Ranganathan, J.:— This reference under the I.T Act raises a very short but interesting question as to the interpretation of s. 153(3) of the I.T Act, 1961.

2. The assessee-applicant is M/s. Khalsa Provisions assessed as a registered-firm. The firm came into existence on October 15, 1962, but its books of account were closed for the first time on 30th November, 1963, i.e after a period of 13½ months from the date of commencement of the business. The firm filed a return for the assessment year 1964–65 on 7th June, 1964, including therein its entire income for the period from October 15, 1962, to November 30, 1963. This return was for the assessment year 1964–65, with which we are concerned in this reference. Subsequently, the assessee seems to have thought that the return filed by it on June 7, 1964, was not a valid return inasmuch as the previous year under the I.T Act of 1961 could not extend beyond a period of 12 months except in cases where the permission of the CBDT had been obtained. It, therefore, proceeded to file two returns on 18th November, 1964. One of these returns was for the period October 15, 1962, to November 30, 1962, a period of 1½ months, which related to the assessment year 1963–64. In the other return it declared the income in respect of the period from December 1, 1962, to November 30, 1963, which pertained to the assessment year 1964–65.

3. The ITO, however, appears to have overlooked the returns filed by the assessee on 18th November, 1964. On December 24, 1964, he completed the assessment for the assessment year 1964–65, and included therein the entire income of the period from October 15, 1962, to November 30, 1963.

4. The assessee preferred an appeal to the AAC. The AAC disposed of the appeal on 10th August, 1965. Before him the assessee had raised three contentions, two of which related to minor disallowances of Rs. 614 and Rs. 1,050. The third ground was that the ITO was wrong in framing the assessment for the period from October 15, 1962, to November 30, 1963, instead of the separate periods, comprising October 15, 1962, to November 30, 1962, and December 1, 1962, to November 30, 1963, even though the appellant had submitted separate returns for these two accounting periods. The AAC found force in the third contention raised on behalf of the assessee. He observed:

“It appears that the Income-tax Officer had taken the whole period as one period for assessment purposes as the appellant had not closed its accounts on 30-11-1962. While under the old Act, the Income-tax Officer had the power to assess an assessee for a period of more than 12 months, under the I.T Act, 1961, this power is vested only in the Board under s. 3(1)(e) and, since no authority has been given by the Board for the action of the ITO or by any authority to whom these powers have been delegated by the Board, the Income-tax Officer was not correct in determining the previous year for the appellant for the period 15-10-1962 to 30-11-1963, i.e, 13½ months. The assessment made by him is, therefore, bad in law and is cancelled.

The Income-tax Officer may, however, make separate fresh assessments on the returns submitted by the appellant for the two different periods, if he is so advised.

In view of my finding given against contention No. (3), I have not gone into the other contentions, i.e, contentions Nos. (1) and (2). The Income-tax Officer is directed to look into these items when refraining the assessment.”

5. On 16 th February, 1970, the ITO passed an assessment order for the assessment year 1964–65. He referred to the original assessment, having been set aside by the AAC to be made afresh, as the income originally assessed was for a period of 13½ months. He considered the assessee's offer that the business income for the assessment year 1964–65 may be determined on time basis in respect of the previous year December 1, 1962, to November 30, 1963. He issued notices to the assessee under ss. 143(2) and 143(3) and completed the fresh assessment on 16th February, 1970, but while doing so, however, he included in the assessment, not merely the income originally determined on a time basis, but also a sum of Rs. 25,000 as unexplained cash credits to be treated as income.

6. Naturally, the assessee was aggrieved by the assessment order passed by the ITO. It filed an appeal to the AAC and contended that the reassessment made by the ITO was not valid. It was submitted that the AAC by his order dated August 10, 1965, had cancelled the original assessment without giving any clear direction to make a fresh assessment. It was argued that the time-limit for completing the assessment had expired on March 31, 1969, under s. 153(1) and that the reassessment completed as late as February 16, 1970, was out of time and, therefore, invalid. The AAC did not accept this contention. He held that by the order dated August 10, 1965, the AAC had actually set aside the assessment though he used the word “cancelled” and that there was a clear direction to the ITO to reframe the assessment on the basis of the returns filed. He pointed out that the time-bar provided for in s. 153(1) and (2) would not apply when a reassessment is completed as per the direction of the AAC under s. 250 of the I.T Act.

7. The assessee preferred a further appeal to the Appellate Tribunal. Before the Tribunal four contentions were raised on behalf of the assessee. The first was that the AAC while cancelling the assessment on August 10, 1965, was not competent to give any direction to the ITO to make a fresh assessment. The second was that even if he was so competent he had not in fact given any such direction in the present case. The third consequential argument was that as there had been no direction by the AAC within the meaning of the Act, the assessment made on February 16, 1970, was time barred. Finally a contention was raised on merits in regard to the addition of Rs. 25,000 and it was argued that the assessee had offered a satisfactory explanation in respect of the cash credits. So far as the first two contentions were concerned, great emphasis was placed on behalf of the assessee on the language of the order of the AAC dated August 10, 1965. Reference was made to the use of the words “may” and “if he is so advised” in the said order. It was pointed out that the AAC had intended to annul the assessment and that he had not chosen to decide whether the ITO should make a fresh assessment or not but left this to be done by the ITO if he was so advised. The direction in the last part of the AAC's order, it was stated, was only a direction to consider the question of the two disallowances in the event of the ITO deciding to make a fresh assessment. The sum and substance of the argument on behalf of the assessee was that the fresh assessment was not consequent on or pursuant to a finding or a direction given by the AAC and that, therefore, the extended period of limitation under s. 153(3) of the I.T Act was not available to the department and, therefore, the assessment made on February 16, 1970, should be held to be barred by time. We are not concerned here with the argument raised on the merits of the cash credits.

8. The I.T Appellate Tribunal analysed the order of the AAC and it came to the conclusion that the assessee's contentions in this regard could not be accepted. It pointed out that the use of the word “cancelled” by the AAC was rather loose and unguardedly used. As against this, it was pointed out, there were words used by the AAC which clearly showed that he intended to set aside the assessment and have a fresh assessment: made. They pointed out that by the use of the words “if he is so advised” he did not intend to leave an option to the ITO either to complete or not to complete a fresh assessment but by the use of these words the AAC was only expressing an opinion that the reassessment could be made on the basis of the two returns filed by the assessee in November, 1964, if the officer so chose. The direction given in the last paragraph of the AAC's order, it was pointed out, was incompatible with a mere annulling of the assessment without an intention that it should be redone. The Tribunal observed that the order of the AAC should be construed as a whole and that the use of a single word unguardedly should not be utilised to interpret the order in a different way. For these reasons, the Tribunal held that the reassessment was covered by the language of s. 153(3) and that the reassessment made by the ITO was within time.

9. At the instance of the assessee, the I.T Appellate Tribunal has referred the following questions for the decision of this court:

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal had correctly interpreted the order of the Appellate Assistant Commissioner dated August 10, 1965, as giving a direction to the Income-Officer to reframe the assessment.

(2) Whether the Tribunal was right in law in holding that the assess ment made for the year under appeal on February 16, 1970, was legal and valid?” As already mentioned, the question for consideration in this case turns on the interpretation of sub-s. (3) of s. 153 of the I.T Act, 1961. Sub-ss. (1) and (2) of s. 153 lay down certain time-limits for the completion of assessments, reassessments and recomputations. It is, however, not necessary to give details of these provisions except to mention that in the present case in the normal course, under these provisions, the ITO should have completed the assessment on or before the 31st of March, 1969. It has been mentioned earlier that the order of the AAC cancelling the first assessment made by the ITO had been passed on 10th of August, 1965. The ITO, therefore, had ample time to complete the assessment even within the scope of the provisions contained in sub-ss. (1) and (2) of s. 153. He has, however, chosen to wait till after the expiry of 31st March, 1969, and, therefore, the department, to bring the assessment order within the period of limitation specified under the Act, had to resort to the provisions of sub-s. (3) of s. 153, which is in the following terms:

“(3) The provisions of, sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A), be completed at any time…

(ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order, under section 250…”

10. The question for consideration, therefore, is whether the reassessment made in this case by the ITO on 16th February, 1970, can be described as a reassessment made on the assessee in consequence of or to give effect to any finding or direction contained in the order of the AAC dated 10th August, 1965.

11. Before proceeding to discuss the arguments of Mr. Suri on this part of the case, reference may be made to the decision of the Supreme Court in the case of Rajinder Nath v. CIT, [1979] 120 ITR 14, which throws considerable light on the scope and meaning of the words “direction” and “finding” contained in the above section. It is sufficient to extract the following passage from the headnote of the above case:

“The expressions ‘finding’ and ‘direction’ in s. 153(3) are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that in order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and to no one else a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A's income. A finding respecting B is initially involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to A's liability can be directly arrived at without necessitating a finding in respect of B, then a finding made in respect of B is an incidental finding only. It is not a finding necessary for the disposal of the case pertaining to A.

As regards the expression ‘direction’ in s. 153(3)(ii) of the Act, it is now well settled that it must be an express direction necessary for the disposal of the case before the authority or court. It must also be a direction which the authority or court is empowered to give while deciding the case before it. The expressions ‘finding’ and ‘direction’ in s. 153(3)(ii) must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or court.”

12. In the light of the above observation, Mr. Suri submits that before it can be said that there was a direction by the AAC in the present case, it should be shown that the AAC applied his mind to the course of action which he intended the ITO to follow in order to give effect to his order and that he had given an express direction in this regard. Equally, before it can be said that there is a finding, there must be some conclusion arrived at by the AAC on a point directly involved in the disposal of the appeal before him which has resulted in the order in question and the necessary consequence of which is a reassessment being made by the ITO. Learned counsel very strongly relied on two aspects of the order of the AAC dated 10th August, 1965. He pointed out that the operative part of the order was in its first paragraph which has been earlier set out. After referring to the three contentions raised before him, the AAC came to the conclusion that the third contention had to be accepted and that, consequently, the assessment must be held to be bad in law. The AAC, therefore, cancelled the assessment. Mr. Suri says that this was all that was necessary for the AAC to do by way of finding or direction and that is all he did. Of course in a suitable case it is open to the AAC even where an assessment is cancelled or annulled to say that the ITO could make a fresh assessment. (Vide Jai Prakash Singh v. CIT, [1978] 111 ITR 507 (Gauhati)). But in the present case, learned counsel points out, the AAC left the making of the separate fresh assessment to the discretion of the ITO and left it to him to make the fresh assessment if he was so advised and by necessary implication not to make such fresh assessment if he considered it unnecessary. This, counsel says, is clear from the second paragraph of the AAC's order. The third paragraph does not run, according to learned counsel, counter to his case. Though it contains certain directions to the ITO, these directions were to be operative only in the event the ITO decided, in the exercise of his own discretion, to reframe the assessment. For these reasons, learned counsel submits, this is a case in which there was neither a finding nor a direction by the AAC and there was no reason why the ITO who slept over his rights for more than a period of 3½ years after the passing of the AAC's order should be allowed to take advantage of the provisions contained in sub-s. (3) of s. 153 and to have a further period of a few months for completing the assessment.

13. We have considered the argument of the learned counsel but, in our opinion, the view taken by the Tribunal is the correct view. The order of the AAC has to be read as a whole and in the light of the point which he had to consider and on the basis of which he considered it necessary to cancel the assessment earlier made. To recapitulate the facts briefly, the original assessment had been made by the ITO in respect of an accounting period of about 13 months and the plea raised before the AAC by the assessee was that this was not justified under the provisions of the 1961 Act. It was pointed out before him that the assessee had filed separate returns for the assessment years 1963–64 and 1964–65 which had been ignored by the ITO. While accepting the plea raised by the assessee, the AAC could perhaps have confirmed the assessment partially by excluding from the previous year a portion of it, i.e, 1½ months, which was in excess over the statutorily permitted interval of 12 months. But the AAC considered that it was better that the matter should go back to the ITO. This seems to have been done for two reasons. In the first place, there was a discretion with the Board to permit the framing of an assessment in respect of 13½ months and this could still be done with proper directions by appropriate procedure. The second reason was that the assessee had filed two separate returns which had been ignored and, therefore, the AAC thought that the ITO should make up his mind how far these returns complied with the provisions of law and could have been acted upon. It appears that it is in the light of these two considerations that he decided to cancel the assessment and send the matter back to the ITO. The first paragraph is quite clear to the effect that he was setting aside the assessment. No doubt he used the word “cancelled” but Mr. Shri is fair enough to concede that the mere use of this word cannot be conclusive one way or the other. We are, however, unable to accept the interpretation sought to be placed on behalf of the assessee that from the second paragraph of the order of the AAC it should be inferred that the ITO was given a full discretion to make or not to make any fresh assessments. We do not think that this is a correct interpretation of the order. The second paragraph contains one single sentence which should be read as a whole. The words “if he is so advised” have been added in that sentence by the AAC not with the intention that the ITO will have a discretion either to make or not to make a fresh assessment. The discretion to be exercised by the ITO is to make or not to make the fresh assessment on the basis of the returns submitted by the applicant for two different periods. That the. AAC did not really intend to leave it open to the ITO to make a fresh assessment or not is also clear from the third paragraph of his order. If his intention was that the ITO may or may not make a fresh assessment it was not necessary for him to give any direction to look into the two contentions which had been raised before him on the basis of the original assessment. In short, taking the order of the AAC as a whole, we agree with the construction placed upon it by the Income-tax Appellate Tribunal that this was a case in which the AAC set aside the assessment and intended the ITO to do a fresh assessment on the lines indicated in the order. There is, in our opinion, a clear direction by the AAC to that effect. But even if it is possible to say that there was no specific direction, there can, in our opinion, be no doubt that there is a finding by the AAC which involved a reassessment being done by the ITO. In the circumstances of the case, the AAC had set aside the assessment on the ground that it could not cover a previous year of more than 12 months. The result of this finding was that an assessment had to be made for a period of the permitted extent of 12 months. There can, therefore, be, in our opinion, no doubt that the fresh assessment made by the ITO was in consequence of the finding given by the AAC. We, therefore, think that the assessment made on 16th February, 1970, was within time and was not time barred as contended for by the assessee. Mr. Suri, learned counsel for the assessee, sought to raise two further contentions. He raised the point as to how far in making the reassessment as a consequence of the cancellation of the original assessment order, it was open to the ITO to travel outside the scope of the original assessment order and make an addition of a sum of Rs. 25,000. He also sought to raise a contention that the reassessments were based on the revised returns filed by the assessee whereas the original assessment had been made on the original return filed by the assessee and that it was not open to the ITO to make the reassessment on this basis. So far as these contentions are concerned, we are of the opinion that they do not arise out of the order of the Tribunal. We have gone through the order of the Tribunal and the contentions raised before it. The only question that the Tribunal was called upon to consider was whether the assessment made on 16th Feburuary, 1970, was within time or not. The question whether there was a direction by the AAC or not was raised only incidentally in order to consider the applicability of s. 153(3) in the circumstances of the case. The other aspects now sought to be urged by Mr. Suri cannot be permitted to be raised.

14. For the above reasons, we are of opinion that this reference has to be answered against the assessee and in favour of the department and we do so. However, in the circumstances of the case, we make no order as to costs.