1979 (7) TMI 62 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was correct in upholding the order of the Appellate Assistant Commissioner (AAC) directing the allowance of expenses in different assessment years while they had been claimed before the Income-tax Officer (ITO) in later assessment years.

Issue-Wise Detailed Analysis:

1. Tribunal's Decision on AAC's Allowance of Expenses in Different Assessment Years:
The main issue revolves around whether the AAC was correct in allowing certain expenses in different assessment years than those in which they were originally claimed before the ITO. The expenses in question were claimed by a registered firm dealing in mica for the assessment years 1965-66, 1966-67, and 1967-68. The ITO rejected these claims based on the mercantile system of accounting, which required the expenses to be claimed in the year they arose. The AAC, however, allowed these expenses in the correct assessment years after considering the appeals.

2. Details of Expenses Claimed and Allowed:
The judgment provides a detailed tabular representation of the expenses, the years they were claimed, and the years they were allowed by the AAC:
- Commission to Mudial Saheb: Claimed in 1966-67, allowed in 1965-66.
- Audit fee: Claimed in 1966-67, allowed in 1965-66.
- Bonus: Claimed in 1967-68, allowed in 1965-66.
- Profit bonus payment: Claimed in 1967-68, allowed in 1965-66.
- Emergency Risk Insurance: Claimed and allowed in 1966-67.
- Emergency Risk Insurance: Claimed in 1967-68, allowed in 1966-67.
- Quality claim: Claimed in 1967-68, allowed in 1966-67.
- Loss for payment of defective quality: Claimed in 1968-69, allowed in 1967-68.

3. Arguments by the Department:
The Department argued that the AAC was not competent to allow expenses for different assessment years while considering an appeal for one specific year. They relied on several Supreme Court decisions, including:
- ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC): This decision held that findings must be confined to the year concerned and cannot spill over to other years.
- CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC): This case ruled that the AAC cannot make findings affecting other assessment years.
- Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1 (SC): This decision emphasized that claims not raised before the ITO cannot be considered by the AAC.

4. Arguments by the Assessee:
The Assessee contended that the AAC's powers are conterminous with those of the ITO. Therefore, the AAC could modify assessments for multiple years if he was in seisin of them simultaneously. The Assessee argued that the AAC's findings on expenses should be treated as incidental observations when they pertain to other years.

5. Court's Analysis and Decision:
The Court analyzed the cited Supreme Court decisions and found them irrelevant to the present case, as those decisions dealt with unprocessed claims or findings spilling over to other years. In contrast, the current case involved claims that were processed by the ITO but disallowed for the wrong year. The Court emphasized the AAC's plenary powers under Section 251 of the Income-tax Act, 1961, allowing him to confirm, reduce, enhance, or annul assessments and to make necessary adjustments when multiple assessments are under consideration.

The Court concluded that the AAC acted within his powers by allowing expenses in the correct assessment years while being in seisin of all relevant assessments. The Court, therefore, answered the question in the affirmative and in favor of the assessee, confirming the Tribunal's decision.

Conclusion:
The Court upheld the AAC's decision to allow expenses in different assessment years than those claimed before the ITO, affirming the Tribunal's order and ruling in favor of the assessee. The assessee was entitled to costs, with a hearing fee of Rs. 250.