been reproduced above. In substance, it lays down that the limitation provided in subsection (2) of section 34 shall not be deemed to be in operation in cases where an assessment or further re assessment is ordered under sections 31, 33, 33‑A, 34‑A, 66, or 66‑A. If a contrary view is adopted, it would mean that in every case in which some irregularity or inaccuracy had crept in the assessment proceedings or the order based on it and the period prescribed under subsection (2) of section 34 has run out, the assessment proceedings and the liability to pay tax to the State come to an end. With due respect to the learned Members of the Tribunal, such an interpretation will be contrary to the letter and spirit of the statute.

28. In support of their view the Tribunal relied upon a decision of this Court in Commissioner of Income‑tax, Punjab v. Nawab Shah Nawaz Khan ((1938) 6 I T R 370). The question referred to in that case was whether the Assistant Appellate Commissioner was competent to set aside an assessment made under section 34 and direct the Income‑tax Officer to make a further assessment including afresh item of income after the period of limitation prescribed in section 34 had expired. The reply to it was as follows: ‑ "The Assistant Commissioner of Income‑tax cannot make any direction under section 31 (3) (b) so as to enable the Income‑tax Officer to make a fresh assessment in relation to this sum. If in such cases an Assistant Commissioner of Income‑tax can be considered to be empowered to do so, this would mean that he is empowered to override the express provisions of law as regards limitation provided for in section 34 of the Income‑tax Act. Had this been the intention of the legislature, it should have expressed itself in clear terms." The distinction between the two cases is obvious. If income of an assessee has escaped assessment in the normal course, the legislature authorised the State to reopen the case and carry out fresh assessment in one category of cases within four years and in the other within eight years. In the present case the department does not seek to initiate fresh proceedings to take into account some other item of income which has escaped assessment under section

34. If that were so, there would be no end to proceedings under section

34. It was on this hypothesis that this Court ex pressed the above view on the scope of section

34. It is, however, a moot point if in an assessment under section 34 the Income‑tax Officer erroneously excludes an item of income or under‑assesses the income or assesses it at too low a rate or gives excessive relief to the assessee, the matter cannot be agitated in appeal by the State, which is clearly provided for under the Act, to the Appellate Assistant Commissioner or a further appeal before the Income‑tax Appellate Tribunal or bring that matter before the High Court under section 66 of the Act. We are inclined to adopt the view that if the time prescribed for carrying out such an assessment has expired during the course of an appeal or reference to this Court, and the order of the Income‑tax Officer is found to be erroneous on one or more of the grounds repro duced above, it will be permissible to direct the Income‑tax Officer under section 31 to set aside the assessment and make a fresh assessment after making such further enquiry as he may deem fit but will refrain from giving any considered opinion on this point, which does not directly arise in this reference.

29. The next authority relied upon by the Tribunal was Nawal Kishore Khemliti Lal v. Commissioner of Income‑tax, Punjab ((1936) 4 I T R 287). It was held in that case that the powers of the Income‑tax Officer to assess income which had escaped assessment are undoubtedly subject to the provisions of section 34 and, there fore, what the Income‑tax Officer, being an officer subordinate to the Commissioner, could not do, the Commissioner in exercise of the powers of review could not achieve by indirect means. This dictum would have been applicable to the facts of this case if the Income‑tax Officer had failed to make the assessment order by the 31st of March 1954, otherwise we fail to see how the doctrine of achieving by indirect means what is forbidden by the word of law, can be invoked in this case. It presupposes that under no circumstances a legal assessment order could have been made under section

34. Needless to say on the facts set out above, it was not so in the present case that the high appellate authority took a different view with regard to sufficiency of time allowed to the assessee under sections 23 (2) and 23 (3) does no mean that the assessment order made by the Income‑tax Officer was void or illegal ab initio. Indeed on our analysis the time allowed to the assessee in the circumstances of the case was quite sufficient and the Appellate Assistant Commissioner as well as the learned Members of the Income‑tax Appellate Tribunal were in error in coming to a contrary conclusion. Be that as it may for opinions will differ on such question of fact, it does not follow that the impugned assessment order was liable to be annulled altogether as illegal in the sense indicated in the afore mentioned authority.

30. On the view expressed above, we answer the reference in the negative and further direct that the assessee shall reimburse the Commissioner of Income‑tax for the costs incurred by him in these proceedings. M. N./A. H. Reference answered in negative.