COMMISSIONER OF LICOME-TAX, MADRAS versus T.S.PL.P. CHIDAMBARAM CHETTIAR (DEAD) THROUGH L.RS.

Citation: [1971] 3 S.C.R. 428 · Decided: 21-01-1971 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

428 
COMMISSIONER OF L"ICOME-TAX, MADRAS 
A 
v. 
T.S.PL.P. CHIDAMBARAM CHETI1AR (DEAD) THROUGH 
L. Rs. 
January 21, 1971 
[J, C. SHAH, C.J., K. S. HEGDE AND A. N~ GROVER, JJ.) 
B 
Income Tax Act, 1922, s. 34(1) (a) Requirements of-Assessee not 
disclosing part of money repaid against loan and interest--!! undisclosed 
amou.1t not taxable and to be presumed adjuslo?d against principal-System 
of accounts maintained by assessee-lf relevam in relation to concealed 
income. 
· 
The asscssee's father made various loans to P in 1932. Jn July, 1932 
P executed a mortgage of some of his 
properties in favour of the 
assessee's father for ,a sum of Rs, 2.76 lakhs, After the mortgagee bad 
instituted a suit in December, 1940 claiming a sum of Rs. 5.50 Jakhs in· 
elusive of principal and interest, a compromhe decree was passed 
in 
October, 1943 for a sum of Rs. 3 50 lakhs in full satiS'faction of the mort-
gagee's claim, 
When the income-tax assessment proceedings of the assessee for the 
assessment year 1944-45 as karta of his Hindu Undivided Family were 
pending, the Income Tax Officer, Trichy, received information from the 
Income Tax Officer, Erode, that the mortgagor had secretly paid to the 
mortgagee a sum of Rs. 1.50 lakhs during the year ended on April l, 
1944, :and that this was not included in the compromise decree. As the 
assessee denied receivin~ this· amount and the• Assessing Officer had no 
Qther material before him, he made a note in the order sheet that the 
I.T,0,, Erode should be asked to give further details, and in the mean· 
time, the assessment for 1944-45 should not .be held up. 
On receiving 
further information, the Assessing Officer .cari1e to believe that a sum of 
Rs. I.SO lakhs had escaped assessment and after issuing the assessee a 
notice under s. 34(1)(a), he included the additional sum and taxed him 
on that basis. 
The Appellate Assistant Commissioner set aside the order 
and directed the I,T.O. to re-do t.he assessm"nt after giving the assessec 
an opportunity to cross-examine the witnesses on the basis of whose state· 
ments he had r~ached his conclusion, A:ftcr examination of further wit· 
nesses and other evidence, a fresh order of assessment was made on the 
assessee under s. 23(3) read with s. 34 and this was 
affirmed by the 
Appellate Assistant Commissioner as well as by the Tribunal. Although 
the High Court, upon a reference, found that the assessment under s. 34 
was valid and' the I.T.O, had rightly acted in giving effect to the order of 
the Appellate Assistant Commissioner to re-do the assessment, it held, pur-
porting to rely on the decision in C.I.T. Bihar and Orissa v. Kameshwar 
Singh, 2. I.T.R. 94, that :the sum .pf Rs, 1,50,000 received by the assessee 
during tile relevant accounting ~ 
was not taxable as the assessee main-
tained hi ac<;<iunts according to .the Chetty system and must be presum-
ed to have appropriated the amount towards the .principal amount due to 
the mortgagor. 
· 
On appeal to this· Court by the assessee as well as by the department, 
HELD : The assessee's appeal must be dismissed and that of the De-
partment allowed; 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
E 
F 
G 
H 
C.1.T. v. CHIDAMBARAM (Hegde, J.) 
429 
(i) There was no force in the contention that as the Income Tax Offi-· 
cer had before him the information about payment of a sum of Rs. 1.50 
lakhs at the time be made the initial assessment and did not choose to 
act on the information, it was not open to him thereafter to initiate pro-
ceedings under s. 34. 
On the facts found, underassessment due to non-disclosure of material 
facts was established. At the .time be issued notice under s. 34(1)(a) 
on the basis of the material before him, the Income-tax Offi<ier could have 
formed the necessary belief and stated in the notice that be bad formed 
such belief; the requirements of s. 34(1)(a) were therefore fully satisfied. 
[432 FJ 
Calcutta Discount Co. Ltd. v. lncomt-tax Ofjictr, Companlts Distrlci I, ' 
Calcutta and anr. [1961] 41, I.T.R, 191; referred 10. 
(ii) The only ground on which the assessment order was set aside by 
the Appellate Assistant Commissioner was that the assessee had not been 
given a proper opportunity to put forward his case. He did not 
bold 
that the notice under s. 34(1)(a) was invalid. There was therefore no 
force in the contention that a fresh notice should have been issued to the . 
assessee under s. 34(1) (a). [433 DJ 
· (iii) The High Court was in error in thinking th

Excerpt shown. Read the full judgment & AI analysis in Lexace.