1. At the instance of the Commissioner of Income-tax, Andhra Pradesh, Hyderabad, the Income-tax Appellate Tribunal, Hyderabad Bench-B, referred the following question under s. 256(1) of the I.T. Act of 1961, for the opinion of this court :
'Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the Appellate Assistant Commissioner has got power to set aside the assessment partially ?'
2. The assessee is a kirana and groundnut merchant carrying on money lending business. He filed a return disclosing an income of Rs. 9,160 for the assessment year 1970-71. The ITO, however, computed the total income at Rs. 50,410 adding six different items to the income returned by the assessee. The assessee filed an appeal to the AAC. In that appeal, the AAC granted relief to the assessee in respect of the first three additions made by the ITO but otherwise upheld the order of the ITO, with regard to the other three additions. The AAC passed an order setting aside the order of the ITO and directed him to re-examine the issue afresh and pass orders. The effect of the order passed by the AAC was to direct the ITO to consider the matter excluding the above three items.
3. The revenue went in appeal to the Appellate Tribunal against the order of the AAC complaining that the AAC erred in setting aside the assessment partially and the order of the AAC is ultra vires of his powers under s. 251(1)(a) of the Act. It was argued by the revenue before the Appellate Tribunal that the course open to the AAC under s. 251(1)(a) of the Act was either to allow the appeal or dismiss the appeal but not to tamper with the assessment order passed by the ITO by upholding it partially and setting it aside partially. The revenue's contention was that the order of the AAC granting partial relief amounted to making an order of remand and the making of such an order was not authorised by the provisions of the Act because s. 251(1)(a) of the Act which does not use the word 'remand' does not contemplate 'remand'. The AAC, according to the revenue, could only set aside the order of the assessment and direct the ITO to make a fresh assessment in accordance with provisions of the law.
4. The above argument of the revenue having been rejected by the Appellate Tribunal, the revenue sought for and obtained the above question of law referred to this court for its opinion.
5. The arguments of the revenue went beyond the exact scope of the question referred. It is argued for the revenue before us that s. 251(1)(a) of the Act which confers appellate powers on the AAC clothes him only with powers to 'confirm, reduce, enhance or annual the assessment' or 'to set aside the assessment and refer the case back to the ITO for making a fresh assessment in accordance with the directions given by the Appellate Assistant Commissioner'. It is the argument of the revenue that the sweep of this language is not wide enough to authorise the AAC to make the present order deleting three items from the assessable income of the assessee while directing the ITO to assess the assessee afresh. It is said for the revenue that such an order amounts to allowing the appeal in part fettering the powers of the ITO and such an order could be made only in exercise of the powers of remand which have not been conferred on the AAC by s. 251(1)(a) of the Act.
6. We notice that the arguments presented by the revenue transcend the limits of the question referred. But as we consider that the real question which ought to have been referred is the one presented to us, we proceed to answer that.
7. A glance at the language used by the statue to dress up the powers of the AAC would show the difficulty in accepting the contention of the revenue. First of all, we must note the s. 251 is a procedural provision calling for liberal construction (see Crawford's Statutory Construction, para. 73). Interpretative restrictions should not be allowed to clog the full operation of the procedural machinery. Section 251 is part of Chap. XX of the Act dealing with appeals and revisions. In addition, the section says that the AAC shall have the power to reduce the assessment. A reduction in assessment can be ordered by the AAC only by holding that certain of the amounts included in the assessee's assessable income by the ITO were wrongly included. This is a clear statutory instance where the AAC has been given powers to tamper with the order of assessment of the ITO without any requirement of its being remitted to the ITO. The argument of the revenue based as it is on an unargued assumption of the principal of inviolability of an assessment order which is the basis of the judgments of the Privy Council in Bennett and White (Calgary) Ltd. v. Municipal Dist. of Sugar City No. 5  AC 786 and our Supreme Court in Ram Narain Sons Ltd. v. Asst. CST  6 STC 627 underlying s. 251(1)(a) of the Act, is clearly not adopted and accepted by s. 251 of the Act itself. The Legislature had provided the AAC with powers not only to confirm and annul the assessment but also with powers to reduce and enhance the assessment. As we have observed above, the power to reduce and the power to enhance involve the power to interfere partially with the assessment order. What is more, the later portion of s. 251(1)(a) giving power to the AAC not only to set aside the assessment but also to refer the case back to the ITO for making a fresh assessment in accordance with his directions clearly approximates the powers of the AAC to those of a remanding authority. In providing for powers to set aside the assessment and to issue direction to the ITO the statue is based on the pre-supposition that the AAC himself can deal finally not merely with the procedural aspects of the case but even with its substantive aspects. There is hardly any difference between such an order that is clearly authorised to be made by the AAC and what is usually called 'an order of remand' contemplated to be made under the CPC. The absence of the word'remand' in s. 251(1), in our opinion, in the above circumstances, does not make any difference to the above meaning and scope of s. 251(1)(a).
8. Alternatively, it is argued for the revenue that referring the case back to the ITO for making a fresh assessment in accordance with the directions given by the AAC is permissible not when the AAC confirms, reduces, enhances or annuls the assessment, but only when he sets it aside. In other words, according to the revenue, the words of the later portion of s. 251(1)(a) 'he may set aside the assessment and refer the case back to the Income-tax Officer....', should be read as disjunctive from the rest of the section. This restrictive interpretation does not appear to us to be appropriate for reading a procedural section. After all, an order of assessment based as it is on various items of income may be supported by some and not by others. The lancet of appeal is supplied by the Legislature to cut such an order open and excise the diseased parts. If the referral powers can be exercised while setting aside the assessment, why cannot the same powers be exercised while excising some part of the assessment To quote Learned Hand J. : 'The meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity, can ever obviate recourse to the setting in which all appear and which all collectively create.' (See 77 Yale Law Journal 440). Section 251(1)(a) read as a whole in the context of its purpose appears to us to convey the intention of the status to confer power on the AAC to uphold the inclusion of certain items of income and the exclusion of others.
9. We may note here the general criticism levelled against the procedure provided by the Act as promoting fruitless litigation through multiplicity of applications carefully calculated never to read the merits of the matter. If the AAC is by construction rendered powerless to exclude certain items while remitting the case to the ITO, the ITO, would once again have to begin from the beginning and go to the end. This time-consuming process might be unobjectionable and even delightful to Alice in her Wonderland, but would hardly serve any purpose in our workaday world.
10. In Pulipati Subbarao and Co. v. AAC : 35ITR673(AP) the assessee objected to an order passed by the ITO requiring him to produce his account books on the ground that the order of the AAC setting aside the earlier assessment made by the ITO and directing him to receive a duplicate application for registration of the petitioner-firm and to deal with it according to law, did not authorise a de novo assessment. In other words, the assessee's objection was based on the proposition that the ITO was bound to act according to the directions of the AAC. In that case, the petitioner was assessed by the ITO in the first instance refusing to treat the petitioner-firm as a registered firm. It was against this order of the ITO that the firm filed an appeal to the AAC who had set aside the assessment and directed the ITO to receive a duplicate application for registration and to deal with it according to law and assess it on that basis. But, when the matter came back, the ITO in an attempt to assess afresh directed the production of the account books. It was this order that was questioned in the writ petition. The learned judge who heard the writ petition considered the question whether it was open to the ITO in that case to treat the earlier assessment as non est and to make a de novo assessment ignoring the previous assessment altogether. In answering that question, the learned judge observed that s. 31(3)(b) of the Indian I.T. Act, 1922 (corresponding to s. 251 of the 1961 Act) conferred a specific power on the AAC to issue direction to the ITO. In other words, the learned judge held that the ITO was bound by the specific directions issued by the AAC. Thus holding, the learned judge declared the direction of the ITO to produce the account books of the firm for purposes of making a de novo assessment as unauthorised. That is a clear ruling that supports the present assessee's position before us. It is no doubt true that this judgment had been very heavily criticised by a decision of the Madras High Court in CIT v. Seth Manicklal Fomra : 99ITR470(Mad) . But, in our opinion, the decision of the Madras Division Bench is not satisfactory. In the Madras case, initially the income of the assessee in sugar business was determined by estimation at Rs. 23,204. That order of the ITO was set aside by the AAC with a direction to the ITO to redo the assessment in the light of certain observations contained in his order. After the matter thus came back to the ITO, the ITO estimated the income from sugar at Rs. 15,000 as it was shown originally. But in addition to that estimation of income from the business in sugar, the ITO included a sum of Rs. 87,595 as income from other sources and on the basis of the total income thus arrived at, the ITO made the assessment. The matter ultimately came to the High Court on a reference. Before the Division Bench of the High Court the argument of the revenue was that the ITO was entitled to consider the matter afresh as in the case of an original assessment and the jurisdiction of the ITO is neither limited nor restricted to the point that was considered by the AAC. On the other hand, the assessee argued that the ITO was bound by the directions issued and, therefore, the ITO had to make a fresh assessment only with regard to the income from the business in sugar and he could not consider any other source of income which he omitted to consider on the earlier occasion and which did not fall to be considered on the orders of the AAC. The High Court Bench held that (p. 473) :
'Once the order of assessment is set aside it is open to the Income-tax Officer to consider the entire matter afresh and neither the order of the Appellate Assistant Commissioner in terms restricts the Income-tax Officer to consider the issue relating to the estimation of the income alone nor there is any warrant for reading such a restriction of the power either under section 251(1)(a) or under s. 143(3) under which the Income-tax Officer makes a fresh assessment. In fact we doubt very much as to whether the Appellate Assistant Commissioner could restrict the power of the Income-tax Officer while setting aside the assessment order itself and directing him to make; a fresh assessment order.'
11. It is also observed further that (p. 474) :
'Once the order of assessment is set aside and the matter comes up for fresh assessment before the Income-tax Officer, we are of opinion that the powers will have to be decided with reference to the provisions under section 143(3) and not with reference to any observations made by the Appellate Assistant Commissioner in his order....'
12. The Madras Division Bench relied upon a decision in Sri Gajalakshmi Ginning Factory Ltd. v. CIT : 22ITR502(Mad) and more particularly on J. K. Cotton Spinning & Weaving Mills Co., Ltd. v. CIT : 47ITR906(All) .
13. A close reading of the Madras decision shows that, despite observations to the contrary, that decision recognized the power of the AAC to issue directions to the ITO. The Madras Division Bench observed that (p. 475) :
'It is not in dispute in our case that the direction of the Appellate Assistant Commissioner in regard to the consideration of the circumstances pointed out by him in the assessment of the income from business in sugar was carried out by the Income-tax Officer.'
14. From this, it follows that the Madras decision took full note of the statutory provision contained in s. 251(1)(a) which makes the directions of the AAC binding on the ITO. The Allahabad High Court in J. K. Cotton Spinning and Weaving Mills Co., Ltd. v. CIT : 47ITR906(All) which was referred to and followed by the Madras Division Bench in the above decision clearly recognized that the ITO while making a fresh assessment in compliance with the directions of the AAC, was bound by the directions given by the AAC. It must, however, be pointed out that the Madras decision in portions underlined by us above did say that the ITO is free to disregard the direction of the AAC. With this we disagree.
15. Once it is recognized that s. 251(1)(a) authorises the AAC to issue directions, it should follow that the ITO cannot act contrary to those directions. It may still be debatable whether the ITO can go outside the directions to do something under s. 143(3) of the Act not covered by the direction of the AAC. But, as such a question is not before us, it would by hypothetical to attempt to discuss it here. But we must say that the judgment of this court reported in Pulipati Subbarao and Co. v. AAC of Income-tax : 35ITR673(AP) is clearly supportable on the language of s. 251(1)(a) of the I.T. Act.
16. For the aforementioned reasons, we answer the question referred to this court in favour of the assessee and against the revenue. The assessee shall get his costs. Advocate's fee Rs. 250.