S.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the AAC had exceeded his powers in entertaining the additional ground of appeal taken before him in respect of the claim for deduction of a sum of Rs. 11,54,995 representing liability for raw jute purchase tax ?

Counsel Appeared

A.K. Bhattacharya & G.S. Chatterji, for the Appellant : J. Ramamurti, S. Rajappa & Ms. A. Subhashini, for the Respondent

K.N. SINGH, J.:

The appellant is a Government corporation engaged in jute industry. It was assessed to income-tax for the asst. yr. 1974-75 by the ITO. The assessee preferred an appeal before the AAC. During the hearing of the appeal, the assessee raised an additional ground claiming deduction of Rs. 11,54,995 on the ground of liability to purchase tax. The assessee claimed that, in view of the decision of this Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC), the aforesaid amount being tax liability should be deducted from its income for purposes of charging tax. The AAC permitted the assessee to raise the additional ground and after hearing the ITO, he accepted the assessee’s claim and allowed deduction of Rs. 11,54,995 in computing the total income of the assessee for the asst. yr. 1974- 75. The Revenue preferred an appeal before the Tribunal. The Tribunal held that the AAC had no jurisdiction to entertain an additional ground or to grant relief to the assessee on a ground which had not been raised before the ITO. The Tribunal set aside the order of the AAC placing reliance on the decision of this Court in Addl. CIT vs. Gurjargravures (P) Ltd. 1978 CTR (SC) 1 : (1978) 111 ITR 1 (SC) : TC7R.367. The assessee made an application before the Tribunal under s. 256(1) of the IT Act, 1961, for making reference to the High Court. The Tribunal refused to refer the question on the findings that the question stood covered by this Court’s decision in Gurjargravures’ case (supra). The assessee thereupon approached the High Court under s. 256(2) of the Act for calling for a statement of case and reference from the Tribunal. A division Bench of the Calcutta High Court held that the Tribunal was right in rejecting the assessee’s application, and, therefore, it refused to call for a statement of case. The assessee thereupon approached this Court under Art. 136 of the Constitution, and obtained leave. Hence, this appeal.

2. The question of law which the assessee sought to be referred to the High Court under s. 256(1) of the Act was : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the AAC had exceeded his powers in entertaining the additional ground of appeal taken before him in respect of the claim for deduction of a sum of Rs. 11,54,995 representing liability for raw jute purchase tax ?”

3. Sec. 251 of the IT Act (hereinafter referred to as “the Act”) prescribes the power of the appellate authority hearing an appeal against the order of ITO. Clause (a) of s. 251(1) confers power on the appellate authority, namely, the AAC [now, after the amendment of 1987, the Dy. Commissioner(A)], according to which the appellate authority, while hearing an appeal against an order of assessment, has power to confirm, reduce, enhance or annul the assessment, he is further empowered to set aside the assessment and remit the case to the Assessing Officer for making a fresh assessment in accordance with its directions, after making such further inquiry as may be necessary. If a direction is issued by the appellate authority, the Assessing Officer is required to proceed to make such fresh assessment and determine the amount of tax, if any, payable on the basis of fresh assessment. The AAC is thus invested with wide powers under s. 251(1)(a) of the Act while hearing an appeal against the order of assessment made by the ITO. The amplitude of the power includes power to set aside the assessment order or modify the same. The question is whether the AAC while hearing an appeal under s. 251(1)(a) has jurisdiction to allow the assessee to raise an additional ground in assailing the order of assessment before it. The Act does not contain any express provision debarring an assessee from raising an additional ground in appeal and there is no provision in the Act placing restriction on the power of the appellate authority in entertaining an additional ground in appeal. In the absence of any statutory provision, the general principle relating to the amplitude of the appellate authority’s power being coterminous with that of the initial authority should normally be applicable. But this question, for the purposes of the IT Act, has been an intricate and vexed one. There is no uniformity in judicial opinion on this question. Sec. 31 of the Indian IT Act, 1922, also conferred power on the AAC to hear appeals against the assessment order made by the ITO. Chagla, C.J., of the Bombay High Court, considered the question in detail in Narrondas Manordass vs. CIT (1957) 31 ITR 909 (Bom) : TC7R.427 and held that the AAC was empowered to correct the ITO not only with regard to a matter which had been raised by the assessee but also with regard to a matter which may have been considered by the ITO and determined in the course of the assessment. The High Court observed that since the AAC had revising authority against the decisions of the ITO; a revising authority not in the narrow sense of revising what is the subject matter of the appeal, not in the sense of revising those matters about which the assessee makes a grievance, but a revising authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the ITO, but he can revise every process which led to the ultimate computation or assessment. These observations were approved by this Court in CIT vs. McMillan & Co. (1958) 33 ITR 182 (SC) : TC7R.653. The AAC, on an appeal preferred by the assessee, had jurisdiction to invoke, for the first time, the provisions of r. 33 of the Indian IT Rules, 1922, for the purpose of computing the income of a nonresident even if the ITO had not done so in the assessment proceedings. But, in CIT vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC) : TC7R.576, this Court, while considering the extent of the power of the AAC, referred to a number of cases decided by various High Courts including the Bombay High Court judgment in Narrondas’ case (supra) and also the decision of this Court in McMillan & Co’s case (supra) and held that, in an appeal filed by the assessee, the AAC has no power to enhance the assessment by discovering new sources of income not considered by the ITO in the order appealed against. It was urged on behalf of the Revenue that the words “enhance the assessment” occurring in s. 31 were not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. The Court observed that there was no doubt that this view was also possible, but having regard to the provisions of ss. 34 and 33B, which made provision for assessment of escaped income from new sources, the interpretation suggested on behalf of the Revenue would be against the view which had held the field for nearly 37 years. In this view, the Court held that the AAC had no power to enhance the assessment by discovering new sources of income. This decision does not directly deal with the question with which we are concerned. Power to enhance tax on discovery of new source of income is quite different from granting deduction on the admitted facts fully supported by the decision of this Court. If the tax liability of the assessee is admitted and if the ITO is afforded an opportunity of hearing by the appellate authority in allowing the assessee’s claim for deduction on the settled view of law, there appears to be no good reason to curtail the powers of the appellate authority under s. 251(1)(a) of the Act.

In CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) : TC7R.475., a three Judge Bench of this Court discussed the scope of s. 31(3)(a) of the Indian IT Act, 1922, which is almost identical to s. 251(1)(a). The Court held as under : “If an appeal lies, s. 31 of the Act describes the powers of the AAC in such an appeal. Under s. 31 (3)(a), in disposing of such an appeal, the AAC may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under cl. (b) thereof he may set aside the assessment and direct the ITO to make a fresh assessment. The AAC has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the ITO. He can do what the ITO can do and also direct him to do what he has filed to do.” [Emphasis, italicised in print, supplied]

The above observations are squarely applicable in the interpretation of s. 251(1)(a) of the Act. The declaration of law is clear that the power of the AAC is co-terminous with that of the ITO, and if that is so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the ITO. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO.

6. In Addl. CIT vs. Gurjargravures (P) Ltd. (supra), this Court has taken a different view, holding that, in the absence of any claim made by the assessee before the ITO regarding relief, he is not entitled to raise the question of exemption under s. 84 before the AAC hearing the appeal against the order of the ITO. In that case, the assessee had made no claim before the ITO for exemption under s. 84 of the Act, no such claim was made in the return nor was any material placed on record supporting such a claim before the ITO at the time of assessment. The assessee, for the first time, made a claim for exemption under s. 84 before the AAC who rejected the claim but, on further appeal, the Tribunal held that since the entire assessment was open before the AAC, there was no reason for his not entertaining the claim, or directing the ITO to allow appropriate relief. On a reference, the High Court upheld the view taken by the Tribunal. On appeal, this Court set aside the order of the High Court as it was of the view that the AAC had no power to interfere with the order of assessment made by the ITO on a new ground not raised before the ITO and, therefore, the Tribunal committed an error in directing the AAC to allow the claim of the assessee under s. 84 of the Act. Apparently, this view taken by the two Judge Bench of this Court appears to be in conflict with the view taken by the three Judge Bench of this Court in Kanpur Coal Syndicate’s case (supra). It appears from the report of the decision in the Gurjargravures’ case that the three Judge Bench decision in Kanpur Coal Syndicate case (supra) was not brought to the notice of the Bench in the Gurjargravures (P) Ltd.’s (supra). In the circumstances, the view of the larger Bench in Kanpur Coal Syndicate case (supra) holds the field. However, we do not consider it necessary to overrule the view taken in Gurjargravures (P) Ltd.’s case (supra), as, in our opinion, that decision is founded on the special facts of the case, as would appear from the following observations made by the Court: “As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the AAC. We are not here called upon to consider a case where the assessee failed to make a claim though there was evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case, neither any claim was made before the ITO, nor was there any material on record supporting such a claim”.

The above observations do not rule out a case for raising an additional ground before the AAC if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made, or that the ground became available on account of change of circumstances or law. There may be several factors justifying the raising of such a new plea in appeal, and each case has to be considered on its own facts. If the AAC is satisfied, how would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the AAC should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the AAC depends upon the facts and circumstances of each case and no rigid principles or any hard and fast rule can be laid down for this purpose. In Rai Kumar Srimal vs. CIT (1976) 102 ITR 525 (Cal) : TC7R.309, a Division Bench of the Calcutta High Court presided over by Sabyasachi Mukharji J., as he then was, held that the AAC was entitled to admit new grounds or evidence either suo motu or at the invitation of the parties. If he is acting on being invited by the assessee, then there must be some ground for admitting new evidence in the sense that there must be some explanation to show that the failure to adduce earlier the evidence sought to be adduced before the AAC was not wilful and not unreasonable. This view is reasonable and it finds favour with us.

In the instant case, the assessee was carrying on manufacture and sale of jute. For the asst. yr. 1974-75, it did not claim any deduction of its liability to pay purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as the appellant entertained a belief that it was not liable to pay purchase tax under the aforesaid Act. But, later on, it was assessed to purchase tax and the order of assessment was received by it on 23rd Nov., 1973. The appellant disputed the demand and filed an appeal before the appellate authority and obtained a stay order. The assessee, thereafter, claimed deduction of the amount of Rs. 11,54,995 towards its liability to pay purchase tax as deduction for the asst. yr. 1974-75. The assessee had not actually paid the purchase tax as it had obtained stay from the appellate authority; none the less its liability to pay tax existed, and it was entitled to deduction of Rs.11,54,995 as was held by this Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC). There was no dispute about these facts. In these circumstances, the AAC allowed the assessee to raise this question and, after hearing the ITO, he granted the deduction from the assessee’s income. The Tribunal took a contrary view placing reliance on the decision of this Court in Addl. CIT vs. Gurjargravure’s (P) Ltd. (supra). As already discussed, the facts in the instant case are quite clear, unlike the facts involved in Gurjargravure’s case (supra). We are therefore, of the view that the view taken by the Tribunal and the High Court is not sustainable in law. In our opinion, the High Court and Tribunal both committed an error in refusing to state the case, or making a reference.

The next question which arises for consideration now is as to what order should be passed in the present circumstances. In view of the findings recorded by us, ordinarily, we should direct the High Court to call for the statement of case from the Tribunal and thereupon decide the matter afresh, but this procedure would be time consuming. Since we have already discussed the correct position in law, we do not consider it necessary to follow the usual procedure. Since the view taken by the Tribunal is not sustainable in law, we grant leave against the order of the Tribunal under Art. 136 and set aside the same and remit the matter to the Tribunal to consider the merits of the deduction permitted by the AAC. If the Tribunal thinks it necessary, it may remand the matter to the AAC [now Dy. Commissioner (Appeals)] for rehearing. The appeal is, accordingly, disposed of. There will be no order as to costs.

[Citation : 187 ITR 688]