Law: Income Tax Act, 1922

Section: 34(3)

Income-tax-Reassessment-Amount invested by partners in firm treated as income of firm-Deleted on appeal with direction proceed against individual partners to consider assessability a ssessment of amount in hands of partners-Whether valid Whether new Act makes any difference-Indian Income-tax Act, 1922, S. 34(3), second proviso-Income-tax Act, 1961, Ss. 147 3(3), Explanation. The appeal filed by a firm challenging the assessability of the Count invested by its partners was allowed by the Appellate assistant Commissioner who issued a direction to the officer to proceed against the individual partners under the second proviso section 34(3) of the Indian Income-tax Act, 1922, and consider assessability or otherwise of the part or whole of their invest ment in the firm. On the basis of this direction the officer reopened the assessments of the partners and assessed the amounts in their hands as income from undisclosed sources. The Appellate Assistant Commissioner, however, held that the direction in the firm's appeal was not valid and hence the proceed ings of the officer were time-barred. The Tribunal agreed with this view. On a reference : Held, the view of the Tribunal was right and even Explana tion 3 to section 153(3) of Income-tax Act, 1961, cannot assist the department as the Appellate Assistant Commissioner had not recorded a finding that the sum which was excluded from the total income of the firm was the income of the three partners and the partners of the firm had no opportunity of being heard when the Appellate Assistant Commissioner made his direction.                                                                                                                 JUDGMENT SOMNATH IYER, J.-A. M. Patel, R. M. Patel and Rambhai M. Patel. were the three partners of a firm called Select Pictures Circuit. These three partners had each invested a sum of Rs. 40,000 in another…