Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that in the reassessment proceeding, after the original assessment has been set aside, the ITO cannot rope in new sources of income ?

Counsel Appeared

R.C. Mukati, for the Revenue : M.L. Dhupar, for the Assessee

G.G. SOHANI, J.:

By this reference under s. 256(1) of the IT Act, 1961 (hereinafter referred to as “the Act”), the Tribunal, Indore Bench, has referred the following questions of law to this Court for its opinion:

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that in the reassessment proceeding, after the original assessment has been set aside, the ITO cannot rope in new sources of income ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that no perquisite for the user of the car of the company for private purposes accrued to him ?”

2. The material facts giving rise to this reference, briefly, are as follows: The assessee is assessed in the status of an individual. For the asst. yr. 1973-74, the assessee filed a return declaring a total income of Rs. 14,840. The ITO, however, computed the total income at Rs. 2,69,515 and passed an order of assessment accordingly. Aggrieved by that order, the assessee preferred an appeal before the AAC. The addition of Rs. 17,500 on account of low withdrawals, the addition of Rs. 25,000 on account of gift received from one Ladli Prasad and an addition of Rs. 40,000 made on account of gift made by Smt. Nagpal, were assailed before the AAC, inter alia, on the ground that the assessee was not given adequate opportunity of hearing. The AAC found that the assessee was not given adequate opportunity of hearing. The AAC, therefore, set aside the order of assessment and remanded the case to the ITO with the following observations: “A perusal of the assessment order and the contentions raised by the assessee show that while there are certain circumstances giving rise to suspicions against the assessee, the contention raised by the appellant also cannot be brushed aside lightly. In particular, there has been denial of proper opportunity to the assessee in respect of addition on account of low household expenses and certain cash credits/gifts. It is, therefore, considered expedient to set aside the present assessment. The ITO is directed to afford a proper opportunity to the assessee in regard to each item of addition made by him and after taking into account the evidence tendered by him, frame a fresh assessment as per law.”

After the matter came back to the ITO, the ITO made further enquiry and found that apart from the additions made to the total income of the assessee, which were objected to by the assessee before the AAC, certain deposits in the names of certain persons were made by the assessee and that the said deposits represented the income of the assessee from undisclosed sources. The ITO accordingly held that a sum of Rs. 1,64,250 was the income of the assessee from undisclosed sources. The ITO also added the value of the perquisite in respect of the use of a car.

The ITO accordingly completed the assessment on a total income of Rs. 2,65,760. Aggrieved by that order, the assessee preferred an appeal before the CIT(A). It was contended on behalf of the assessee that in making a fresh assessment in pursuance of the order of remand passed by the AAC, the ITO was not competent to make new additions based on new sources of income. The CIT(A) rejected that contention. The objection raised on behalf of the assessee to the addition of Rs. 5,400 being the value of the perquisite in the shape of free use of a car of the company, of which the assessee was the managing director, for his private purposes was also not upheld by the CIT(A). Aggrieved by the order passed by the CIT(A), the assessee preferred an appeal before the Tribunal. The Tribunal found that the assessee had initially preferred an appeal before the AAC aggrieved by the additions made by the ITO, that the grievance of the assessee before the AAC was that he was not given an adequate opportunity to prove his case in respect of those additions and that the controversy before the CIT(A) was, therefore, limited only with respect to the three additions made by the ITO. The Tribunal, therefore, held that the new additions made by the ITO on the basis of new sources of income were without jurisdiction. The Tribunal also held that the addition of Rs. 5,400 as value of the perquisite for the use of the car was not justified. Aggrieved by the order passed by the Tribunal, the Revenue sought a reference and it is at the instance of the Revenue that the aforesaid questions of law have been referred to this Court for its opinion.

The learned counsel for the Revenue contended that once the matter was remanded to the ITO for making a fresh assessment, it was open to the ITO to consider the entire matter afresh and make new additions based on new sources of income. Reliance was placed on the decision in CIT vs. Seth Manicklal Fomra (By LRs) 1975 CTR (Mad) 222 : (1975) 99 ITR 470 (Mad) : TC7R.687. In reply, it was contended on behalf of the assessee that the power of the ITO was confined to the old sources of income which were the subject-matter of appeal before the AAC.

Now, in the instant case, the matter was remanded to the ITO by the AAC to afford a proper opportunity to the assessee in regard to each item of addition made by him and thereafter to pass an order of assessment afresh. The order of remand, therefore, was limited to making a fresh enquiry into the question of additions made by the ITO in the original assessment order. It is true that there is a difference of opinion as reflected in the decisions of the various High Courts cited before us, on the question as to whether it is open to the ITO to consider the entire matter afresh, notwithstanding the terms of the order of remand. It is, however, not necessary in the instant case to enter into that controversy, because there is another aspect of the matter which arises in this case. In CIT vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) : TC7R.590, the Supreme Court has held that while deciding an appeal from an order passed by the ITO, the AAC has no jurisdiction to assess a source of income which has not been processed by the ITO and which is not disclosed either in the return filed by the assessee or in the assessment order and the AAC, therefore, cannot travel beyond the subject-matter of the assessment. From this decision, it follows that the AAC cannot, while setting aside the assessment, empower the ITO to go into points which he himself could not have investigated in exercise of his power of enhancement. Now, if the AAC could not have empowered the ITO to assess a source of income not processed by the ITO in the original order of assessment and not disclosed either in the return or in the assessment order, it is difficult to appreciate as to how the ITO could assume jurisdiction to tax that new source of income while making a fresh assessment in pursuance of an order of remand by the AAC. In Kartar Singh vs. CIT (1978) 111 ITR 184 (P&H) : TC10R.564, Chinnappa Reddy J., as he then was, observed as follows : “It is not necessary for us to enter into a detailed discussion of the questions raised in view of the fact that the addition of Rs. 54,075 made by the ITO was from a new source and this he was not competent to do. In Shri Gajalakshmi Ginning Factory Ltd. vs. CIT (1952) 22 ITR 502 (Mad) : TC7R.470, the learned judges observed that it would not be open to the AAC to introduce into the assessment new sources as his power of enhancement was restricted only to the income which was the subject-matter of consideration for purposes of assessment by the ITO. We are of the view that on remand by the Tribunal, it was not open to the ITO to introduce into the assessment new sources of income so as to enhance the assessment. His power to enhance, if it existed, was confined to the old sources of income which were the subject- matter of the appeal to the Tribunal.

In our opinion, therefore, the Tribunal was right in holding that the ITO in the reassessment proceedings had no jurisdiction to tax new sources of income. Our answer to question No. (1) referred to this Court is, therefore, in the affirmative and against the Revenue.

5. As regards question No. (2), the Tribunal, in our opinion, was right in holding that the unauthorised use of the car of the company by the assessee could not constitute a perquisite. The view of the Tribunal is supported by a decision of the Madras High Court in CIT vs. A. R. Adaikappa Chettiar (1973) 91 ITR 90 (Mad). We see no cogent reason to take a view different from that taken in (1973) 91 ITR 90 (Mad) (supra). Our answer to question No. (2) referred to this Court is, therefore, in the affirmative and against the Revenue.

6. Reference answered accordingly. Parties shall bear their own costs of this reference in the circumstances of the case.

[Citation : 171 ITR 136]