Case: Commissioner Of Income-Tax, Calcutta Vs. Rai Bahadur Hardutroy Motilal Chamaria

2. The respondent (hereinafter called the assessee) is an individual carrying on business in Jute, Cloth and Films. The assessment year is 1952-53, the corresponding accounting year being the calendar year 1951 for all business except Katihar Cloth Importing Co. and the Jute Mills for which the accounting year is financial year ending March 31, 1952. During the year of account the assessee claimed that he had borrowed three sums of Rs. 2,50,000, Rs. 1,50,000 and Rs. 30,000 from three parties from Nepal, Kharag Bahadur Nepali, Jiwanmal Santockchand and Sohanlal Subhkaran respectively. The Income-tax Officer added these amount to the total income of the assessee on the ground that the assessee had inflated the purchase of raw jute. The Income-tax Officer was not satisfied that these three were genuine loans but considered that they represented secret profits made by the assessee by inflating the purchase of raw jute. The income-tax Officer noted that the assessee had withdrawn at Calcutta on March 31, 1952, a sum of Rs. 5,30,000 from a Calcutta bank and had sent a sum of Rs. 5,85,000 to his Forbesganj branch on the same day to enable that branch to make payments including the repayment of Rs. 2,50,000 to Sri Kharag Bahadur one of the alleged creditors noted above. The Income-tax Officer discussed the impossibility of the amount having reached Forbesganj branch in Bihar on the very same day in order to enable discharge of the creditors there on March 31, 1952. In regard to this amount of Rupees 5,85,000 the Income-tax Officer observed as follows :"On 31-3-52 the Calcutta Office has withdrawn Rs. 5,30,000 from the Bank and has sent Rs. 5,85,000 to Forbesganj. How the cash has reached Forbesganj (in remote corner in North Bihar) on the same day to enable the branch to make payments (including the sum of Rs. 2,50,000 to Kharag Bahadur is something difficult to understand even in these days of fast travel. Lloyds Bank in Calcutta would not have obliged the assessee by paying out cash before 10 A. M. on 31-3-52 and the only available train leaves in the night. The journey including the ferry trip over the broad gauges takes over 24 hours. Hence the entries in the book cannot be taken to be genuine."The assessee took the matter in appeal to the Appellate Assistant Commissioner and contended that the Income-tax Officer should not have added the three items of Rs. 2,50,000, Rs. 1,50,000 and Rs. 30,000, to the total assessable income. The Appellate Commissioner did not agree with this contention and confirmed the addition of Rs. 4,30,000. At the same time, the Appellate Assistant Commissioner noticed the fact of the alleged transfer of Rs. 5,85,000 from Calcutta to Forbesganj on March 31, 1952 and its credit in the accounts books of the latter branch on the same date. The Appellate Commissioner considered that the amount of Rupees 5,85,000 should also be included in the total income of the assessee, but before doing so he gave the assessee a deduction of Rupees 1,80,000 being the amount withdrawn earlier from the accounts of the two creditors, namely, Jiwanmal Santokchand and Sohanlal Subkharan and added the balance of Rupees 4,05,000. This addition by the Appellate Assistant Commissioner amounted to an enhancement of the income which the Incometax Officer had assessed. The assessee tools the matter in further appeal to the Appellate Tribunal which held that the Appellate Assistant Commissioner was justified in coming to the conclusion that the cash credits in the accounts were not explained satisfactorily and some of the payments made at Forbesganj branch on March 31, 1952 were not made from the remittance from Calcutta but from secret funds. The Appellate Tribunal pointed out that out of the payments claimed to have been made at Forbesganj payments to Kharag Bahadur Nepali amounting to Rs. 2,50,000 must also be excluded because it had been held by the Income-tax Officer and the Appellate Assistant Commissioner that the loan was not genuine; and since the loan was not genuine it was not logical to say that it required repayment from secret funds. The Appellate Tribunal accordingly reduced the enhancement to Rs. 1,55,000. In doing so the Appellate Tribunal rejected the contention of the assessee that the Appellate Assistant Commissioner had no authority to enhance the income on the ground that it was not the subject-matter of the assessment made by the Income-tax Officer. The Appellate Tribunal took the view that the subject matter in respect of which the enhancement was made was, in fact, considered by the Income-tax Officer and accordingly the Appellate Assistant Commissioner had jurisdiction to make the enhancement. At the instance of the assessee the Appellate Tribunal referred the following question of law for the opinion of the High Court under Section 66(1) of the Income-tax Act, 1922 (hereinafter called the Act) :"Whether on the facts and in the circumstances of the case the Appellate Assistant Commissioner was within his authority in enhancing the assessment of the assessee by Rs. 1,55,000 for the assessment year 1952- 53?"By its judgment dated March 26, 1964, the High Court answered the question in the negative and in favour of the assessee

Court's reasoning:
It is necessary to bear in mind, in this connection, that it is only the assessee who has a right conferred under section 31 to prefer an appeal against the order of assessment made by the Income-tax Officer. If the assessee does not choose to appeal, the order of assessment becomes final subject to any power of revision that the Commissioner may have under section 33B of the Act. Therefore, it would have wholly erroneous to compare the powers of the Appellate Assistant Commissioner with the powers possessed by a court of appeal, under the Civil Procedure Code. The Appellate Assistant Commissioner is not an ordinary court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and in view of this peculiar position the statute has conferred very wide powers upon the Appellate Assistant Commissioner once an appeal is preferred to him by the assessee. It is necessary also to emphasise that the statute Provides that once an assessment comes before the Appellate Assistant Commissioner, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the Income-tax Officer not only with regard to a matter raised by the assessee but also with regard to and matter which has been considered by the Income-tax Officer and determined in the course of the assessment. It is also well established that an assessee having once filed an appeal cannot withdraw it. In other words, the assessee having filed an appeal and brought the machinery of the Act into working cannot prevent the Appellate Assistant Commissioner from ascertaining and settling the real sum to be assessed, by intimation of his withdrawal of the appeal. Even if the assessee refuses to appear at the hearing, the Appellate Assistant Commissioner can proceed with the enquiry and if ho finds that there has been an under-assessment, he can enhance the assessment5. The principle that emerges as a result of the authorities of this Court is that the Appellate Assistant Commissioner has no jurisdiction.Under section 31(3) of the Act, to assess a source of income which has not been processed by the Income-tax Officer and which is not disclosed either in the returns filed by the assessee or in the assessment order, and therefore the Appellate Assistant Commissioner cannot travel beyond the subject-matter of the assessment. In other words, the power of enhancement under section 31 (3) of the Act is restricted to the subject-matter of assessment or the source of income which have been considered expressly or by clear implication by the Income tax Officer from the point of view of the taxability of the assesseeWe are unable to accept the argument put forward on behalf of the appellant as correct. It is true that the Income-tax Officer has referred to the remittance of Rs. 5,85,000 from the Calcutta branch but the Income-tax Officer considered the despatch of this amount only with a view to test the genuineness of the entries relating to Rs. 4,30,000 in the books of the Forbesganj branch. It is manifest that the Income-tax Officer did not consider the remittance of Rs. 5,85,000 in the process of assessment from the point of view of its taxability. It is also manifest that the Appellate Assistant Commissioner has considered the amount of remittance of Rs. 5,85,000, from a different aspect namely, the point of view of its taxability. But since the Income-tax Officer has not applied his mind to the question of the taxability or non-taxability of the amount of Rs. 5,85,000, the Appellate Assistant Commissioner had no jurisdiction, in the circumstances of the present case, to enhance the taxable income of the assessee on the basis of this amount of Rs. 5,85,000 or of any portion thereof. As we have already stated it is not open to the Appellate Assistant Commissioner to travel outside the record, i. e., the return made by the assessee or the assessment order of the Income-tax Officer with a view to find out new sources of income and the power of enhancement under Section 31 (3) of the Act is restricted to the sources of income which have been the subject-matter of consideration by theIncometaxOfficer from the point of view of taxability. In this context consideration" does not mean "incidental" or "collateral" examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. In the present case it is manifest that the Income-tax Officer has not considered the entry of Rs. 5,85,000 from the point of view of its taxability and therefore the Appellate Assistant Commissioner had no jurisdiction, in an appeal under section 31 of the Act, to enhance the assessmentIt is necessary to bear in mind, in this connection, that it is only the assessee who has a right conferred under section 31 to prefer an appeal against the order of assessment made by theIncometaxOfficer. If the assessee does not choose to appeal, the order of assessment becomes final subject to any power of revision that the Commissioner may have under section 33B of the Act. Therefore, it would have wholly erroneous to compare the powers of the Appellate Assistant Commissioner with the powers possessed by a court of appeal, under the Civil Procedure Code. The Appellate Assistant Commissioner is not an ordinary court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and in view of this peculiar position the statute has conferred very wide powers upon the Appellate Assistant Commissioner once an appeal is preferred to him by the assessee. It is necessary also to emphasise that the statute Provides that once an assessment comes before the Appellate Assistant Commissioner, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct theIncometaxOfficer not only with regard to a matter raised by the assessee but also with regard to and matter which has been considered by theIncometaxOfficer and determined in the course of the assessment. It is also well established that an assessee having once filed an appeal cannot withdraw it. In other words, the assessee having filed an appeal and brought the machinery of the Act into working cannot prevent the Appellate Assistant Commissioner from ascertaining and settling the real sum to be assessed, by intimation of his withdrawal of the appeal. Even if the assessee refuses to appear at the hearing, the Appellate Assistant Commissioner can proceed with the enquiry and if ho finds that there has been an, he can enhance the assessment[See Commr. of, Punjab v. Nawab Shah Nawaz Khan, (1938) 6 ITR 370 = (AIR 1938 Lah 741)]. In this context reference may be made to the decision of the Court of Appeal, in The King v. Income Tax Special Commrs.,1 KB 487 in which ther sought to withdraw a notice of appeal which had been given on his behalf against an additional assessment under Schedule D. The Commissioners of Inland Revenue were not satisfied that the assessment was adequate. The Special Commissioners then proposed to Proceed with the hearing of the appeal in the ordinary way. At that stage ther sought a writ of prohibition to prohibit the Special Commissioners from hearing the appeal. It was held by the Court of Appeal that notice of appeal having ones been given, the Commissioners were bound to proceed in accordance with theIncometaxActs and determine the true amount of the assessment. At p. 493 of the Report Lord Wright observed as follows :"......... in making the assessment and in dealing with the appeals, the Commissioners are exercising statutory authority and a statutory duty which they are bound to carry out. They are not in the position of Judges deciding an issue between two particular parties. Their obligation is wide than that. It is to exercise their judgment on such material as comes before them and to obtain any material which they think is necessary and which they ought to have, and on that material to make the assessment or the estimate which the law requires them to make. They are not deciding a case inter parties; they are assessing or estimating the amount on which, in the interests of the country at large, ther ought to be taxed."