1980 PLP 336 (PTD)

"(1) Whether on facts and in the circumstances of the case, the Tribunal was justified to hold that re‑assessment under section 34 was not valid in this case? (2) Whether the Tribunal was right to interfere in assessment agreed to by the assessee?"

2. Briefly stated the facts of the case are that the respondent was originally assessed under the Self‑Assessment Scheme at an income of Rs. 18,

853. Later on the Income‑tax Officer discovered that an expenditure of Rs. 7,580 had been wrongly claimed as a deduction by the assessee which was allowed in the course of Self‑Assessment without detailed scrutiny. He accordingly issued a notice under section 34 of the Income‑tax Act, 1922 with the prior approval of the Inspecting Assistant Commissioner, 7ncome tax, Gujranwala Range, Gujranwala. The assessee filed a return and the Income‑tax Officer completed the assessment under section 23(3)/34 of the Income‑tax Act on 18‑4‑1970 at an income of Rs. 54,

602. The assessment was questioned before the Appellate Tribunal by an appeal under section 33 of the Income‑tax Act. The learned Member of the Appellate Tribunal allowed the appeal on the two‑fold grounds, viz. (i) that no fresh facts had been discovered as a result of which the pro ceedings under section 34 could be initiated. The Tribunal was of the view that the fact as to the claim of charity was already on record and was within the knowledge of the Income‑tax Officer at the time when the original assessment was completes, and for that reason the proceedings under section 34 could not be lawfully initiated, and (ii) in the second place the Tribunal recorded a finding that the assessee had not entered into any compromise with the Income‑tax Officer, In the result the Tribunal cancelled the orders of reassessment.

3. The learned counsel for the petitioner contends that the Income‑tax officer initiated the proceedings under section 34 of the Income‑tax Act upon discovery of the fact that a sum of Rs. 7,580 spent by the assessee on account of charity had been wrongly claimed as a deduction although they were admittedly not admissible as a deduction and for that reason the assessee's income escaped assessment in the original assessment framed under the Self. Assessment Scheme.

4. The assessee was allowed a deduction for Rs. 7,580 being an expends true in the nature of charity which was undisputably inadmissible. We notice that this aspect of the case was not disputed before the learned Members of the Appellate Tribunal who observed that assessee had debited the profit and loss account by the aforesaid amount which was before the Income‑tax Officer even at the time of original assessment. What pursuaded the Income tax Appellate Tribunal to allow the assessee's appeal and to hold the proceedings under section 34 as illegal was that because the claim for inadmissible deduction was before the Income‑tax Officer at the time of original assessment he was precluded from initiating the proceedings under section 34 to bring this amount to charge.

5. Having given the matter our anxious consideration we find it difficult to agree with the learned Members of the Appellate Tribunal. The assessment in this case was framed under the Self‑Assessment Scheme where the detailed scrutiny of the accounts is normally not undertaken. We are o the view that even if the assessment is framed after a detailed scrutiny of the accounts, an omission to bring to charge any income of failure to add bad any expenditure which is inadmissible would necessarily result in the income "escaping assessment" and the Income‑tax Officer will be entitled to initiate proceedings to bring such income to charge either by process of adding such income in the already assessed income or by curtailing the deduction for expenses. Income is said to have escaped assessment within the meaning of section 34 of the Income‑tax Act when it has not been charged to‑tax in the hands of the assessee in the relevant year of assessment. The law is well settled that where the failure to charge the income is entirely due to oversight or negligence or inadvertence on the part of the Income‑tax Authorities, the provisions of this section will be applicable. It is equally well settled that the concept of income escaping assessment is wide enough to cover a claim to a deduction wrongly allowed. If a deduction is wrongly allowed, there would be a resultant under assessment and the Income‑tax Officer would be entitled to initiate proceedings under this section.

6. We are, therefore, of the view that the Income‑tax Officer was entitled to initiate the proceedings under section 34 of the Income‑tax Act, 1922. We accordingly answer the first question in the negative.

7. Before examining the second question we may add that there may be cases where the Income‑tax Officer considers the claim of an assessee in respect of deduction for any expenditure and allows deduction thereof but later on seeks to proceed against the assessee by way of proceedings under section 34 of the Act upon change of opinion as to the inadmissibility of that deduc tion. Each cases to our mind fall in an absolutely different category.

8. This brings us to question No. 2, viz. "whether the Tribunal was right to interfere in assessment agreed to by the assessee?" We find that the Tribunal had categorically recorded a finding that no agreement in point of fact existed between the assessee and the department, the question as it is framed assumes the existence of the agreement to the disregard of the finding of fact recorded by the Tribunal to the contrary. Under section 33(6) of the Income‑tax Act the finding of the Tribunal is final and cannot be permitted to be called in question except by a reference under section 66(1) of the Act. We are of the view that the Commissioner could have challenged the finding of the Tribunal in this behalf by framing a question that the determination in question was either based on no evidence or overlooks material evidence. This has not been done. The question posed for our consideration begs the answer and for the foregoing reasons cannot be said to arise out of the order of the Appellate Tribunal.

9. In the result, we answer Question No. 1 in the negative and refuse to answer Question No: 2 on the ground that it does not arise out of the order of the Tribunal. However, there shall be no order as to costs. Answered accordingly.