The scope of an appeal under Section 246(1)(e) of the Income Tax Act, 1961, against an order of assessment or reassessment under Section 147 is wide enough to allow the assessee to raise all possible grounds, including a challenge to the validity of the assessment.

A.N. Verma, J.

1. At the instance of the assessee, the following questions have been referred by the Income-tax Appellate Tribunal, Kanpur, for our opinion :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that, in the appeal against the reassessment order made under Section 147 read with Section 144 of the Income-tax Act, 1961, in the present case, the Appellate Assistant Commissioner had no jurisdiction to consider and decide the question that the relevant proceedings and reassessment were invalid and beyond the scope of Section 147(a) ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the scope of the relevant appeal before the Appellate Assistant Commissioner under Section 246(c) of the Income-tax Act, 1961, did not permit consideration and decision on the legality of reassessment proceedings taken under Section 147(a) ?"

2. The assessee is a registered firm. Its original assessment for the assessment year 1965-66 was completed on a total income of Rs. 67,200. The total income of the assessee was finally assessed at Rs. 51,127. Later on, the Income-tax Officer learnt that the Income-tax Officer, Delhi, had held the business of Messrs. U. B. S. Publishers and Distributors to be the branch business of the assessee-firm. On receipt of this information, he initiated action under Section 147(a) against the assessee and served on it a notice under Section 148 of the Income-tax Act, 1961.

In response to that notice, the assessee filed a return declaring its income at Rs. 51,127. Simultaneously while fixing a date for the case, the Income-tax Officer also issued a notice under Sections 142(1) and 143(2) requiring the assessee to furnish certain details and copies of account, etc. The assessee submitted some of the details and the copies of account. The Income-tax Officer, however, discovered some discrepancies in the accounts. A notice under Section 142(1) was again issued calling upon the assessee to produce certain books of account. In response, the assessee wrote to the Income-tax Officer to furnish the reasons recorded by him for initiating the proceedings under Section 148. The Income-tax Officer, however, did not furnish the reasons to the assessee. Instead, he fixed a date for the hearing of the matter. On the date fixed, the assessee did not produce the books of account but filed a written reply. Thereupon, the Income-tax Officer completed the assessment under Section 144 on a total income of Rs. 7,52,206.

3. The assessee appealed to the Appellate Assistant Commissioner. Various submissions were made on behalf of the assessee before the Appellate Assistant Commissioner, one of which was as follows :

"That the Income-tax Officer erred in treating the Delhi branch of U. B. S. Publishers and Distributors, Delhi, as a branch of the appellant even though the Income-tax Appellate Tribunal, Allahabad, had accepted the Delhi firm to be a genuine firm and also granted registration to the Delhi firm."

4. The validity of the assessment was also challenged on the ground that the assumption of jurisdiction under Section 147 was unauthorised and illegal. The Appellate Assistant Commissioner accepted the submissions of the assessee and observed that the Income tax Appellate Tribunal, Delhi, vide its order dated September 17, 1974, in I. T. A. No. 4423/ Delhi of 1970-71, having held that the above-mentioned Delhi firm was a genuine concern and further that the Department, not having filed any reference application against that order of the Tribunal, the matter became final. That being so, the Appellate Assistant Commissioner observed that the very foundation on the basis of which the reassessment proceedings were initiated against the assessee had disappeared. He, accordingly, annulled the assessment.

Aggrieved by that order, the Department filed an appeal before the Income-tax Appellate Tribunal and contended that