1. This is an appeal by the assessee against the order of the CIT (Appeals) for the assessment year 1974-75. The facts leading to this appeal are slightly involved and may first be stated.
2. The assessee is an Association of Persons called Mangilal J. Parmar and Ors. We are concerned with its assessment for the assessment year 1974-75,which was completed on 6-1-1983 by the ITO F-Ward, Thane. The assessment order was passed under Section 143(3) of the Act on 11-3-1976 for the assessment year 1975-76 in the case of Mangilal J.Parmar. In this assessment, Mangilal's l/3rd share amounting to Rs. 22,525 in the capital gains arising on sale of land was brought to tax.
This land bearing C.T.S. No. 5 Tika No. 13And admeasuring 2524 sq.yds.
was purchased by Mangilal jointly with two others, namely, Ramesh Rupchand Parmar and Phulwantibai Ramesh Parmar. Out of this land, a piece of 907 sq. yds was acquired by the Govt. of Maharashtra and Mangilal along with others received total compensation of Rs. 1,05,035 as per an award dated 31-12-1973. The Assessing Officer worked out the average cost of land at Rs. 41.30 per sq. yd., determined the cost of 907 sq.yds. at Rs. 37,460 and worked out the capital gains at Rs. 67,575, of which he worked out the share of Mangilal at Rs. 22,525.
Similarly, l/3rd share was also assessed to tax in the hands of other co-sharers for the assessment year 1975-76. The assessment in the case of Phulwantibai Ramesh Parmar was completed on 15-3-1976 and that in the case of Ramesh Rupchand Parmar was completed on 11-3-1976. All these assessments were revised under Section 263 of the Act by the CIT, Pune-2, Pune, by an order dated 24-2-1978 passed in the case of Mangilal J. Parmar and Ramesh Rupchand Parmar. The ostensible reason for setting aside the assessments was that the assessment of capital gains should have been made in the hands of the AOP since the compensation that was awarded by the Government in respect of the piece of land held by these three persons was receivable by an AOP. This was the position for the assessment year 1975-76. On 29-11-1977, the ITO issued notice under Section 148 to Shri Mangilal J. Parmar and two others (hereinafter called "the AOP") of Tembi Naka, Thane, for the assessment year 1975-76. Copies of such notices have been filed at pages 1 and 50 of the compilation. Apparently, no action was taken in consequence of the notice issued for the assessment year 1975-76 on the AOP probably because the department wanted to assess the capital gains in the hands of the AOP for the assessment year 1974-75, for which similar notice has been issued. For the assessment year 1975-76, an order was passed in the case of Phulwantibai R. Parmar in the status of AOP inconsequence of the directions given by the CIT, Pune, in his order under Section 263 dated 24-2-1978 (referred to hereinabove).
Short-term capital gain on the sale of land amounting to Rs.2,06,155 was determined in the case of this AOP. This order was cancelled by the CIT (A)-X, Bombay, by his order dated 18-3-1980 and the said CIT(A) gave the following reasons for cancelling the same: 1.5 In view of the aforegoing, I hold that the ITO acted beyond jurisdiction. He flouted the statutory provisions of Income-tax Law in a number of ways. There were no proceedings of the AOP before him either by the issue of notice under Section 148 or by filing of a return by the assessee which could have been proceeded and which could have culminated in the passing of the assessment order. The order being wholly unwarranted and illegal is cancelled.
Apparently, no departmental appeal has been filed against this order of the CIT(A). The main reason why the CIT(A) set aside this order was that although the CIT had under Section 263 given directions that the capital gains should be taxed in the hands of AOP, no specific notice under Section 148 to the AOP of Phulwantibai R. Parmar had been given.
On 31-3-1980, an order of assessment was passed in the case of Phulwantibai R. Parmar under Section 143(1)of the Act in which 1/3rd share in capital gains was worked out at Rs. 18,711 for the assessment year 1975-76. The proceedings under Section 147(a), which were taken by issue of notice under Section 148 on 29-11-1977 to assess the AOP for the assessment years 1974-75 and 1975-76, were apparently dropped on 28-9-1979. The CIT, Pune, took action under Section 263 of the Act against the AOP for the assessment years 1974-75 and 1975-76and passed an order on 26-3-1981. In the said order, he observed, inter alia, in paragraphs 4 and 5 as follows: The Officer who had jurisdiction under the provisions of law to assess the AOP was the ITO, SSC, Thane. He erred in dropping the proceedings without a physical verification of the records regarding validity of the assessment completed by the ITO, F-Ward, Thane, in the hands of Smt. F.R. Parmar. To this extent, the order passed by the ITO, SSC, Thane, was erroneous and prejudicial to the interests of revenue.
5. I, therefore, set aside the assessments for assessment years 1974-75 and 1975-76 in the case of Shri Mangilal J. Parmar and others (AOP)with directions to the ITO, SSC, Thane, to make assessments and compute the income of the AOP in the relevant years, in accordance with the provisions of law and issue demand notices accordingly.
Consequent to such directions of the CIT, the present order for the assessment year 1974-75 was passed on the AOP by ITO, F-Ward, Thane, on 6-1-1983. The assessee went in appeal and the Appellate Asstt. Commr.
dismissed the appeal and confirmed the order. Initially, the following two grounds were taken at the appellate stage: (a) The status of the appellant should not have been adopted as AOP and the correct status should have been taken as "Joint Owners" with 1/3rd share each: (b) Salary of Rs. 6,000 paid to Watchman should have been allowed as a deduction.
Both these grounds were dismissed by the AAC. An additional ground was taken by the appellant to the effect that the order of the learned ITO be vacated and set aside being bad in law and void ab initio, being barred by limitation prescribed under the IT Act. Reliance was placed by the appellant on the provisions of Section 153(3)(ii). It was argued that the time-limit under Section 153 is relaxed to give effect to any finding or direction contained in the order under Section 263 whereas in the case of the appellant the order under Section 263 contained specific directions only in respect of the action of the ITO in dropping the proceedings under Section 148 and the order only directed the ITO to revive the proceedings under Section 148 which had been dropped. It was argued that the directions of the CIT were restricted to this aspect only. This argument was rejected by the first appellate authority in the following words: 7B. Sub-section 3 of Section 153 of the IT Act merely lists the clauses of assessment/reassessment/recomputation to which provisions of Sub-section (1) & (2) of that section are not applicable. These clauses of assessments etc. may be completed at any time subject to the provisions of Sub-section (2A) of Section f53. If these two Sub-sections are read together and applied to the order under appeal, it is seen that the ITO has completed the assessment within the time allowable as he has completed the assessment in pursuance of an order under Section 263 of the CIT. In these circumstances, I find that the order under appeal has not been barred by limitation.
This ground of appeal also fails.
2.1 Shri Chhajed, the counsel for the assessee, argued that the order of the CIT under Section 263 in the case of the AOP neither set aside not cancelled the order of assessment originally passed because there was no such order passed for the assessment year 1974-75 on the AOP.The proceedings under Section 148, which were stated on 29-11-1977, had been dropped on 28-9-1979. Therefore, there was no order of assessment.
The order of the CIT had the effect of reviving the proceedings which were dropped. Therefore, the time-limit in respect of reassessment proceedings for this year commenced from 31-3-1978 and ended on 31-3-1982, whereas the order of assessment was passed on 6-1-1983.
Therefore, argued Shri Chhajed, the order of assessment had become time-barred. Alternatively and without prejudice, it was argued that the ITO should have gone into the merits of the issue. Thirdly, it was argued that when the assessment had already been made on 31-3-1980 in the case of Phulwantibai R. Parmar for the assessment year 1975-76 and such assessment was cancelled by the CIT(A), which order has been accepted by the department, there was no case now for making assessment on the present AOP for the assessment year 1974-75, particularly when the original proceedings under Section 147(a) were dropped. Reliance was placed on a decision of the Supreme Court in the case of Rajinder Nath v. CIT  120 ITR 14 and in the case of Goombira Tea Co. (P.) Ltd. v. ITO  125 ITR 260 (Cal.) and in particular the observations at pages 266, 268 and 269. Reliance was also placed on another decision of the Supreme Court in CIT v. Murlidhar Jhawar & Purna Ginning & Pressing Factory  60 ITR 95.
3. Shri R.K. Mishra, the learned Departmental Representative relying on the orders of the ITO and the AAC, argued that the order passed had not become time-barred since it was passed in consequence of an order under Section 263And the provisions under Section 153(2)(a) would come into operation. The order under Section 263 passed by the CIT effectively set aside or cancelled the order dropping reassessment proceedings.
When the proceedings are dropped, the order dropping such proceedings is in effect an order of reassessment which was set aside by the CIT under Section 263. Therefore, the provisions of Section 153(2)(a) were applicable, and the order passed by the ITO for this year, being an order passed within the time-limit prescribed under Section 153(2)(a), was a valid order.
4. We have carefully considered the submissions made on behalf of both the sides. Firstly, we will have to decide the issue of limitation raised by the counsel for the assessee. The order for the assessment year 1974-75 passed on 6-1-1983 is in accordance with the directions of the Commissioner contained in order under Section 263 passed on 26-3-1981. Unless there is an order passed by an Assessing Officer, the Commissioner cannot acquire jurisdiction under Section 263. Section 263 empowers the Commissioner to call for and examine any proceedings under the Act and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, the Commissioner is expected, after giving the assessee an opportunity of being heard, to pass such order as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The expression "pass such order thereon as the circumstances of the case justify" is an expression of wide import. It is not disputed that the order that the Commissioner sought to revise was an order dropping proceedings under Section 148 which was apparently passed on 28-9-1979. Since the Commissioner could revise any order, he was fully within his rights to revise the order dropping proceedings under Section 148 and directing the ITO to make assessment and compute the income of the AOP in the relevant years in accordance with the provisions of law. Therefore, the order passed by the ITO on 6-1-1983 is in accordance with the directions of the Commissioner under Section 263And is not an order consequent to the re-assessment proceedings started. These directions were given by the Commissioner on 26-1-1981. The consequential order has been passed on 6-1-1983. Such order, in our opinion, has been passed within the time available to the Assessing Officer under Section 153(2). Sub-section 153(2A)was inserted by the Taxation Laws (Amendment) Act, 1970, with effect from 1-4-1971 and as it stood at the relevant time read as follows: (2A) Notwithstanding anything contained in Sub-sections (1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment under Section 146 or in pursuance of an order, under Section 250, Section 254, Section 263 or Section 264, setting aside or cancelling as assessment, may be made at any time before the expiry of two years from the end of the financial year in which the order under Section 146 cancelling the assessment is passed by the Income-tax Officer or the order under Section 250 or Section 254 is received by the Commissioner or, as the case may be, the order under Section 263 or Section 264 is passed by the Commissioner.
Now, the period of limitation provided by the above section is two years from the end of the financial year in which the order under Section 263 is passed by the Commissioner. Since the Commissioner passed the order on 26-3-1981, the Assessing Officer had to pass the consequential order by 31-3-1983. The Assessing Officer has passed the order on 6-1-1983And that order is, therefore, an order passed within the time admissible to him under Section 153(2A). It may be mentioned in this context that the aforementioned order of the Commissioner Pune, under Section 263 passed on 26-3-1981 was a subject matter of appeal before the Tribunal and the Tribunal in their order in ITA Nos. 518 and 487(Bom.)/82 dated 15-1-1983 (pages 7 to 10 of the compilation) confirmed the order of the Commissioner. It is pertinent to reproduce para 4 of this order in which the arguments of the Sr. Departmental Representative before the Tribunal have been recorded: 4. Sri C. Perianayagam, the Senior Departmental Representative, on the other hand, placed reliance on the decision of the Calcutta High Court in the case of CIT v. Christian Mica Industries Ltd.  120 ITR 627 to show that the Income-tax Officer's order dropping the proceedings initiated under Section 148 constituted an order. He also has referred to the decision of the Allahabad High Court in the case of Addl. CIT v. Saraya Distillery  115 ITR 34 in support.
As regards the applicability of the provisions of Section 147(a) or Section 147(b), Sri Perianayagam submits that the 'Association of Persons' had not filed Returns of income and naturally, therefore, the provisions of Section 147(a) and not those of Section 147(b)were attracted. As regards the contention that the order dropping the proceedings was not erroneous and prejudicial to the interests of the Revenue when it was passed, Sri Perianayagam submits that in the absence of dispute that the Income-tax Officer, F-Ward, Thane, who made the assessment on the 'Association of Persons' in pursuance of the directions of the Commissioner of Income-tax had no jurisdiction to make the assessment, the Income-tax Officer's assumption that the other Income-tax Officer had jurisdiction and had completed legally valid assessments was erroneous which caused prejudice to the interests of the Revenue, and, therefore, the Commissioner of Income-tax had jurisdiction under Section 263 to revise such an order.
Having recorded these arguments, the Tribunal gave a finding in unambiguous terms in Dara-5 of its order as follows: 5. Having heard the parties and after going through the facts on record, we are satisfied that the order of the Income-tax Officer, Special Survey Circle, Thane, dropping the proceedings started by him under Section 148 constituted an order within the meaning of Section 263, that the 'Association of Persons' having, admittedly, not filed the returns of income before the notices dated 17-4-1979 under Section 148 were issued, the provisions of Section 147(a) were applicable and not those of Section 147(b) and that the Income-tax Officer proceeding on the assumption that the other Income-tax officer (F-Ward, Thane) had passed valid assessment orders on the 'Association of Persons' in pursuance of the directions of the Commissioner of Income-tax and, therefore, there was no necessity to continue the proceedings started by him under Section 148 was erroneous and prejudicial to the interests of the Revenue.
In the light of the above, we cannot accept the slightly specious argument of Shri Chhajed that in the process of passing an order under Section 263 the Commissioner was only reviving the proceedings under Section 148 which were dropped earlier. An order dropping the proceedings is an order as found above by the Tribunal, with which finding we agree. That order was found to be erroneous and was, therefore, set aside by the Commissioner. This action of the Commissioner has also been confirmed by the Tribunal as pointed out above. Therefore, the consequential order passed by the ITO was an order not to complete the re-assessment proceedings but in consequence of the directions of the Commissioner contained in his order under Section 263 dated 26-3-1981. We are, therefore, firmly of the view that the argument that the order is time barred has to be rejected and this aspect of the finding of the first appellate authority confirmed.
5. The alternative argument is that the ITO should have gone into the merits of the issue. It was pointed out that when the assessment was already made on 31-3-1980 on Phulwantibai R. Parmar for the assessment year 1975-76 in respect of the same income, no assessment should have been made on the AOP of Mangilal J. Parmar for the assessment year 1974-75. We have carefully considered this aspect of the matter. On a perusal of the order of the first appellate authority, we find that before him originally only two grounds of appeal were taken by the appellant. Thereafter, by letter dated 31-1-1986, the appellant raised five additional grounds of appeal. These grounds mostly dealt with the merits of the issue. In para-5 of his order, the first appellate authority has very clearly stated that he admitted the additional grounds after obtaining the comments of the concerned ITO. However, during the hearing before him, the appellant stated that he did not wish to press grounds nos. 2 to 5 raised additionally in terms of the appellant's letter dated 31-1-1986. These grounds read as follows: 2. Without prejudice to above and the other grounds of appeal the appellant contends that the learned Income-tax Officer ought to have considered the amount awarded at Rs. 99,090 instead of Rs. 1,05,035.
3. The learned Income-tax Officer ought to have considered that the capital gains arose on acquisition of land was a long-term capital gains and not the short-term capital gains.
4. The learned Income-tax Officer erred in computing the cost of acquisition at Rs. 35,000.
5. The learned Income-tax Officer erred in taxing the income in the Assessment year 1974-75.
Since these grounds were not pressed before the AAC, the AAC did not deal with them. He dismissed them as not pressed. The only ground that the AAC dealt with is the question of limitation with which we have dealt extensively in the foregoing paragraphs. Having not pressed the grounds concerning the merits before the AAC, it does not lie in the mouth of the appellant how to argue before us that the merits of the case have not been dealt with by the AAC or the ITO. The appellant has already succeeded in frustrating the attempt of the department in bringing to tax the capital gains in the hands of the AOP. As we have pointed out earlier, when an effort was made to assess the profit in the hands of AOP of Smt: Phulwantibai R. Parmar, that AOP went in appeal and secured a decision in its favour from the CIT (Appeals) -X, Bombay (pages 54 to 57 of the compilation) which decision has apparently been accepted by the department inasmuch as no appeal against it has been filed by the revenue. The overall picture that emerges on careful perusal of all the papers filed before us is that the appellant's only argument before the first appellate authority was that the assessment had become time-barred. The grounds regarding the merits of the case relating to the assessment of capital gains in the hands of the AOP were not pressed though they were raised in the additional grounds of appeal. We, therefore, decline to allow the appellant to re-agitate the issue about the merits before the Tribunal when it was not pressed before the first appellate authority and on which, therefore, there is no order of the first appellate authority.
The alternative contention of Shri Chhajed is also rejected.
6. Before we part with the appeal, we will briefly deal with the case law cited by the appellant's counsel on the issue of limitation. The counsel first relied on a decision of the Supreme Court in the case of Rajinder Nath (supra). That decision was given on the provisions of Section 153(3) and the facts there were materially different inasmuch as the Tribunal held that Section 153(3) (ii) could not apply in that case because there was neither a finding nor a direction in the earlier order of the AAC and the AAC could not convert assessments made under Section 147 (a) into those under Section 153(3)0'0-The Supreme Court held that a finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. We find nothing in this judgment which would directly support the case of the counsel. Firstly, the facts in the Supreme Court case were materially different.
There the AAC held that the moneys advanced for the construction of the building had been debited in equal shares to the father, his two major sons and a minor son and that the firm was not the owner of the properties but observed that the ITO was free to take action to assess the excess in the hands of the co-owners. There was no specific direction given by the AAC to the ITO to assess the income in the hands of a particular entity for a particular assessment year, whereas in the present case there is a specific direction by the Commissioner in his order under Section 263 to assess the income in the hands of the AOP for the assessment year 1974-75. The second decision cited before us was the judgment of the Calcutta High Court in the case of Goombira Tea Co. (P.) Ltd. (supra) . Here again, the facts were materially different. In that case, the appellant was assessed by ITO, A-Ward, Karimgunj, Assam. Their cases were transferred by the CBDT to Calcutta.
The appellant moved the Court under Article 226 of the Constitution and obtained rules nisi. They also obtained an interim order under which all further proceedings were stayed. The interim order was varied at the instance of the revenue to the extent that the proceedings may continue and the final order be passed, but it will not be given effect to or communicated pending the disposal of the rules. The rules were made absolute and writs were issued by a Single Judge quashing the impugned order of transfer and directing the IT authorities from giving effect to the order of transfer. Thereafter, a direction was given by the Single Judge to the ITO, Karimgunj, to make fresh assessments within four months. The Calcutta High Court held that in view of the directions in the writ petition and the terms of the modified interim order, the assessment was not the subject matter of the writ petitions.
The learned Judge was, therefore, not justified in giving directions to the ITO, A-Ward, Karimgunj, to make fresh assessments. The facts as it will be seen, are materially different. Firstly, the order of transfer of cases was challenged in a writ. Assessment proceedings were stayed by the Single Judge. Thereafter, the cases were transferred back to the ITO, Assam, and a direction to make assessments within a specified period was given by a Single Judge. The question of any assessment order being challenged did not arise in that case. We, therefore, do not see how this decision helps the appellant. The last decision relied upon on behalf of the appellant is the decision of the Supreme Court in Murlidhar Jhawar & Puma Ginning & Pressing Factory's case (supra). The facts of this case are also wholly distinguishable from the facts in the present case. The issue there was also different and this case has absolutely no relevance to the issue before us in the present case.
Consequently, we would reject all the arguments advanced on behalf of the appellant, confirm the order of the first appellate authority and dismiss the appeal.