1990 (9) TMI 6 - SC - Income Tax

Jurisdiction of Appellate Assistant Commissioner (AAC) to entertain an additional ground or to grant relief - Claim for deduction on the ground of liability to purchase tax - Interpretation of section 251(1)(a) of the Income-tax Act 1961 - Appellant entertained a belief that it was not liable to pay purchase tax - neither any claim made before the Income-tax Officer nor there was any material on record supporting such a claim - judicial precedents - change of circumstances or law - bona fide reason. HELD THAT - Section 251 of the Income-tax 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 Income-tax Act has been an intricate and vexed one. There is no uniformity in judicial opinion on this question. If the Appellate Assistant Commissioner is satisfied he 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 Appellate Assistant Commissioner 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 Appellate Assistant Commissioner 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. For the assessment year 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 November 23 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 I purchase tax as deduction for the assessment year 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. v. CIT 1971 (8) TMI 10 - SUPREME COURT . Thus the Appellate Assistant Commissioner allowed the assessee to raise this question and after hearing the Income-tax Officer he granted the deduction from the assessee s income. The Tribunal took a contrary view placing reliance on the decision of this court in Gurjargravures P. Ltd. 1977 (11) TMI 1 - SUPREME COURT . As already discussed the facts in the instant case are quite clear unlike the facts involved in Gurjargravure s case. We are therefore of the view that the view taken by the Appellate 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. Since the view taken by the Income-tax Appellate Tribunal is not sustainable in law we grant leave against the order of the Income-tax Appellate Tribunal under article 136 and set aside the same and remit the matter to the Income-tax Appellate Tribunal to consider the merits of the deduction permitted by the Appellate Assistant Commissioner. The appeal is accordingly disposed of.

Summary

The core legal questions considered by the Court in this case are:

1. Whether the Appellate Assistant Commissioner (now Deputy Commissioner of Appeals), while hearing an appeal under section 251(1)(a) of the Income-tax Act, has jurisdiction to entertain an additional ground of appeal not raised before the Income-tax Officer.

2. The scope and extent of the appellate authority's power under section 251(1)(a) in relation to modifying or setting aside the assessment order passed by the Income-tax Officer.

3. The applicability and interpretation of precedent decisions, particularly the apparent conflict between the three-Judge Bench decision in Kanpur Coal Syndicate and the two-Judge Bench decision in Gurjargravures P. Ltd., concerning the power to entertain new grounds or claims not raised before the Income-tax Officer.

4. Whether the specific claim for deduction of liability to pay raw jute purchase tax, raised as an additional ground before the Appellate Assistant Commissioner, was rightly entertained and allowed.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Appellate Assistant Commissioner to entertain additional grounds of appeal:

The Court examined section 251(1)(a) of the Income-tax Act, which confers broad powers on the appellate authority to confirm, reduce, enhance, annul, or set aside the assessment and remit the case for fresh assessment. The statute does not expressly prohibit raising new grounds in appeal.

The Court reviewed the historical context and precedents under the earlier Indian Income-tax Act, 1922, notably the three-Judge Bench decision in Kanpur Coal Syndicate, which held that the appellate authority's power is plenary and conterminous with that of the Income-tax Officer. The appellate authority can do what the original officer can do and direct the officer to do what was omitted.

In contrast, the two-Judge Bench decision in Gurjargravures P. Ltd. held that the appellate authority cannot entertain a new ground not raised before the Income-tax Officer, especially where no claim or evidence was presented at the original assessment stage. However, the Court noted that the Gurjargravures decision did not consider the Kanpur Coal Syndicate precedent and was decided on special facts where no material supported the new claim.

The Court reconciled these views by holding that the appellate authority has jurisdiction to entertain additional grounds if they could not have been raised earlier due to change of circumstances or law, or if the claim is bona fide and supported by evidence. The appellate authority must exercise discretion judiciously, ensuring the new ground is not raised frivolously or to cause delay.

The Court also relied on the Calcutta High Court's decision in Rai Kumar Srimal, which supported admitting new grounds or evidence if there is a reasonable explanation for not adducing it earlier, emphasizing the need for bona fide grounds and absence of wilful delay.

2. Scope of appellate power under section 251(1)(a):

The Court emphasized that the appellate authority's power is wide and includes the ability to set aside or modify the assessment order on appeal. This power is coextensive with that of the Income-tax Officer and includes the authority to direct fresh assessment or grant relief not granted earlier, provided it is within the statutory framework.

The Court distinguished between the power to enhance assessment by discovering new sources of income (which the appellate authority cannot do) and the power to grant deductions or relief on admitted facts supported by law and evidence, which is permissible.

The Court underscored that there is no statutory provision restricting the appellate authority from entertaining additional grounds, and the general principle is that appellate authority's power is plenary unless expressly curtailed.

3. Application to the facts of the case regarding deduction for purchase tax liability:

The appellant, a government corporation engaged in jute manufacture, initially did not claim deduction for liability to pay raw jute purchase tax for the assessment year 1974-75, believing it was not liable under the Bengal Raw Jute Taxation Act, 1941. Subsequently, it was assessed to pay the purchase tax, and the appellant disputed the demand and obtained a stay order from the appellate authority.

The appellant then raised the additional ground before the Appellate Assistant Commissioner seeking deduction of Rs. 11,54,995 representing the liability for purchase tax, relying on the settled precedent of this Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT, which allowed such deduction.

The Appellate Assistant Commissioner allowed the additional ground after hearing the Income-tax Officer and granted the deduction. However, the Income-tax Appellate Tribunal reversed this, relying on Gurjargravures, holding that the Appellate Assistant Commissioner had no jurisdiction to entertain the new ground as it was not raised before the Income-tax Officer.

The High Court upheld the Tribunal's view, refusing to call for a statement of case. The Supreme Court found the Tribunal's and High Court's decisions unsustainable in law, distinguishing the facts from Gurjargravures, as here there was a bona fide claim supported by law and facts, and the liability was admitted (though disputed), with an opportunity given to the Income-tax Officer to be heard.

The Court held that the Appellate Assistant Commissioner rightly exercised jurisdiction in entertaining the additional ground and granting the deduction.

4. Treatment of competing arguments and procedural considerations:

The Revenue argued that the appellate authority could not entertain new grounds not raised before the Income-tax Officer and relied on Gurjargravures. The Court acknowledged this precedent but found it factually distinguishable and noted the absence of the Kanpur Coal Syndicate precedent in that case.

The Court emphasized the discretionary nature of admitting additional grounds, requiring bona fides and valid reasons for not raising the claim earlier, which were present in this case.

Regarding procedural propriety, the Court noted that ordinarily the matter would be referred back to the High Court for fresh consideration, but since the Court had clarified the correct legal position, it exercised its power under article 136 to set aside the Tribunal's order and remit the matter for consideration on merits.

Significant Holdings:

"The power of the Appellate Assistant Commissioner is conterminous with that of the Income-tax Officer, 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 Income-tax Officer."

"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."

"The Appellate Assistant Commissioner 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 view taken by the Income-tax Appellate Tribunal is not sustainable in law."

"We grant leave against the order of the Income-tax Appellate Tribunal under article 136 and set aside the same and remit the matter to the Income-tax Appellate Tribunal to consider the merits of the deduction permitted by the Appellate Assistant Commissioner."

The Court thus established that the appellate authority under section 251(1)(a) has jurisdiction to entertain additional grounds of appeal not raised before the Income-tax Officer, subject to bona fide reasons and discretion, and that such power is plenary and coextensive with the original assessing authority's power. The decision clarifies the interplay between earlier conflicting precedents and affirms the right of the assessee to raise new grounds in appeal under appropriate circumstances.