JUTE CORPORATION OF INDIA LTD. VS COMMISSIONER OF INCOME-TAX AND ANOTHER, 1992 PTD-SUPREME-COURT-INDIA 393 (1990)

(Appeal by special leave from the judgment and order dated April 8, 1980, of the Calcutta High Court in Matter No.143 of 1980. The judgment of the High Court is reported as Jute Corporation of India P. Ltd. v. C.I.T. (1981) 131 ITR 412 (Cal).

Income-tax---

----Appeal to Appellate Assistant Commissioner---Additional ground-- Discretion of Appellate Assistant Commissioner to allow where ground could not have been raised at an earlier stage and where ground became available on account of change of circumstances or law.

The appellant, a Government corporation engaged in the jute industry, had not claimed any deduction of purchase tax liability in its return for the assessment year 1974-75 in the belief that it was not liable to purchase tax under the Bengal Raw Jute Taxation Act, 1941. Later on, the appellant was assessed to the purchase tax, but it disputed the liability and preferred an appeal and obtained a stay order. In an appeal before the Appellate Assistant Commissioner, the appellant raised an additional ground for deduction of the purchase tax on the ground that the tax liability should be deducted in computing its profits, in view of the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. C.I. T. (1971) 82 ITR 363. The Appellate Assistant Commissioner permitted the appellant to raise the additional ground and, after hearing the Income-tax Officer, allowed the claim. On appeal, the Appellate Tribunal, placing reliance on the decision of the Supreme Court in the case of Gurjargravures P. Ltd. (1978) 111 ITR 1, held that the Appellate Assistant Commissioner had no jurisdiction to entertain the additional claim. Both the Tribunal and the High Court rejected the respective applications of the appellant for reference. On appeal to the Supreme Court:

Held, reversing the decision of the High Court, that, since the tax liability was admitted, the Income-tax Officer was afforded an opportunity of being heard, and the appellant's claim was based on the settled view of the law, the Appellate Assistant Commissioner had jurisdiction to permit the appellant to raise the additional ground.

Since the ordinary procedure for calling for a statement of the case and thereupon decide the matter afresh would be time-consuming, the Supreme Court granted special leave against the order of the Tribunal, set aside the order and remitted the matter to the Tribunal to consider the merits of the deduction claimed.

C.I.T: v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) ref.

C.I.T. (Addl.) v. Gurjargravures P.' Ltd. (1978) 111 TM 1 (SC) doubted but distinguished.

Rai Kumar Srimal v. C.I.T. (1976)102 ITR 52,5 (Cat) approved.

Jute Corporation of India Ltd. v. C.I.T. (1981)131 IM 412 reversed.

By the Court: (i) 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. If the tax liability of the assessee is admitted and if the Income-tax Officer is afforded an opportunity of hearing by the appellate authority in allowing the assessee's claim for deduction on the settled view of the law, there is no good reason to curtail the powers of the appellate authority under section 251(1)(a) of the Income-tax Act, 1961.

(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 off any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer.

(iii) The observations in the case of Gurjargravures P. Ltd.. (1978) 111 ITR 1 (SC) do not rule out a case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at the stage when the return was filed or when the assessment order was made or if the ground became available on account of change of circumstances or law. There may be several factors justifying the raising of such a new plea in an appeal, and each case has to be considered on its own facts. If the Appellate Assistant Commissioner is satisfied, he would be acting within his Jurisdiction in considering the question so raised in all its aspects. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. While permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason.

C.I.T. v. McMillan and Co. (1958) 33 ITR 132 (SC); C.I.T. v.Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC); Kedarnath Jute Mfg. Co. Ltd. v. C.I.T. (1971) 82 ITR 363 (SC); Narrondas Manordass v. C.I.T. (1957) 31 ITR 909 (SC).

A.K. Bhattacharya and G. S. Chatterjee, Advocates, for appellant.

J. Ramamurti, Senior Advocate (S. Rajappa and Ms. A. Subhashinis Advocates, with him), for respondents.

JUDGMENT

K.N. SINGH, J.--- The appellant is a government corporation engaged in jute industry. It was assessed to income-tax for the assessment year 1974-75 by the Income-tax Officer. The assessee preferred an appeal before the Appellate Assistant Commissioner. During the hearing of the appeal, the assessee raised an additional ground claiming deduction of Rs.11,54,995 on the ground of liability to purchase tax. The assessee claimed that, in view of the decision of this Court in Kedarnath Jute Mfg. Co. Ltd. v. C.I.T. (1971) 82 ITR 363, the aforesaid amount being tax liability should be deducted from it. I income for purposes of charging tax The Appellate Assistant Commissioner g permitted the assessee to raise the additional ground and after hearing the Income-tax officer, he accepted the assessee's claim and allowed deduction of s Rs.11,54,995 in computing the total income of the assessee for the assessment year 1974-75. The Revenue preferred an appeal before the Income-tax Appellate Tribunal. The Tribunal held that the Appellate Assistant Commissioner had no jurisdiction to entertain an additional ground or to grant relief to the assessee on a ground which had not been raised before the Income-tax Officer. The Tribunal set aside the order of the Appellate Assistant Commissioner placing reliance on the decision of this Court in Addl. C.I.T. v. Gurjargravures P. Ltd. (1978) ill ITR 1. The assessee made an application before the Tribunal under section 256(1) of the Income-tax Act, 1961, for making reference to the High Court. The Tribunal refused to refer the question on the findings that the question stood covered by this Court's decision in Gurjargravures, case (1978) 111 TTR 1. The assessee thereupon approached the High Court under section 256(2) of the Act for calling for a statement of case and reference from the Appellate Tribunal. A Division Bench of the Calcutta High Court held that the Tribunal was right in rejecting the assessee's, application, and, therefore, it refused to call for a statement of case. The assessee thereupon approached this court under Article 136 of the Constitution, and obtained leave. Hence, this appeal.

The question of law which the assessee sought to be referred to the High Court under section 256(1) of the Act was (See (1981) 131 ITR 412, 413):

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the Appellate Assistant Commissioner of Income-tax had exceeded his powers in entertaining the additional ground of appeal taken before him in respect of the claim for deduction of a sum of Rs.11,54,995 representing liability for raw jute purchase tax?"

Section 251 of the Income-tax Act (hereinafter referred to as "the Act") prescribes the power of the appellate authority hearing an appeal against the order of Income-tax Officer. Clause (a) of section 251(1) confers power on the appellate authority, namely, the Appellate Assistant Commissioner [now, after the amendment of 1987, the Deputy Commissioner (Appeals)], according to which the appellate authority, while hearing an appeal against an order of assessment, has power to confirm, reduce, enhance or annul the assessment: he is further empowered to set aside the assessment and remit the case to the Assessing Officer for making a fresh assessment in accordance with its directions, after making such further inquiry as may be necessary. If a direction is issued by the appellate authority, the Assessing Officer is required to proceed to make such fresh assessment and determine the amount of tax, if any, payable on the basis of fresh assessment. The Appellate Assistant Commissioner is thus invested with wide powers under section 251(1)(a) of the Ad while hearing an appeal against the order of assessment made by the Income-tax Officer. The amplitude of the, power includes power to set aside the assessment order or modify the same. The question is whether the Appellate Assistant Commissioner while hearing an appeal under section 251(1)(a) has jurisdiction to allow the assessee to raise an additional ground in assailing the order of assessment before it. The Act does not contain any express provision debarring an assessee from raising an additional ground in appeal and there is no provision in the Act placing restriction on the power of the appellate authority in entertaining an additional ground in appeal. In the absence of any statutory provision, the general principle relating to the amplitude of the appellate authority's power being coterminus with that of the initial authority should normally be applicable. But this question, for the purposes of the Income-tax Act, has been an intricate and vexed one. There is no uniformity in judicial opinion on this question.

Section 31 of the Indian Income-tax Act, 1922, also conferred power on the Appellate Assistant Commissioner to hear appeals against the assessment order made by the Income-tax Officer. Chagla C.J., of the Bombay High Court, considered the question in detail in Narrondas Manordass v. C.I.T. (1957) 31 ITR 909 and held that the Appellate Assistant Commissioner was empowered to correct the Income-tax Officer not only with regard to a matter which had been raised by the assessee but also with regard to a matter which may have been considered by the Income-tax Officer and determined in the course of the assessment. The High Court observed that since the Appellate Assistant Commissioner had revising authority against the decisions of the Income-tax Officer, a revising authority not in the narrow sense of revising what is the subject-matter of the appeal, not in the sense of revising those matters about which the assessee makes a grievance, but a revising authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the Income-tax Officer, but he can revise every process which led to the ultimate computation or assessment. These observations were approved by this court in C.I.T, v. McMillan and Co. (1958) 33 ITR 182. The Appellate Assistant Commissioner, on an appeal preferred by the assessee, had jurisdiction to invoke, for the first time, the provisions of Rule 33 of the Indian Income-tax Rules, 1922, for the purpose of computing the income of a non-resident even if the Income-tax Officer had not done so in the assessment proceedings. But, in C.I.T. v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 this Court, while considering the extent of the power of the Appellate Assistant Commissioner, referred to a number of cases decided by various High Courts including the Bombay High Court judgment in Narrondas' case (1957) 31 ITR 909 and also the decision of this Court in McMillan and Co.'s case (1958) 33 TTR 182 and held that, in an appeal filed by the assessee, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not considered by the Income-tax Officer in the order appealed against. It was urged on behalf of the Revenue that the words "enhance the assessment" occurring in section 31 were not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. The court observed that there was no doubt that this view was also possible, but having regard to the provisions of sections 34 and 33B, which made provision for assessment of escaped income from new sources, the interpretation suggested on behalf of the Revenue would be against the view which had held the field for nearly 37 years. In this view, the court held that the Appellate Assistant Commissioner had no power to enhance the assessment by discovering new sources of income. This decision does not directly deal with the question with which we are concerned. Power to enhance the tax on discovery of new source of income is quite different from granting deduction on the admitted facts fully supported by the decision of this court. If the tax liability of the assessee is admitted and if the Income-tax Officer is afforded an opportunity of hearing by the appellate authority in allowing the assessee's claim for deduction on the settled view of law, there appears to be no good reason to curtail the powers of the appellate authority under section ?51(l)(a) of the Act.

In C.I.T. v. Kanpur Coal Syndicate (1964) 53 ITR 225, a three-Judge Bench of this court discussed the scope of section 31(3)(a) of the Indian Income-tax Act, 1922, which is almost identical to section 251(1)(a). The court held as under (at p. 229):

"If an appeal lies, section 31 of the Act describes the powers of the Appellate. Assistant Commissioner in such an appeal. Under section 31(3)(a), in disposing of such an appeal, the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The appellate Assistant Commissioner has therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the income-tax Officer. He can do what the Income-tax Officer can do an is dir him to do what he has failed to do." (emphasis supplied).

The above observations are squarely applicable in the interpretation of section 251(1)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminous with that of the Income tax Officer, and if that is so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income-tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate 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. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer.

In Addl. C.I.T. v. Gurjargravures P. Ltd. (1978) 111 ITR 1, this Court has taken a different view, holding that, in the absence of any claim made by the assessee before the Income-tax Officer regarding relief, he is not entitled to raise the question of exemption under section 84 before the Appellate Assistant Commissioner hearing the appeal against the order of the Income tax Officer. In that case, the assessee had made no claim before the Income-tax officer for exemption under section 84 of the Act, no such claim was made in the return nor was any material placed on record supporting such a claim before the Income-tax Officer at the time of assessment. The assessee, for the first time, made a claim for exemption under section 84 before the Appellate Assistant Commissioner who rejected the claim but, on further appeal, the Appellate Tribunal hell that since the entire assessment was open before the Appellate Assistant Commissioner, there was no reason for his not entertaining the claim, or directing the Income-tax Officer to allow appropriate relief. On a reference, the High Court upheld the view taken by the Tribunal. On appeal, this court set aside the order the High Court as it was of the view that the Appellate Assistant Commissioner had no power to interfere with the order of assessment made by the Income-tax Officer on a new ground not raised before the Income-lax: Officer there was no reasons of the Tribunal committed an error in directing the Appellate Assistant Commissioner to allow the claim of the assessee under section 84 of the Act. Apparently, this view taken by the two-Judge Bench of this court appears to be in conflict with the view taken by' ~he three-Judge Bench of this court in Kanpur Coal Syndicate's case (1964) 53 ITR 225. It appears from the report of the decision in the Gujarat case that the three-Judge Bench decision in Kanpur Coal Syndicate case (1964) 53 ITR 225 (SC) was not brought to the notice of the Bench in the Gurjargravures P. Ltd (1978) 111 ITR 1 (SC). In the circumstances, the view of the larger Bench in Kanpur Coal Syndicate case (1964) 53 ITR 225 (SC) holds the field. However, we do not consider it necessary to overrule the view taken in Gurjargravures P Ltd. case (1978) 111 ITR 1 (SC), as, in our opinion, that decision is founded on the special facts of the case, as would appear from the following observations made by the Court: "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". The above observations do not rule out a case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made or that the ground became available on account of change of circumstances or law. There may be several factors justifying the raising of such a stew plea in appeal, and each. case has to be considered on its own fads. If the appellant Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier of good reasons. The satisfaction of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid principles or any hard and fast rule can be laid down for this purpose.

In Rai Kumar Srimal v. C.I.T. (1976) 102 ITR 525, a Division Bench of the Calcutta High Court presided over by Sabyasachi Mukharji J., as he then was, held that the Appellate Assistant Commissioner was entitled to admit new grounds or evidence either suo motu or at the invitation of the parties. If he is acting on being invited by the assessee, then there must be some ground for admitting new evidence in the sense that there must be some explanation to show that the failure to adduce earlier the evidence sought to be adduced before the Appellate Assistant Commissioner was not wilful and- not unreasonable. This view is reasonable and it finds favour with us.

In the instant case, the assessee was carrying on manufacture and sale of jute. For the assessment year 1974-75, it did not claim any deduction of its liability to pay purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as the appellant entertained a belief that it was not liable to pay purchase tax under the aforesaid Act. But, later on, it was assessed to purchase tax and the order of assessment was received by it on November 23, 1973. The appellant disputed the demand and filed an appeal before the appellate authority and obtained a stay order. The assessee, thereafter, claimed deduction of the amount of Rs.11,54,995 towards its liability to pay purchase tax as deduction for the assessment year 1974-75. The assessee had not actually paid the purchase tax as it had obtained stay from the appellate authority; none the less its liability to pay tax existed, and it was entitled to deduction of Rs.11,54,995 as was held by this court in Kedarnath Jute Mfg. Co. Ltd. v. C.I.T. (1971) 82 ITR 363. There was no dispute about these facts. In these circumstances, the Appellate Assistant Commissioner allowed the assessee to raise this question and, after hearing the Income-tax Officer, he granted the deduction from the assessee's income. The Tribunal took a contrary view placing reliance on the decision of this Court in Gurjargravures P. Ltd. (1978) 111 ITR 1 (SC). As already discussed, the facts in the instant case are quite clear, unlike the facts involved in Gurjargravure's case (1978) 111 ITR 1 (SC). We are, therefore, of the view that the view taken by the Appellate Tribunal and the High Court is not sustainable in law. In our opinion, the High Court and Tribunal both committed an error in refusing to state the case, or making a reference.

The next question which arises for consideration now is as to what order should be passed in the present circumstances. In view of the findings recorded by us, ordinarily, we should direct the High Court to call for the statement of case from the Tribunal and thereupon decide the matter afresh, but this procedure would be time consuming. Since we have already discussed the correct position in law, we do not consider it necessary to follow the usual procedure. Since the view taken by the Income-tax Appellate Tribunal is not sustainable in law, we grant leave against the order of the Income-tax Appellate Article 136 and set aside the same and remit the matter to the Income-tax Appellate Tribunal to consider the merits of the deduction permitted by the Appellate Assistant Commissioner. If the Tribunal thinks it necessary, it may remand the matter to the Appellate Assistant Commissioner (now Deputy Commissioner of Appeals) for rehearing. The appeal is, accordingly, disposed of. There will be no order as to costs.

1238/TCase remanded.