This appeal by assessee relates to assessment year 1978-79. assessee is co-operative society. assessee did not file any return of income. ITO issued notice under section 148 of Income-tax Act, 1961 (' Act '), dated 7-3-1981. return was filed on 16-5-1981, showing loss of Rs. 1,08,977. This loss was shown as incurred under head ' Profits and gains of business or profession '. It may be mentioned at this stage that under provisions of section 139(4) of Act, period of limitation, which permitted assessee to voluntarily furnish return where return had not been filed within time allowed under sub-section (1) or (2) of section 139, was two years from end of assessment year. Therefore, if this was to be treated as voluntary return under section 139(4), return should have been filed before 31-3-1981. But, that was not case. Therefore, return filed was construed and considered as one filed under section 148 alone. ITO issued notice under section 143(2) of Act to assessee on 29-1-1982, fixing hearing for 10-2-1982. case was thereafter heard. Eventually, ITO wrote to assessee on 23-4-1992 as under: " Sir, Sub. --- Income-tax assessment 1978-79, your own - reg. Ref. - Your letter dated 25-3-1982. Notice under section 148 was issued to you for assessment year 1978- 79 on belief that income chargeable to tax has escaped assessment. But return filed by you shows loss of Rs. 1,08,908. provisions of section 147 do not permit assessee to get benefit of recomputation of income at lesser figure or to get benefit of determination of loss and carry forward to subsequent years. Further, no loss which has not been determined in pursuance of return filed under section 139 shall be carried forward and set off under sub- section (1) of section 72. In view of this legal position, proceedings initiated under section 148 for assessment year 1978-79 have been dropped. This is for your information." aforesaid letter was construed by assessee as order of assessment, declining to determine loss and assessee filed all appeal before Commissioner (Appeals) stating that ITO was not justified in refusing to determine loss. Commissioner held that assessee had filed return in response to notice under section 148 and had shown loss of Rs. 1,08,977. He further stated, ITO was satisfied that assessee had suffered loss and, accordingly, discontinued further proceedings under section 148 and closed file. Commissioner went on to observe that Mysore High Court had held in case of S. Natarajan v. CIT [1964] 52 ITR 882 that scope of equiry under section 147 of Act was very limited and assessee was not entitled to carry forward loss if return of income was not filed within time allowed under section 139(4). Following decision of Mysore High Court, Commissioner dismissed appeal. 2. Before us, learned counsel for assessee submitted that losses are nothing but negative profits and where notice under section 148 was issued and return was filed, ITO was bound to process return even if only loss was shown. In support of his contention, he relied on decision of Supreme Court in case of CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518. It was contended that return, whether it was return of income, profit or gains or of loss, had to be considered as valid return in light of ratio of aforesaid judgment and had to be duly processed culminating in assessment. other decisions, relied on by learned counsel, were those in CIT v. Kamla Oil Mills [1970] 78 ITR 272 (MP), Bihar State Electricity Board v. CIT [1975] 101 ITR 740 (Pat.) and Presidency Medical Centre (P.) Ltd. v. CIT [1977] 108 ITR 838 (Cal.). learned counsel particularly challenged statement of ITO that provisions of section 147 do not permit assessee to get benefit of recomputation of income at lesser figure or to get benefit of determination of loss and carry forward of same to subsequent years on ground that provisions of section 147(b) provided that ITO may, subject to provisions of sections 148 to 153 of Act, assess or reassess such income or recompute loss or depreciation, as case may be. He also went on to urge that before making assessment or reassessment, ITO was to serve on assessee, by virtue of provisions of section 148, notice containing all or any of requirements which may be included in notice under sub-section (2) of section 139 and provisions of Act were as far as may be applied, as far as notice was issued under that sub-section. Therefore, he contended that provisions of section 139(2) applied to notices issued under section 148. Finally, be submitted that after case was examined, ITO could not just drop proceedings. 3. learned departmental representative submitted that present case was fully covered by ratio of decision of Tribunal in ITO v. A.Y. Apte [1983] 3 ITD 553 (Pune). He further submitted that it was open to ITO to drop proceedings under section 147, where he found that there was no liability to tax. 4. We have considered rival submissions in present case, proceedings were initiated under section 147(a). provisions of section 147 read as under: " If --- (a) Income-tax Officer has reason to believe that, by reason of omission or failure on part of assessee to make return under section 139 for any assessment year to 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 (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on part of assessee, Income-tax Officer has i n consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 148 to 153, assess or reassess such income or recompute loss or depreciation allowance, as case may be, for assessment year concerned (hereinafter in sections 148 to 153 referred to as relevant assessment year. Explanation 1: For purposes of this section, following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:--- namely:--- (a) where income chargeable to tax has been under-assessed; or (b) where such income has been assessed at too low rate; or (c) where such income has been made subject of excessive relief under this Act or under Indian Income-tax Act, 1922 (11 of 1922); or (d) where excessive loss or depreciation allowance has been computed. Explanation 2: Production before Income-tax Officer of account books o r other evidence from which material evidence could with due diligence have b e e n discovered by Income-tax Officer will not necessarily amount to disclosure within meaning of this section." [Emphasis supplied] criterion for assuming jurisdiction under section 147(a) is that ITO should have reason to believe that income chargeable to tax had escaped assessment. Explanation also provides certain instances, where it would be deemed that income chargeable to tax had escaped assessment. At stage of initiation of proceedings, formation of believe, which has reasonable nexus with facts as ascertained, is sufficient. adequacy of reasons cannot be gone into by any appellate body or Court. After initiating proceedings, notice is issued under section 148 in compliance with notice under section 148, assessee has to file return of income. Notice under section 148 may contain all requirements which may be included in notice issued under section 139(2). Once assessee files return of income, process of assessment under section 143 is followed by ITO. only express right provided for assessee to have proceedings dropped is that contained in section 152(2), which reads as under: " Where assessment is reopened in circumstances falling under clause (b) of section 147, assessee may, if he has not impugned any part of original assessment order for that year either under sections 246 to 248 or under section 264, claim that proceedings under section 147 shall be dropped on his showing that he had been assessed on amount or to sum not lower than what he would be rightly liable for even if income alleged to have escaped assessment had been taken into account, or assessment or computation had been properly made: Provided that in so doing he shall not be entitled to reopen matters concluded by order under section 154, 155, 260, 262 or 263." Therefore, even in cases where proceedings are initiated under section 148, statute has provided for circumstance in which assessee may seek f o r proceedings being dropped. Closure of proceedings by dropping is, therefore, something known to statute. In present case, ITO has dropped proceedings on his own. question that arises is whether he was competent to drop proceedings or only course open to him was to frame assessment determining loss. provisions of section 147(a), which we have set out clearly show that action is taken for bringing within tax net ' income chargeable to tax which has escaped assessment '. whole exercise is for bringing to tax not income in its general sense (which may in certain cases include also negative income, i.e., loss), but income chargeable to tax, which construes only positive income because negative income can never be chargeable to tax. loss per se does not also fall within deemed ' income chargeable to tax ' as defined in Explanation 1 to section 147. Therefore, since return filed under section 148 did not disclose any income chargeable to tax and since further examination of accounts, etc., by ITO did not lead to conclusion that result would have been income chargeable to tax, ITO came to realisation that case went outside purview of provisions of section 147(a). Such being case, though initial assumption of jurisdiction for initiating proceedings was valid, ITO was not bound to frame assessment and he was justified in dropping proceedings, once he found that state of affairs, as ascertained, took case outside purview of provisions of section 147(a). learned counsel had relied on various judicial pronouncements, which we have adverted to specifically earlier. All these relate to cases where assessee suo moto filed return of income and question whether loss was to be determined or not arose. Such is not case here and all that we have to decide in present case is whether action of ITO in dropping proceedings has necessarily to be held to be erroneous. We have come to conclusion that ITO acted within his powers in We have come to conclusion that ITO acted within his powers in dropping proceedings. 5. We are unable to agree with learned counsel that ratio of decision of Mysore High Court in S. Natarajan's case is no longer good law in view of subsequent judgment of Supreme Court in case of Kulu Valley Transport Co. (P.) Ltd. Mysore High Court's case dealt expressly with scope of enquiry under section 34 of Indian Income-tax Act, 1922, which was not issue before Supreme Court. 6. learned counsel had also placed before us copy of order of Bench of this Tribunal in IT Appeal Nos. 523 and 524 (Hyd.) of 1982, dated 31-1- 1983. We do not find any observations in aforesaid order, which would go, to support stand of assessee. On other hand, Tribunal itself had observed that it was open to ITO to have dropped proceedings, once he found that there was no taxable income. We would also state that our conclusion that assessee is not entitled to determination of loss on facts of present case and that dropping of proceedings by ITO, when he realised that no income chargeable to tax had escaped assessment, was in order, are supported by ratio of decision of Tribunal in A. V. Apte's case. 7. For aforesaid reasons, we have to hold that appeal of assessee cannot succeed. same is accordingly dismissed. *** VISAKHAPATNAM PORT TRUST EMPLOYEES CO-OPERATIVE STORES LTD. v. INCOME TAX OFFICER