TMI Blog1968 (9) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... s for depreciation in respect of the land on which stood the building of the assessee; the other was for development rebate in respect of certain machinery installed during the relevant account year and the third was for a sum of Rs. 25,920 being the aggregate amount of stamp duty, registration charges, lawyer's fees and other miscellaneous expenses incurred by the assessee in connection with the issue of debentures secured on the fixed assets of the assessee and issued to the Bank of India Ltd. to secure a loan borrowed for the purpose of the business of the assessee. Out of these three claims, the first was rejected by the Income-tax Officer and the second was partially disallowed and so far as the third was concerned, it was wholly disallowed on the ground that it represented capital expenditure. The assessee being aggrieved by the order of assessment preferred an appeal to the Appellate Assistant Commissioner and in the memorandum of appeal, amongst others, two grounds were taken, one relating to the disallowance of the whole of the first claim and the other relating to the partial disallowance of the second claim and relief was sought that these two claims should be fully allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras, Kerala, Andhra Pradesh and Calcutta High Courts which held the field prior to the decision of the Supreme Court in India Cements' case had unanimously taken the view that expenditure such as the one claimed by the assessee was capital expenditure and hence not allowable as a deduction and it was only after the decision of the Supreme Court in India Cements' case that the assessee could legitimately take it as a ground of appeal and therefore the assessee should be permitted to raise it though it was originally not taken in the memorandum of appeal. The revenue on the other hand urged that it was not competent to the Tribunal to entertain this ground of appeal since it had not been raised before the Appellate Assistant Commissioner and there was no decision of the Appellate Assistant Commissioner upon it. The Tribunal however took the view that there was no question of lack of competence and it was entirely within the discretion of the Tribunal whether or not to allow the additional ground to be raised and held that, on the facts and in the circumstances of the case, there was no reason why the additional ground of appeal should not be allowed to be raised by the assessee even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of income assessed or the amount of tax determined as a result of such decisions be either set aside or reduced. Where such an appeal is preferred, section 250, sub-section (2), says that both the assessee and the Income-tax Officer shall have a right to be heard at the hearing of the appeal. Section 251 lays down the powers of the Appellate Assistant Commissioner in disposing of the appeal and sub-section (1), clause (a), says that on an appeal against an order of assessment, the Appellate Assistant Commissioner may confirm, reduce, enhance or annul the assessment or he may set aside the assessment and refer the case back to the Income-tax Officer. The Explanation at the end of section 251 makes it clear that, in disposing of the appeal, the Appellate Assistant Commissioner may consider and decide any matter arising out of proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner by the assessee. This Explanation was not there in the old Act but even without the Explanation, the interpretation consistently placed by the High Courts on the corresponding provisions of the old Act was--v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the order "the points for determination, the decision thereon and the reasons for the decision"-vide section 250, sub-section (5). The order of the Appellate Assistant Commissioner would thus consist of various decisions on matters which may be raised in appeal by the assessee or considered suo motu by the Appellate Assistant Commissioner and the effect of these decisions would be to confirm or reduce or enhance or annul or set aside the assessment as stated in sub-section (1), clause (a) of section 251. Turning now to section 253, which provides for an appeal to the Tribunal against an order passed by the Appellate Assistant Commissioner under section 250, we find that, unlike section 246, this section confers a right of appeal both on the assessee and the revenue--vide sub-sections (1) and (2)--and as appears clearly from the language of sub-section (4) and particularly the words "the Income-tax Officer or the assessee may, notwithstanding that he may not have appealed against such order or any part thereof....file a memorandum of cross-objections....against any part of the order......" It postulates that in respect of the same order of the Appellate Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was merged in the order of the Appellate Assistant Commissioner which became the final order of assessment and the decision of the Income-tax Officer disallowing the third claim, therefore, by implied acceptance, became the decision of the Appellate Assistant Commissioner. The assessee urged that in any event when he preferred the appeal to the Appellate Assistant Commissioner, the entire assessment was thrown open before the Appellate Assistant Commissioner and it was open to the Appellate Assistant Commissioner to correct the Income-tax Officer even on a matter which was not raised by him in appeal and it must therefore be presumed that when the Appellate Assistant Commissioner did not interfere with the disallowance of the third claim by the Income-tax Officer, he approved of such disallowance and that was tantamount to a decision by him that such disallowance was properly made by the Income-tax Officer. The assessee submitted that, in the circumstances, since there was an implied decision of the Appellate Assistant Commissioner disallowing the third claim, the assessee was entitled to challenge it in appeal and even if he failed to do so in the memorandum of appeal as original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f merger did not apply in the present case and the order of assessment passed by the Income-tax Officer could not be regarded as having merged in the order of the Appellate Assistant Commissioner. Now, plainly, this sub-section was not in force on 1st April, 1964, being the date of commencement of the assessment year, and it could not therefore be held to apply in the present case unless it had retrospective operation. The revenue therefore urged that this sub-section was retrospective in operation on the ground that it enacted a procedural provision but this contention was disputed by the assessee who submitted that the provision enacted in the sub-section was a substantive provision conferring for the first time a right on the Income-tax Officer to rectify his order of assessment even after it was merged in the order of the Appellate Assistant Commissioner and could not therefore be construed to have retrospective operation and, even if it was so construed, it did not have the effect of abrogating the principle of merger but it merely sought to nullify the effect of the Bombay decision in Tejaji Farasram Kharawala's case by authorising the Income-tax Officer to rectify the origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mains that the Appellate Assistant Commissioner did not consider and decide whether the disallowance of the third claim was proper or not. It is no doubt true that the order of assessment passed by the Income-tax Officer was merged in the order of the Appellate Assistant Commissioner and the order of the Appellate Assistant Commissioner was thereafter the only operative order of assessment but that has no bearing on the question as to whether there was any decision of the Appellate Assistant Commissioner on the question of disallowance of the third claim from which an appeal could be preferred by the assessee or the revenue. The assessment made by the Income-tax Officer was confirmed by the Appellate Assistant Commissioner save in respect of the second claim which was partially allowed but the confirming of the assessment in respect of the disallowance of the third claim was not because the disallowance was proper but because the disallowance was not challenged by the assessee before the Appellate Assistant Commissioner and no relief was claimed in respect of it and the Appellate Assistant Commissioner also did not suo motu examine the question of its correctness. There was therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is subsequently sought to be added with leave of the Appellate Assistant Commissioner under section 250, sub-section (5), but the Appellate Assistant Commissioner is satisfied that the omission of that ground from the memorandum of appeal was wilful or unreasonable and he therefore does not allow the assessee to raise that ground and decides the appeal on other grounds urged on behalf of the assessee. Can it be said in such a case that because the assessment is confirmed, there is an implied decision of the Appellate Assistant Commissioner that the disallowance is proper? If such an implied decision could be spelt out, the assessee would be able to raise that point in appeal before the Tribunal though by reason of his default he could not urge it before the Appellate Assistant Commissioner. We do not think the legislature could have intended to bring about such a consequence. Before we close, we must refer to rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, on which considerable reliance was placed on behalf of the assessee. That rule provides that the appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court of Madras. The High Court accepted the reference and sent the matter back to the Tribunal with a direction that the individual contentions of the assessee which included, inter alia, the contention in regard to addition of the cash credits should be considered by the Tribunal. When the case came back the Tribunal was not satisfied with the explanation of the assessee in regard to the cash credits and was of the view that the cash credits represented undisclosed profits but since the additions to the book profits had been made in excess of the amounts of cash credits, the Tribunal held that the "addition of these credits had become redundant" and should therefore be deleted. The Commissioner again brought a reference to the High Court and from the High Court the matter went to the Supreme Court and the question raised was whether the Tribunal was right in law in making out a new case for the assessee inconsistent with the assessee's own plea and interfering with the assessment. The argument was that the case accepted by the Tribunal, viz., that the addition of the cash credits should be deleted because, though they were undisclosed profits, they were already reflected i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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