1. The assessment of the assessee for the year 1958-59 was completed by the ITO on January 31, 1962, and the total income assessable to tax was found to be Rs. 51,479. Partial relief was given to the assessee, in appeal, by the AAC, who reduced the total income to Rs. 49,008.
2. The assessment proceedings were, however, reopened by the ITO, and Rs. 3,000 was added to the total income on account of the value of perquisites received by the assessee in the form of rent for the residential accommodation from Bharat Barrel & Drum ., of which he was the director. A further sum of Rs. 100 was added on account of dividend income received on the shares in that company held by him.
3. In the appeal filed by the assessee before the AAC, one of the points raised was that he was a partner in the firm. M/s. Lokenath Tolaram, in which he had suffered a loss of Rs. 3,221 in the assessment year in question, that is, 1958-59, and the ITO had not set off the said loss in the original assessment and having regard to this omission, there was no question of reassessing his income in view of the provisions of s. 152(2) of the I.T. Act, 1961. This contention was, however, rejected by the AAC, and the assessee, therefore, filed an appeal before the Appellate Tribunal. The firm of M/s. Lokenath Tolaram was an unregistered firm, and before the Tribunal the assessee relied upon the decision of this court in CIT v. Jagannath Narsingdas : 55ITR128(Bom) in support of his claim that he was entitled to adjust his share of loss sustained by the unregistered firm in which he was a partner against the profit made by him in other firms in computing his income under the head 'Business' under s. 10 of the Indian I.T. Act, 1922. It was also contended before the Tribunal that once an assessment is reopened, the whole assessment proceedings were at large, and he was entitled to claim all the benefits, relevant allowances and deductions which he could have claimed when the original assessment was competed though he had not claimed these allowances and deductions in the original assessment. The Tribunal, holding that the partner who claims set off of his share of loss in the unregistered firm against his share of profit from other firms or his income from his individual business was entitled to do so as laid down in the case of Jagannath Narsingdas : 55ITR128(Bom) , allowed the loss of Rs. 3,221 to be set off. The appeal of the assessee was thus partly allowed.
4. Arising out of this order of the Tribunal, the following two questions have been referred at the instance of the Revenue:
'(1) Whether, the assessee was entitled to claim set-off of the loss of Rs. 3,221 being his share of the loss in the unregistered firm of M/s. Lokenath Tolaram ?
(2) Whether, on the fact and in the circumstances of the case, the assessee was entitled to claim set-off of the loss Rs. 3,221 in the reassessment proceedings ?'
5. With the consent of the counsel for the parties, we have modified the second question in order to bring out correctly the basis on which the assessee's claim that the reassessment proceedings were liable to be dropped in view of the provisions of s. 152(2) of the I.T. Act, 1961. The modified question No. 2 reads as follows:
'Whether on the facts and in the circumstances of the case, the assessee was entitled to claim set-off of the loss of Rs. 3,221, in the reassessment proceedings for the purpose of dropping the proceedings in view of the provisions of section 152(2) of the Income-tax Act, 1961 ?'
6. Now, so far as question No. 1 was concerned, it has been fairly conceded on behalf of the Revenue that in view of the decision of this court in Jagannath Narsingdas's case : 55ITR128(Bom) , that question would have to be answered in favour of the assessee. In Jagannath Narsingdas's case it has been expressly laid down that in computing the business income of the assessee under s. 10 of the Indian I.T. Act, 1922, the assessee is entitled to adjust his share of loss sustained by an unregistered firm in which he is a partner against the profits made by him in other business carried on by him individually.
7. So far as the second question is concerned, in order to correctly appreciate the argument advanced before us, it is necessary to reproduce s. 152(2) of the I.T. Act, 1961, which reads as follows:
'Where as assessment is reopened in circumstance falling under clause (b) of section 147, the assessee may, if he has not impugned any part of the original assessment order for that year, either under section 246 to 248 or under section 264, claim that the proceedings under section 147 shall be dropped on his showing that he had been assessed on an amount or to a sum not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made.
Provided that in so doing he shall not be entitled to reopen matters concluded by an order under section 154, 155, 260, 262 or 263.'
8. Now, the argument on behalf of the Revenue is that the assessee had admittedly filed an appeal challenging his original assessment, and, therefore, having regard to that fact, the assessee was not entitled to claim the benefit of the provisions of s. 152(2) of the Act, and, therefore, according to the learned counsel, though the assessee would have been able to claim set-off of the loss of Rs. 3,221 in the origin assessment, it was not now open to him in the reassessment proceedings to say that if that loss of Rs. 3,221 was allowed to be set off, then the income on the reassessment would not be higher than the income which would be determined after taking into account the income which is said to have escaped assessment, which, in the instant case, amounted to Rs. 3,100. On the other hand, Mr. Dwarkadas has contended that the question as to whether the assessment was entitled to set off of the loss which the assessee had suffered as the partner of the unregistered firm, was not subjected to scrutiny by the AAC and the assessee was, therefore, entitled to the set-off claimed. The further contention is that, even if the income on reassessment would have increased by Rs. 3,100, since the assessee was entitled to claim the loss of Rs. 3,221, the assessment would not be on a sum higher than that on which the assessee had been earlier assessed.
9. While the contention of the learned counsel for the Revenue is that the application of s. 152(2) of the Act is ruled out in a case where an appeal in respect of any part of the order of assessment is filed, the contention on behalf of the assessee is that for the purpose of invoking the provisions of s. 152(2) that part of the assessment order which had not been subjected to appellate scrutiny could always be taken into consideration and since in the instant case the claim for setting of loss was never the subject-matter of any appellate decision, the applicant cannot be said to have impugned that part of the original assessment order which related to the claim for set-off of that loss within the meaning of s. 152(2) of the Act.
10. Having regard to the modified form of the question, it is not necessary for us to go into the wider question as to whether after the assessment has been reopened the entire assessment is at large, because on the peculiar facts of the present case, it appears to use that if the assessee could urge in the reassessment proceedings that he was entitled to a set-off of the loss of Rs. 3,221, then even thought the income which had escaped assessment amounting to Rs. 3,100 was added, he had already been assessed on a sum not lower than what he would otherwise be rightly liable for. Now, it is well known that an order of assessment may determine several kind of claim for deduction, allowance or set-off made before the ITO and the assessee may or may not challenge all the findings recorded against him. It is open to an assessee to restrict his challenge in appeal to only parts of the assessment order by which he is aggrieved and it is only in respect of those matters which are subjected to the scrutiny by the leaned AAC that the order of the AAC so that the order of the ITO stands confirmed by the AAC,and it can be said to merge in order of the AAC so so that the order of the AAC is now the operative order. However, so far as that part of the assessment order which is not challenged in the appeal is concerned, there is nothing in s. 152(2) of the Act which prevents the assessee from urging before the ITO when the proceedings are reopened under s. 147(b) that he was entitled to either a larger deduction or that he was entitled to a set-off which had not been granted to him. It will also, therefore, be open to him to show that even if the income which is alleged to have escaped assessment is taken into account he will not be liable to be assessed if after making an allowance for the necessary deductions or setting off of the loss, which either he had not claimed earlier or which had not been property granted to him, the amount on which he was originally assessed would not be lower that what would be rightly liable for after taking into account the income which had escaped assessment. When s. 152(2) refers to the assessee not impugning any part of the original assessment order, the intention was to rule out any claim being made by the assessee to challenge the original assessment to the extent that it was subjected to appeal. The intention to enable the assessee to agitate certain matter which are not subjected to the scrutiny by the AAC for the limited purpose of s. 152(2) appears to us to be made more clear by the proviso which expressly provides that he assessee shall not be entitled to reopen the matters concluded by an order under s. 154, 155, 260, 262 or 265. The reference to the provisions of ss. 154 and 155 indicates that the ITO, after making the original assessment, may re-apply his mind to certain matter. Section 154 deals with the rectification of mistakes apparent from the record and s. 155 deals with an amendment of the original completed assessment in certain special cases. Similarly, the reference to s. 260, in the proviso, which deals with the decisions of the High Court in the reference made under s. 256 or of the Supreme Court in the reference made under s. 257 and to s. 262, which refers back to s. 260, for the purpose of giving effect to the order of the Supreme Court in the manner in which it is done in the case of the judgment of the High Court, also indicates that the matters which have been finally decided by the High Court and the Supreme Court cannot again be reagitated for the purpose of s. 152 of the Act.
11. Same is the position with regard to the matter in respect of which jurisdiction has been exercised by the Commissioner either under s. 263 or s. 264 of the Act. The reference in s. 152(2) to an assessee not impugning any part of the original assessment order appears to have been made to make it expressly clear that the assessee cannot urge the reopening of that part of the assessment order which is subjected to appeal, for the purpose of invoking the provisions of s. 152(2) or contend that the proceedings under s. 147(b) should be dropped.
12. So far as the case of the assessee is concerned, it is no doubt true that the original assessment order was subjected to appeal, but the question as to whether the assessee was entitled to a set-off of the loss of Rs. 3,221 was not one of the matters to which his mind was applied by the AAC. It appears to us, therefore, that the assessee was entitled to show to the ITO that even assuming that a sum of Rs. 3,100 had escaped assessment, the assessee claiming a set-off for the loss of Rs. 3,221 would not be liable to reassessment, because even if he had been assessed after taking into account the income whichs had escaped assessement,he had already been assessed on an amount which was larger than what he was rightly liable to be assessed on. The Tribunal, in our view, therefore, is right in holding that he was entitled to urge that the set-off of the loss of Rs. 3,221 should be allowed and the reassessment proceedings should be quashed.
13. In the view which we have taken, the two questions referred, out of which the second one has been modified, are answered as follows:
Question No. 1 -In the affirmative and in favour of the assessee.
Question No. 2 -In the affirmative and in favour of the assessee.
14. The assessee will be entitled to the costs of this proceeding.
15. We make no order on the motion dated August 10, 1971, taken out by the applicant. No order as to costs in the motion.