The Appellate Assistant Commissioner cannot find a new source of income not considered by the Income-tax Officer and assess it under his powers granted by S. 31 of the Income-tax Act.

Judgment

HIDAYATULLAH, I. : The assessee, who is the respondent here, had received on July 20, 1946 a sum of Rs. 40,000. In the proceedings for assessment for the assessment year, 1946-47, this came to the notice of the Income-tax Officer. Since the receipt fell within the accounting year relative to the assessment year, 1947-48, the Income-tax Officer did not assess the amount, making a note, "The question will however be considered again at the time of 1947- 48 assessment." In the return filed for the assessment year,1947-48, this amount was not shown by the assessee. The Income-tax Officer also overlooked the note at the end of his order in the back year s assessment, with the result that this item was omitted. The assessee appealed to the Appellate Assistant Commissioner against his assessment for the year, 1947-48. While the appeal was pending, the Income-tax Officer wrote a letter to the Appellate Assistant Commissioner intimating him that he would like to be present, and also requesting him to assess the amount of Rs. 40,000. The Appellate Assistant Commissioner, after issuing notice, assessed the amount and included it in the original assessment. The contention of the assessee was that the amount of Rs. 40,000 represented a receipt of a capital nature, while it was held to be a receipt on the revenue account. With this controversy, we are not concerned. The Tribunal agreed with the Appellate Assistant Commissioner, but on the application of the assessee, referred two questions to the High Court under S. 66 (1). These questions were :

1."Whether on the facts and in the circumstances of the case, the Appellate Assistant Commissioner was competent to enhance the assessment of the Appellant for the assessment year 1947-48 by a sum of Rs. 40,000 ?

2. Whether on the facts and circumstances of the case the said sum of Rs. 40,000 is a revenue receipt and assessable to tax in the assessment year 1947- 48?"

2. The High Court answered the first question against the Department, and declined to answer the second, inasmuch as it became academic. This appeal has been filed with special leave, against the judgment of the High Court of Bombay.

3. The question which arises in this appeal may be formulated thus: whether in an appeal filed by an assessee, the Appellate Assistant Commissioner can find a new source of income not considered by the Income-tax Officer and assess it under his powers granted by S. 31 of the Income-tax Act? Section 31 reads as follows:

"31. (1) The Appellate Assistant Commissioner shall fix a day and place for the hearing of the appeal, and may from time to time adjourn the hearing.

(2) The Appellate Assistant Commissioner may, before disposing of any appeal, make such further inquiry as he thinks fit, or cause further inquiry to be made by the Income-tax Officer.

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(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,

(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........."

4. There is no doubt that the Appellate Assistant Commissioner can "enhance the assessment". It is admitted also by the assessee that within the four corners of the sources processed by the Income-tax Officer, the Appellate Assistant Commissioner can enhance the assessment. This power must, at least, fall within the words "enhance the assessment", if they are not to be rendered wholly nugatory. The controversy in this case is about his discovering new sources, not mentioned in the return and not considered by the Income-tax Officer. The High Court held, following its earlier