Shri Prem Nath Mayor vs Commissioner of Income Tax

M.R. Sharma, J.—The ITO conducted a search in the premises of Harbans Lal, a broker of Ludhiana, u/s 132 of the I.T. Act, 1961 (hereinafter referred to as "the Act"). The records received from the custody of the said Shri Harbans Lal revealed that the assessee had advanced sums aggregating to Rs. 1,65,000 to various parties. While framing the assessment for the assessment year 1971-72, the ITO added this amount of Rs. 1,65,000 as well as a sum of Rs. 9,900 which accrued as interest on this sum to the income of the assessee.

The impugned addition was challenged by the assessee before the AAC who passed the following order:

"The Income Tax records did not suggest if the Income Tax Officer made any enquiries from the alleged diaries. Records also do not show whether the appellant was confronted with any statement of Shri Harbans Lal recorded by the Income Tax Officer or seized account books of Shri Harbans Lal before making the additions cited above. It, therefore, appears that the Income Tax Officer has not made proper enquiries nor given any opportunity to the assessee before making the assessment. In the circumstances, the only course left with me is to restore the case to the file of the Income Tax Officer for making proper enquiries and confronting the assessee with the material available with him before framing the assessment de novo."

The assessee went up in further appeal before the Income Tax Appellate Tribunal, Amritsar, and challenged the jurisdiction of the AAC to restore the case back to the file of the ITO. This appeal was dismissed. At the instance of the assessee, the following two questions of law have been referred to us for our opinion :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the action of the AAC in setting aside the order of the ITO to probe the matter afresh ?

(ii) If the answer to the first question is in the affirmative, whether the Tribunal was right in holding that the AAC was competent to direct the ITO to collect fresh evidence?"

We have heard the learned counsel for the parties.

On the plain language of Section 251 of the I.T. Act, the first question deserves to be answered against the assessee and in favour of the Revenue. This matter is indeed settled by two Division Bench judgments of this court in Commissioner of Income Tax Vs. Jay Textile Mills, and Baij Nath v. CIT [1981] 132 ITR 7. We, therefore, answer accordingly.

On the second question, the learned counsel for the assessee has argued that the order of remand was bad because the ITO could not frame a fresh assessment after the expiry of two years from the end of the relevant assessment year. In this connection, the learned counsel has placed reliance upon a Privy Council decision reported as CIT v. Khemchand Ramdas [1938] 6 ITR 414. Therein, an assessment was made against the assessee-firm on an income of Rs. 1,25,000 at the maximum rate. Since it was a registered firm, no super-tax was levied. Subsequently, the Commissioner cancelled the order registering the assessee as a firm and directed the ITO to take necessary action. Pursuant to this direction, the ITO assessed the firm to super-tax. In these circumstances, it was held that the earlier assessment made by the ITO had become final and it was not open to him to reopen the assessment. Apparently, the Commissioner was not concerned with the merits of the original order of assessment when he decided whether the registration of the firm should be cancelled or not. However, when an order of assessment is challenged in appeal, it is open to the appellate authority to remand the case, in which event the ITO is bound to frame a fresh assessment in accordance with the directions contained in the order of remand. Section 153(2A) reads as under:

"(2A) Notwithstanding anything contained in Sub-sections(1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment u/s 146 or in pursuance of an order u/s 250, Section 254, Section 263 or Section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of two years from the end of the financial year in which the order u/s 146 cancelling the assessment is passed by the Income Tax Officer or the order u/s 250 or Section 254 is received by the Commissioner or, as the case may be, the order u/s 263 or Section 264 is passed by the Commissioner."

Under this provision a fresh assessment u/s 143 of the Act pursuant to an order of the appellate authority u/s 250 of the Act can be made within a period of two years.

Faced with this situation, the learned counsel for the assessee submitted that the order of remand passed by the AAC fell u/s 251 of the Act and not u/s 250 which, according to him, laid down the procedure in appeal. There is no merit in this submission made by the learned counsel. Section 250(6) lays down that the order of the AAC shall state the points for determination, the decision thereon and the reasons for the decision. The order of remand is a decision given by the AAC within the meaning of this section. We are clearly of the view that it is open to the ITO to pass a fresh order of assessment within two years from the end of the financial year in which the order of remand is passed.

For reasons aforementioned, we answer the second question also in favour of the Revenue and against the assessee.

There will be no order as to costs.