1. This reference under the I.T. Act, 1961, relates to the assessments of M/s. Surrendra Overseas Ltd. in assessment years 1960-61 and 1961-62, the previous years ending on the 31st March of 1960 and 1961. The assessee had purchased a ship named APJ Ambar in the assessment year 1960-61 and another ship named APJ Usha in the assessment year 1961-62. In the assessments for the said assessment years, the assessee had claimed and had been allowed development rebate in respect of the said two ships amounting, respectively, to Rs. 5,10,830 and Rs. 5,90,653.
2. The assessee preferred appeals from the said assessments. The main contention in the appeals was that the ITO had wrongly added to the total income of the assessee various amounts shown as hundi loans as income from undisclosed sources. An additional ground, raised at the hearing of the appeal, was that the amount shown in the account of the assessee as estimated value of subsidies, in fact, had not been received by the assessee but was wrongly added back. The AAC found that relevant documents and records in respect of the said hundi loans had not at all been examined by the ITO and that statements obtained from the alleged creditors had also not been made available to the assessee. He found further that the assessee's claim in respect of the estimated subsidies credited in the latter's account had not been examined by the ITO. He directed the ITO, inter alia, to give reasonable opportunity to the assessee to produce all evidence in support of the genuineness of the loans and also to rebut the adverse inference drawn by the ITO. The ITO was also directed to look into the claim relating to the estimated subsidies. The AAC's order was as follows :
' In these circumstances, I am of the opinion that all the three assessments should be set aside for being redone in the manner indicated above......... In making the reassessments, the ITO would also look into the various other contentions raised in these appeals.'
3. At the reassessments, pursuant to the aforesaid, the ITO came to note that though the assessee had claimed and had been allowed development rebate in respect of the said two ships, the said ships had been sold or otherwise transferred within a period of eight years from the date of their acquisition. Finding that the assessee had become disentitled to the benefit, he withdrew the rebate granted earlier.
4. Being aggrieved by the said withdrawal the assessee preferred appeals therefrom. It was contended before the AAC that the said ships had been scrapped and sold and, therefore, it could not be said that the said ships had been transferred as vessels in use and that the withdrawal of the rebate was, therefore, not justified. The AAC did not accept the contentions of the assessee. He held that in order to be entitled to development rebate the asset acquired must not be disposed of within the prescribed period in any manner and refused to interfere with the order of the ITO.
5. There was a further appeal by the assessee to the Tribunal. It was contended on behalf of the assessee before the Tribunal that the ITO in making the reassessment had reconsidered items which were allowed originally and in respect whereof no appeals had been preferred. It was contended further that in such reassessments the ITO could only carry out the directions of the AAC and adjudicate upon items which were directed to be enquired into. In the instant case, such directions of the AAC were confined to hundi loans and the estimated subsidies and there was no ground in the appeal relating to the development rebate. It was contended further that the development rebate allowed in the circumstances could be withdrawn only under Section 34(3)(b) of the Act of 1961 within the period prescribed by Section 155(5) The said period having expired it could not be contended that the rebate had been withdrawn under the said Section 34(3)(b) in the instant case.
6. It was also contended on behalf of the assessee that the said two ships had not been sold as ships but had been scrapped and on this ground the rebate allowed could not be withdrawn.
7. It was contended on behalf of the revenue on the other hand that while making a fresh assessment the ITO had a right and was also under a duty to take note of a changed situation. While making the fresh assessment if he found that the assets on which development rebate had been allowed had been sold before the expiry of the prescribed period, the rebate granted was bound to be disallowed.
8. Following a decision of the Allahabad High Court in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. CIT : 47ITR906(All) , the Tribunal held that when the ITO made the fresh assessment the original assessment did not exist and it could not be said that development rebate had been allowed as on that date and there was no question of withdrawal of a rebate which had not been allowed.
9. The Judicial Member of the Tribunal, however, held that as the Ministry of Transport and Communication had permitted the assessee to scrap the ships it could not be said that the ships had been sold or otherwise transferred before the expiry of the prescribed period. Actual scrapping done by a third party would not amount to a sale or transfer of the ships and accordingly, the rebate could not have been lawfully withdrawn.
10. The Accountant Member dissented from the view taken by the Judicial Member and held that if the ships were sold for scrapping it was still a sale or transfer of the assets within the meaning of Section 33 and that the development rebate was rightly withdrawn.
11. By reason of the difference between the two members, the matter was referred to the vice-president of the Tribunal who agreed with the Accountant Member and held that the purpose for which the ships were sold wasnot relevant for grant or withdrawal of development rebate. He also held that the assessee in any event did not sell the ships as a scrap.
12. The appeals of the assessee were accordingly dismissed.
13. On an application of the assessee under Section 256(1) of the I. T. Act, 1961, the Tribunal has drawn up a statement of case and referred the following questions for the opinion of this court as questions of law arising from its order :
' 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that while making the reassessment in consequence of the order of the Appellate Assistant Commissioner setting aside the original assessments, the Income-tax Officer was justified in considering the admissibility or otherwise of development rebate on the two ships which was allowed in the original assessment orders ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that since the original assessments had been set aside and did not exist at the time of making the reassessments the Income-tax Officer could disallow development rebate on ships which were sold within eight years without going through the procedure laid down under Section 34(3)(b) read with Sections 155(5) and 154(7) and the limitation prescribed under Section 155(5) ?
3. Whether, on the facts and in the circumstances of the case, and considering that the two ships were sold for scrapping within eight years, the Appellate Tribunal was justified in holding that development rebate was not admissible on the ships so sold '
14. Dr. Debi Pal, learned counsel for the assessee, reiterated at the hearing the contentions that the power of the ITO making a reassessment pursuant to the directions of the AAC was limited. The ITO could not reconsider matters on which the assessee did not go up on appeal and matters which were not directed to be enquired into by the AAC. In the instant case, in the absence of any direction from the AAC, the ITO had no jurisdiction to enquire into the allowability of the development rebate. He also contended that the assets involved, viz., the ships had outlived their economic life and had to be scrapped. A transfer for such a purpose would not disentitle the assessee from retaining the development rebate already allowed. Learned counsel for the revenue contended on the other hand that once an assessment was set aside on appeal the matter was at large and in making the reassessment the ITO could consider de novo all aspects of the assessment. He submitted further that the transfer of the said ships being admitted the purpose of such transfer was immaterial and the development rebate was rightly disallowed.
15. To appreciate the controversy involved we may refer, to the relevant sections of the statutes.
16. Section 31 of the Indian I. T. Act, 1922, provides, inter alia, as follows :
' Hearing of Appeal.--......
(2) The Appellate Assistant Commissioner may, before disposing of any appeal, make such further enquiry as he thinks fit, or cause further inquiry to be made by the Income-tax Officer.
(2A) The Appellate Assistant Commissioner may, at the hearing of an appeal, allow an appellant to go into any ground of appeal not specified in the grounds of appeal, if the Appellate Assistant Commissioner is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable.
(3) In disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment,--
(a) 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 inquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct, 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...... :
Provided that the Appellate Assistant Commissioner shall not enhance an assessment or a penalty unless the appellant has had a reasonable opportunity of showing cause against such enhancement :
Provided farther that at the hearing of any appeal against an order of an Income-tax Officer, the Income-tax Officer shall have the right to be heard either in person or by a representative......... '
17. Section 10 provides as follows :
'10. Business.--(1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him.
(2) Such profits or gains shall be computed after making the following allowances, namely :--...-
(vib) in respect of a new ship acquired............after the 31st day ofMarch, 1954, which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of acquisition of the ship.........equivalent to,--
(i) in the case of a ship acquired after the 31st day of December, 1957, forty per cent, of the actual cost of the ship to the assessee ; and
(ii) in the case of a ship acquired before the 1st day of January, 1958, and in the case of any machinery or plant, twenty-five per cent, of the actual cost of the ship or machinery or plant to the assessee.'
18. Section 35(11) provides as follows :
' Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship............in any year ofassessment under Clause (vib) of Sub-section (2) of Section 10, and subsequently at any time before the expiry of ten years from the end of the year in which the ship was acquired............
(i) the ship,.........is sold or otherwise transferred by the assessee toany person other than the Government or...
the development rebate originally allowed shall be deemed to have been wrongly allowed, and the Income-tax Officer may, notwithstanding anything contained in this Act, proceed to recompute the total income of the assessee for the relevant year as if the re-computation is a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of Sub-section (1) shall apply accordingly, the period of four years specified therein being reckoned from the end of the year in which the transfer takes place or the money is so utilised.'
19. The relevant provisions of the I.T. Act, 1961, are as follows :
20. Section 251
'Powers of the Appellate Assistant Commissioner.--(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 fresh assessment ;...... (2) The Appellate Assistant Commissioner shall not enhance an assessment......or reduce the amount of refund unless the appellant has had areasonable 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.'
21. Section 33(1)(a)
' In respect of a new ship......which is owned by the assessee and iswholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired...... ...or, if the ship............is first put to use in theimmediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in Clause (b).
(b) The sum referred to in clause (a) shall be-
(A) in the case of a ship, forty per cent, of the actual cost thereof to the assessee;......... (1A)(a) An assessee who, after the 31st day of March, 1964, acquires any ship which before the date of acquisition by him was used by any other person, shall, subject to the provisions of Section 34, also be allowed as a deduction a sum by way of development rebate at such rate or rates as may be prescribed, provided that the following conditions are fulfilled, namely ;--
(i) such, ship was not previous to the date of such acquisition owned at any time by any person resident in India ;
(ii) such ship is wholly used for the purposes of the business carried on by the assessee ; and
(iii) such other conditions as may be prescribed......
(c) The development rebate under this Sub-section shall be allowed as a deduction in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year.'
22. Section 155(5)
' Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship......after the 31st day ofDecember, 1957, in any assessment year under section 33 or under the corresponding provisions of the Indian Income-tax Act 1922 (11 of 1922) and subsequently-
(i) at any time before the expiry of eight years from the end of the previous year in which the ship was acquired......... the ship, ......... is soldor otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as denned in Section 617 of the Companies Act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in Sub-section (3) or Sub-section (4) of Section 33 ; or......... the development rebate originally allowed shall be deemed to have been wrongly allowed, and the Income-tax Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the end of the previous year in which the sale or transfer took place or the money was so utilised.'
23. In support, of their respective contentions learned counsel cited a number of decisions, which are dealt with hereafter in their chronological order.
(a) Pulipati Subbarao & Co. v. AAC : 35ITR673(AP) . The facts in this case were that the assessee, a partnership firm, had previously been assessed in the status of a registered firm. For the assessment year 1952-53, the assessee was assessed to a loss, but the ITO treated the assessee as an unregistered firm as its application for registration was missing. The AAC set aside the assessment and directed the ITO to accept a duplicate application from the assessee and deal with the same according to law. In subsequent proceedings another ITO, directed the assessee to produce its account books. The assessee applied to the Andhra Pradesh High Court under Article 226 of the Constitution contending, inter alia, that in the facts the ITO had no jurisdiction to make a de novo assessment. A writ of prohibition was issued against the ITO and the court observed as follows (p. 675) :
'Section 31(3)(b) confers a specific power on the Appellate Assistant Commissioner to make a direction to the Income-tax Officer, whereupon the Income-tax Officer should proceed to make such fresh assessment and determine where necessary the amount of tax payable on the basis of such assessment...But the order passed by the Appellate Assistant Commissioner did not contain any direction as is envisaged under Section 31(3)(b). What all he directed the Income-tax Officer to do was to receive a duplicate copy of the application and to dispose of it in accordance with law. The order of the Appellate Assistant Commissioner being specific, it is not open to the Income-tax Officer to conduct a fresh enquiry and to proceed to make a fresh assessment without reference to the previous assessment inasmuch as he was not directed to do so and there being no other provision in the act empowering him to do so, I am satisfied that the notice issued by the second respondent calling upon the petitioner to submit himself to a fresh assessment, is without jurisdiction.' (b) V. Ramaswamy Iyengar v. CIT : 40ITR377(Mad) . This decision cited was for the following observations (p. 393) :
' It is an equally well settled principle that, where the whole or part of an order has not been appealed against, it would be final ; and the appellate authority, in case there is an appeal against a part of an order, would have no jurisdiction in the absence of statutory provision to interfere with the other part which does not form the subject of the appeal.' (c) J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. CIT : 47ITR906(All) . The facts in this case were that the assessee held certain shares in a private limited company. Pursuant to orders made under Section 23A of the Indian I.T. Act, 1922, against the said private limited company it was deemed in the relevant assessment year that certain amounts had been received by the assessee as dividend. The original assessments had been completed earlier and appeals had been preferred therefrom on certain other grounds, The appeals were allowed by the AAC, who remanded the matter for fresh assessment. While reassessing the ITO assessed the income on the basis of the deemed dividend. One of the questions referred to the Allahabad High Court was whether the ITO could include the dividend income deemed to have been received by the assessee at such reassessment, which could not have been included in the total income at the time of original assessment. The High Court held as follows (pp. 910, 912) :
' When an Income-tax Officer makes a fresh assessment in compliance with the Appellate Assistant Commissioner's directions, he is of course bound by the directions, but, subject to them, he has the same powers as he had originally when making an assessment under section 23. The reassessment is nothing but a second assessment in substitution of the assessment made previously and set aside by the Appellate Assistant Commissioner on appeal. There are no restrictions at all on the powers of the Income-tax Officer when he proceeds to reassess the income ; subject to the directions given in the Appellate Assistant Commissioner's order, he has to proceed as if he were making an assessment under section 23 at the time when he proceeds to reassess. He is not bound or restricted by anything that had happened either when he made the original assessment or when the appeal was heard by the Appellate Assistant Commissioner ; he is governed only by the findings of the Appellate Assistant Commissioner. He is not bound by his own findings arrived at in the original assessment ; they do not operate as res judicata and undoubtedly have not the force of an order. The findings arrived at by the Appellate Assistant Commissioner and the directions given by him are binding on him, not as res judicata, but as orders to which he is subject. He is free to take into consideration any relevant material that came into existence for the first time after the original assessment order was made by him....
The section' 23A order in respect of the dividend income received in 1940 was made by the Income-tax Officer while the appeal from the assessment order of the assessment year 1941-42 was pending before the Appellate Assistant Commissioner. This order was brought to his notice and in his appellate order he gave a clear direction to the Income-tax Officer to consider the assessee's explanation for not being assessed on the larger dividend income which was to be deemed to have been received by it. Thus, apart from his own powers, the direction of 1he Appellate Assistant Commissioner itself conferred jurisdiction upon him to assess the assessee on the basis of the larger income. It may be mentioned here that the assessee submitted itself to the direction of the Appellate Assistant Commissioner by not preferring an appeal from his order containing it. Section 23A orders for the next two assessment years were passed by the Income-tax Officer after the Appellate Assistant Commissioner had ordered reassessment and, therefore, the Appellate Assistant Commissioner's orders did not contain any reference to them.......
There was an express direction in one order of the Appellate Assistant Commissioner for reassessment on the basis of the assumed larger dividend income, but, even in respect of the other two reassessments; there does not arise any further question of limitation for reassessment on the assumed larger dividend income. If the Income-tax Officer could reassess the assessee on the basis of the income shown in the return even after the expiry of four years, he could also reassess it on the basis of the deemed larger dividend income.'
(d) Kooka Sidhwa. and Co. v. CIT : 54ITR54(Cal) . This decision was cited for the following observations of this court (p. 65) :
' The Income-tax Officer's duty to assess the total income of the assessee and to determine the sum payable by him on the basis of the return under Section 23 of the Act is the whole process of assessment which may end with his order or may be revised by the higher appellate authorities including the Appellate Assistant Commissioner and the Tribunal recognised by the Income-tax Act. If, therefore, such higher appellate authorities such as the Appellate Assistant Commissioner or the Tribunal directs or orders him to do something again with regard to the assessment he has already made and that by way of revision or amendment, the Income-tax Officer must be held to be still under section 23 of the Act on the process of assessing the total income of the assessee and determining the sum payable on the basis of the return already filed by him.' (e) V. Jaganmohan Rao v. CIT & EPT : 75ITR373(SC) . This decision was cited for the following observations on Section 34 of the Indian I.T. Act, 1922 (p. 380):
' Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22, the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b), the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. ' (f) CIT v. Seth Manicklal Fomra : 99ITR470(Mad) . The facts in this case were that the assessee was carrying on business in cloth at Madurai and in sugar at Madras. In the relevant assessment year, the ITO determined the income from the cloth business on the basis of the assessee's books and the income from the business of sugar was computed on estimate. On appeal against the estimated income, the AAC set aside the assessment and directed the ITO to re-do the assessment in the light of the observation in his order. In subsequent proceedings the ITO made a fresh estimate of the income from the business in sugar and on the basis of a wealth statement called for by him from the assessee added a large amount of income from other sources. On further appeals both the AAC and the Tribunal held that the ITO had no jurisdiction to enquire into a fresh source of income. On a reference, the Madras High Court, however, accepted the contentions of the revenue and following, inter alia, J.K. Cotton Spinning & Weaving Mills Co. Ltd. : 47ITR906(All) , held that once the order of assessment was set aside and the matter came up for fresh consideration the power of the ITO would be governed by Section 143(3) and not with reference either to the observation of the AAC or to the appeal before the AAC.
(g) Ram Kanai Jamini Ranjan Pal Pvt. Ltd, v. Member, Board of Revenue : AIR1976SC1545 . The facts in this case were that the appellant company, a dealer registered under the Bengal Finance (Sales Tax) Act, 1961, was assessed to sales tax for the relevant period. The CTO rejected the appellant's books of account, enhanced the gross turnover and imposed a penalty. On an appeal the Assistant Commissioner reduced both the enhancement of turnover and the quantum of penalty. The appellant thereafter moved the CCT in revision. In the meantime, the CTO after an enquiry under Section 14(1) of the Act had submitted a report to the Assistant Commissioner, inter alia, stating that there were unexplained discrepancies in the cash memos issued by the appellant and that the appellant had manufactured duplicate sets of over one lakh cash memos and taxable sales effected by the dealer to the extent of Rs. 30 lakhs were unrecorded. On receipt of the report the Additional Commissioner issued a notice to the appellant stating that he proposed to consider the report at the hearing of the revision. On revision, the Additional Commissioner enhanced the gross turnover by Rs. 20 lakhs. The appellant was unsuccessful on a further revision before the Board and on a reference before this court. In a final appeal before the Supreme Court it was sought to be contended that the Commissioner could not travel beyond the return of the assessment and discover suppressed or escaped item of turnover. The Supreme Court held that as the statute concerned had no specific and separate provision for bringing to tax escaped turnover, it was competent for the Commissioner in that case to proceed on the basis of the report of the concealed turnover and enhance the assessment.
(h) Siemens (India) Ltd. v. Asst. CCT . In this case it was held by a Single Judge of this court on construction of Section 20 of the Bengal Finance (Sales Tax) Act, 1941, that though the CCT on his own motion could revise any order passed by subordinate assessing authorities after giving the assessee an opportunity of being heard, in an application for revision by a party aggrieved he could not alter the assessment affecting the points held in favour of the person concerned. This did not present any practical difficulty as the Commissioner, if he was so inclined, could revise an order on his motion.
24. Learned counsel for the assessee has also drawn our attention to an unreported decision of this Bench in Income-tax Reference No. 176 of 1970 intituled Katihar Jute Mills (P.) Ltd. v. CIT : 120ITR861(Cal) , The facts in that case were, inter alia, that the assessee, a jute mill company, was originally assessed under Section 23(3) of the Indian I.T. Act, 1922, When a sum received by the assessee representing the price of loom hours was brought to tax, the assessee preferred an appeal against the assessment on two points, namely, treatment of loss in respect of certain speculative transactions and disallowance of certain expenses and at the hearing of the appeal only the claim as to the loss was pressed. The AAC found that the ITO had not examined the vouchers and contract papers relating to this claim. He set aside the assessment with a direction to the ITO to go through the contract papers and other vouchers and do the assessment afresh. At the reassessment, on the basis of a subsequent decision of the Supreme Court holding that proceeds from sale of loom hours was of a capital nature, the assessee filed a revised return and claimed that the sum representing the sale proceeds of the loom hours was not taxable. The ITO held that as the assessee had not preferred any appeal against the inclusion of the said sum in its income in the reassessment, the enquiry must necessarily be confined to the question of speculative loss only as directed by the AAC. The assessee's new claim was rejected. The assessee, on appeal, succeeded before the AAC but on further appeal by the revenue, the Tribunal held that the ITO had no power to travel outside the scope of the remand order and sustained the decision of the ITO. On a reference to this court, it was held by this court that there was no dispute with regard to the assessability of the sale proceeds of the loom hours at any stage of the proceedings ; that the AAC did not consider the question at all as it was not the subject of any grounds of appeal and that the assessment had been set aside only partially, The contentions of the revenue were upheld.
25. On an analysis of the scheme of the Income-tax Acts it appears to us that the ITO had power to alter, vary or modify an order of assessment only in the following manner. The ITO can rectify a mistake in an order of assessment under Section 35 of the Act of 1922, and Section 154 of the Act of 1961. If there is any escapement of the income or under assessment, the ITO can reopen the assessment under Section 34 of the Act of 1922 or Section 147 of the Act of 1961.
26. The ITO can also make a fresh assessment if the AAC sets aside an order of assessment under Section 31 of the Act of 1922, or Section 251 of the Act of 1961, and directs the ITO to make a fresh assessment. In that case, the AAC may direct the ITO to make further enquiry as the 110 may think fit, or he may indicate the points or specify the matters on which further enquiry is to be made by the ITO.
27. Therefore, the power and jurisdiction of the ITO to make further enquiry while making a fresh assessment will be governed by and should strictly conform to the order of the AAC.
28. We record our respectful disagreement with the wide observations of the Allahabad High Court in J.K. Cotton Spg, & Wvg. Mills Co. Ltd. : 47ITR906(All) , to the effect that a reassessment on a remand by the AAC is nothing but a second assessment and that there are no restrictions on the powers of the ITO except that the specific directions, if any, in the order of the AAC has to be carried out and that the ITO is not bound or restricted by anything in the original assessment or in the appeal before the AAC, including his own findings arrived at in his original assessment.
29. In J.K. Cotton Spinning & Weaving Mills Co, Ltd. : 47ITR906(All) , at least in respect of one assessment year it was brought to the notice of the AAC that subsequently an order had been passed under Section 23A of the Act of 1922 and the ITO was accordingly directed to consider the same while making the reassessment. The AAC, in fact, directed the ITO to give effect to the said order under Section 23A.
30. The I.T. Act provides specific remedies and procedures for bringing to tax items of income which have escaped assessment and it is not necessary to extend the scope of reassessment under Section 31 of the Act of 1922, or Section 251 of the Act of 1961, in order to bring to tax escaped income, if any. The principle laid down by the Supreme Court in Ram Kanai Jamini Ranjan Pal Pvt. Ltd.  38 STC 1, is that where the statute does not contain provisions for bringing to tax escaped taxable items there, the authority, even in an appeal preferred by an aggrieved party, would be competent to decide on other points against the appellant.
31. With respect, we agree with the principle laid down in Pulipati Subbarao & Co. : 35ITR673(AP) , viz., that where the order of the AAC is specific, it is not open to the ITO to conduct a fresh enquiry beyond the said directions and to proceed to make a fresh assessment without any reference to the earlier assessment.
32. Following our decision in Income-tax Reference No. 176 of 1970 (Katihar Jute Mills (P.) Ltd. v. C1T : 120ITR861(Cal) ), we hold that in the instant case also there was no dispute regarding the allowability of the development rebate at any stage of the proceedings. The AAC did not consider that question at all and the same was not in any way connected with or covered by or related to any of the grounds of appeal. Read in its entirety and in its proper context the order of the AAC set aside the assessment only partially. This is indicated in the order itself. It cannot be said that it was the intent or purport of the said order that the entire assessment in all its aspects was set aside or that the ITO was left unfettered or was directed to pursue any enquiry he liked and make a fresh assessment covering all items de novo.
33. For the above reasons, we answer the questions as follows :
34. Question No. 1.--Is answered in the negative and in favour of the assessee.
35. Question No. 2.--Is also answered in the negative and in favour of the assessee.
36. As to question No. 3, we note that Section 155 of the Act of 1961, as also Section 35 of the Act of 1922, provide that the development rebate initially allowed will be deemed to have been wrongly allowed if a ship is sold or otherwise transferred by the assessee to any person other than the Government at any time before the expiry of a prescribed period from the end of the previous year in which the ship was acquired. In the instant case, the assessee admittedly sold or transferred the ships though for scrapping. It has not been found that, at the time of transfer, the ships had ceased to be ships and had become scrap. The purpose of the sale or transfer in our view is not relevant in deciding whether the development rebate allowed would be withdrawn or not. Accordingly, we answer question No, 3 in the affirmative and in favour of the revenue. The reference is disposed of accordingly. There will be no order as to costs.