S.S. Chadha, J.
1. In compliance with the order of this court in I.T.R. No. 18/72, dated September 4, 1975, the Income-tax Appellate Tribunal for short called ('the Tribunal') drew up a statement of case and referred the following question of law for the opinion of this court :
'Whether the Commissioner of Income-tax had jurisdiction to pass the order dated March 11, 1968 (March 8, 1968) under section 263 of the Income-tax Act, 1961, after the Income-tax Officer had reopened the assessment of the assessed for the assessment year 1962-63 under section 147 and 148 of the Income-tax Act, 1961
2. The statement of case relates to the assessment year 1962-63, the accounting period ending on March 31, 1962. The assessed is an individual being sole proprietary of M/s. Sharda Trading Co. The assessed field a return of income showing the same at Rs. 15,365 and claimed a loss of Rs. 52,208 as having been carried forward from the assessment year 1961-62. The return was filed before the ITO, Special Circle IV, New Delhi. The name of assessed as mentioned in the return was M/s. Sharda Trading Company, proprietary Smt. Sharda Devi, 6, Rohtak Road, Delhi. The ITO made futile attempts to serve the notice at the address given in the return. Thereafter, he made enquiries which showed that the case of Sharda Trading Co. is a capital (build up) case, i.e., a case in which fictitious assessments were got made through an advocate simply to build up fictitious capital to help businessmen who wanted to introduce their secreted profit in their books. The ITO concluded in the assessment order which he made under s. 144 of the I.T. Act, 1961 (herinafter referred to as 'the Act'), that the assessed had at no stage produced any evidence to show that the income or loss showed in the return was genuine although she was given reasonable opportunity for that and, as such, the return submitted by the assessed was filed and her income in the previous year as nil. On March 29, 1967, the ITO served a notice on the assessed under s. 147(b) in pursuance of the reopening of the assessment under s. 147. The Commissioner, later on, initiated proceedings in the case under s. 263 of the Act. A notice dated February 27, 1968, was sent to the assessed. The Commissioner, however, vide order dated March 8, 1968/March 11, 1968, cancelled the assessment order dated February 24, 1967, passed by the ITO under s. 144 and directed him to make a fresh assessment in accordance with law after making proper enquiries in regard to the assessed's correct income.
3. The assessed went in appeal before the Tribunal. One of the grounds in the appeal is that the Commissioner had no jurisdiction to issue notice under s. 263, inasmuch as the ITO had initiated proceedings under s. 147/148 of the Act, and those proceedings were pending. It was urged that no proceedings could be held by the Commissioner under s. 263 concurrently with the proceedings for reassessment of income alleged to have escaped assessment. The Tribunal came to the conclusion that the mere issue of a notice under s. 147/148 does not and cannot have the effect of cancelling or rendering non est the earlier order of assessment and so long as there is an order of assessment, it is capable of revision by the Commissioner. The Tribunal relied upon the case of Amritlal Bhogilal & Co. : 34ITR130(SC) , wherein it was argued before the Supreme Court that an order under s. 33B of the 1922 Act, to revise an order of registration, could not be passed during the pendency of an appeal before the AAC from the order of the assessment. This contention was, however, rejected by the Supreme Court. The order of the Commissioner was upheld.
4. The main argument of Shri. K. P. Bhatnagar, the learned counsel for the assessed, is based on the scope and effect of the reopening of an assessment under s. 147 of the Act. He urges that the service of notice results in the commencement of de novo assessment proceedings which, in their return, are governed by all other relevant provisions of the Act. The notice under s. 148 is deemed to be one under s. 139(2) and the enquiry following such service is one under s. 143. The provisions of the Act including the assessment or reassessment, imposition of penalty or charging of interest, etc., are attracted with the right to the assessed to carry the reassessment ultimately made to appeal, revision or reference. It is contended that it cannot be the case of the Department that proceedings under s. 147 had not been validly initiated or that it would not end in a reassessment. According to the counsel, when once valid proceedings are initiated under s. 147 of the Act, the entire assessment is set aside or ceases to exist. Reliance is placed on the observations made by the Supreme Court in V. Jaganmohan Rao v. CIT : 75ITR373(SC) , wherein it was held that once valid proceedings are started under s. 34 (1)(b) of the 1922 Act, the ITO had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. Reliance is also placed on CIT v. Assam Oil Company Ltd. : 133ITR204(Cal) , wherein it was held that in view of the scheme of the Act, once a reopening is made, the entire assessment is set aside and the income which has escaped assessment, even though there is nothing to show the escapement of assessment, it should be examined and even in a case where the assessed is entitled to any deductions which were not granted in the original assessment, the assessed would be so granted the deduction. The earlier view taken by the Calcutta High Court in Sun Engineering Works Pvt. Ltd. v. CIT : 111ITR166(Cal) , was quoted with approval. In CIT v. Standard Motor Products of India Ltd. : 142ITR877(Mad) , the Madras High Court reiterated the same view.
5. In order to appreciate the argument, it is apposite to notice the provisions of s. 263 :
'263(1) The Commissioner may call for and examine the record of any proceeding under this Act, if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessed an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
(2) No order shall be made under sub-section (1) -
(a) to revise an order of reassessment made under section 147, or
(b) after the expiry of two years from the date of the order sought to be revised.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.
Explanationn - In computing the period of limitation for the purpose of sub-section (2), the time taken in giving an opportunity to the assessed to be re-heard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.'
6. It would be noticed that sub-s. (2) provides that the Commissioner cannot revise an order of reassessment made under s. 147 of the Act. The ITO had merely initiated proceedings under s. 147 and no order of reassessment was made under s. 147. The intention of the legislature is clearly decipherable, viz., to give a power of revision when the Commissioner after examination of the record of any proceedings under the Act considers that any order passed therein by the ITO is erroneous and prejudicial to the interest of the order passed therein by the ITO is erroneous and prejudicial to the interest of the Revenue. As long as the order stands, it is open to the Commissioner to revise an assessment order. The decision of the Supreme Court in Amritlal Bhogilal : 34ITR130(SC) , noticed by the Tribunal, establishes that it would be open to the Commissioner to revise an assessment order while an appeal against it is still pending before the AAC. The reason is that the order of the ITO has to be regarded as subsisting and effective in law despite its challenge in appeal.
7. Section 147 empowers the ITO to assess income which escaped assessment in the relevant years. The section provides for an assessment and reassessment in cases where income has escaped assessment. There are certain requisite conditions with which we are not concerned in this reference before an ITO can reopen an assessment and make an assessment or reassessment of the escaped income. The ITO has found in this case that income has escaped assessment and as required by s. 148 issued notice to the assessed. Merely by reopening of the assessment or by issue of the notice, the entire assessment is not set aside. All the authorities relied upon by the counsel for the petitioner deal with the scope of reassessment proceedings. Reassessment is not confined only to those items in respect of which there is initiation of proceedings. V. Jaganmohan Rao's case : 75ITR373(SC) , of the Supreme Court and other case lay down that once an assessment is reopened, the ITO will not only have the jurisdiction but it will also be his duty to determine the tax liability of an assess and, for the said purpose, he will have necessarily to take into account not only the escaped income in respect of which a notice under s. 148 read with s. 147 has been issued also the entire income that has escaped assessment during that year. In other words, once an assessment is validly reopened and the ITO proceeds to make reassessment, the initial order of assessment stands automatically cancelled. The order of reassessment would take the place of the original order of assessment and till that is done, the original order of assessment would still be operative. None of these authorities cited by the counsel for the petitioner lays down that mere reopening of the assessment has the automatic effect of cancellation of the (original) assessment order.
8. Arguments were made that if the two proceedings are allowed to go on simultaneously, there would be a conflict of judicial opinion. We have considered the two provision and do not see any such possibility. The scope of jurisdiction of the Commissioner under s. 263 empowers him to make an order enhancing or modifying the order of assessment or cancelling an assessment and making a fresh assessment. When that is done, the original order of assessment made by the ITO ceases to exist and would merge in the order of the Commissioner in case of enhancement or modification. Once the Commission revises an order of assessment, the reassessment proceedings started under s. 147 would come to an end as there is no (subsisting) order of the ITO. If the reassessment is made by the ITO in pursuance of the proceedings initiated under ss. 147 and 148, then on reassessment the entire original assessment is set aside and ceases to exist with the result that the original order of assessment which the Commissioner was seeking to revise becomes non est. By reassessment, the original order is substituted by an order of reassessment which is not open to revision under s. 263 of the Act.
9. We, thereforee, answer the question against the assessed and in favor of the Department with no order as to costs.