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TMI Blog1968 (9) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 allowed as permissible deductions. The disallowance of the third claim which is the one with which we are concerned in the present reference was not challenged by the assessee in the memorandum of appeal, nor did it form the subject-matter of any ground of appeal. No leave of the Appellate Assistant Commissioner was also sought to urge it as an additional ground of appeal. The result was that the Appellate Assistant Commissioner was not call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 though it was not originally taken in the memorandum of appeal. The Tribunal then proceeded to consider the additional ground of appeal and held that, in view of the decision of the Supreme Court in India Cements' case, the expenditure which formed the subject-matter of the third claim was an allowable deduction. The Commissioner thereupon applied for a reference and on the application of the Commissioner, the following question of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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--vide Narrondas Manordass v. Commissioner of Income-tax, and this interpretation was confirmed by the Supreme Court in Commissioner of Income-tax v. McMillan and Co. and Commissioner of Income-tax v. Shapoorji Pallonji Mistry--that once an appeal is preferred by an assessee, the powers of the Appellate Assistant Commissioner are not confined to a consideration of only those matters which are raised by the assessee in appeal but he may also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, there may be an appeal by the assessee as to one part and an appeal by the revenue as to the other. The reason for this departure in the scheme is obvious. The order of the Appellate Assistant Commissioner, as pointed out above, would consist of various decisions on matters considered by him and out of these decisions, some may be against the assessee and some may be against the revenue. The assessee, if he does not accept the decisions whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 originally filed, the Tribunal was within its rights in granting him leave to do so by raising an additional ground of appeal. This contention of the assessee is, in our opinion, not well-founded and must be rejected. Our reasons for saying so are as follows. To appreciate the contention of the assessee, it is necessary first to consider whether on the making of the order by the Appellate Assistant Commissioner disposing of the appeal, the order of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 original order of assessment made by him despite its merger in the order of the Appellate Assistant Commissioner. It is not necessary for us to resolve this controversy since we are of the view that even if sub-section (1A) of section 154 was not attracted and the principle of merger applied in its fullness, the revenue must still succeed. We will therefore proceed on the hypothesis that the principle of merger applied and the order of assessment pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 therefore no decision of the Appellate Assistant Commissioner on the question of disallowance of the third claim. Moreover, it is difficult to imagine how an assessee can be heard to say that, though he did not claim any particular relief in the appeal preferred before the Appellate Assistant Commissioner, and the Appellate Assistant Commissioner had therefore no occasion to decide whether such relief should be granted or not, he is still aggrieved by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 under this rule. There is a proviso which says that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground. This rule, in our opinion, does not help the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 in the additions made to the book profits was contrary to the assessee's case that they did not represent undisclosed profits and it was not open to the Tribunal to give relief to the assessee on the basis of such inconsistent case. This argument was negatived by the Supreme Court on the ground that in hearing an appeal the Tribural may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding an appeal the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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