R.R. Rastogi, J.
1. These two petitions can be conveniently taken up together. The facts giving rise to these writ petitions are as under: The petitioner, S. P. Kochhar, an individual, is proprietor of a business carried on in the name and style of Dehra Dun Land and Housing Corporation. The business is that of coloniser and a dealer in real estate. On May 19, 1967, the petitioner had entered into an agreement with Amitabh Textile Mills Ltd., Dehra Dun (hereinafter referred to as ' the company'). This company was the absolute owner of a bungalow and land surrounding, bearing No. 52, Rajpur Road, Dehradun, having a total area of 8 bighas 17 biswas and 10 biswansis (71,876 sq. ft.). The company agreed to sell and the petitioner agreed to purchase this property for a sum of Rs. 1,40,000. The petitioner paid a sum of Rs. 10,000 as earnest money and promised to pay the balance before or at the time of the execution of the sale deed. The petitioner could buy the property in his own name or in the name of his nominee or nominees partly in his name and partly inthe names of his nominees and in one lot or in pieces and at one time or at different times. The possession of the bungalow except for the portion occupied by the Kapoor was delivered to the petitioner who was entitled to make additions or alterations therein without diminishing the value of the property. It was further agreed that the petitioner could prepare layout plan for the development of the said property and get the necessary sanction therefor. The transaction was agreed to be completed within two years, that is by May 18, 1969, provided Sri Kapoor vacated the portion occupied by then, and in case he did not do so the price would stand reduced by Rs. 5,000. It was further provided in the agreement that during the said period of two years if the petitioner wanted that any portion of the said property may be conveyed to any other person, the company would sell the same to the said person as the petitioner's nominee and the price was to be paid at the rate of Rs. 15,000 per bigha. The price of the entire constructed portion along with 1 bigha 17 biswas 12 biswansis of appurtenant land was to be at Rs. 50,000 and if portions thereof were sold to the petitioner's nominee, sales were to be made for a proportionate price.
2. Parties proceeded to act upon this agreement and a sale deed was executed in favour of the petitioner by the company on June 26, 1969, The preamble of the sale deed proceeded to state that after the completion of the agreement to sell, the petitioner started repair and improvement of the property by levelling uneven ground, laying the main sewage line, constructing roads, etc. During this period the company effected the following sales :
Date of sale dead
Mr. & Mrs.Ahuja
S. Avtar Singh
Mrs. & Mr. Gulati
3. The preamble further recited that the balance consideration of Rs. 71,732.00 had been paid by the petitioner to the company by means of various cheques. It had been agreed that out of the said payments the vendor was to sell the remaining property in favour of three persons : one to Mrs. Sandhu for Rs. 40,000 ; second portion to the petitioner's wife for Rs. 732 and the third portion to the petitioner himself for Rs. 31.000.
4. For the assessment year 1970-71, the previous year ended March 31, 1970, the assessee filed a return showing a loss of Rs. 28,672 on June 8, 1970. Subsequently, he filed a revised return on March 6, 1973, showing a loss of Rs. 5,80,204. The ITO completed the assessment at a total income of Rs. 50,286 after setting off the carried forward losses of earlier years. One of the additions made consisted of Rs. 85,625 which was arrived at in the following manner :
1.Saleprice of the plots realised on the sale of the same to the nominees of thepetitioner
2.Value of the plots retained by the petitioner at the rate of Rs.15,000 perbigha
3.Value of the construction portion
It may be noted that the petitioner had admitted before the ITO that the land left with him after the sales made to his nominees by the company was his stock-in-trade but the question of taking any profit did not arise until the entire land had been eventually sold. Further, he claimed an expenditure of Rs. 1,03,785 as having been incurred between April 1, 1967, and March 31, 1970, on the development of the land. These contentions were repelled by the ITO. In regard to the sale of land made to the assessee's wife for Rs. 732, which was in respect of one-fourth of a bigha, in the opinion of the ITO, the agreed price of land to be sold to the nominee of the petitioner being Rs. 15,000 per bigha, the balance was to be treated as petitioner's profit and thus an addition of Rs. 2,268 was made. Similarly, the petitioner had sold a plot to Smt. Bawa for Rs. 9,000 and profit of Rs. 900 was shown in that transaction. In the opinion of the ITO the profit shown was low. He estimated the sum at 38 per cent. and made an addition of Rs. 2,420.
5. The petitioner appealed to the AAC. The AAC deleted these latter two additions. In his opinion there could have been no profit in respect of the sale made by the petitioner in favour of his wife and as regards the sale made in favour of Smt. Bawa, he held it to be a distress sale. Coming to the addition of Rs. 85,625 he was of the opinion that this transaction had been entered into by the petitioner with a view to acquire a residence for himself and there was no element of profit involved therein. In the result, all these additions were deleted. Aggrieved, the Revenue filed an appeal before the Appellate Tribunal.
6. The Tribunal found that the real issues involved in the case had not been decided by the Revenue authorities and remanded the case to the ITO for making a fresh assessment. The conclusions arrived at by the Tribunal were :
' 1. That the assessee did carry out a business deal in purchasing the land and building and having plots thereof sold to various of his nominees.
2. That these sales which resulted in profit to the assessee took place in the previous year earlier to the previous year under consideration except for one sale of Rs. 40,000 to Mr. Sandhu, which alone was relevant for this year.
3. That the profits on transactions should be found out by estimating the cost price of the plot, and the land sold and considering the sale price for which that particular piece of land had been sold and treating the difference as the profit or the loss ; and
4. That in so ascertaining the cost price, cost price of the building and the plot retained by the assessee should be excluded and the assessee should also be given the benefit of the development expenditure, if any, incurred for developing the land. '
7. The Tribunal agreed with the Appellate Assistant Commissioner in respect of the other two additions made by the Income-tax Officer, that is, with regard to land sold to Smt. Kochhar and the other sold to Smt. Bawa.
8. The case set up by the petitioner is that, after the remand of the case, the Income-tax Officer instead of confining himself to the directions given by the Tribunal, required the petitioner to furnish details of the account of Economical Builders and Gange Corporation for the last two years and details of advance of Rs. 2,84,337. Some other queries also were made. The petitioner submitted a reply to that notice. The Income-tax Officer then issued another notice on March 3, 1979, under Dection 142(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), requiring the petitioner to produce certain account books and documents. The assessee complied with that notice also. On March 9, 1979, the Income-tax Officer issued another notice under Section 143(3) of the Act requiring the petitioner to give details regarding sale of green park plots, relevant to the financial years 1968-69 and 1969-70 and also issued a summons to him under Section 131 of the Act. The petitioner complied with that notice as well and his statement was also recorded. According to the petitioner the Income-tax Officer had no jurisdiction to embark on any enquiry which was beyond the scope of the directions given by the Tribunal in its remand order, and that the Income-tax Officer was continuing the proceedingsmerely to harass the petitioner. He has, therefore, prayed for a writ of mandamus directing the Income-tax Officer, who is the respondent in the case, to confine himself to the directions issued by the Tribunal and also to restrain him from holding any enquiry in respect of the matters other than the profits earned on sale of property of Mr. Sandhu.
9. The petitioner was granted an interim stay order by which, though the ITO could proceed with the assessment proceedings, he was directed not to communicate the same to the petitioner till further order of this court. Pending these proceedings, the ITO issued a notice under Section 148 of the Act on March 26, 1979, as also impounded the account books and various documents of the petitioner on 17th March, 1979. The petitioner seeks the quashing of the aforesaid notice and release of the books and documents by means of the other petition, Civil Misc. Writ Petition No. 313 (319?) of 1979.
10. The respondent-ITO has filed his counter-affidavits in both these petitions. In the counter-affidavit filed in the first writ petition in substance the case set up by him is that in its remand order the Tribunal has not precluded the ITO from looking into other points involved in the case. According to him the orders of the ITO and the AAC have been set aside and the matter has been restored to the file of the ITO for making the assessment afresh. The ITO thus thinks himself well within his rights to enquire into the other matters as well which are involved in the case and he has justified the issue of the notice under Section 148 as well for the reason that the petitioner's income had escaped assessment to tax. The impounding of the books and other documents as well has been justified for the same reasons.
11. Two questions fall for our consideration in this writ petition: Firstly, whether, after remand of the case by the Tribunal, the ITO could have gone beyond the directions given in the remand order and look into the matters which were not the subject-matter of appeal before the Tribunal. The second question is as to whether a notice under Section 148 could be issued when the assessment proceedings were still pending.
12. We shall take up these questions one by one. Section 251 of the Act provides for the powers of the AAC and Section 254(1) lays down the powers of the Appellate Tribunal. Section 251 reads as under:
'251. (1) In disposing of an appeal, the Appellate Assistant Commissioner shall have the following powers-
(a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; or he may set aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the directions given by the AppellateAssistant Commissioner and after making such further enquiry as may be necessary, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment...-
2. The Appellate Assistant Commissioner shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction.
Explanation--In disposing of an appeal, the Appellate Assistant Commissioner may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner by the appellant.'
13. This section sets out the various powers which can be exercised by the AAC in appeal against different orders. His powers are wider than those of an appellate court under CPC. In particular his competence is not restricted to deal with the subject-matter of appeal. He may examine all matters covered by the assessment order and correct the assessment in respect of all such matters even to the prejudice of the assessee and may remand the case to the ITO for enquiring into items which were not the subject-matter of appeal. It may further be noted that while setting aside the assessment the AAC may direct the ITO to consider only certain matters when making a fresh assessment and in that event the ITO cannot go beyond that direction and enquire into other matters.
14. As for the powers of the Tribunal, Sub-section (1) of Section 254 says that the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.
15. The powers of the Tribunal in dealing with appeals are expressed in the widest possible terms and are similar to the powers of an appellate court under the CPC. The Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The word ' thereon ' is significant inasmuch as it restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. In other words, the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal constitute the jurisdiction of the Tribunal. It can only adjudicate upon such grounds and not beyond them. It is not open to the Tribunal to adjudicate or give a finding on a question which does not constitute the subject-matter of the appeal as constituted by the original grounds of the appeal and such addititonal grounds as may be raised by the leave of the Tribunal. Further, thewords 'pass such orders thereon as it thinks fit ' include all the powers except the power of enhancement which is conferred upon the AAC by Section 251. The distinction that the AAC is competent to examine all matters covered by assessment order while the Tribunal is to confine itself to the subject-matter of the appeal is also to be kept in view.
16. The scope of ITO's powers to make a fresh assessment under an order of remand passed by the appellate authority has come up for consideration in numerous cases. This court in J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. CIT : 47ITR906(All) , laid down that where on an appeal from an assessment the AAC set aside the assessment and directed the ITO to make a fresh assessment, the ITO is bound by the directions of the AAC in making the fresh assessment. But subject to those directions, he has the same powers in a fresh assessment as he had originally when making an assessment under Section 23 of the Indian I.T. Act, 1922. The same view was reiterated in Abkai Ram Gopi Nath v. CIT : 79ITR339(All) . The Kerala High Court in K. P. Moideenkutty v. CIT : 131ITR356(Ker) , has held that the competence of the AAC is not restricted to deal with the subject-matter of the appeal. He may examine all matters covered by the assessment order and correct the assessment in respect of such matters even to the prejudice of the assessee and may remand the case to the ITO for enquiring into the items which were not the subject-matter of appeal. Where, on appeal from an assessment the AAC sets aside the assessment and directs the ITO to make a fresh assessment without imposing any restriction or limitation as to how the fresh proceedings are to be conducted by the ITO, the ITO has the same powers in making any such fresh assessment as he had originally when making an assessment under Section 143 and the ITO is competent to redo the assessment in accordance with law after taking into the account all matters and aspects that would be relevant in making the original assessment. It is open to the AAC to limit the scope of enquiry by the ITO to any specified aspect or issue.
17. The decision of the Calcutta High Court in Katihar Jute Mitts (P.) Ltd. v. CIT : 120ITR861(Cal) , is to the same effect. The Punjab and Haryana High Court in Kartar Singh v. C/T , ruled that where an assessment is set aside by the Appellate Tribunal and remanded to the ITO it is not open to him to introduce into the assessment new sources of income so as to enhance the assessment. Any power to enhance is confined to the old sources of income which were the subject-matter of appeal to the Appellate Tribunal.
18. What thus comes out is that the powers of the AAC are wider than those of the Appellate Tribunal. The AAC while hearing an appealunder Section 251 of the Act can examine all matters covered by the assessment order and correct the assessment in respect of all such matters even to the prejudice of the assessee. He may remand the case to the ITO for enquiring into the items which were not the subject-matter of appeal also. If he sets aside an assessment and remands the case to the ITO for making a fresh assessment, the powers of the ITO while making the fresh assessment are the same as if he were making an original assessment under Section 143(3) of the Act. The AAC can, however, limit the powers of the ITO by giving suitable directions in regard to the scope of enquiry by the ITO. In the absence of such direction or restriction on the power of the ITO, while making a fresh assessment, the ITO is not bound by anything that had happened either when he made the original assessment or when the appeal was heard. When the remand is made by the Tribunal the position is different. The powers of the Tribunal are confined to the subject-matter of appeal as constituted by the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal. Thus, when the Tribunal allows the appeal and sets aside the assessment and remands the case for making a fresh assessment, the power of the ITO is confined to such subject-matter only. He cannot take up the questions which were not the subject-matter of appeal before the Tribunal. This will be so even though no specific direction has been given by the Tribunal. If a specific direction is given, then there is no scope whatsoever for the ITO to travel beyond those directions or restrictions.
19. In the instant case the matter had come up before the Tribunal in the appeal filed by the Revenue. The Revenue had challenged the deletion of three additions, viz., Rs. 85,625 profit on sale of land--Rs. 3,420, profit on sale of land to Smt. Bawa and Rs. 2,268--profit on plot sold to Smt. Krishna Kochhar. In regard to the latter two additions the Tribunal agreed with the AAC and held that in respect of sale of land to Smt. Krishna Kochhar there was no extraneous consideration involved and no question of earning any profit. As regards sale of plot to Smt. Bawa, it was held to be a distress sale made to purchase peace and that also did not yield any profit. As regards the profit of Rs. 85,625, the view taken by the Tribunal was that in so far as the sales which had been made prior to the relevant previous year were concerned, they could not be considered for arriving at any such profit in respect of the year under consideration, that is, 1970-71. In the relevant previous year apart from the two sale deeds, one made in favour of Smt. Kochhar and the other in favour of Smt. Bawa, there was only one more sale deed of Rs. 40,000 in favour of Smt. Sandhu which alone was relevant for consideration in this year. The profit in respect of this transaction could bearrived at by estimating the cost price of the plot and the land sold and therefrom the cost price of the building and the plot retained by the petitioner shall be excluded and further he shall be given the benefit of the development expenditure, if any, incurred by him for developing the land. The subject-matter of inquiry was, therefore, restricted by the Tribunal to this very transaction only and the method in which the profit was to be arrived at was also indicated. That being so, the ITO was not justified in embarking on an enquiry into any other item not covered by these directions. Certainly the various notices issued by him under Sections 143(3) and 142(1) of the Act were not justified. This petition, therefore, is liable to succeed.
20. Coming to the other petition, action can be taken under Section 147 of the Act in case certain conditions are satisfied. These conditions for the application of Clause (a) of Section 147 are that the ITO should have reason to believe that the income chargeable to tax has escaped assessment for the relevant year or has been underassessed or has been assessed at too low a rate or has been made the subject-matter of excessive relief or excessive loss or depreciation allowance has been computed. Further, he should have reason to believe that income has escaped assessment by reason of omission or failure on the part of the assessee to make a return of his income under Section 139 for the year or to disclose fully and truly all material facts necessary for his assessment for the year. As for Clause (b), the ITO should have, in consequence of information in his possession, reason to believe that income has escaped assessment. In the notice which was issued under Section 148 to the petitioner it was not stated as to whether the ITO proposed to proceed under Clause (a) or Clause (b) of Section 147. All that was stated was I
' Whereas I have reason to believe that your income chargeable to tax for the assessment year 1970-71 has escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961. '
21. Anyhow, the reason to believe has to be that income has escaped assessment. So long as the assessment is pending, the assessing authority cannot have any such reason to believe that income for the year has escaped assessment. Income cannot be said to have escaped assessment within the meaning of this section if the assessment proceedings in respect of that income are still pending and have not yet terminated in a final order. This question came up for consideration before the Supreme Court in Ghanshyamdas v. Regional Assistant Commr. of Sales Tax : 51ITR557(SC) . Relying on the decision of the Calcutta High Court in Re Lachhlram Basantlal : AIR1931Cal545 and of the Judicial Committee in Rajendranath Mukherjee v. CIT 2 ITR 71 , it was laid down that if the assessment proceedings have been initiated, the income cannot be said to have escaped assessment until a final order of assessment is passed on the pending proceedings. Income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessee's income which have not yet terminated in a final assessment thereon. The dictum laid down a clearly understandable principle. How can an escapement of an income from an assessment be predicted before an assessment is complete ?
22. The same view has been taken in Hargovittdsing Narainsiwg v. CIT : 90ITR435(Bom) . In that case the karta of the assessee-HUF, died in September, 1954. Thereafter, disputes arose among the members of the family and a court receiver was appointed. For the assessment year 1956-57, the ITO issued a notice, under Section 22(2) of the Indian I.T. Act, 1922, in the name of the family to the court receiver and in response to the notice the court receiver filed returns. The ITO did not pass any orders on the ground that the notice served on the court receiver and the returns submitted by him were invalid and proceeded to initiate proceedings under Section 34 of that Act. It was held that at the relevant time the assets of the assessee-family were in charge and under the control of the court receiver and the notice served on the court receiver under Section 22(2) and the returns submitted by him were valid. Even if it were assumed that the returns were invalid that would not authorise the ITO to initiate proceedings under Section 34. This could not be regarded as a case where no return had been filed by the assessee or that his income had escaped assessment. The proceedings under Section 34 were, therefore, not valid. The present case stands on a much stronger footing because here there is no dispute in regard to the validity of the return originally filed for the year under consideration and further in regard to the pendency of the proceedings in pursuance of that very return. The assessment has not become final and, therefore, initiation of proceedings under Section 147 and issue of notice under Section 148 were not valid.
23. No other matter was pressed before us.
24. In the result, therefore, both these petitions succeed and are allowed with costs. In Writ Petition No. 134 of 1979, the respondent, ITO, is directed to confine himself to the directions issued by the Income-tax Appellate Tribunal, vide its order dated January 27, 1979. In Writ Petition No. 313 of 1979, the notice dated March 26, 1979, issued under Section 148 of the I.T. Act, 1961, for the assessment year 1970-71, is quashed.