Income-tax---

----Assessment---Appeal to A.A. C.---I.T.O.---Fresh assessment pursuant 'to appellate order---Only issues which have not attained finality can be considered---Appeal from such a fresh assessment can only be on issues which have not attained finality ---AAC holding reassessment to -be valid and directing ITO to re-compute income from hundi loans---It is not open to ITO while making fresh assessment pursuant -to AAC's order to re-examine legality of initiation of proceedings under S.147---In appeal against fresh assessment AAC cannot examine the legality of initiation of proceedings under 5.147, Indian Income Tax Act, 1961.

In proceedings before the Income-tax Officer for making a fresh assessment pursuant to the directions contained in an appellate order, only such issues, can be agitated which have not attained finality. Similarly, in an appeal against the fresh order, only such issues which have not become final by the earlier orders of the appellate authority can be agitated. The assessee cannot be allowed to challenge the findings of the appellate authority collaterally before the Income-tax Officer in the proceedings for the fresh assessment.

Hardillia Chemicals Ltd. v. CIT (1996) 221 ITR 194 (Bom.); Pulipati Subbarao & Co. v. AAC (1959) 35 ITR 673 (AP) and Kathar Jute Mills (P.) Ltd. v, CIT (1979) 120~ITR 861 (Cal.) fol.

Held, that in the instant case, the legality of the proceedings under section 147(a) of the Income Tax Act, 1961, having been considered by the Appellate Assistant Commissioner in his earlier order and the same having been held to be legal and valid and the assessment having been set aside and remitted to the Income-tax Officer only for the limited purpose of computing the additions and disallowances afresh by re-examining the evidence in respect of the hundi loans after giving reasonable opportunity of hearing to the assessee, it was not open to the Income-tax Officer. while making fresh assessment pursuant to the directions to the Appellate Assistant Commissioner to re-examine the legality of the initiation of the proceedings for reassessment, when the assessee sought to challenge again in the fresh assessment proceedings the legality of the initiation of the proceedings under section 147(a) of the Act. The Appellate Assistant Commissioner also erred in examining the question of legality of reassessment in appeal against the fresh order of the Income-tax Officer.

G. S. Jetley with P. S. Jetley and A. S. Tungare instructed by S. H. Paralkar for the Assessee.

Ms. Rajni-Iyer with R. V. Desai for the Commissioner.

JUDGMENT

DR. B. P. SARAF, J.---By this reference under section 256(1) of the 'Income Tax Act, 1961, the Income-tax Appellate Tribunal ("the Tribunal"), has referred the following question bf .law to this Court for opinion at the instance of the assessee:

"Whether; on the facts and in the circumstances of the case, it was open to the assessee to challenge the legality of the supplementary assessments for the assessment years 1956-57, 1957-58 and 1958-59 made by the Income-tax Officer on September 30, 1974, in pursuance of the order of the Appellate Tribunal Assistant Commissioner under section 251 which had become final?"

The assessee is a partnership firm. The proceedings relate to its assessment under the Income Tax Act, 1961 (for short "the Act"), ' for the' assessment years 1956-57, 1957-58 and 1958-59. The assessment for these three years were originally completed under section 23(3) of the Indian Income-tax Act, 1922 (for short "the 1922 Act"), accepting all the hundi loans appearing in the books of the assessee to be genuine and allowing the assessee's claim for deduction in respect of interest thereon. Subsequently, the assessments for these three years were reopened under section 147(a) of the Income Tax Act, 1961, by issue of notices under section 148 of the Act and reassessments (referred . to by the Tribunal as "supplementary assessments") were made under section 143(,3) read with section 147(a) of the Act. In the reassessments, additions were made as income from undisclosed sources in respect of such hundi loans as were found from non-LBD and non-, "Shikhar Puri Bankers, the amount. of addition having been arrived at by taking the difference between the peak of such loans on the first day and the last day of each previous year. Interest claimed in respect of such hundi loans was also disallowed on estimate as a natural corollary. The assessee preferred appeals against the reassessment orders before the Appellate Assistant Commissioner of Income-tax challenging the. legality of the proceedings initiated under section 147(a) of the Act as also the merits of the additions and disallowances. The Appellate Assistant Commissioner upheld the legality of the proceedings initiated under' section 147(a) of the Act for all the three assessment years. So far as the merits of the additions made by the Income?-tax Officer were concerned, the Appellate Assistant Commissioner considered it fair and reasonable to set aside the orders of reassessment for the purpose of computing the additions and disallowances afresh after allowing the assessee a reasonable opportunity of hearing by re-examining the evidence relating to hundi loans. The Income-tax Officer took up the proceedings for fresh assessment pursuant to the above order some time in the year 1974. He directed the assessee to produce evidence in support of its 'claim that the hundi loans were genuine. The assessee having failed to produce any evidence, the Income-tax Officer once again completed the assessments for all the three assessment years under section 143(3) read with section 147(a) and section 251 of the Act on September 30, 1974, making the same additions and disallowances as were made while completing the reassessments originally. It appears that though the assessee did not produce any evidence in support of the genuineness of the hundi loans, he sought to challenge the legality of the initiation of proceedings for reassessment under section 147(a) of the Act before the Income-tax Officer, despite the fact that the Appellate Assistant Commissioner had rejected the said contention and held that the proceedings had been validly initiated. The Income-tax Officer also did not reject this objection in limine, but considered and rejected the same on the merits. The assessee filed appeal against the above orders of the Income-tax Officer before the Appellate Assistant Commissioner challenging both the legality of initiation of proceedings under section 147(a) as also the additions and disallowances on the merits. The Appellate Assistant Commissioner accepted the assessee's challenge on both the counts. He held that the proceedings initiated for reassessment under section 147(a), were illegal. He also accepted the assessee's contention that the additions as income from undisclosed sources in respect of hundi loans were not justified, and as a natural corollary, the disallowance of interest was also not justified.

Against the above order of the Appellate Assistant Commissioner, the Revenue appealed to the Tribunal. The first contention of the Revenue before the Tribunal was that the legality of the proceedings under section 147(a) having been considered by the Appellate Assistant Commissioner in his earlier order and the same having been held to be legal and valid and the assessment having been set aside and remitted to the Income-tax Officer only for the limited purpose of computing the additions and disallowances afresh by re-examining the evidence in respect of the hundi loans after giving reasonable opportunity of hearing to the assessee, it was not, open to the Income-tax Officer while making fresh assessment pursuant to the directions of the Appellate Assistant Commissioner to re?examine the legality of the initiation of the proceedings for reassessment. The Tribunal accepted the above contention of the Revenue and held that the Appellate Assistant Commissioner, by his order, dated August 12, 1969, by which the original orders of reassessment were set aside and remitted to the Income-tax Officer, having decided the legality of the initiation of the proceedings for reassessment under section 147(a) of the Act and having held that the same to be legal and valid, it was not open to the assessee to challenge the same again before the Income-tax Officer who took up the assessment proceedings pursuant to the directions of the Appellate Assistant Commissioner only for the limited purpose of considering the quantum of assessment afresh. The Tribunal held that the assessee could not have challenged the legality of the reassessments in the proceedings before the Income-tax Officer for making fresh assessment which were collateral proceedings, and the Income-tax Officer was not justified in deciding the same. The Tribunal also observed that even on the merits the challenge of the assessee to the legality of the reassessment proceedings was not tenable. As regards the merits of the additions made by the Income-tax Officer in respect of hundi loans and interest thereon, the Tribunal observed that despite fresh opportunity having been given, the assessee did not lead any evidence which could show that the hundi loans were genuine. The Tribunal, therefore, recorded a finding of fact that the loans were not genuine to the knowledge of the assessee. It was held that the assessee failed to discharge the burden placed on it to prove the nature and source of the hundi loans. In that view of the matter, the Tribunal also rejected the second contention of the assessee. In the result, the appeal of the Revenue was allowed and the order of the Appellate Assistant Commissioner was set aside. Hence, this reference at the instance of the assessee.

We have heard Mr. G. S. Jetley, learned counsel for the assessee. The sole controversy in this reference is about the powers of the Income-tax Officer to go into the validity or legality of the reassessments under section 147(a) of the Act in the proceedings for fresh assessment pursuant to the direction of the Appellate Assistant Commissioner for the purpose of re-computation of the income after giving proper hearing to the assessee, when the issue regarding the legality and/or validity of the proceedings had already been decided by the Appellate Assistant Commissioner while remitting the mater to the Income-tax Officer. In other words, the question before us is whether in the facts and circumstances of this case, it was open to the Income-tax Officer to examine and decide afresh the issue which had already been decided by the appellate authority while remitting the matter to him for fresh assessment.

Mr. Jetley, learned counsel for the assessee, submits that once the assessment is set aside, it is open to the Income-tax Officer to decide all the Tissues afresh including the issue decided by the Appellate Assistant Commissioner in the order by which the assessments were set aside. It was contended that there is no provision in the Income-tax Act which prohibits or debars the assessee from arguing or raising any issue before the Income-tax Officer on the ground that it had al ready been decided against the assessee by the appellate authority while remitting the matter to the Income-tax Officer. In other words, the contention of learned counsel is that once the assessment is set aside and the matter is remitted to the Income-tax Officer, the income tax Officer is not bound by the decision given by the appellate authority while remitting the matter. Learned counsel further submitted that once an appeal is filed against such an order, the assessee is again free to argue afresh all the issues and the appellate authority is obliged to decide every issue afresh.

We have carefully considered the above submissions of Mr. Jetley, learned counsel for the assessee. We, however, find it difficult to accept the same. There is no dispute in this case about the fact that the Appellate Assistant Commissioner by his order, dated August 12, 1969, set aside the assessments and directed the Income-tax Officer to make fresh orders in accordance 'with law. But to understand the true tenor and import of the order, the order has to be read as a whole. On such reading of the order, it is clear that the Appellate Assistant Commissioner examined the challenge of the assessee to the validity of the proceedings for reassessment under section 147(a) of the Act on the ground that the hundi loans were bogus rejected the same. The following passage from the order of the Appellate Tribunal Assistant, Commissioner is pertinent:

"It is contended by the appellant that the hundi borrowings were shown in the statement filed alongwith the return in the original assessment proceedings and the Income-tax Officer accepted the, hundi loans. It is stated that now the reopening of the assessment under section 147(a) on the ground that hundi borrowings are bogus is. not based on any material or reason to believe that the income has escaped assessment. It is well? established that mere entries in the account books do amount to disclosure of all the facts necessary for the assessment. It was only subsequently that it came to the notice of the Department that certain persons, whose names appeared in the list of creditors filed by the appellant relevant to the assessment year 1956? 57, had passed bogus havalas and had admitted that they were merely name lenders. The Income-tax Officer had, thus, reason to believe that the credits represented assessee's own income disguised in the form of hundi loans and was justified in initiating the proceedings under section 147(a). The ground (1) is rejected." (Emphasis supplied)

The fact that the assessment was set aside only for the limited purpose of giving an opportunity to the assessee to adduce evidence regarding the source of credit is evident from the following extract from the order of the Appellate Assistant Commissioner?

"The next ground is that the Income-tax Officer has treated the peak of hundi loans, other than members of the Shikarpuri Sheroffs' Association or discounted through bank, as income from undisclosed source. It is stated that the appellant has not been given any opportunity to prove the genuineness of the loans. It is seen that the return of income was tiled on March 20, 1969, and the assessment has been finalised on March 28, 1969, without calling upon the appellant to produce; evidence in support of his claim nor the Income-tax Officer has summoned the creditors to examine the veracity of the credits appearing in the books. It is only proper that adequate opportunity is given to the appellant to adduce evidence regarding the source of the credits before any adverse inference is drawn. The assessment is, therefore, set aside to be made afresh by the Income-tax Officer according to law."

It is clear from the above extracts that the Appellate Assistant Commissioner decided one of the issues raised by the assessee, i.e., the issue regarding the validity of proceedings under section 147(a) against the assessee and held that the Income-tax Officer was justified in initiating the proceedings for reassessment under section 147(a) of the Act and set aside the order and remitted the same to the Income-tax Officer only for the limited purpose of giving an opportunity to the assessee for satisfying him about the genuineness of the loans. In the course of the fresh proceedings before the Income-tax Officer, the assessee failed to produce any evidence On the other hand, he tried to raise once again the issue of validity of the reassessment which had attained finality by the earlier order of the Appellate Assistant Commissioner. Neither the Income-tax Officer, had any power or authority to examine and decide the very same issue once again. In this case, both of them fell in error and examined the same without having any regard to the earlier binding order on- this issue. Law is well-settled that in proceedings before the Income-tax Officer for making a fresh assessment pursuant to the directions contained in an appellate order, only such issues can be agitated which have not attained finality. Similarly, in an appeal against the fresh order, only such issues which have not become final by the earlier orders of the appellate authority can be agitated. The assessee cannot be allowed to challenge the finding of the appellate authority collaterally before the Income-tax Officer in the proceedings for the fresh assessment. In the present case, the Income-tax Officer disregarded the direction of the Appellate Assistant Commissioner when he examined the legality of the reassessment proceedings. He went wrong in examining the legality of the reassessment proceedings while making a fresh assessment pursuant to the directions of the Appellate Assistant Commissioner. Similarly, the Appellate Assistant Commissioner also erred in examining the question of legality of reassessment in appeal against the fresh order of the income-tax Officer. The Tribunal was correct in reversing the same. ,

We are supported in our above `opinion by the decision of this Court in Hardillia Chemicals Ltd. v. CIT (1996) 221 ITR 194. In that case, the assessment was remitted by the Commissioner of Income-tax to the Income?-tax Officer in proceedings under section 263 of the Act. In his order, the Commissioner set aside the order of the Income-tax Officer with a direction to determine the relief under. section 80J of the Act in accordance with the law after giving opportunity to the assessee of being heard in the matter. In the appeal against the said order, the assessee contended that the value of work-in-progress was includible in the value of assets for the purpose of computation of capital employed. The appeal was dismissed by the Commissioner (Appeals) on the ground that controversy had been decided by the Commissioner in his revisional order itself and it was not open to the Income-tax Officer or the appellate. authority in the appeal to agitate the point which had already been decided earlier by the appellate authority. The contention of the assessee that once the assessment is set aside, the Assessing '' Officer can proceed de novo was rejected by this Court. It was observed ?' (page 201):

"The order of the Commissioner read as a whole makes it abundantly clear that the Commissioner arrived at categorical and definite findings in regard to the contentions of the assessee about inclusion of work-in-progress in the capital employed for the purpose of claiming relief under section 80J of the Act and in regard to deducibility of extra shift allowance allowed in the past from the value of . fixed assets for the very same purpose and remitted the matter to the Income-tax Officer merely to perform the ministerial function of recalculating the amount of relief under section 80J "

It was held (page 201):

"The Tribunal, in this case, in our opinion, was right in holding that the revisional order, wherein a definite finding is recorded on both the points at issue, having become final on account of the failure of the assessee to pursue the statutory remedies provided in the Act against that order, the assessee cannot be allowed to challenge such concluded findings collaterally in an appeal filed against the fresh order passed by the Income-tax Officer with a view to giving effect to the same."

Reference may also be made to the decision of the Andhrd Pradesh High Court in Pulipati Subbarao & Co. v. Appellate Assistant Commissioner (1959) 35 ITR 673. In that case, the assessee a partnership firm which was previously assessed in the status of a registered firm, was assessed for the year 1952-53 as unregistered firm on the ground that it did not file an application for registration. The petitioner appealed to the Appellate Assistant Commissioner not on the actual assessment but only with regard to the refusal of the Income-tax Officer to treat the firm as a registered firm. The Appellate Assistant Commissioner was satisfied that there .was an application for registration. He, therefore, set aside the assessment and directed the Income-tax Officer to receive a duplicate application and to deal with it according to law. The Income-tax Officer called upon the petitioner to produce its account books to make a fresh assessment. The petitioner applied to the High Court for the issue of a writ of prohibition restraining the Income-tax Officer from making a de novo assessment. The High Court held (page 674):

"The order of the Appellate Assistant Commissioner being specific it is not open to the Income-tax Officer to conduct a fresh enquiry and proceed to make a fresh assessment without reference to the previous assessment inasmuch as he was not directed to do so and there being no other provision in the Act empowering him to do so, I am satisfied that the" notice issued by the second respondent, calling upon the petitioner to submit himself to a fresh assessment, is without jurisdiction. "

The High. Court also observed (page 675):

"Pursuant to the order passed by the Appellate Assistant Commissioner it is open to the Income-tax Officer to consider the one and the only question referred to him, viz., whether the firm's application for registration should be allowed. There is no other question before the Income-tax Officer and he would certainly be transgressing the limits set down by law if he were to embark upon a fresh enquiry as to the quantum of the income or the loss incurred by the petitioner. "

We are also supported in our above conclusion by the decision of the Calcutta High Court in Katihar Jute Mills (P.) Ltd. v. CIT (1979) 120 ITR 861. In that case, in the assessment of the assessee, a limited company owning a jute mill, for the assessment year 1955-56, under section 23(3) of the 1922 Act, a sum of Rs.5 lakhs odd had been brought to tax as representing the price of loom hours. In the appeal before the Appellate Assistant Commissioner, the assessee had not questioned the finding about the loom hours but questioned only the treatment of certain loss in 'speculative transactions. After dealing with the latter point, the Appellate Assistant Commissioner observed: "in the result the assessment is set aside with the direction to the Income-tax Officer to go through the contract papers again and do the assessment afresh". Before the Income-tax Officer could take up the matter again, the Supreme Court delivered a judgment holding that proceeds from sale of loom hours were of a capital nature, not assessable as income. The assessee, thereafter, filed a revised return claiming that the sum of Rs. 5 lakhs odd representing the sale proceeds of loom hours was not taxable. The Income-tax Officer rejected the assessee's request for excluding the sum of Rs.5 lakhs odd and passed a fresh assessment order. On appeal, the Appellate Assistant Commissioner held that the receipt of Rs.5 lakhs odd arising out of sale of loom hours was not taxable. On further appeal, the Tribunal set aside the order of the Appellate Assistant Commissioner holding that there was no dispute about the sum of Rs.5 lakhs odd before the Income? tax Officer or the Appellate Assistant Commissioner and it was not open to the assessee to take advantage of the fact that the assessment has been set aside for a limited purpose and to claim a different relief which was nowhere in the picture previously and that there was no method by which the assessee could raise the issue in the reassessment proceeding. On a reference to the Calcutta High Court, it was held (page 871):

"In the case before us, if the entire assessment order had been set aside, the contention-of Mr. J.C. Paul would have been unassailable but unfortunately the fact is not so. There was no dispute with regard to the accessibility of the sale proceeds of the loom hours at any stage of the proceedings. The Appellate Assistant Commissioner also did not consider that question at all, inasmuch as, that was not one of the points before him in appeal. The order of the Appellate Assistant Commissioner setting aside the assessment was only partial and to the extent as to the question of treatment of a loss in speculative transaction, as clearly indicated in the order itself. The order of the Appellate Assistant Commissioner; if read as a whole in its proper context, would clearly show that it was neither the intent nor the purpose nor the import of the order that the whole assessment was set aside and everything is kept at large so as to allow the Income-tax officer to make a fresh assessment on all the aspects of the matter and give a free hand to the assessee to make all claims and all arguments in that assessment. In that view of the matter, we are unable to accept the contentions of Mr. J.C. Paul. The hands of the Income-tax Officer and in appeal against his order, of the Appellate Assistant Commissioner, were tied."

In view of the above, it is clear that the Tribunal; in this case, was right in holding that it was not open to the assessee to challenge the validity of the reassessment in view of the findings of the Appellate Assistant Commissioner in that regard in the order of remand. We, therefore, answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee.

This reference is disposed of accordingly with no order as to costs.

M.B.A./4019/FC ??????????????????????????????????????????????????????????????????????????????? Reference dismissed.