Per Shri Bishan Lal, Accountant Member - This appeal field by the revenue and the cross-objection filed by the assessed arise out of the order dated 2-3-1977 in Appeal No. 25-CC-I of 1976-77 of the AAC and are disposed of by a common order.
2. The ground raised in the appeal field by the revenue reads a under :
'1. On the facts and in the circumstances of the case, the AAC, A Range, Nagpur, erred in cancelling the reassessment without proper appreciation of the fact that the ITO had rightly finalised the assessment under section 143(3) read with section 147(a) of the Income-tax Act, in order to rope in the escaped income from under-invoicing.
2. Any other that may be raised at the time of hearing of appeal.'
3. The grounds raised in the cross-objection filed by the assessed read as under :
'1. That on the of the case as well as in law learned AAC was fully justified and correct in law in cancelling assessment. As such his order is sustainable on facts and tenable in law.
2. That on fact of the case as well as in a law and order passed by the ITO under section 143(3) read with section 147 being bad, illegal and void order and as such conformity to law, the same could not have been held as legal order and as such the learned AAC was justified in cancelling the said order.
3. That the direction given by the learned AAC to the ITO for completing the proceedings pending before him under section 23(3) is without justification and not in conformity to law.
4. That in case the order of the learned AAC is found unsustainable by the Honurable Tribunal then looking to the fact that various grounds raised by the respondent before the AAC were not disposed of by him, the AAC be kindly directed to dispose of the appeal of the assessed in respect of various other grounds in accordance with law.
5. That the respondent may be permitted to raise such other grounds as may be considered necessary at the time of hearing'.
4. The facts may now be stated. The assessment year involved is the year 1959-60, for which the previous year for business income ended on Diwali, 1958, and the previous year for income from other sources ended on 31-3-1959. The notice under section 22(2) of the India Income-tax Act, 1922 (the 1922 Act) was served on the assessed on 17-5-1959 and the return of income was field on 23-4-1960 declaring loss of Rs. 5,75,289 subject to depreciation. The assessment was framed on 28-3-1964 under section 23(3) of the 1922 Act on total income of Rs. 16,90,065 which has been summed up in the assessment order under the following heads of income :
Income alleged to be from interest on securities
Income from property
Income from other sources
5. The assessed field an appeal to the AAC raised in all 9 grounds of appeal. The main ground (No. 8) was against an addition of RS. 8,00,267 as income from other sources. The AAC considered the various grounds raised before him and decided the appeal on 7-1-1971 in Appeal No. 19 of 1964-65. He granted (i) reduction of Rs. 16,226; (ii) confirmed the addition of Rs. 39,361; (iii) set aside the assessment for re-examination and re-doing in respect of (a) Rs. 8,00,267 taxed as income from other sources, and (b) Rs. 6,74,957 which was disallowed as interest; (iv) directed the ITO to re-examine the claim for giving credit for tax deducted at source; and (v) directed the ITO to check up depreciation and rebate on donations due to the assessed and allow the same according to law. The result of the appeal has been summed up in para 23 of the order of the AAC.
6. Before making a fresh assessment as per the direction of the AAC, the ITO reopened the proceedings under section 147(a) of the Income-tax Act 1961 (the Act) on the ground that income earned by the assessed on account of under-invoicing of export of manganese ore had escaped assessment due to failure on the part of the assessed to disclose fully and truly all material facts necessary for the assessment. Notice under section 148 of the Act was issued on 14-12-1971 after obtaining the approval of the CBDT. The assessed field a return of income declaring income at Rs. 1,98,449. The ITO then passed an order under section 143(3) of the Act read with section 147(a) on 22-9-1976 and determined the total income at Rs. 30,45,385. This income was taxed under various heads of income as under :
Income from house property
Income from business
Interest on securities
In this assessment, income from under-invoicing of export of manganese ore was taxed at Rs. 30,83,968 and no separate addition on account of income from other sources was made because the Tribunal had given a finding that income from other sources was not required to be taxed separately as that amount represented the assesseds own income from under invoicing of export of manganese ore, which was brought in the books of account in a different form. In the body of the assessment the ITO also observed that 'in finalising this assessment, thereforee, the direction of the AAC with regard to the original assessment under section 23(3) have also been borne in mind'. The draft assessment order was made on 22-3-1976 and the assessment was framed after obtaining directions of the IAC as provided under section 144B of the Act which was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976.
7. Against this assessment the assessed filed an appeal to the AAC and raised as many as 17 grounds of appeal. The first five grounds read as under :
'1. That on facts and under the circumstances of the case as well as in law, the assessment order framed under section 143(3) read with section 147(a) is ab initio, bad, illegal, void and without jurisdiction and as such, liable to be quashed.
2. That on facts of the case as well as in law in particularly under the circumstances when the ITO was already seized of assessment at the time of issuance of the notice under section 148, the initiation of reassessment proceedings pursuant to notice issued under section 148 of the Income-tax Act, 1961 is ab initio, bad illegal and void.
3. That on facts as well as in law and particularly under the circumstances when notice issued under section 148 being illegal, could not have been acted upon, the ITOs action in framing, common assessment order, one pursuant to direction of AAC in appeal proceedings under the Income-tax Act, 1922, and another pursuant to the notice under section 148 in accordance with amended provisions which came into effect from 1-1-1976 applying section 144B is prima facie illegal without jurisdiction.
4. That on facts and under the circumstances and as per legal position, the assessment order made being an order under section 23(3) of the Income-tax Act, 1922, the additions made pursuant to reassessment proceedings under section 148 are bad in law without jurisdiction and as such untenable in law.
5. That on facts as well as in law, the assessment order is bad, illegal, void and also barred by limitation and as such liable to be quashed in toto.'
On a consideration of the aforesaid grounds, the AAC held as under :-
'When the assessment was set aside in January 1971, and the assessment was pending before the ITO, income could not be said to have been escaped assessment within the meaning of section 147 as the assessment proceedings in respect of that income was still pending and was not made order CIT v. Ranchhoddas Karsondas : 36ITR569(SC) . The ITO has passed an order under section 143(3) /147(a). He obviously could not do so as the assessment under section 23(3) for the same year was pending for disposal. This assessment by the ITO is, thereforee, cancelled with the direction to the ITO to complete the assessment under section 23(3) at the earliest as more than 6 years have been passed from the setting aside of the order passed by the AAC.
With the above direction the assessment is cancelled and the appeal is allowed.'
In view of the aforesaid order, the AAC did not deal with the other grounds of appeal raised before him.
8. Both the parties are aggrieved by the aforesaid order of the AAC. The grounds raised by both the parties have already been noted above.
9. The learned departmental representative submitted that no appeal had been field against the order of the AAC dated 7-1-1971 and that the AAC had not set aside the assessment order completely. He referred to para 13 of the order of the AAC wherein it was held 'Hence, I set aside the assessment for 1959-60 with a direction to re-do the same in respect of both these points'. These two points are clarified in summing up the result of appeal in para 23, the relevant portion of which reads as under :
'(iii) The following additions are set aside for re-examination and re-doing the assessment :
under other sources as indicated in para (13) which disposes of grounds (1 to 4).
as interest as in para (13) which disposes of ground No. (5).'
He submitted that the AAC should not had held that any assessment as such was pending before the ITO and that assessment was to be made de novo. He pointed out that the judgment in CIT v. Ranchhoddas Karsondas : 36ITR569(SC) was not applicable to the facts of this case because no return of income filed before the ITO was ignored before reopening the proceedings under section 147(a). He submitted that the notice under section 148 had been rightly issued to consider the income which had escaped assessment by under-invoicing of the export of manganese ore. This point was discussed in para 5 of the assessment order. He referred to para 4 of the assessment order where in a new claim, which was not made in the original assessment, was considered. This claim was made for deduction of royalty and sales tax liability to the extent of RS. 26,60,930. Though the assesseds claim in respect of this item was not accepted by the ITO but this item formed a part of grounds of appeal before the commissioner (Appeals). On the powers of the AAC, the learned departmental representative referred to the judgment in CIT v. Rai Bahadur Hardutroy Motilal Chamaria : 66ITR443(SC) He submitted that the order of the Commissioner (Appeals) should be set aside and the reassessment as made by the ITO should be restored as the ITO had faithfully carried out the directions of the AAC and had included an item of concealed income by validly initiating proceedings under section 147(a). He also made the point that the department should not be made to suffer for any procedural default, though, according to him, there was no procedural default in making one assessment for implementing the direction of the AAC and for bringing to tax an item of income which had escaped assessment and in respect of which proceedings under section 147(a) were validly initiated.
10. The learned counsel for the assessed submitted that the first issue involved in this case was whether the order dated 7-1-1971 of the AAC restored the entire matter to the ITO for a de novo assessment or the assessment was set aside to be made on specific ground. If the former was the case then the judgment in Ranchhoddas Karsondas case (supra) would apply squarely, but if the latter was the case then the department was correct to the extent that in such set aside assessment, income which could be taxed under section 147(a) could be included in the reassessment. He made the point that the ITO should have made two separate assessment (i) to give effect to the order of the AAC; and (ii) to bring to tax escaped income, if any, nonetheless, the learned counsel for the assessed supported the order of the AAC. He also submitted that on ground No. (3) the AAC had not given any decision. In this ground the point made was that section 144B did not apply to an assessment under section 147 and, thereforee, the extension of 180 days calculated by the ITO in completing the reassessment on 22-9-1976 was impermissible in law. He submitted that though in the case by the Bela Singh Pabla v. ITO  1 ITD 370 , it was held by the Special bench of the Tribunal that the provisions of section 144B applied to the assessment under section 147, but this order required reconsideration in the light of the Bombay High Court judgment in D. Swarup, ITO v. Gammon (India) Ltd.  10 Taxman 159. In Bela Singh Pablas case (supra), the tribunal had said that the proceedings under section 143(3) and 147 were not different, but in Gammon (India) Ltd.s case (supra), it has been held that the proceedings under section 147 are different from the proceedings under section 143(3). He referred to the judgment in Surajmal Ganeshram v. CIT : 120ITR715(Cal) wherein it has been held as under :
'From a comparison of the above provisions for appeals in the two Acts, it appears that under the 1961 Act, at least for the purposes of appeal, an assessment of reassessment under section 147 of the said Act is treated in a separate category as distinct from assessment made under other sections or provisions of the said Act, and a specific and separate provision for appeals against such assessment or reassessment under section 147 has, thereforee, been provided for. In the 1922 Act there was no separate provision for appeal from an assessment or reassessment under section 34 of the said Act ...' (p. 724)
Again, it has been held as under :
'. . . Thus, in an assessment or reassessment under section 147, the same procedure or machinery for making an assessment under section 143 or in making a best judgment assessment under section 144, as the case might be, is to be followed. But irrespective of section 143 or section 144, the provisions of either of which may be followed, an assessment made in a proceeding initiated under section 147 would nevertheless be in a separate category and cannot be equated for all purpose with an assessment made in accordance with the provisions of section 143 of section 144 simplicitor.' (p. 725)
The learned counsel for the assessed criticised the following part of the order of the Tribunal in Bela Singh Pablas case (supra) and said that this was against the judgment of the High Court :
'. . . Reference was also made to the decision of the Calcutta High Court in Surajmal Ganeshram v. CIT : 120ITR715(Cal) , which only points out that for purposes of an appeal, assessment or reassessment under section 147 is treated in a separate category distinct from assessments made under other sections or provisions, inasmuch as, there is a separate provisions for appeal against an order under section 147. However, the High Court went on to point out that in an assessment under section 147, the same procedure or machinery for making assessment under section 143 or 144 is to be followed. It will be seen that this section 147 provides the jurisdiction as well as the machinery for making the assessment under section 147 and that it is a self-contained provisions.' (p. 117)
11. The learned counsel for the assessed further submitted that in Bela Singh Pablas case (supra) the Tribunal had relied on the judgment in Kashiram Tea Industries. Ltd. v. ITO : 132ITR783(Cal) wherein it has been held that the provisions of section 143 and 144 will equally apply to proceedings under section 147, thereby making the assessment a regular assessment within the meaning of section 2(40) of the Act because assessment has not been defined in the Act to mean reassessment and regular assessment has not been defined to mean an initial assessment. He pointed out that in this case, the Calcutta High Court followed the view of the Bombay High Court in Deviprasad Kejriwal v. CIT : 102ITR180(Bom) . He submitted that in view of the following observations of the Bombay High Court in the case of Gammon (India) Ltd. (supra) the aforesaid judgment of the Calcutta High Court, which had followed the judgment of Bombay High Court in Deviprasad Kejriwals case (supra) was of no assistance to the revenue as the very foundation in the case of Kashiram Tea Industries Ltd. (supra) had thrown overboard :
'9. The words regular assessment which were to be found in sub-section (9) of section 18A of the IT Act, 1922 have, no doubt, been construed by division bench of this Court in Deviprasad Kejriwals case cited (supra) to cover cases of reassessment under section 34(1). That decision cannot, however, be of any assistance now for construing section 273. The distinguishing feature which would be enough to hold that the provisions in section 273 of the 1961 Act should not be construed in the same manner as section 18A (9) of the 1922 Act, which was constructed in Deviprasads case, is that the words regular assessment have now been specifically defined by the Legislature. The 1922 Act did not define the words regular assessment. In view of the definition of these words in section 2(40) of the Act, under the accepted canone of construction wherever those words are used, the meaning given in the definition clause must be substituted. This has also to be considered in the light of the fact that at several places the assessment under section 143 or 144 has been used in contradistinction with reassessment under section 147. We also do not find anything in the context of section 273 which would require the words regular assessment to be given a meaning different from the one given by the Legislature when these words were defined.' (p. 162)
12. The learned counsel for the assessed criticised para 28 of the order in Bela Singh Pablas case (supra) by pointing out that whereas in the Wanchoo Committee Report (extract is given in para 28) the words used were :
'. . . in all cases where the additions or disallowances proposed to be made in an assessment order under sub-section (3) of section 143 exceed in the aggregate Rs. 25,000 ....' (p. 126)
The words used in section 45 of the Taxation Laws (Amendment) Bill, 1973, whereby section 144A and section 144B were inserted were :
'. . . may make an assessment of the total income...'  89 ITR 33.
The point that he made was that whereas in the in the Taxation Laws (Amendment) Bill, 1975, the word use was assessment which under section 2(40) includes reassessment, in section 144B, finally inserted, the words used are 'where, in an assessment to be made under sub-section (3) of section 143 ...'. It was, thus, submitted that in Bela Singh Pablas case (supra) the Tribunal adopted wrong reasoning by stating that section 144B was enacted in order to curb the tendency of ITOs to make large disallowances or additions in the course of assessment, without giving the assesseds a reasonable opportunity of showing cause against such additions or disallowances.
13. For the various reasons mentioned above, he submitted that the view of the special bench in the case of Bela Singh Pabla (supra) was required to be reconsidered. He relied on the judgment of the Bombay High Court in Universal Ferro & Allied Chemicals Ltd. v. P. G. K. Warrier  11 Taxman 5 and submitted that in the light of the Bombay High Court judgment in the case of Gammon (India) Ltd. (supra), the Special Bench order in the case of Bela Singh Pabla (supra) should not be followed.
14. No separate arguments were advanced in support of the cross-objection. The arguments advanced, it was pleaded, may be taken in respect of the cross-objection also.
15. In reply, the learned departmental representative relied on the Special Bench order of the Tribunal in the case of Bela Singh Pabal (supra) and submitted that the judgment in the case of Gammon (India) Ltd. (supra) was a judgment under section 273 and was, thus not relevant to the issue involved in this case.
16. We have carefully considered the rival submissions. We are afraid, we cannot with the learned AAC that the assessment made by the ITO on 22-9-1976 was required to be cancelled with the direction that only the assessment under section 23(3), as per the direction of the AAC in his earlier order, could be made. In the case of Ranchhoddas Karsondas (supra), it has been held that :
'Where in respect of any year return has been voluntarily submitted before assessment, the Income-tax Officer cannot choose to ignore the return and any notice of reassessment and consequent assessment under section 34 ignoring the return is invalid.' (p. 570)
This case has no application to the facts before us. In this case the return of income field before the ITO had already been disposed of by making an assessment under section 23(3) on 28-3-1964. That assessment was set aside by the AAC by his order dated 7-1-1971 and certain specific direction were given. Before making the revised assessment after complying with the directions of the AAC, the ITO reopened the assessment under section 147(a) and issued a notice under section 148 on 14-12-1971. The assessed field a return declaring income of Rs. 1,98,449 as against loss return of Rs. 5,75,289 subject to depreciation which was field originally. The ITO combined both the proceedings under section 23(3) and under section 147 when he framed the assessment on 22-9-1976. The course adopted by the ITO was perfectly legal. The ITO may have chosen to make two separate assessment (i) under section 23(3); and (ii) under section 147 but in making one assessment for one year in respect of the same assessed, the ITO did not commit any legal infirmity. Thus, we do not agree wi the the AAC in setting aside the assessment in question in the manner in which it has been done.
17. The argument of the learned counsel for the assessed related to that part of the order which was required to be made under section 147. The argument is that the provisions of section 144B which was inserted by the Taxation laws (Amendment) Act, 1975, with effect from 1-4-1976 does not apply to the proceedings reopened under section 147 for the assessment year 1959-60. Reliance has been placed on the judgment in Gammon (India) Ltd.s case (supra) and it has been argued that in the light of this judgment, the special bench order in the case of Bela Singh Pabla (supra) should not be followed. The question for consideration in the case of Gammon (India) Ltd. (supra) was whether action under section 273 of the Act could be taken on the basis of the order of reassessment passed under section 147, because the power under section 273 can be exercised only if the ITO 'in the course of proceedings in connection with the regular assessment for any assessment year, is satisfied that any assessed has furnished a statement of the advance tax payable by him which he knew or had reason to believe to be untrue.' The high court held that in a reassessment proceeding under section 147, action under section 273 could not be taken. It is true that in the aforesaid judgment it has been held that the reassessment under section 147 is not same as assessment under section 143 or 144, but these observation have been made in connection with penalty proceedings under section 273. The question whether section 144B would apply to the proceedings under section 147 was not for consideration in that case. All the argument now raised before us have already been considered by the Special Bench in Bela Singh Pablas case (supra) and we, thereforee, do not find any ground to deviate from the judgment in Bela Singh Pablas case (supra). Even if we were persuaded to agree with the learned counsel for the assessed that section 144B does not apply to an assessment under section 147, then also we cannot take this view because we are bound by the order of the Special Bench. In this connection we reproduce below the observations of the Supreme Court in CIT v. Smt. P. K. Kochammu Amma : 125ITR624(SC) even after coming to the conclusion that the judgment in V. D. M. RM. M. RM. Muthiah Chettiar v. CIT : 74ITR183(SC) did not lay down the correct law :
'. . . We would, thereforee, follow this decision in Muthiah Chettiars case : 74ITR183(SC) which being a decision of Bench of three judges of this Court, is binding upon us, and following that decision, we hold that the assessed could not be said to have concealed her income by not disclosing in the return filed by her the amounts representing the shares of her husbands and minor daughter in the two partnerships firms.' (p. 630)
18. For all these reasons, we cannot agree with the learned counsel for the assessed that the provisions of section 144B do not apply to a reassessment made under section 147.
19. We should, thereforee, consider it appropriate to set aside the order of the AAC and would restore the appeal to his file with a direction that all the grounds raised by the assessed should be decided on merits and according to law.
20. In the result, the appeal as well as the as the cross-objection shall be treated as partly allowed for statistical purposes.