JUDGMENT
Ajit K. Sengupta, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1963-64 at the instance of the Commissioner, the following question of law has been referred to this court ;
” Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the action of the Appellate Assistant Commissioner in making enhancement of the assessment by addition of Rs. 3,13,675 for the assessment year 1963-64 is not tenable ? ”
Shortly stated, the facts are that the assessee is engaged in the manufacture and sale of jute goods and derived income therefrom. The Income-tax Officer made the assessment on May 26, 1963, under Section 143(3). Besides making some disallowance of the expenses, he added a sum of Rs. 10,85,820 in the computation of the total income on the ground that there was a change in the method of valuation of the closing stock. It was contested by the assessee in appeal before the Appellate Assistant Commissioner. He deleted the addition in regard to the valuation of the closing stock and allowed relief in respect of a few other items that were being disputed. It transpired that, during the year ending October 31, 1961 (relevant to the assessment year 1962-63), the assessee had entered
into forward contract with some parties for the supply of raw jute and some of them defaulted to supply as there was a steep rise in price. The assessee had put up claims for damages on the difference between the market price on the date of supply and the contract prices. There were awards made ex parte arid decrees were obtained thereon in the High Court. These decrees came to be passed between 1962 and 1964. The Income-tax Officer had added a sum of Rs. 11,12,333 being the aggregate of such claims in the assessment year 1962 63. The assessee had appealed against the same to the Appellate Assistant Commissioner who deleted a part of the income holding that such income had not accrued in the year relevant to the assessment year 1962-63, That order was made on March 10, 1969. He was of the view that income would accrue on the date of the decrees. Therefore, according to him, income would have accrued for 1963 64. In view of this, the Appellate Assistant Commissioner dealing with the appeal for 1963 64 issued a notice to show cause why an enhancement should not be made. On the ground that no objection was raised, he added an amount of Rs. 3,18,573.
2. Before the Tribunal, this action was contested. It was urged that such a source of income had not appeared in the accounts maintained or in the return filed and neither had it been mentioned or considered by the Income-tax Officer in his assessment order and, therefore, the action of the Appellate Assistant Commissioner was without jurisdiction and beyond the powers conferred under Section 251 of the Income-tax Act, 1961,
3. The Tribunal held that the observations made by the Supreme Court in CIT v. Rat Bahadur Hardutroy Motilal Chamaria , squarely applied to the facts and circumstances of this case in relation to Section 251 of the Income-tax Act, 1961, and, therefore, the action of the Appellate Assistant Commissioner was not tenable and was unsup-portable. The addition sustained by him was thus deleted.
4. It has been contended by Mr. Moitra, the learned advocate appearing for the Commissioner, that there is no question of enhancement in this case. It was only computation of income which had already been considered by the Income-tax Officer in his assessment. He submitted that the question as framed is whether the action of the Appellate Assistant Commissioner in making enhancement of the assessment is tenable or not, The question does not also refer to whether Rs. 3,18,573 is from a new source or not. It is his submission that the decision of the Supreme Court in Rai Bahadur Hardutroy Motilal Chamaria would have no application to the facts of this case because, in this case, there has not been any enhancement. According to him as the result of the appellate order, income was determined at Rs. 26,24,133 as against the declared net profit of Rs. 32,24,935. His contention is that the Appellate Assistant Commissioner did not deal with a new source because the source is already referable to business.
5. Learned counsel for the assessee, however, contended that the amount in question was not at all considered by the Income-tax Officer in the assessment as it was made long prior to the finding given by the Appellate Assistant Commissioner for the assessment year 1962-63 where it was held that income covered by the decree, particularly a sum of Rs. 3,18,575, would be liable to be included in the assessment for the assessment year 1963 64. He submits that the Appellate Assistant Commissioner cannot exercise the power of adding the said income in the assessment under Section 251(1) of the Income-tax Act, 1961. He has relied on the decision of the Supreme Court in the case of CIT v. Shapoorji Pallonji Mistry [1062] 44 ITR 891.
6. We have considered the rival contentions. On the facts and circumstances of this case, we are unable to accept the views of the Appellate Assistant Commissioner. The Appellate Assistant Commissioner observed in his appellate order for the assessment year 1963-64 as follows :
” In my order dated 30-3-1969 in Appeal No. 512/66-67 for the assessment year 1962-63, I have held for the reasons stated therein that income in respect of difference claim to the extent of Rs. 3,18,573 accrued in the accounting year of the appellant company ending on October 31, 1962, relevant to the assessment was given a notice of enhancement under my No. 625/122/68-69/C-I/R-Z dated March 18, 1969, to state its objection, if any, on March 27, 1969. The learned representative who attended on that date did not offer any objection, I, therefore, direct the Income-tax Officer to assess Rs. 3,18,573 as income accruing on account of difference claims in the accounting year ending on October 31, 1962, relevant to the assessment year 1963-64. ”
From the aforesaid observation of the Appellate Assistant Commissioner, it will be evident that, in view of the finding given by him in connection with the appeal for the assessment year 1962-63 that a part of the income was not liable to be assessed being Rs. 3,18,573 for the assessment year 1962-63, it fell for consideration for the subsequent year and accordingly, he gave a notice also for enhancement on March 18, 1969. As indicated earlier, the assessment in question was made by the Income-tax Officer on March 26, 1968, long before the appellate order for the assessment year 1962-63 was passed. During the year ending on October 31, 1961, relevant to the assessment year 1962-63, the assessee had entered into forward contracts with some parties for the supply of raw jute and some of thorn defaulted to supply as there was a steep rise in prices. The assessee had put up claims for damages being the difference between the market price on the dates of respective supply and the contract prices against the defaulting parties and obtained several decrees between 1962 and 1964 from the High Court. Although the claim of the assessee arises out of its business carried on by the assessee, so far as the claim for damages for breach of contract being the difference between the market price and the contract price is concerned, it was not an item considered by the Income-tax Officer in the assessment for the assessment year 1963-64. The Income-tax Officer had added a sum of Rs. 11,12,333 being the aggregate of such claims as decreed by the High Court in the assessment year 1962-63 but, on appeal, the Appellate Assistant Commissioner thought that the entire income had not accrued in the year relevant to the assessment year 1962-63 and deleted a part of it. Accordingly, a part of the income, i.e., Rs. 3,18,573, was found to be assessable for the assessment for the year in question, i.e., assessment year 1963-64. The question is whether, on these facts, the Appellate Assistant Commissioner had any jurisdiction to assess the said sum in the assessment for the assessment year in question when the Income tax Officer did not have any occasion to add this amount in the assessment.
7. In that case decided by the Supreme Court, the assessee had received on July 20, 1946, a sum of Rs. 40,000. In the proceedings for assessment for the assessment year 1946-47, this came to the notice of the Income tax Officer. Since the receipt fell within the accounting year relevant to the assessment year 1947-48, the Income tax Officer did not assess the amount, making a note ; ” The question will, however, be considered again at the time of 1947-48 assessment “. In the return filed for the assessment year 1947-48, this amount was not shown by the assessee. The Income-tax Officer also overlooked the note at the end of his order in the back year’s assessment, with the result that this item was omitted. The assessee appealed to the Appellate Assistant Commissioner against the assessment for the year 1947-48. While the appeal was pending, the Income-tax Officer wrote a letter to the Appellate Assistant Commissioner intimating him that he would like to be present, and also requesting him to assess the amount of Rs. 40,000. The Appellate Assistant Commissioner, after issuing
notice, assessed the amount and included it in the original assessment. On further appeal, the Tribunal agreed with the Appellate Assistant Commissioner. However, the High Court held that the Appellate Assistant Commissioner was not competent to enhance the assessment of the appellant. The matter was taken up by special leave to the Supreme Court.
8. Before the Supreme Court, the question was whether, in an appeal filed by an assessee, the Appellate Assistant Commissioner can find a new source of income not considered by the Income-tax Officer and assess it under his powers granted by Section 31 of the Indian Income-tax Act, 1922.
9. There the Supreme Court, after considering several decisions, held that, in enhancing the assessment for any year, the Appellate Assistant Commissioner cannot travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a view to finding out new sources of income not disclosed in either. The Supreme Court also observed that there are other provisions like Sections 34 and 33B which enable escaped income from new sources to be brought to tax after following the special procedure. The powers of the Appellate Assistant Commissioner extends to matters considered by the Income-tax Officer, and if a new source is to be considered, then the power of remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of the finding by two Tribunals and one right of appeal. Accordingly, the Supreme Court dismissed the appeal of the Revenue in that case.
10. In our view, the principles laid down in the aforesaid decision by the Supreme Court would apply to the facts of this case. The Appellate Assistant Commissioner was not competent to enhance the assessment taking an income which income was not considered by the Income-tax Officer at all.
11. For the reasons aforesaid, the question in this reference is answered in the affirmative, in favour of the assessee and against the Revenue.
12. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
13. I agree.