Narayana Pai, J.
1. In compliance with the direction made but this court in C. Ps. Nos. 426 and 427 of 1961 under section 66(2) of the Indian Income-tax Act, 1922, the Income-tax Appellate Tribunal, Madras Bench, has referred the following question together with a statement of the case :
'Whether the appellate Tribunal was right in its view that the Appellate Assistant Commissioner had competence to alter the finding of the Income-tax Officer to the effect that the portion of income in dispute is an undisclosed income from a know source to a finding that it is undisclosed income from undisclosed source.'
2. The petitions mentioned above related to two assessment year 1949-50 and 1950-51, respect of which two appeals were heard together and disposed of by a common order by the Appellate Tribunal. Before the Appellate Assistant Commissioner, there were three appeals relating to three assessment years, namely, the two year mentioned above as well as the subsequent assessment year 1951-52. They were disposed of by him by a common order and the question framed above has reference to certain alteration made by the Appellate Assistant Commissioner in the findings recorded by the Income-tax Officer and certain directions issued by him to the Income-tax Officer. The brief facts are the following :
The assessee follows an account year which is different from the financial year. His account year commences on the first of September every year and closes on the 31st August of the immediately succeeding year. The relationship between the account years and the assessment years with which we are now concerned is as follows : Account year Assessment year1-9-1947 to 31-8-48 1949-501-9-1948 to 31-8-49 1950-511-9-1949 to 31-8-50 1951-52
3. For convenience, we shall refer to these year respectively as first year, second year and third year.
4. The assessment of the first year was completed on the 31st December, 1953, by one Income-tax Officer. The assessments for the second and the third years were completed by another Income-tax Officer in February, 1955. Both the Income-tax Officer discovered that there were several credit entries referred to as cash credits in the record in the books of account maintained by the assessee in the names of his mother, wife and a minor daughter. In the first year, the officer found that such cash credits aggregated to about Rs. 8,896. Having regard to the nature of the entries and his opinion that the income returned by the assessee on account of his business was low, he regarded these entries as merely giving rise to serious suspicion that the assessee had not been disclosing his entire profits from his business. He, therefore, estimated the business profits at 33-1/3 per cent. of the turnover and determined the same at Rs. 11,795.
5. The officer who dealt with the assessment for the second and the third years, however, added to his estimate of the business income, the full total of the cash credits appearing in the books of the assessee during the relevant accounting years of the assessee as his undisclosed or diverted income arising out of the business itself. The amount added during the second year was Rs. 19,130 and during the third year Rs. 11,000.
6. The assessee appealed against all these assessment order and they were heard together and disposed of by a common judgment by the Appellate Assistant Commissioner on December 21, 1956. The Appellate Assistant Commissioner thought that the manner in which the original authorities had estimated the income from business would suggest an exorbitantly high percentage of returns which was partially impossible in the business carried on by the assessee. In that view, he reduced the business income for the first year to Rs. 4,201. In regard to the other two years, he took the view that the cash credits cannot possible be regarded as suppressions or diversions from out of the business income, but must be view necessarily led to a considerable, if not complete, change in the general features of the entire assessment itself. The reason therefor was the fortuities circumstance that the entries going to make up additions on account of cash credits fell not within the account year of the assessee corresponding not to the relevant assessment year, but to the immediately preceding assessment year. Thus the sum of Rs. 19,130 was made up of entries during the period September, 1948, and March, 1949, within the financial year relating to the first year 1949-50; and Rs. 11,000 added by the Income-tax Officer for the third year fell within the period November, 1949, and January, 1950, and therefore within the financial year corresponding to the second of the assessment years 1950-51. Now, although it may be in certain circumstances and subject to certain conditions open to an assessee to choose his own account year with respect to particular sources, so far as income from disclosed source is concerned, the previous year is the previous year as defined, namely, the financial year immediately preceding the assessment year.
7. The result of the findings of the Appellate Assistant Commissioner, therefore, was that on a proper examination of the accounts and the situation, Rs. 19,130 should have been assessed as income from undisclosed sources for the assessment year 1949-50 and Rs. 11,000 should have been assessed as income from undisclosed sources during the assessment year 1950-51. Acting on this legal result, the Appellate Assistant Commissioner deleted Rs. 11,000 from the assessment for the year 1951-52 and shifted it back to the immediately preceding assessment year 1950-51; likewise he shifted the sum of Rs. 19,130 from the assessment year 1950-51 to the assessment year 1949-50. But for reasons which it is not possible for us to gather, he did the substitutions himself in the first case, but directed the Income-tax Officer to make the addition of Rs. 19,130 in the other case.
8. It is this manner of dealing with the cash credits and the alteration of findings and the directions involved that were questioned as beyond the power of the Appellate Assistant Commissioner by the assessee in his appeals presented to the Income-tax Appellate Tribunal in respect of the assessment year 1949-50 and 1950-51. The tribunal, however, saw no substance in the appeals and rejected them with the following observations :
'When an appeals comes before the Appellate Assistant Commissioner, his powers are very wide. He need not restrict himself to dealing with the subject-matter of appeal. He is entitled to go into all matters concerned by the assessment order and correct the assessment in respect of all such matters, even to the prejudice of the assessee. Here, in the present case, the Appellate Assistant Commissioner felt that the consideration of the cash credits, if the explanation of the assessee was found to be unsatisfactory, should be by was of income from undisclosed sources. The Appellate Assistant Commissioner was perfectly justified in giving the direction he had done.'
9. The Tribunal also declined to make any reference to this court when requested to do so by the assessee. It was thereafter that the assessee approached this court under section 66(2) of the Indian Income-tax Act and this court made the order already referred to.
10. The question necessarily involves an examination of the extent of the power of the Appellate Assistant Commissioner as an appellate authority with the subsidiary question whether the manner in which he has dealt with the appeals in the circumstances stated above would be within the scope of his appellate power.
11. The contention on behalf of the assessee before us is that, however wide may be the power of the Appellate Assistant Commissioner under section 31 of the Income-tax Act, 1922, they are limited to the assessment year to which the appeal in question relates and to the record of the assessment made up of the return made by the assessee and the matters examined and considered by the Income-tax Officer. In this case, according to the argument, the Appellate Assistant Commissioner has treated all the three assessment years, the appeals in respect of which he was hearing together as consolidated appeals, as one large unit and not three different units as he should have done. It is also contended that even if his order may be cut up into three portions, each relating to one of the assessment years he was dealing with, he has committed the error of adding to the sources of income sources not examined or considered by the Income-tax Officer in relation to the said year.
12. The arguments are supported by two rulings of the Supreme Court, which circumstance reduces to a considerable extent the necessity of discussing the matter on principle or at any great length.
13. First of the cases is that reported in Income-tax Officer v. Murlidhar Bhagwan Das. In that case, the Supreme Court laid down the following proposition, namely, (1) the jurisdiction of the Appellate Assistant Commissioner under section 31 is strictly confined to the assessment of the year under appeal; (2) under the Income-tax Act one year is the unit of assessment; (3) the assessment or reassessment made in consequence of or to give effect to any finding or direction contained in any appellate order or an order of superior authority must necessarily relate to the assessment of the year under appeal or revision or reference, as the case may be; and (4) the words 'finding' or 'direction' contained in sub-section (3) of section 34 mean respectively a finding necessary for giving relief in respect of the assessment for the year in question and a direction and a direction which the appellate or revision authority, as the case may be, is empowered to give under the provisions thereof.
14. The direct decision in that case was that a finding to the effect that a certain income did not pertain to the year of assessment dealt with in the appeal is in itself sufficient to give relief to the appellant in the said appeal and cannot be given effect to as a finding that the said income relates to another assessment year and cannot therefore be made the subject of a direction to add it to the income of the said other year.
15. The second case cited is the one reported in Commissioner of Income-tax v. Shapoorji Pallonji Mistry. The question considered by the Supreme Court in the said case as formulated in their judgment 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 in under his power granted by section 31 of the Income-tax Act. The argument on behalf of the department in that case was that the power of the Appellate Assistant Commissioner under section 31 to enhance an assessment is wide enough to empowers him to add to the sources examined and considered by the officer. While conceding that in view of the language of section 31, the powers of the Appellate Assistant Commissioner may not be confined to the subject-matter of the appeal alone and may extend to the subject-matter of the assessment itself, their Lordships pointed out that the with of that power must be determined with reference to other provisions like section 34 providing for dealing with escaped income. Their Lordships held that the power of enhancement can properly be exercised only in respect of the source actually considered by the original assessing authority. The effect of the decision is that the Appellate Assistant Commissioner would have no power to enhance the assessment by discovering new sources of income not mentioned in the return of the assessee nor considered by the Income-tax Officer in his assessment order.
16. Applying these principles, it appears to us that the findings and directions made by the Appellate Assistant Commissioner in his appellate order which the Tribunal held were within the scope of his Appellate power are actually beyond the limits of that power.
17. It will be noticed that the original assessing authority had not dealt with the cash credits as representing income from an undisclosed source, but as a device adopted to suppress a portion of his income derived from business. The clear opinion of the assessing authority was that they were really relatable to the business of the assessee as a source of income and were portions of such income so diverted as to escape liability to tax. As against this the clear opinion of the Appellate Assistant Commissioner was that they were not part of the business income of the assessee. They were, according to him, items of income derived from undisclosed sources.
18. In the first year 1949-50, to which he added or directed the addition of Rs. 19,130, the Income-tax Officer had not at all considered or even adverted to the entries of cash credits going to make that total of Rs. 19,130. He had confined his attention to the account year of the assessee September 1, 1947, to August 31, 1948, because that was the previous year relative to his business. Likewise, the officer who dealt with the subsequent two years, had not considered Rs. 11,000 in relation to the year 1950-51, but only in relation to the year 1951-52. It may be that the undisclosed source is of the same nature. But the source is a specific physical or objective fact which may be several in number although same in nature. The source or sources of income aggregating to Rs. 19,130 is or are obviously different from the source or sources of income of the Rs. 11,000 considered with reference to these two years. Hence, by diverting or directing diversion of Rs. 11,000 from the third year to the second year and Rs. 19,130 from the second year to the first year, the Appellate Assistant Commissioner was clearly travailing beyond the assessment year he was dealing with in each appeal and/or discovering in each year a new source in addition to and different from the source considered by the Income-tax Officer in respect of the said year.
19. Although such is the clear result, the argument on behalf of the department has been that most of the above discussion, if not the whole of it, is beyond the scope of the question as formulated. It is argued that the only question asked is whether the appellate power of the Appellate Assistant Commissioner does not include the power of relating a given item to a source different from the source to which it had been related by the Income-tax Officer. The argument, though prima facie attractive, is in our opinion wholly in applicable to the facts and circumstances of this case. So long as a certain item of income had been considered and examined by an Income-tax Officer from the point of view of its assessability and so long as the Appellate Assistant Commissioner does not travel beyond the record of the year, there has never been any doubt as to his powers of re-doing the categorisation and bringing the assessment within the true description of the law. When this court took the view that a question of law did arise out of the appellate order of the Tribunal in this case, it cannot be said to have indulged in framing a question to which an answer in general terms as above was perfectly obvious. The question must be related to the facts and circumstances of the case and so related it clearly involves the several elements raised before us and discussed in the argument on behalf of the assessee and considered by us in this order.
20. Our answer therefore to the question is that the Tribunal was not right in taking the view that the Appellate Assistant Commissioner in this case had the competence to alter the findings of the Income-tax Officer to the effect that the cash credits were part of the business income into a finding that they were undisclosed items of income from undisclosed source and consequently to travel beyond the record of the appeals before him and alter in one appeal the assessment on the basis of facts and materials restricted to another appeal. This means that the shifting of the income of Rs. 11,000 from the assessment year 1951-52 to the income assessable for the assessment year 1950-51 and the direction to add to the income for the assessment year 1949-50 the sum of Rs. 19,130 originally treated by the Income-tax Officer as income assessable for the year 1950-51 are both irregular and beyond the appellate power of the Appellate Assistant Commissioner. The contrary view taken by the Income-tax Appellate Tribunal is erroneous in law.
21. The parties will bear their own costs in this reference.
22. Question answered in the negative.