TMI Blog1996 (2) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and Traders (P.) Ltd., a sister concern of the assessee. According to the Income-tax Officer, part of the business of distribution of gripewater was transferred by the assessee with effect from January, 1973, only to be retransferred back to the assessee in 1976. This was considered to be an arrangement solely with a view to avoid tax liability. Tamil Nadu Printers and Traders (P.) Ltd. had carried forward a loss and the object of arrangement, it was considered was to enable Tamil Nadu Printers and Traders (P.) Ltd. to avail of the benefit of set-off of the profits of the concern against such loss. That arrangement for distribution was considered to be collusive because of the common interest. The fact that the agreement was terminated a little later in 1975 was used by the Income-tax Officer for the inference that it was really not necessary. The arrangement was treated as collusive and sham one. Aggrieved, the assessee filed an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner narrated in detail the arguments of the Income-tax Officer as well as those of the assessee. He reviewed the evidence and also the case law relating to the divers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits accrued to it. The Tribunal held that as long as it has not been shown that the assessee-firm has received any benefit, the Departmental appeal, it was held, cannot be sustained and there was no justification for holding that the income earned in the gripewater transactions by Tamil Nadu Printers and Traders (P.) Ltd. should be assessed in the hands of the assessee-firm. As regards the assessee's appeal, the Tribunal found that the question of part of the disallowance of payment of price for gripewater was not a question in issue before the Appellate Assistant Commissioner. It was not a matter considered and processed in the assessment order. According to the Tribunal, it was not open to the Appellate Assistant Commissioner to consider the question of disallowance of any part of the purchase price in view of the bar laid down by the Supreme Court in the case of Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1. Hence, the assessee's appeal was allowed on a technical ground. However, the Tribunal also proceeded to consider the question on the merits. The Tribunal stated that regarding the applicability of section 40A(2)(a) of the Income-tax Act, it was submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to the assessee. The Appellate Assistant Commissioner is not confined to the subject-matter in appeal. The Appellate Assistant Commissioner can consider the whole assessment. Restrictions in disallowance cannot be said to be based on a new source of income. What was considered by the Income-tax Officer was the income from purchase and sale of gripewater. With reference to that source of income, the Appellate Assistant Commissioner has got power to modify or correct the assessment. The assessment based on price factors cannot be said to be relating to a different source. Addition was made by the Appellate Assistant Commissioner on the basis of restricting the disallowance made by the Income-tax Officer. In fact, there is no enhancement in this case. The disallowance made by the Income-tax Officer in accordance with the provisions contained in section 40A(1) of the Act, can be corrected by the Appellate Assistant Commissioner in view of the decision in the case of CIT v. McMillan and Co. [1958] 33 ITR 182 (SC). The fact that the Department can exercise its power under section 147 or under section 263 of the Act would not preclude the Department, viz., the Appellate Assistant Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the Appellate Assistant Commissioner, the addition made on the basis of diversion of profits is not correct. The price factor emerges first before the Appellate Assistant Commissioner, after the paper book was filed by the assessee. Therefore, assessment made on the basis of the price factor is assessment made on a new source, which was not considered by the Income-tax Officer. Reliance was placed upon the decision in the case of CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC), wherein it was held that the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not mentioned in the return or considered by the Income-tax Officer in his order. By this process, the Appellate Assistant Commissioner made the assessee lose his right of appeal granted by the statute. When the Appellate Assistant Commissioner found that there is a new source for making addition, he could have either directed to reopen the assessment under section 147 of the Act or the Commissioner could have exercised his jurisdiction under section 263 of the Act for revising the assessment. The income returned by the assessee was acceptable. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Printers. According to the Tribunal, the Appellate Assistant Commissioner was not competent to go into the question. Disallowance of purchases was not the subject-matter of consideration by the Income-tax Officer and the subject-matter of consideration purely related to the question of inclusion of income earned by Tamil Nadu Printers in the hands of the assessee. According to the Tribunal, the Income-tax Officer never applied his mind to the question of higher price having been paid to Tamil Nadu Printers in respect of supplies of gripewater by the latter company. Therefore, it was outside the scope of the Appellate Assistant Commissioner to go into that question. The Tribunal pointed out that the Appellate Assistant Commissioner should have confined only to the ground raised before him in respect of the matter over which the assessee was aggrieved. The aggrieved matter over which the assessee went on appeal related to the inclusion of the said income. According to the Tribunal, the Appellate Assistant Commissioner should have jurisdiction on the item that should be the one considered and processed by the Income-tax Officer and not on every matter, which never was the subject-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and, therefore, the Tribunal held that the Appellate Assistant Commissioner fell into an error in going into that point and making the addition. It was pointed out before the Tribunal that section 40A(2) was challenged only on the limited ground that this was not the provision on the basis of which the Appellate Assistant Commissioner has proceeded. However, the Tribunal was of the view that though the application of section 40A(2)(a) of the Act was not specifically invoked by the Appellate Assistant Commissioner, still when that section is in the statute, the Department can certainly canvass for pressing that section into service in support of the Appellate Assistant Commissioner's order. The Tribunal further pointed out that the Appellate Assistant Commissioner has taken an objective view in coming to the conclusion that the price paid by the assessee-firm to Tamil Nadu Printers at Rs. 254.09 per gross was excessive, when he has specifically brought out that there was no material to show that the assessee was not able to obtain at the price at which either Herbertsons Ltd. had purchased or Tamil Nadu Printers could purchase from Orient Pharma Private Ltd. However, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal Chamaria [1967] 66 ITR 443 (SC), where the Supreme Court held as under (headnote) : " The Appellate Assistant Commissioner has no jurisdiction under section 31(3) of the Indian Income-tax Act, 1922, to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order. It is not therefore open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-tax Officer, with a view to finding out new sources of income and the power of enhancement under section 31(3) is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. In this context ' consideration ' does not mean ' incidental ' or ' collateral ' examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection." In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer had failed to examine that aspect of the matter, the Appellate Assistant Commissioner had directed him to do so. Therefore, the Tribunal was justified in holding that the Appellate Assistant Commissioner had not exceeded his jurisdiction in passing the remand order." In the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 (SC), the Supreme Court while considering section 251(1)(a) of the Income-tax Act, 1961, came to the following conclusions (headnote) : " (i) The power to tax on discovery of a new source of income is quite different from granting deduction on the admitted facts fully supported by the decision of the Supreme Court . . . ., (ii) An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. 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 . . . ., and (iii) The observations in the case of Gurjargravures P. Ltd. [1978] 111 ITR I (SC), do not rule out a case for raising an additional gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r but not examined by him from the point of view of its taxability or non-taxability cannot be said to have been considered by him, it is not possible to hold that the Income-tax Officer examining a portion of the profits from the point of view of its taxability only, should be deemed to have also considered the question of its non-taxability. As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the Appellate Assistant Commissioner. We are not here called upon to consider a case where the assessee failed to make a claim though there was evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case neither any claim was made before the Income-tax Officer, nor was there any material on record supporting such a claim." It was further held in the abovesaid decision, that " consideration " does not mean incidental or collateral examination of any matter of the Income-tax Officer in the process of assessment. There must be something in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. T. T. Krishnamachari and Company is the assessee. The assessee filed a return for the assessment year 1974-75 disclosing an income of Rs. 4,90,081 under the head " Business income ". According to the Income-tax Officer, the profit to be made by the assessee through purchase and sale of gripe water was transferred to the company, Tamil Nadu Printers and Traders (P.) Ltd. Therefore, the profit earned by the company, Tamil Nadu Printers and Traders (P.) Ltd., was assessed in the hands of the assessee. The subject matter in the assessment before the Income-tax Officer was the business income earned by the assessee through purchase and sale of gripewater. On appeal, the Appellate Assistant Commissioner did not want to go into the question of diversion of profit. According to the Appellate Assistant Commissioner, the assessee itself made the profit out of its own business in manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record, the Appellate Assistant Commissioner reduced the permissible deduction, since they are unreasonable and excessive, according to him. Under such circumstances, it cannot be said that the Appellate Assistant Commissioner has travelled outside the return filed or outside the assessment order made or outside the materials available on record, or it cannot also be said that the Appel late Assistant Commissioner found out a new source, which was not considered by the Income-tax Officer for reducing the allowance. Therefore, on the materials available on record, we are coming to the conclusion that the Appellate Assistant Commissioner has not exceeded his jurisdiction, while reducing the allowance on the basis of the price factors, which was deemed to have been considered by the Income-tax Officer while accepting the income returned under the head " Business income " returned by the assessee. It is seen from the facts that Tamil Nadu Printers and Traders (P.) Ltd. purchased from Orient Pharma the gripewater at the rate of Rs. 183.57 per gross. So also, the Tamil Nadu Printers and Traders (P.) Ltd. sold gripewater to Herbertsons Ltd. for Rs. 228.09 per gross. T. T. K. and Co. pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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