Law: Income Tax Act, 1922

Section: 34(1)(b)

Income-tax-Re-assessment - Interest on borrowed money allowed as deduction for 1956-57-Discovery during 1958-59 assessment that borrowed money not utilised for business-Reopening of as sessment for 1956-57 and disallowing of interest originally allowed Whether reopening valid-Indian Income-tax Act, 1922, S. 34(1)(b). A sum of Rs. 43,116 being the interest paid by the assessee on the amounts borrowed by it was allowed in completing its assessment for 1956-57. During the course of the assessment proceedings for 1958-59, the officer discovered that the assessee had not utillsed the entire borrowed money for the purposes of its business but had given interest-free advances to the partners of the assesses-firm. He therefore reopened the assessment for 1956-57 under section 34(1)(b) and disallowed the interest payment. This was confirmed by the Appellate Assistant Commissioner but was reversed by the Tribunal on the ground that the reopening was incompetent. On a reference to the High Court : Held, the re-assessment was valid in law. [Case-law referred.]                                                                                                                         JUDGMENT BANERJEE, J.-Section 34 of the Indian Income-tax Act, 1922, which has been interpreted by the Supreme Court and by different High Courts in India in a number of cases, still remains a rich germinating ground for forensic arguments. One such argument confronts us in this reference. The circumstances in which this reference has been made are hereinafter related in brief. The assessee, Messrs Kalyanji Mavji & Co., is a registered firm. The year of assessment, with which we are concerned in this reference, is 1956-57, corresponding to the accounting year being the Gujarati Diwali year 2011. The original assessment for the year in question was completed, on February 20, 1957, on a total income of…