1. K.S. PARIPOORNAN, J.--At the instance of the Revenue, the Income--tax Appellate Tribunal has referred the following two questions of law for the decision of this Court: "(1) Whether, on the facts and in the circumstances of the case and also in view of the fact that the original assessm ent has not been set aside and the Commissioner of Income-tax (Appeals) has only deleted the addition of Rs. 90,000 made, the Tribunal is justified in not considering the case on merits?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the question of restoration of the addition made to the gross profit does not arise at present and is not the `order' of the Tribunal vitiated for not considering the issue on merits?"
2. The respondent in this reference is an assessee to income-tax. We are concerned with the assessm ent year 1975-76.
3. The assessee is a wholesale dealer in textiles. For the year 1975-76, the book results were rejected and gross profit was estimated by the Income-tax Officer. He made an addition of Rs. 90,000 to the income returned. The assessm ent order is dated March 7, 1978. In appeal, the Commissioner of Income-tax (Appeals) (in short, "the CIT"), by order dated March 15, 1979, held that the Income-tax Officer did not really make out a case for rejection of the accounts and so the addition of Rs.90,000 to the income returned was uncalled for. The addition made by the Income-tax Officer was directed to be deleted. The Revenue filed an appeal, I.TA. No. 251/Coch of 1979, before the Income- tax Appellate Tribunal (in short, "the Tribunal"). It was pending. While so, the Income-tax Officer initiated proceedings under section 147(b) of the Income-tax Act for the very same year 1975-76.
4. Notice in this regard was issued to the assessee on May 12, 1979. The assessee filed his return of income on August 17, 1979. The draft assessment order under section 144-B was issued to the assessee on May 22, 1980, proposing an addition of a sum of Rs. 4,12,092 to the income originally assessed. The assessee filed his objections. The draft assessment order and the records were forwarded to the Inspecting Assistant Commissioner of Income-tax on June 13, 1980, who, by his proceedings dated October 28, 1980, directed that the proposed addition of Rs. 4,12,092 may be deleted. In view of the directions of the Inspecting Assistant Commissioner of Income-tax aforesaid, the Income-tax Officer passed an order under section 143(3) of the Act read with section 147(b) and section 144-13, dated October 31, 1980, closing the reassessment proceedings as "N.A." In other words, a nil assessm ent order was passed dated October 31, 1980. Thereafter, when the appeal filed by the Revenue, I.TA. No. 251/Cock. Of 1979, from the original assessment proceedings came up for hearing, the Tribunal held, that in view of the proceedings intitated under section 147(b) of the Act and the revised assessm ent order, dated October 31, 1980, the original assessment (dated March 7, 1978) against which the Revenue had filed I.TA. No. 251/Coch of 1979, has been annulled, there is no question of restoration or deletion of the addition to the gross profit; and, in this view of the matter, concluded that the original assessm ent having been set aside, there was no necessity to go into the merits of the case. The appeal filed by the Revenue was dismissed. Thereafter, the Revenue filed an application to refer certain questions of law which, according -to it, arose out of the order passed by the Tribunal in I.T.A. No. 251/Coch of 1979, dated June 4, 1981. Accordingly, the Tribunal has referred the two questions, extracted hereinabove, for the decision of this Court.
5. We heard counsel for the Revenue, Mr. P.K.A. Menon. The respondent --assessee was not represented before us. The short facts in this case, are these. Originally, the Income-tax Officer passed an assessm ent order dated March 7, 1978. He added a sum of Rs. 90,000 to the income returned by the assessee. It was directed to be deleted by the Commissioner of Income-tax by order, dated March 15,1979. The Revenue filed an appeal from the abovesaid order before the Tribunal. The said appeal was pending. During the pendency of the appeal, the Income-tax Officer initiated proceedings under section 147(b) of the Act and passed a revised assessment order, dated October 31, 1980. The reassessment proceedings were closed as "nil assessment" by order October 31, 1980. In view of this revised order, when the appeal filed by the Revenue from the original assessm ent proceedings came up for hearing, the Tribunal took the view that the original order of assessm ent having been superseded or nullified, there was nothing to be considered in the appeal filed by the Revenue from the appellate order of the Commissioner of Income-tax. In effect, the Tribunal took the view that the original assessment order passed by the Income-tax Officer, dated March 7, 1978, was set aside as it was no longer in existence and so in the appeal filed by the Revenue, there was no question of restoring the said order.
6. It is settled law that the revised order or the order passed in the reassessment proceedings, dated October 31; 1980, recording that the reassessment is closed as "NA." (not assessed or not assessable or nil assessm ent), is a final order, lawfully terminating the assessment proceedings.
7. See the decision of the Supreme Court in Esthuri Aswathiah v. I.T.O (1961) 41 ITR 539. The proceedings dated October 31, 1980, closing the proceedings as "NA." is an assessment order. (See also Kanga and Palkhivala's "The Law and Practice of Income-tax", Vol. I, 7th Edition, page 904). The effect of reopening the assessm ent is to vacate or set aside the initial order of assessment and substitute in its place the order made. In reassessment proceedings. The initial order of assessm ent cannot survive in any manner or to any extent. The result of reopening the assessment is that a fresh order of assessm ent should be made. It was so done in this case by the revised proceedings dated October 31, 1980. The above legal position is settled in view of the decisions of the Supreme Court in CST v. H.M. Esufali H.M. Abdulali (1973) 90 ITR 271 and Deputy Commissioner of Commercial Taxes v. H.R. Sri Ramulu (1977) 39 STC 177. In view of the above legal posting in this case, the original assessm ent order, dated March 7, 1978, no longer survived or was in existence when the Tribunal took up for hearing the appeal filed by the Revenue, I.TA. No.251 (Coch) of 1979.
8. The Tribunal was justified in holding that since the original order of assessment passed by the Income-tax Officer, dated March 7, 1978, has been superseded or set aside by the revised order, dated October 31, 1980, the appeal filed before it l by the Revenue did not merit consideration, and in dismissing the said appeal. In this view of the matter, the Tribunal was justified in not considering the appeal filed by the Revenue on merits. There is no illegality on that score. Question No. 1 referred to us should be answered in the affirmative, against the Revenue and in favour of the assessee.
9. Question No. 2 should be answered in the negative, against the Revenue and in favour of the assessee.
10. Counsel for the Revenue, Mr. P.K.R. Menon, submitted that by passing the revised order, dated October 31, 1980, the Income-tax Officer has committed an illegality. If the effect of the revised order, dated October 31, 1980, is to completely supersede or annul the original order passed by the Income-tax Officer dated March 7, 1978, the assessment, even on the admitted income, may stand nullified in this case and this will result in a very unsatisfactory state of affairs. We are of the view that, if the revised proceedings of the Income-tax Officer, dated October 31, 1980, is illegal or defective, it was open to the Commissioner of Income-tax to initiate suo motu proceedings in revision to set right the matter. The plea of the Revenue that the revised order, dated October 31, 1980, is illegal or defective, since the order of reassessment should have positively included those matters or items which were assessed and in respect of which there was no dispute in the original assessm ent stage, should have been adverted to by the Commissioner of Income-tax to initiate proceedings suo motu in revision and issue appropriate directions in the matter to set right the defect or infirmity. It is not open to the Revenue in this proceeding to plead that the revised order passed by the Income-tax Officer, dated October 31, 1980, is illegal or beyond his powers. It is not open to the Revenue to raise such a plea in these proceedings and at this stage. It is not open to the Revenue to plead that the ` order passed by the Income-tax Officer is illegal or ultra vires. (See the decision of the Supreme Court in Asst. Commissioner of Commercial Taxes v. Dharmendra Trading Co., AIR 1088 SC 1247 at p. 1249, paragraph 5).
11. Finally, counsel for the Revenue submitted that this Court may give appropriate directions which will enable the Income-tax Officer to set right the revised order dated October 31, 1980, by passing a proper order, taking within its fold the admitted income included in the order of assessment, dated March 7, 1978. We are afraid that it is not within, our province to issue any such direction at this stage. Counsel for the Revenue brought to our notice the decision of the Allahabad High Court in ITO v. S.B. Singar Singh & Sons (1970) 75 ITR 646 and contended that the Income-tax Officer has got inherent power or jurisdiction to correct the mistake committed by him, even apart from section 154 of the Act. At this stage, we do not propose to deal at length with this plea. Nothing that is stated in this judgment will deter the Revenue from bringing to tax the admitted income in accordance with law.
12. A copy of this judgment under the seal of this Court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.