1. The assessee carries on the business of machinery manufacture on a fairly large scale, and the assessment order in respect of the assessment year 1947-48 was passed by the Income-tax officer on the 29th of March, 1952. The Income-tax Officer added two sums of approximately Rs. 3 lakhs. and approximately Rs. 5,80,000 to the income of the assessee on the ground that certain items of machinery had not been accounted for in the books and that the valuation with regard to the cost of building had not been properly entered in the books of the assessee. The assessee appeals do the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held in favour of the assessee that the Income-tax officer was not justified in adding these two sums. But on looking at the accounts, he found that two items of sales had not been accounted for. He, therefore, came to the conclusion that the profits of the assessee could not be properly computed from the account kept by the assessee, and exercised his powers under the proviso to section 13 and computed the loss of the assessee at Rs. 2,55,000. The Tribunal in appeal confirmed the Appellate Assistant Commissioner's order.
2. Now, two questions have been raised at our instance under section 66(2). The first is whether the Tribunal was justified in law in upholding the application of the proviso to section 13 by the Appellate Assistant Commissioner in computing the income of the assessee This question is based on the contention of the assessee that, under the proviso to section 13, it is only the Income-tax Officer who could exercise the discretion conferred by the proviso and it was open to the Appellate Assistant Commissioner to exercise that discretion. Now, this contention can no longer be put forward in view a recent decision of the Supreme Court reported in Commissioner of Income-tax v. McMillan & Co.
3. Mr. Palkhivala also wanted to argue that on the material before the Appellate Assistant Commissioner he was not justified in invoking the proviso to section 13. In our opinion that raises a question of fact and that is not covered by the question that we have asked the Tribunal to refer. The Tribunal in appeal considered the question as to whether on the materials before him the Appellate Assistant Commissioner was justified in invoking the proviso to section 13 and came to the conclusion that he was justified. Therefore, no further question can arise with regard to that finding of the Tribunal.
4. The second question is whether the addition of the sum of the Rs. 1,50,000 by the Appellate Assistant Commissioner was barred by section 34(3) of the Income-tax Act Now, the contention urged by Mr. Palkhivala is that section 34(3) lays down a period of limitation for making an order of assessment, and that period is 4 years from the end of the year in which the income, profits or gains were first assessable. Therefore, in this case, the assessment has to be made not later than the 31st of March, 1952; and inasmuch as the Appellate Assistant Commissioner on the 6th of April, 1953 added a sum of Rs. 1,50,000 to the assessment made by the Income-tax Officer, the Appellant Commissioner was contraventing the provisions of section 34(3), and he was in effect assessing the assessee when, in law, no assessment could be made beyond the period of four years. In our opinion, this contention is entirely untenable. The period of limitation laid down under section 34(3) with regard to cases which are not covered by section 34 itself is a period of limitation for the making of the original assessment by the Income-tax officer made the original assessment within the period of limitation. As already pointed out, he made out it on 29th of March, 1952. What the Appellate Assistant Commissioner was doing was that, in the exercise of the appellate powers conferred upon him under section 31, he was resorting to the proviso to section 13; and the simple answer to Mr. Palkhivala's contention is that the Legislature has not laid down any period of limitation for the disposal of an appeal of an appeal by the Appellate Assistant Commissioner, under section 31. If we were to accept Mr. Palkhivala's contention, then the extraordinary result would ensure that not only every order of assessment must be made within four years but every appeal by the Appellate Assistant Commissioner must be disposed of within that period, because the Appellate Assistant Commissioner would be debarred, according to Mr. Palkhivala, from making any order to the prejudice of the assessee which might result in the assessment made by the Income-tax Officer being increased. This is not a case of enhancement, and even though it is not a case of enhancement, Mr. Palkhivala argues that merely because an amount has been added to the assessment made by the Income-tax officer as a result in the assessment made by the Income-tax officer as a result of computation made by the Appellate Assistant Commissioner under the proviso to section 13, the result is an increase in the assessment of the assessee which contravenes the provisions of section 34(3). If the intention of the Legislature was that not only the original assessment must be completed within the period of limitation, but the appellate powers of the Appellate Assistant Commissioner must be exercised within a specific period, then the Legislature would have so provided. But we look in vain for any provision in the Income-tax Act within lays down any period of limitation for the exercise of the appellate powers of the Appellate Assistant Commissioner. In our opinion, in exercising his discretion under the proviso to section 13, all that the Appellate Assistant Commissioner did was to exercise a power which was conferred upon him by a statute, power which he could exercise in appeal; and inasmuch as no period of limitation was provided for the exercise of that power it was competent to the Appellate Assistant Commissioner to exercise that power at any time.
5. Mr. Palkhivala has referred to a judgment of the Lahore High Court reported in Ganeshi Lal & Sons v. Commissioner of Income-tax : 6ITR390(All) . That was a case which dealt with entirely different facts, and the principle which can be deduced from that decision cannot possibly apply to the question that we have to consider. In that case, the assessment was made under section 34, and the Income-tax officer added to certain items in the income of the assessee. The assessee appealed and while the appeal was pending, the Assistant Commissioner who corresponded to the Appellate Assistant Commissioner now came to know that another item had also escaped assessment, and the Assistant Commissioner issued a fresh notice to the assessee in the respect of this item, and the Lahore High Court held that the Assistant Commissioner had no power to enhance the income assessable under section 34 so as to include this new item, and the Lahore High Court rightly points out that right of the assessee not have his assessment re-opened was protected by the Legislature by providing a period of limitation. Under the law then the period of limitation was one year, and the Lahore High Court says that right could not be circumvented by the Appellate Assistant Commissioner exercising the power which the Income-tax Officer himself could not have exercised. Here, we are not dealing with a case under section 34. We are not dealing with a case where the Appellate Assistant Commissioner is seeking to assessee a new source of income, which the Income-tax Officer has not assessed; and another significant feature about this Lahore case is that the Lahore High Court held and, with respect rightly, that the Assistant Commissioner had no power in appeal to enhance the income of the assessee as the Assistant Commissioner was dealing with a source of income with which the Income-tax officer had not dealt. That is exactly the view which we have taken in this court. Therefore, apart from any question of limitation, the Assistance Commissioner had no power at all to deal with the subject matter of that particular income. Therefore, the view of the Lahore High Court is that inasmuch as the Assistant Commissioner could not deal with this particular income, because he had no power conferred upon him in appeal, it reinforced the view taken by the court, which, with respect, was really unnecessary, that even if he had the power that power could not be exercised in order to deprive the assesses of the protection given to him under section 34. But the Lahore High Court does not decide, and with respect could not have decided, that although the Appellate Assistant Commissioner had the power, the period of limitation must be imported into the section and the appellate powers must be cut down so that it could only be exercised within a period which section 31 does not lay down but which should be imported from some other provisions of the statute.
6. The result is that we must answer the questions submitted to us :
(1) in the affirmative;
(2) in the negative.
7. Assessee to pay costs.
8. Reference answered accordingly.