Jeevan Reddy, J.
1. The question referred for our opinion under s. 256(1) of the I.T. Act (hereinafter called 'the Act') is :
'Whether, on the facts and in the circumstances of the case, the reassessment under section 147 of the Income-tax Act, 1961, could be validly made ?'
2. The facts relevant to the question referred are : The assessee is a firm carrying on ready and speculation business on commission. It is a member of Adoni Groundnut Seeds and Oil Merchants' Association. Its business consists of speculation in groundnut oil and groundnut seeds with members as well as non-members of the Association either for purchase or for sale. So far as non-members are concerned, the assessee charges commission on transactions entered into with them. In the return filed for the assessment year 1958-59, the assessee returned a net loss of Rs. 11,159 in ready and speculation business. The ITO, however, while making the assessment, separately assessed the income from speculation business and ready business and determined the net loss in speculation business at Rs. 39,206. Following the order of the AAC in an appeal relating to an earlier order, the ITO allowed the loss arising from the speculation business to be set off against the profits from the ready business.
3. After the expiry of four years, but within eight years, a notice under s. 148 read with s. 147(a) of the Act was issued by the ITO. The notice is dated March 23, 1967; it was received by the assessee some time in April, 1967. The ground alleged in the notice was that the rate differences claimed to have been paid by the assessee were not genuine payments and that the claim of the assessee to that effect was a bogus one. In response to the notice, the assessee resubmittted the return filed by him earlier, contending, inter alia, that the payments made by it were genuine. After an elaborate enquiry, the ITO passed his order dated November 26, 1970, wherein he did not say a word about the genuineness or otherwise of the payments. In other words, he practically abandoned the only ground alleged in the notice under s. 148. In the normal course, he should have dropped the proceedings, but he did not; he shifted to another ground. He observed that, in similar circumstances the Supreme Court has in Pangal Vittal Nayak (69 ITR p. 47 (Sh. N.) (Vittal Nayak case) held that the losses arising from the speculation business cannot be set off against commission receipts which should be treated as income from the ready business. Purporting to follow the said decision, the ITO held that the setting off of the losses from speculation business against income from the commission business was not proper or permissible and on that basis completed the reassessment.
4. Before the ITO, the assessee contended that the assessment having been reopened on a sole ground falling under s. 147(a) of the Act, it is not open to the ITO to shift to the ground under s. 147(b) of the Act. In other words, the argument was that having found that the payments which were alleged by him to be bogus, were not bogus, but were genuine, the ITO had no jurisdiction to complete reassessment on a different ground not alleged in the notice under s. 148. Admittedly, it must be stated, the disallowance of setting off mentioned above, on the basis of the decision of the Supreme Court, falls under s. 147(b) of the Act.
5. Against the order of the ITO, the assessee filed an appeal. It is relevant to notice the first paragraph of the appellate order, which says :
'The legality of reopening the assessment was also questioned. But this ground was withdrawn. I find that the assessment has been validly reopened.'
6. The AAC then discussed the permissibility of completing reassessment on grounds falling under s. 147(b) in the case of notice issued under s. 147(a) of the Act and upheld the power of the ITO to do so following the decisions of the Supreme Court and this court. Accordingly he dismissed the appeal.
7. On further appeal, the Income-tax Appellate Tribunal, allowed the appeal following the decision of the Madras High Court in AL. VR. ST. Veerappa Chettiar v. CIT : 91ITR116(Mad) . It held that inasmuch as the period of limitation prescribed under s. 147(b) had expired by the date of issuance of the reassessment notice in this case, the reassessment completed with reference to the ground under s. 147(b) is not valid. It held the same to be beyond the jurisdiction of the ITO. The Tribunal too recorded that the validity of the initiation of the proceedings was not challenged before it.
8. The Madras High Court has no doubt taken the view in AL.VR. ST. Veerappa Chettiar v. CIT : 91ITR116(Mad) , that 'though the Income-tax Officer has got the power to bring in to charge cases falling under clause (b) in reassessment proceedings validly initiated by the issuance of a notice under clause(a), such power is subject to a limitation that the reassessment proceedings initiated should be within the period of four years mentioned in that section'. But, a Full Bench of our court has taken a different view in CWT v. Subakaran Gangabhishan : 121ITR69(AP) . Indeed, the reference to the Full Bench of our court was necessitated by the conflict between the aforesaid decision of the Madras High Court and the earlier decisions of this court in Pulavarthi Viswanadham v. CIT : 50ITR463(AP) and CIT v. Jeskaran Bhuvalka : 76ITR128(AP) . The decision of the Full Bench has been rendered with reference to s. 17(1) of the W.T. Act which is in pari materia with s. 147 of the I.T. Act. The Full Bench has held that 'once the assessment is validly reopened under section 17(1) of the Act, no distinction can be made between the items falling under clause(a) and those falling under clause(b) and that the assessing authority would consequently have jurisdiction to assess the items falling under both the sub-clauses section 17(1) of the Act, notwithstanding the fact that the period of limitation prescribed under clause(b) might have expired by the date of notice'. It has further been held that the period of eight years and four years prescribed in cls. (a) and (b) respectively govern the right conferred on the assessing authority to issue a notice proposing to make assessment or reassessment, as the case may be, but do not govern the items which escaped assessment, whether by reason of under-assessment or assessment at too low a rate or otherwise. Accordingly, it has been held that where the omission or the failure either to file a return or to disclose fully and truly all the primary and material facts is on the part of the assessee, the larger period of eight years is available to the assessing authority to reassess the entire net wealth and that, in such a case, reassessment can be made in respect of all items even though some of them may fall under clause (b), notwithstanding the fact that the period of four years for the purpose of clause (b) had already elapsed. The only allowance made is that the assessing authority cannot take the aid of the longer period of limitation provided by clause (a) of s. 17(1) with a view to reopen only the items of escapement which fall under clause (b). In other words, colourable exercise of power is not to be countenanced. It is not open to the ITO to make a pretence of issuing the notice under clause (a), when in fact and in truth, he is seeking to reopen an assessment on a ground falling under clause (b) alone.
9. Following the decision of the Full Bench, it must be held that inasmuch as in this case notice under s. 147(a) of the Act has been held to have been validly issued - indeed the validity of the notice has not been questioned by the assessee as recorded by both the appellate authorities it must be held that completion of reassessment on the basis of the ground falling under clause (b) is permissible and competent even though made beyond four years. The decision of the Tribunal, following the decision of the Madras High Court, cannot be upheld, being contrary to the decision of the Full Bench of our court.
10. Mr. Srirama Rao, learned counsel for the assessee, then tried to bring his case within the exception recognised by the Full Bench. He contended that the very issuance of the notice under s. 147(a) is, in the circumstances, a colourable exercise of power on the part of the ITO. He emphasized the fact that having issued a notice alleging grounds under clause (a) (viz., that the payments made by the assessee were bogus), the ITO in his order has not at all referred to or dealt with this ground; the entire order deals only with the other ground falling under clause (b). From this circumstance, the learned counsel wants us to infer that the allegation made in the notice was a mere pretence and that the real object of the ITO was to reopen the assessment applying the decision of the Supreme Court. He submits that the ITO has tried to achieve indirectly, and by the above pretence, what he could not achieve directly.
11. We cannot say that this criticism is not plausible but, unfortunately for the assessee, the ground relating to the validity of the notice of reopening, though expressly raised, was given up in appeal. We have already referred to the statement in the order of the AAC to the effect that, 'the legality of reopening the assessment was also questioned. But this ground was withdrawn. I find that the assessment has been validly reopened'. We seeno reason to doubt the correctness of this statement. Indeed, if this statement were not correct, as it is now alleged, one would have expected the assessee to say so expressly in his grounds of appeal. At least, before the Tribunal, the assessee ought to have contended that the above statement is not correct, and that no such withdrawal was made and that the validity of the notice is still being challenged by it. Even in the grounds of appeal before the Tribunal, there is no specific ground stating that the issuance of the notice is a colourable exercise of power or that it was merely a pretence. The only ground now relied upon before us is the one which says that the notice was bad in law. We are, however, not prepared to agree that this ground is sufficient to explain away the concession made before the AAC, nor can it be understood as amounting to an allegation that the issuance of the notice was a colourable exercise of power. In the context, the said ground must be understood as referring to the period of limitation which was the main ground urged before the Tribunal on the basis of the decision of the Madras High Court. Indeed, even the Tribunal has recorded in its order that the validity of the notice under s. 147(a) has not been challenged.
12. This is what the Tribunal said in para. 5 of its order :
'In this case, the Income-tax Officer reopened the assessment under section 147(a) by issue of a valid and requisite notice. The initiation as such is not challenged '.
13. In these circumstances, we cannot permit the assessee to impugn the notice issued in this case as a case of colourable exercise of power.
14. Mr. Srirama Rao, then contended that we should now leave it open to the Tribunal to go into this aspect. We are unable to accede even to this course. Having repeatedly given up the ground relating to the validity of the notice before both the appellate authorities, the assessee cannot seek to revive it, when it loses on the main ground urged by it before the appellate authorities; we would not be justified, in the exercise of our advisory jurisdiction, to make any such reservation as asked for by the assessee's counsel.
15. For the above reasons, we answer the question referred to us in the affirmative, that is, in favour of the Revenue and against the assessee. No costs.