COMMISSIONER OF INCOME TAX ANDHRA PRADESH Vs. NEMIDAS VISHANIJI AND CO

JUDGEMENT

(1.) The question referred for our opinion under s. 256(1) of the I.T. Act (hereinafter called "the Act") is :

(2.) The facts relevant to the question referred are : The assessee is a firm carrying on ready and speculation business on commission. It is a member of Adoni Groundnut Seeds and Oil Merchants Association. Its business consists of speculation in groundnut oil and groundnut seeds with members as well as non-members of the Association either for purchase or for sale. So far as non-members are concerned, the assessee charges commission on transactions entered into with them. In the return filed for the assessment year 1958-59, the assessee returned a net loss of Rs. 11,159 in ready and speculation business. The ITO, however, while making the assessment, separately assessed the income from speculation business and ready business and determined the net loss in speculation business at Rs. 39,206. Following the order of the AAC in an appeal relating to an earlier order, the ITO allowed the loss arising from the speculation business to be set off against the profits from the ready business.

(3.) After the expiry of four years, but within eight years, a notice under s. 148 read with s. 147(a) of the Act was issued by the ITO. The notice is dated 23/03/1967; it was received by the assessee some time in April, 1967. The ground alleged in the notice was that the rate differences claimed to have been paid by the assessee were not genuine payments and that the claim of the assessee to that effect was a bogus one. In response to the notice, the assessee resubmitted the return filed by him earlier, contending, inter alia, that the payments made by it were genuine. After an elaborate enquiry, the ITO passed his order dated 26/11/1970, wherein he did not say a word about the genuineness or otherwise of the payments. In other words, he practically abandoned the only ground alleged in the notice under s. 148. In the normal course, he should have dropped the proceedings, but he did not; he shifted to another ground. He observed that, in similar circumstances the Supreme Court has in Pangal Vittal Nayak (69 ITR p. 47 (Sh. N.) (Vittal Nayak case) held that the losses arising from the speculation business cannot be set off against commission receipts which should be treated as income from the ready business. Purporting to follow the said decision, the ITO held that the setting off of the losses from speculation business against income from the commission business was not proper or permissible and on that basis completed the reassessment.