TMI Blog2010 (3) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of the first appeal. In the result, all the three appeals filed by the department are dismissed. Per Vijay Pal Rao, Judicial Member - HELD THAT:- Following the decisions case of the Tarajan Tea Co. (P.) Ltd. [ 1993 (7) TMI 67 - GAUHATI HIGH COURT] , Thanthi Trust [ 1998 (2) TMI 62 - MADRAS HIGH COURT] , Assam Tribune [ 2006 (4) TMI 85 - GAUHATI HIGH COURT] . It is clear that the Tribunal has the jurisdiction and power to entertain a fresh plea on the subject-matter of the appeal before it and to pass necessary directions for ascertainment of relevant facts and deciding the issue by applying the correct provisions of law. In the case in hand the subject-matter is same for which the learned Departmental Representative has raised a plea that the claim of unaccounted expenditure is required to be decided u/s 37(1) and not u/s 69C as wrongly applied by the AO. Since the claim of the expenditure was disallowed by the AO, therefore in any case by entertaining this plea and remanded the matter to the AO for correcting the application of law shall not amount to enhancement of assessment. In view of the above discussion and decisions of the Hon ble Supreme Court and the Hon ble H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned CIT(A) has erred in allowing the expenses claimed in earning the commission income when the same is not substantiated. 3. The assessee was engaged in the agency business of leather and leather products in the name of his proprietary concern M/s. Shoetek Agencies. He was receiving commission on export orders given to Good Leather group of concerns, headed by Shri K.R. Vijyan. 4. A search was conducted in the case of the assessee under section 132 of the Act on 22-1-2004. The papers found and seized during the search showed that the assessee had received unaccounted commission in cash. In the returns filed in response to the notice under section 153A the assessee showed unaccounted receipt of commission and unaccounted expenditure for the three years as under. S. No. AY Unaccounted Commission Rs. Unaccounted Expenses Rs. 1. 2002-03 11,35,819 10,00,000 2. 2003-04 44,01,158 15,00,000 3. 2004-05 90,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce explained by the assessee, in the form of unaccounted commission, stands to get reduced by the claim of the unexplained expenditure and therefore, to that extent the shortfall in the source will have to be brought to tax. The spirit and intention behind the legislation of inserting the proviso to section 69C of IT Act, is precisely to counter such instances of claims of expenditure, for which there is no sufficient source. Otherwise, there would never arise even a single situation which can be anticipated for application of proviso to section 69C of IT Act, by applying the representative s explanation that the source, just by an explanation without actually offering the same, should come to get treated as source explained in his opinion. The fact that the assessee has admitted the unaccounted commission in the return of income filed pursuant to the search which is much more than the claim of expenditure does not prove any point when it comes to explaining the source as long the same gets netted by the claim of unexplained expenditure. In view of the above, I am of the opinion that the assessee has not offered any satisfactory explanation about the source of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned DR. 13. The learned DR, appeared to be very confident that the Tribunal, in an appeal by the department, did have jurisdiction to correct an error committed by the Assessing Officer. He explained that the word thereon appearing in section 254(1) of the Act referred to the subject-matter of the appeal before the Tribunal. He contended that it was open to the department to argue, saying that the Assessing Officer committed an error in invoking section 69C of the Act, that the Assessing Officer should have applied the provisions of section 37(1) of the Act, that the error needed to be corrected by the Tribunal, and he requested that the matter be restored to the file of the Assessing Officer with a direction to examine the case under section 37(1) of the Act. He placed reliance, and took us through the decisions in the following cases. (i) Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC), (ii) CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), (iii) Steel Containers Ltd. v. CIT [1978] 112 ITR 995 (Cal.), (iv) D.M. Neterwalla v. CIT [1980] 122 ITR 880 (Bom.), (v) Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC), (vi) N.P. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) CIT v. Madras Industrial Investment Corpn. Ltd. [1980] 124 ITR 454 (Mad.), (viii) MCORP Global (P.) Ltd. v. CIT [2009] 309 ITR 4342 (SC). 15. We have considered the rival submissions and have very carefully perused the decisions cited and relied upon by both the parties. Before proceeding further we consider it necessary to examine and discuss the legal position with regard to the powers and jurisdiction of the Tribunal in different situations. 16. The sub-sections (1) and (2) of section 253 read as under : 253.(1) Any assessee aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order- (a) an order passed by a [Deputy Commissioner (Appeals)] [before the 1st day of October, 1998] [or, as the case may be, a Commissioner (Appeals)] under [section 154], section 250, [section 271, section 271A or section 272A]; or (b) an order passed by an Assessing Officer under clause (c) of section 158BC, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, after the 30th day of June, 1995, but before the 1st day of January, 1997; or (ba) an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word thereon refers to the word appeal , and in the case of an appeal filed by the department before the Tribunal, the word appeal will derive its meaning from sub-section (2) of section 253. In other words, the scope of an appeal filed by the department will be limited to the order of the CIT(A). The word objects appearing in sub-section (2) of section 253 makes this point very clear. 20.1 It may be necessary to point out that the word used in sub-section (1) of section 253, dealing with appeal by assessee, is aggrieved . The different words used in sub-sections (1) and (2) of section 253 - aggrieved and objects respectively, bring out the subtle difference between the scope of the appeals, filed before the Tribunal, by the assessee and by the department. 21. The Courts have held that the word thereon appearing in sub-section (1) of section 254 restricts the jurisdiction of the Tribunal to the subject matter of the appeal. Therefore, in the case of an appeal by the department, the subject-matter of the appeal cannot extend beyond the realm of the order of the CIT(A). The word objects appearing in sub-section (2) of section 253 makes this point unambigu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Mahalakshmi Textile Mills Ltd. (supra), and explained that the jurisdiction of the Tribunal which is restricted to the subject-matter of the appeal must not be confused with the powers of the Tribunal to deal with an appeal within the four corners of its jurisdiction. The Tribunal cannot transgress the limits of that jurisdiction, even though in the existence of that jurisdiction its powers are plenary and very wide. 26. One can see from the various decisions of the Courts that, in relation to the provisions of sections 253 and 254, two distinct concepts emerge: (i) the jurisdiction of the Tribunal, and (ii) the powers of the Tribunal. The jurisdiction of the Tribunal is restricted to the subject-matter of the appeal as determined by sub-sections (1) and (2) of section 253. Once the four corners of the jurisdiction of the Tribunal has been determined in a particular case, the powers of the Tribunal which can be exercised within the said four corners are very wide. 27. In the case of Indian Steel Wire Products Ltd. v. CIT [1994] 208 ITR 740 (Cal.), the Court held that a fresh plea which altogether changes the complexion of the case as originally brought before the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as well as by cash to M/s. Shoetek Agencies are as under :- Name of the concern Financial Year Commission (Cheque) Commission (Cash) (Rs.) (Rs.) M/s. Good Leather Company 1999-2000 6,27,642 - 2000-2001 - - 2001-2002 4,41,830 3,02,150 2002-2003 8,69,689.47 7,27,679 2003-2004 22,03,564.67 11,15,405 M/s. Splendid Leather Company 1999-2000 - - 2000-2001 - - 2001-2002 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003-04 and 2004-05. At the same time, the assessee has also claimed unaccounted expenditure of ₹ 66,30,000 for earning the said unaccounted commission. The Assessing Officer dis-allowed the unaccounted expenditure claimed by the assessee by applying the provisions of section 69C. On appeal, the Commissioner of Income-tax (Appeals) has allowed the claim of the assessee on the ground that the Assessing Officer has wrongly applied the provisions of section 69C because the assessee has duly explained the source of expenditure as unaccounted commission. 34. The subject-matter in this case is the allowability of the claim of unaccounted expenditure of the assessee and therefore the substantial question is whether in the facts and circumstances of the case wherein the unaccounted commission was found during the search operation and the assessee admitted the same because the unaccounted payment of commission was confirmed by the payee companies, the subsequent claim of the assessee regarding the unaccounted expenditure for earning unaccounted commission can be allowed under the provisions of the Income-tax Act, 1961. In this case, the assessee was receiving the commission through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to defeat the very purpose of the statute. In these factual matrixes, it is necessary for this Tribunal to look beyond technicalities and to ensure that the object and the scheme of the statute shall not be defeated. In this respect, the various decisions relied upon by the learned Departmental Representative are necessary to be considered. 35. In the case of Hukumchand Mills Ltd. (supra), the Hon ble Apex Court has held as under :- It was urged before the Tribunal by the department that although the Income-tax Officer had not considered the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 (hereinafter referred to as the Taxation Laws Order ), the said provisions were applicable in the present case and certain amounts of depreciation which are allowed under the Industrial Tax Rules, which had the force of law in the Indore State, were required to be deducted in arriving at the written down value of the assets of the assessee. The Tribunal permitted this contention to be raised by the department. It was pointed out on behalf of the assessee that the contention could not be entertained unless it was found as a fact that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to entertain the argument of the department and direct the Income-tax Officer to find out whether any depreciation was actually allowed under the Industrial Tax Rules and whether such depreciation should be taken into consideration for the purpose of computing the written down value. In the said case, the Hon ble Apex Court has expressed the opinion that this Tribunal has the jurisdiction and power to entertain a fresh plea and direct the lower authorities for reconsideration of the matter in view of the new plea taken by the Department. The only restriction is that the plea entertained and the directions given by the Tribunal shall be in respect to the subject-matter of the appeal. 37. In the case of Mahalakshmi Textile Mills Ltd. (supra), the Hon ble Jurisdictional High Court has held as under :- By the first question the jurisdiction of the Tribunal to allow the plea inconsistent with the plea raised before the departmental authorities is canvassed. Under sub-section (4) of section 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal as it thinks fit . There is nothing in the Income-tax Act which restricts the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by certain provision of law where the allowance and disallowance were the subject-matter of the appeal, in our opinion, the Tribunal was competent under section 254 to deal with that question and decide the same in accordance with law. Therefore, the first question referred to this court must be answered in the affirmative and in favour of the revenue. In the said case, the question was whether the Tribunal was competent to disallow the portion of the remuneration under section 37 of the Income-tax Act, 1961; whereas the Income-tax Officer has disallowed the entire amount, both under section 40(c)(I ) as well as under section 37 of the Income-tax Act, 1961. 39. In the case of D.M. Neterwalla (supra), the Hon ble Bombay High Court has also taken similar view that the Tribunal was justified in holding that the shares of the face value of ₹ 60,000 were the assessee s income under the head Other sources . In the said case, the Tribunal upheld the Department s alternative contention and held that the income, the Income-tax Officer considered the benefit received for services was not to be considered under head salary but as income under other sources . 40. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh assessments in accordance with the procedure prescribed by law. The Tribunal, therefore erred in merely cancelling the assessment orders and in not issuing further directions as stated above. 41. In the abovesaid case, the Hon ble Apex Court has held, that the appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under the appeal and to issue, if necessary appropriate directions. 42. In the case of N.P. Saraswathi Ammal (supra), the Hon ble Jurisdictional High Court while referring the decision of the Hon ble Supreme Court in the case of Hukumchand Mills Ltd. (supra) has observed as under :- We regard this decision of the Supreme Court as an authoritative ruling on the scope of the Tribunal s appellate jurisdiction generally and more particularly as an enunciation of the power of the Tribunal to entertain a new plea put forward by the respondent to an appeal. The Supreme Court happened to render their decision while construing section 33(4) of the Indian Income-tax Act, 1922. But the principle of the decision, in our opinion governs the ambit of the Tribunal s jurisdiction even under the corres-ponding provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very power to entertain a new plea that is not to be ruled out merely because a consideration thereof would call for further facts to be gone into. In Hukumchand Mills decision [1967] 63 ITR 232, the Supreme Court laid down no fetter on the Tribunal s powers. That case, indeed was a case where the new plea raised by the department before the Tribunal could not be considered without a further investigation into facts. Nevertheless, the Tribunal entertained the plea and remitted the case to the Income-tax Officer for the ascertainment of the relevant facts. The Supreme Court in their decision upheld not only the Department s new plea but also the Tribunal s order of remand based on the new plea. It is clear from the decisions of the Hon ble Jurisdictional High Court that the exercise of that power does not depend on the presence of any other factor, excepting that the new plea comes from a party to the appeal. Even in a case where fresh facts are called for to decide the new plea, the Tribunal would have jurisdiction to entertain that plea. How the Tribunal wishes to get at the relevant facts in order to decide the new point may be quite a different thing. The Tribunal may e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Bombay High Court has held as under : The powers of an appellate authority under the Income-tax Act have been recently considered once again by the Supreme Court in the case of Jute Corporation of India Limited v. Commissioner of Income-tax [1991] 187 ITR 688. In that case, the Appellate Assistant Commissioner permitted the appellant to raise an additional ground for the first time claiming deduction of purchase tax liability in its return because the assessee had been held liable to pay purchase tax subsequent to the assessment order. After hearing the Income-tax Officer, the Appellate Assistant Commissioner allowed the deduction. On appeal, the Appellate Tribunal placed reliance on the decision of the Supreme Court in the case of Gurjargravures Private Limited reported in [1978] 111 ITR 1 and held that the Appellate Assistant Commissioner had no jurisdiction to entertain the additional claim. The Tribunal and the High Court rejected the applications of the applicant for a reference. On appeal, the Supreme Court said (headnote) : An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds to be raised before it even though these may not arise from the order of the Appellate Assistant Commissioner, so long as these grounds are in respect of the subject-matter of the entire tax proceedings. 45. In the case of Assam Travels Shipping Service (supra), the Hon ble Supreme Court has held as under : This question related to the power of the Tribunal in deciding the appeals before it. Sub-section (1) of section 254 is as under : 254. (1) The Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The expression as it thinks fit is wide enough to include the power or remand to the authority competent to make the requisite order in accordance with law in such a case even though the Tribunal itself could not have made the order enhancing the amount of penalty. The power of the Appellate Assistant Commissioner under section 251(1)(b) includes the power even to enhance the penalty subject to the requirement of sub-section (2) of section 251 of a reasonable opportunity of showing cause against such enhancement being given to the appellant assessee. This could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for proceeding to enhance the penalty as indicated, in accordance with law. These appeals are allowed accordingly. No costs. 46. In the abovenoted case, the Hon ble Supreme Court has found that the lesser penalty imposed by the Income-tax Officer and cancelled by the Appellate Commissioner and further on appeal the Tribunal affirmed the order of the Appellate Assistant Commissioner because the penalty was imposed contrary to the minimum statutory limits of section 271, the Tribunal was not justified in taking the view that it had no other alternative except to affirm the order of Appellate Assistant Commissioner. The Hon ble Apex Court has observed that the Tribunal should have remanded the matter to the Appellate Assistant Commissioner for proceeding to enhance the penalty as indicated in accordance with law. 47. In the case of Tarajan Tea Co. (P.) Ltd. (supra), the Hon ble Gauhati High Court has held as under : It is not necessary that the Tribunal should record firm findings in all matters of controversy. It is open to the Tribunal to arrive at a conclusion that the matter in controversy was not considered properly or lawfully by the Income-tax Officer or the Insp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal urge or be heard in support of any ground not set forth in the memorandum of appeal but the Tribunal in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal provided the party who may be affected thereby has had sufficient opportunity of being heard on that ground. It is therefore, evident from the provision contained in section 254 of the Act and rule 11 of the Rules that the power of the learned Tribunal while dealing with the appeal is in the widest possible terms and the word thereon , occurring in section 254 of the Act restricts the jurisdiction of the learned Tribunal to the subject-matter of the appeal only. The learned Tribunal has therefore jurisdiction to go into every aspect of the assessment proceeding before the taxing authorities and also to go into the question as to whether such assessment was made in accordance with law or not provided a ground is taken before the learned Tribunal in that respect or additional ground by way of amendment is allowed to be taken by the learned Tribunal. The Tribunal has also the jurisdiction to examine the question of law, which arose from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the same would oppose to the object and purpose of the law on the point and amount to allowing perpetuate illegality to the total disregard of the provisions of law itself. 52. In view of the above discussion and decisions of the Hon ble Supreme Court and the Hon ble High Courts, the contentions raised by the learned Departmental Representative are accepted. The orders of the lower authorities are set aside and the matter is remanded to the record of the Assessing Officer for reconsidering the claim of the assessee for unaccounted expenditure under section 37(1) of the Income-tax Act, 1961. 53. In the result, the appeal filed by the revenue is allowed for statistical purposes. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 There is difference of opinion between the Members constituting the Bench, on the issue involved in this appeal and, therefore, the following question is formulated for being decided by a Third Member : Whether, on the facts and circumstances of the case, the Tribunal had jurisdiction to accept the fresh plea of the learned DR and direct the Assessing Officer to examine the assessee s claim under section 37(1) of the Act. TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and deciding the issue by applying correct provisions of law. 3. The ld. D.R. referred to certain observations of the Supreme Court in the case of Hukumchand Mills Ltd. (supra) and heavily relied on the same. Reliance was also placed on many other decisions as well. He strongly objected to the reasoning given by the ld. A.M. to reject the plea. In nutshell, it was contended that the subject-matter of the appeal was allowability of the expenditure incurred by the assessee, it was then immaterial whether it was allowable or disallowable under one or the other provision. Thus, the ld. D.R. supported the order of the ld. J.M. 4. The contention of the learned counsel was that the factum of having incurred the expenditure was not in dispute and the Assessing Officer himself had given the finding that the assessee had incurred certain expenditure to earn unaccounted commission. It was submitted that when a detailed scrutiny assessment was made by the Assessing Officer, it has to be presumed that the Assessing Officer was very clear in his view that section 37 is not to be invoked. Therefore, the department is now precluded to raise the plea of section 37. She also referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved , it would be an inappropriate usage of English language to use the word aggrieved for the Commissioner. In my view, it is merely the correct usage of English language which has been employed while drafting the legislation and it has nothing to do with the scope of the appeal to be filed by the assessee and the department. It will not be incorrect to use the word objects for the assessee as well as the Commissioner and equally, it will not be incorrect to use the word aggrieved for both. But it is more correct to use the word aggrieved for the assessee and the word objects for the Commissioner. As a matter of fact, in the 1922 Act, section 33 which corresponds to the present section 253, it did not use the word aggrieved at all. Section 33(1) stated, any assessee objecting to an order. . . . may appeal to the Appellate Tribunal.... Section 33(2) stated, the Commissioner may, if he objects to any order....direct the Income-tax Officer to appeal to the Appellate Tribunal..... . Thus, it can be seen that the use of different words in the two sub-sections has no bearing on the scope of the appeal to be filed by the assessee and the department. In fact, on page 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point which arises out of the appeal merely because such point had not been raised or urged by either party at the earlier stage of the proceedings. Some of these decisions, only to name a few, are CIT v. Indian Express (Madurai) (P.) Ltd. [1983] 140 ITR 705 1 (Mad.), CIT v. AC Paul [1983] 142 ITR 811 (Mad.) and CIT v. Ice Suppliers Corpn. [1967] 64 ITR 195 (Punj.). In fact, the jurisdictional High Court has explained the ratio in the case of Hukumchand Mills Ltd. (supra) very elaborately. It has particularly explained the following observation of the Supreme Court in the case of Hukumchand Mills Ltd. (supra) : The Tribunal has, however, discretion not to admit any fresh plea being put forward when it would involve investigation of facts. Explaining the above observation, the Madras High Court in the case of N.P. Saraswathi Ammal (supra) observed as follows at page 23 of the report : We do not regard the last observation as a fetter on the Tribunal s jurisdiction to admit a new plea. For, the power to listen to a new contention and decide the appeal on that basis has been spelled out by the Supreme Court from the terms of the statute. The exercise of that power does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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