1967 (1) TMI 9 - HC - Income Tax

Summary

Issues Involved:

1. Legitimacy of additions to gross profits by the Income-tax Officer.
2. Appellate Assistant Commissioner's adjustments to the additions.
3. Jurisdiction and powers of the Income-tax Appellate Tribunal.
4. Validity of the Tribunal's direction for re-examination of unaccounted stock and cash credits.

Issue-wise Detailed Analysis:

1. Legitimacy of Additions to Gross Profits by the Income-tax Officer:

The Income-tax Officer made three additions to the assessee's income for the account year ending November 1, 1948. These additions were: Rs. 16,845 to the gross profits from the groundnut business due to lack of vouchers, Rs. 27,563 to the profits from groundnut oil and cake due to low yield percentage, and Rs. 20,000 for unexplained stock discrepancies. The Officer also noted suspicious borrowings totaling Rs. 33,776 and a deposit and withdrawal of Rs. 14,000 but did not treat them as separate heads for income addition.

2. Appellate Assistant Commissioner's Adjustments to the Additions:

The Appellate Assistant Commissioner (AAC) provided substantial relief to the assessee. He reduced the addition to the groundnut business profits from 10% to 7.4%, eliminating the Rs. 16,845 addition. Similarly, he reduced the addition for groundnut oil and cake from Rs. 27,563 to Rs. 8,680. However, the AAC did not interfere with the Rs. 20,000 addition for unexplained stock, as the assessee did not seriously contest this point.

3. Jurisdiction and Powers of the Income-tax Appellate Tribunal:

The Tribunal initially refused an adjournment request from the assessee and proceeded ex parte, later setting aside the AAC's order and directing a re-examination of the entire gross profit. Upon a fresh disposal of the appeal, the Tribunal upheld its previous stance, suggesting a re-examination of cash credits and bank deposits, even if it resulted in a higher tax liability for the assessee.

The Tribunal's powers are limited to the subject matter of the appeal, as per sub-section (4) of section 33 of the 1922 Act and section 254 of the 1961 Act. The Tribunal can pass orders only on the appeal's subject matter and cannot enhance the tax assessment beyond what was fixed by the Income-tax Officer unless there is a cross-appeal or memorandum of cross-objections.

4. Validity of the Tribunal's Direction for Re-examination of Unaccounted Stock and Cash Credits:

The Tribunal's direction to re-examine unaccounted stock and cash credits was beyond its jurisdiction. The Rs. 20,000 addition for unexplained stock was not contested in the appeal and was confirmed by the AAC. The Tribunal's directive to treat cash credits and bank deposits as independent bases for addition was also beyond its powers. However, examining these as evidence to support additions in groundnut and groundnut oil and cake profits was within jurisdiction.

Conclusion:

The Tribunal overstepped its jurisdiction by setting aside the entire order of the AAC and directing a re-examination of issues not contested in the appeal. The Tribunal's powers are confined to the subject matter of the appeal and cannot extend to enhancing the tax liability beyond the original assessment. The direction to re-examine unaccounted stock and treat cash credits and deposits as separate heads for addition was beyond its appellate powers.

Final Answer:

On the facts and in the circumstances of this case, the Appellate Tribunal had no jurisdiction to set aside the entire order of the Appellate Assistant Commissioner; it could deal only with that part of the order of the Appellate Assistant Commissioner which dealt with the two additions of Rs. 16,845 and Rs. 27,563 but could not deal with or set aside that part of the order of the Appellate Assistant Commissioner which confirmed the addition of Rs. 20,000 made by the Income-tax Officer on account of unexplained stock. The direction by the Appellate Tribunal to the Appellate Assistant Commissioner to examine the question of unaccounted stock afresh is beyond the appellate powers of the Tribunal. The direction for the examination of cash credits and bank deposits is beyond its jurisdiction if it is to be regarded as a direction to treat them as a separate head for making additions, but may be regarded as within jurisdiction if it is construed as a direction to examine the same as evidence to lead assurance to the additions in respect of groundnut and groundnut oil and cake. The observation amounting in the circumstances to a direction that on a re-hearing of the appeal, the Appellate Assistant Commissioner may make an order resulting in an enhancement of tax liability beyond the liability fixed by the Income-tax Officer, the original assessing authority, is beyond the appellate powers of the Tribunal.

The assessee will have the costs of this reference. Advocate's fee Rs. 250.

Question answered in the negative.