1. This is a reference made to this court by the Income-tax Appellate Tribunal, Indore, referring the following questions of law :
'1. Whether the AAC is competent to set aside an ex parte assessment on an appeal against such an assessment even in cases where the assessee does not file an application under Section 146 of the I.T. Act, 1961, and the ex parte assessment is not set aside by the ITO ?
2. Whether, on the facts and in the circumstances of the case, the AAC was competent in law to set aside the assessment and send the case back to the ITO for a fresh assessment in the light of the direction given by the Tribunal in its order for the assessment year 1962-63 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in converting the order passed by the AAC in appeal as one retaining the appeal on his own file and calling for report from the ITO on the limited question as to whether the business of S. R. Kalani & Co. ceased to be the business of the HUF ?
4. Whether the Tribunal is justified in law in directing that the quantum assessment before the ITO shall continue to be under Section 144 of the I.T. Act of 1961?'
2. The statement of the case submitted by the Tribunal indicates that the assessment years involved are 1963-64 and 1964-65 for which the accounting periods ended on March 31, 1963, and March 31, 1964, respectively. The assessee claimed to be a firm of two partners, Shri S. R. Kalani and his widowed mother, Badami Bai. It was claimed that a firm had come into existence w.e.f. August 17, 1961, on which date these was a partition between Shri S. R. Kalani and his widowed mother, Badami Bai. This question was also raised in the assessment year 1962-63 and the ITO did not accept the claim for partition on the ground that the widowed mother, Badami Bai, became a widow prior to 1937 and, therefore, she is not entitled to claim a share on partition of the HUF property as she was only entitled to maintenance. Consequently, it was held that the claim of partition is not genuine and, therefore, the firm so constituted also is not genuine. The ITO, therefore, accepted the status of the assessee as AOP. He also, therefore, rejected the claim of registration under Section 185 of the I.T. Act, 1961, and completed the assessment of the assessee for each of the two years under Section 144 of the Act. The best judgment assessment under Section 144 was done as the assessee failed to produce the books of account of M/s. Kalani and Co. When the matter pertaining to these two years was pending before the AAC in appeals the Tribunal had decided I.T.A. No. 671/69-70 for the assessment year 1962-63 and the Tribunal, in the appeal arising out of the assessment case of 1962-63, remanded the case to the ITO with a direction to make a fresh assessment after giving an opportunity to the assessee to substantiate the claim that the business of S. R. Kalani and Co. ceased to belong to the HUF. The AAC in the appeals of these two years, where also the question of the registration of the firm was involved, followed the order of the Tribunal and set aside the assessment made by the ITO refusing to register the firm and directed the ITO to make a fresh assessment in accordance with law and according to the direction given by the Tribunal. Against this order of the AAC, the department went up in appeal before the Tribunal and challenged the order of the AAC. The Tribunal on hearing this appeal felt that the AAC was competent while hearing this appeal to confirm or set aside the assessment, but could not give a direction by remanding the case which would give the assessee an opportunity ' although the default for which the best judgment assessment was made continues. Because, according to the Tribunal, so long as the assessee does not apply under Section 146 of the Act and get an ex parte assessment set aside, he could not be given an opportunity when the order of best judgment assessment stands which has not been set aside as required under Section 146 of the Act. The Tribunal, therefore, modified the order of the AAC by holding that the order shall be treated to be an order of remand requiring the ITO to submit his remand report within three months on the question as to whether the business of S. R. Kalani and Co. ceased to be the business of the HUF and with these directions the Tribunal directed that the appeals be restored to the AAC.
3. After the judgment was passed by the Tribunal the assessee submitted an application for making a reference to this court and the Tribunal agreed with the assessee that the question of law arises and has made thisreference.
4. It was contended by the learned counsel for the assessee that although Section 144, which is similar to Section 23(4) of the earlier Act of 1922, provides for the best judgment assessment and s, 145 provides for an application to be moved by the assessee for setting aside the best judgment assessment which according to learned counsel is equivalent tb Section 27 of the old Act, but according to learned counsel the1 AAC, while exercising appellate jurisdiction under Section 251, has wide powers to set aside the assessment--even the quantum of assessment--and pass such orders as he deemed fit. Although Section 246 refers to orders against which an appeal could be filed by the assessee and under this section the assessee can also file an appeal where the ITO under Section 146 refuses to reopen the assessment made under Section 144, yet according to learned counsel the appellate jurisdiction of the AAC could not be limited or curtailed on account of the provisions contained in Section 246 as it is clear that the powers have been conferred on the AAC while disposing of an appeal under Section 251. It was, therefore, contended that while hearing an appeal the AAC was competent to set aside the quantum of assessment and direct that the question of registration of the firm may be investigated. Learned counsel placed reliance on the decisions in Naba Kumar Singh v. CIT : 12ITR327(Cal) , Chhotelal Gobardhan Das v. CIT : 23ITR272(All) , Padampat Singhania v. CIT : 24ITR141(All) , Mauladin Ayub Firm v. CIT : 35ITR449(Bom) Gaurishanker Kedia v. CIT : 49ITR655(Bom) and Gopal Singh v. CIT . Learned counsel for the department on the other hand contended that these cases referred to by learned counsel for the assessee coupled with Girdher Javer & Co. v. CIT : 24ITR540(Bom) , M. M. Muthuwappa v. CIT : 46ITR1107(Mad) and Hukumchand Mills Ltd. v. CIT : 63ITR232(SC) , clearly lay down that although the AAC hearing an appeal could set aside the quantum assessment of the assessee, yet when the assessee has not followed the procedure prescribed under Section 146 for setting aside the best judgment assessment, the AAC could not hold that the best judgment assessment was invalid. These decisions taking in view, it was contended, that the assessee having failed to make an application under Section 146 and get the best judgment assessment set aside cannot by an indirect process by filing the appeal get an opportunity which he had lost because of his default.
5. The orders against which the assessee has a right of appeal before the AAC have been provided for in Section 246 of the I.T. Act, 1961. The relevant part of this section runs:
'246. Any assessee aggrieved by any of the following orders of anIncome-tax Officer may appeal to the Appellate Assistant Commissioneragainst such order-
(a) an order against the assessee, being a company, under Section 104;
(b) an order imposing a fine under Sub-section (2) of Section 131;
(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed ;
(d) an order under Section 146 refusing to reopen an assessment made under Section 144 ;
(e) an order of assessment, reassessment or recomputation under Section 147 or Section 150; ......'
6. It is no doubt clear that Clause (d) of this section specifically provides that an order refusing to reopen an assessment made under Section 144 is itself appealable ; but it is also clear that Clause (c) provides that in an order under Section 144 if the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed, still, he can prefer an appeal. It is, therefore, clear that under the provisions of this section even after the best judgment assessment under Section 144 if an assessee does not follow the procedure prescribed in Section 146, still he can prefer an appeal under clause (c) of Section 246. The word 'status' in clause (c) of Section 246 has been explained by the Explanation at the end of Section 246 :
'Explanation.-- 'Status' means the category under which the assessee is assessed as 'individual', 'Hindu undivided family' and so on.'
7. This makes it clear that if the assessee is assessed as a HUF or an individual or a firm this question can also be agitated in an appeal under Clause (c).
8. Section 251 of the Act provides the powers of the AAC. The scheme, therefore, appears to be that the assessee has been given a right to prefer an appeal which falls under any one or more of the clauses of Section 246. But while hearing an appeal the AAC has been conferred with jurisdiction under Section 251, which runs :
'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 Appellate Assistant Commissioner and after making such further inquiry 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;
(b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty;
(c) in any other case, he may pass such orders in the appeal as he thinks fit.
(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.'
9. Sub-clause (a) of this section provides that in an appeal against an order of assessment the AAC may either confirm, reduce, enhance or annul the assessment. He may set aside the assessment and refer the case back to the ITO for making a fresh assessment in accordance with the direction given by him. And it is significant that while conferring these powers under Section 251(1)(a) no limitation has been placed on the powers of the AAC subject to the right of appeal conferred on the assessee under Section 246. It, therefore, clearly indicates that the AAC while hearing an appeal is not bound by the limitations which are placed on an assessee while preferring an appeal under Section 246. And in this view of the matter, hearing an appeal in the present case if the AAC has set aside the assessment and directed an inquiry in respect of the status of the assessee and thereafter to proceed for a fresh assessment it could not be said that the AAC has gone beyond his jurisdiction which he is exercising under Section 251(1)(a) of the Act.
10. In Naba Kumar Singh v. CIT : 12ITR327(Cal) , the question was raised before the Calcutta High Court about jurisdiction in appeal against the best judgment assessment and their Lordships observed (p. 332):
'Coming now to the provisions of the Income-tax Act, Section 30 gives the assessees the right to object to the amount of income assessed under Section 23 or Section 27. They may also object to the amount of tax determined under those sections and they may appeal if they object to the refusal of the Income-tax Officer to make a fresh assessment under Section 27. To that extent only has the proviso in the same section of the Act prior to the amendment been limited.. What the assessees are apparently trying to do now as it appears to me is to raise an objection not merely to the amount of the assessment or to the amount of tax determined under any provision of Section 23, but to object to the validity of the assessment. Although Section 30 as amended grants them a right of objecting to the quantum of the assessment, it does not in my view give them the right to leave aside the machinery which has been provided by Section 27 and to come to the court and ask that the court should deal with it without having had the matter, dealt with, as provided by the Act, by the income-tax authorities. It appears to me that on repealing the proviso in the old section the Legislature has expressly limited the manner in which appeals may be allowed against decisions under Section 23 or Section 27, and by inserting the words applicable to Section 23 or Section 27 with the word 'amount' they have definitely intended that the assessee's right of appeal under Section 30 should be limited as regards those sections to the quantum of the assessment or tax.
Reference has also been made to Section 31 of the Income-tax Act. Section 31(3) provides that in disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further enquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct. Section 31 then provides that in the case of an order refusing to make a fresh assessment under Section 27 the Appellate Assistant Commissioner may confirm such order or cancel it and direct the Income-tax Officer to make a fresh assessment. Section 31 supports the contention that the Appellate Assistant Commissioner should deal with orders which had been made under Section 27 specifically. Subsections (a) and (b) of Section 31(3) are not appropriate to a case such as that which is now under consideration, which has been specifically provided for in Sub-section (c).'
11. It is, therefore, clear that what is laid down in this decision is that in an appeal against the best judgment assessment the only restriction is that the validity of the assessment under Section 144 (equivalent to Section 23(4) of the old Act) could not be challenged unless proceedings under Section 27 of the old Act equivalent to Section 146 of the new Act are taken. Similarly, in Chhotelal Gobardhan Das v. CIT : 23ITR272(All) , it was held that the Appellate Tribunal had wide powers but they too relate only to the quantum of tax payable. In Padampat Singhania v. CIT : 24ITR141(All) , it was held that in an appeal before the AAC against an order under Section 27 the AAC could only consider the quantum of tax imposed but he could not go into the question about the propriety of passing the best judgment assessment. In Mauladin Ayub Firm v. CIT : 35ITR449(Bom) , it was observed that in the quantum appeal the AAC was justified in not considering the question whether the assessment was properly made under Section 23(4). In Gaurishanker Kedia v. CIT : 49ITR655(Bom) , also it had been held that the only limitation on the appellate jurisdiction is that the propriety of proceeding of best judgment assessment could not be questioned when no steps have been taken under Section 27 for setting aside the best judgment assessment. It is, therefore, clear that even on the basis of these authorities cited by learned counsel the only limitation on the appellate jurisdiction of the AAC which could be inferred is that he could not go into the question of the propriety of the proceedings ex parte and the best judgment assessment. But the quantum and question of registration of a firm can always be gone into.
12. It is not in dispute that the question of partition and constitution of a firm was very much there in the proceedings of these two years as was in the assessment proceedings of the earlier year. And it, therefore, could not be said that in view of the Tribunal's order in the earlier year the AAC committed any error in sending the case back for re-examination of the question.
13. It was contended by learned counsel for the department that even if it is held that the AAC was justified in remanding the case, still, as question No. 3 has been framed, the Tribunal also is justified in interpreting the remand order passed by the AAC and for this purpose learned counsel for the department relied on Section 254 of the I.T. Act, 1961. That section reads:
'254. (1) 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.....
(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under Sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer :
Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this Sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.
(3) The Appellate Tribunal shall send a copy of any orders passed under this section to the assessee and to the Commissioner.
(4) Save as provided in Section 256, orders passed by the Appellate Tribunal on appeal shall be final.'
14. It is no doubt true that Section 254(1) gives a wide power to the Appellate Tribunal to pass such orders as it thinks fit. But it could not be doubted that the Appellate Tribunal could interfere with the orders passed by the AAC only if his orders are in any manner found to be defective; and if, as discussed above, it is held that the AAC's order could not be said to be bad in law there appears to be no justification for the Tribunal to interfere with that decision.
15. Consequently, our answers to the questions referred to us are :
Questions Nos. 1 and 2.--In the affirmative.
Question No. 3.--In the negative.
Question No. 4.--Is also the direct consequence of the finding of the Tribunal on question No. 3. Consequently, it is also answered in the negative. In the circumstances of the case, parties are directed to bear their own costs.