Gujarat H.C : Whether, on the facts and in the circumstances of the case, the Tribunal should have cancelled the order of the CIT under s. 263 directing the AO to disallow the additional commission ?

High Court Of Gujarat

Harsiddh Specific Family Trust vs. CIT

Section 254(1)

Asst. Year 1986-87

D.A. Mehta & Ms. H.N. Devani, JJ.

IT Ref. No. 62 of 1995

17th January, 2006

Counsel Appeared

S.N. Soparkar & Mrs. Swati Soparkar, for the Applicant : Manish R. Bhatt & Mrs. M.M. Bhatt, for the Respondent


D.A. Mehta, J. :

The Tribunal, Ahmedabad Bench “A”, has referred the following two questions under s. 256(1) of the IT Act, 1961 (the Act), at the instance of the assessee :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal while deciding the assessee’s appeal against the order passed by the learned CIT under s. 263 of the IT Act had jurisdiction to direct the AO to make proper investigation and then decide the question of allowability of additional commission in accordance with law ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal should have cancelled the order of the CIT under s. 263 directing the AO to disallow the additional commission ?”

The assessment year is 1986-87 and the relevant accounting period is calendar year 1985. The assessee had made a claim for deduction of a sum of Rs. 1,90,18,508 towards commission. This was comprised of two parts :

(1) regular commission which was deducted by the consignees before the sale proceeds were remitted to the assessee, and

(2) additional commission which was over and above the amount of commission payable to consignee distributors as per agreement entered into by the consignee distributors with the assessee. The AO allowed the claim while framing the assessment order.

The CIT, Gujarat Central, initiated action under s. 263 of the Act and came to the conclusion that the AO had not made proper inquiries and verified the claim regarding additional commission. According to the CIT, the claim was premature and was only in the nature of provision. That the assessee would, however, be free to claim the same when the commission was actually paid. He, therefore, directed the AO to disallow the assessee’s claim and revise the assessed income. Being aggrieved, the assessee carried the matter in appeal before the Tribunal. Vide order dt. 27th Aug., 1993, the Tribunal upheld the invocation of s. 263 of the Act, but modified the order of CIT to the extent of setting aside the direction to finally disallow the commission, by substituting the same with a direction to the AO to make proper inquiries and then, decide whether the additional commission was allowable or not. Mr. S.N. Soparkar, the learned senior advocate appearing on behalf of the applicant-assessee, submitted that the Tribunal had committed an error in modifying the order of CIT under s. 263 of the Act by substituting the direction of CIT. The contention was that the Tribunal could only uphold the order of CIT or hold that the same was bad in law. The Tribunal could not partially uphold the order of CIT, namely, upholding the assumption of jurisdiction under s. 263 of the Act and yet, modifying the direction made by CIT by restoring the matter to the file of the AO. This submission was based on the premise that the assessee was in appeal before the Tribunal and hence, the Tribunal was only required to determine whether the order of CIT was justified or not. Mrs. M.M. Bhatt, the learned standing counsel, appearing on behalf of the respondent has supported the order of Tribunal. As can be seen from the facts on record, the Tribunal has come to the conclusion that though CIT had rightly exercised jurisdiction under s. 263 of the Act, the evidence on record was insufficient to finally hold that the assessee was not entitled to claim deduction of additional commission. The Tribunal, therefore, modified the order of CIT by substituting the final direction to the AO of disallowing the claim of additional commission and instead, directed the AO to make proper inquiries, and then decide whether additional commission was allowable or not. Sec. 254(1) of the Act stipulates that the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. On a plain reading, it is, thus, apparent that no fetters are placed on the powers of the Tribunal to pass an order in appeal before it, except for the fact that an enhancement may not be permissible in absence of any cross-appeal or cross-objection. The legislature having couched the provision in the widest manner to pass such orders in the appeal as the Tribunal thinks fit, it would be incorrect to restrict the said powers in any manner whatsoever. Of course, the powers have to be exercised in consonance with the provisions of the Act and in accordance with the law. There is no warrant to read any restriction on the powers that the Tribunal can exercise in the circumstances like the one obtaining in the present case.

The CIT, while passing the order under s. 263 of the Act, had directed disallowance of the additional commission without anything more. The Tribunal has modified the same with a direction to the AO to make inquiries and then disallow the claim, if the facts so warrant. In fact, the order of CIT is modified in favour of the assessee and no prejudice is shown to have been caused to the assessee. Instead of the entire amount being disallowed, in the event of the order of CIT being confirmed in toto, the assessee has been granted an opportunity of leading evidence and satisfying the assessing authority that the claim made is valid, legal and tenable at law. The assessee could have no grievance in this fact situation. In fact, during the course of hearing, it was submitted on behalf of the applicant- assessee that, in other matters of the group, wherein similar orders were made by CIT under s. 263 of the Act, and wherein the Tribunal had made similar directions, the AO has allowed the claim of the group concerns after investigation and appreciating the evidence on record. The learned counsel, however, hastened to add that, in the present case, the AO had not carried out the necessary investigation as directed by the Tribunal, and hence, the Tribunal should be directed to ensure compliance of its direction. In relation to the last contention, suffice it to state that it cannot fall within the scope of this reference and if the assessee is aggrieved by any inaction on part of the AO, it is for the assessee to take appropriate action in accordance with law, including moving the Tribunal in appropriate proceedings. In light of what is stated hereinbefore, question No. 1 is answered in the affirmative and question No. 2 is answered in the negative i.e., both the questions are answered in favour of the Revenue and against the assessee. The reference stands disposed of accordingly. There shall be no order as to costs.

[Citation : 284 ITR 105]

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