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We however, make it clear that if any portion of such loss is unabsorbed there will be no carry forward thereof to any subsequent year. To the extent as stated above we answer the question referred in the negative and in favour of the assessee.

The Revenue, thereupon, filed an application under Section 261 of the Act for leave to appeal to the Supreme Court against the judgment of the Division Bench of the High Court. The case of the Revenue before the High Court was that since the loss claimed by the assessee originally was concluded finally against the assessee the question was not open for review in the reassessment proceedings and the Income-tax Officer in proceedings under Section 147 of the Act could not consider items which had become final in the original assessment proceedings unconnected with any escapement of income. On behalf of the assessee, however, it was contended that once reassessment proceedings are initiated, the initial order of assessment does not survive for any purpose whatsoever and while making a fresh order of assessment in the reassessment proceedings, the Income-tax Officer has the power to give benefit to the assessee, which might have been available to it in the original assessment proceedings. In support of these submissions the assessee had relied upon the judgments in Deputy Commissioner of Commercial Taxes v. H.R. Sri Rumulu 39 STC 177 and V. Jaganmohan Rao and Ors. v. Commissioner of Income-Tax and Excess Profits Tax 75 ITR 373. The Division Bench after hearing the arguments in the leave to appeal petition opined:

and formulated the question noticed in the earlier part of this judgment while granting the certificate of fitness.

6. Before us, Mr. Ranbir Chander has appeared for the Revenue and despite service, there has been no appearance on behalf of the assessee who remained un-represented in these appeals. With a view to answer the question as formulated by the High Court and to dispose of both the appeals, it is necessary to first consider the status and character of the original assessment orders dated 12.12.1962 made by the ITO in respect of the 'loss returns' for the years 1960-61 and 1961-62. As already notice, the orders were made after hearing the authorised representative of the assessee and since the returns had been filed beyond time, the assessment proceedings terminated in "no demand". As apparently there was no taxable income the losses were not directed to be set off or carried forward by the ITO. Even if, it be assumed for the sake of argument, that the procedure adopted by the ITO in dealing with the "loss returns" was not proper, the order of the ITO was not set-aside in appeal by the Appellate Assistant Commissioner and no further steps were taken by the assessee to question the order of the Income Tax Officer. Those, orders had, in fact and in law, become final and the assessee has to thank himself for that situation.

(emphasis Supplied)

8. Dealing with the reasoning of the High Court, the learned judge observe:

The High Court proceeds on the ground that when proceedings are taken under Section 34 the assessee is not entitled to reopen the whole proceedings as the further proceedings are limited to assessing that portion of the income which has escaped assessment. We need not express any opinion on this. The question we have to answer is confined to the facts and circumstances of this case and those circumstances are (1) that no return was filed at any stage of the case disclosing any income, profits or gains at all, (2) that proceedings were later taken under Section 34, and (3) in the course of these proceedings the assesee claimed that a certain Joss should be determined and recorded. Our answer is that that cannot be done for the reasons we have given and that consequently the question referred was rightly answered in the negative by the High Court.

11. Could the assessee in the above fact situation be permitted to claim "set off, not granted in the original assessment proceedings, by raising that plea once again in the reassessment proceedings initiated under Section 147 of the Act?

12. To answer this question, it is necessary to first extract the provisions of Sections 147 and 148 of the Act (as they existed at the relevant time) Section 147 read thus:

Section 147 Income escaping assessment. If-

(a) the Income Tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or