Income-tax---

----Appeal to Appellate Tribunal---Powers of Tribunal---Tribunal has the power to permit additional grounds to be raised before it---Indian Income-tax

Act, 1961, 5.254---[CTT v. Karamchand Premchand (Private) Ltd. (1969) 74 ITR 254 (Guj.); CTT v. Celluloses Products of India Ltd. (1985) 151 ITR 499 (Guj.); Hukumchand and Mannalal Co. v. CTT (1980) 126 ITR 251 (MP); CIT v. Anand Prasad (1981) 128 ITR 388 (Delhi) dissented from and Ugar Sugar Works Ltd. v. CIT (1983) 141 ITR 326 (Bom.) overruled].

The basic purpose of an appeal in an income-tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either before the Appellate Assistant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The appellate authorities, of course, cannot travel beyond the proceedings and examine new sources of income. For this purpose, other separate remedies are provided to the Department-under the Income-tax Act. But, apart from this, there is nothing in section 254 or section 251 of the Income-tax Act, 1961, which would indicate that the appellate authorities are confined to considering only the objections raised before them or allowed to be raised before them either by the assessee or by the Department, as the case may be. They can consider the entire proceedings to determine the tax liability of the assessee. Under section 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". This gives very wide power to the Appellate Tribunal to pass, on the appeal, such orders as it may think fit. The Department also has a right to file an appeal or cross-objections, as the case may be, if it is aggrieved by any part of the order of the Appellate Assistant Commissioner. The word "thereon" in section 254 does not, in any manner, restrict the jurisdiction of the Appellate Tribunal. The word "thereon" merely refers, to the appeal. It does not refer to the scope of jurisdiction at all. The words which prescribe the extent of jurisdiction of the Tribunal under section 254 are the words "may pass such orders ... as it thinks fit". Looked at from a slightly different point of view, the word "thereon" can be said to refer to the subject-matter of the appeal, then, the subject-matter of the appeal is the entire tax proceeding of the assessee which is before the Tribunal for consideration; and this will cover the proceedings before the Income-tax Officer, before the Appellate Assistant Commissioner as well as before the Tribunal -- including the grounds raised before the Tribunal, any additional grounds which may be allowed to be raised before the Tribunal as also cross- objections, if any, before the Tribunal. The Appellate Tribunal has jurisdiction to permit additional grounds 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.

Hukumchand Mills Ltd. v. CIT (1967) 63 ITR 232 (SC); CTT v. Mahalkshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC); CTT v. S. Nelliappan. (1967) 66 ITR 722 (SC); Jute Corporation of India Ltd. v. CTT (1991) 187 ITR 688 (SC); Ramgopal Ganpatrai and Sons Ltd. v. CEPT (1953) 24 ITR 362 (Bom.); CIT v. Breach Candy Swimming Bath Trust (1955) 27 ITR 279 (Bom.) J.S. Parkar v. V.B. Parkar (1974) 94 ITR 616 (Bom.); CIT v. Gangappa Cables Ltd. (1979) 116 ITR 778 (AP.); Atlas Cycle Industries v. CIT (1982) 133 ITR -231 (P&H); CIT v. Kerala State Cooperative Marketing Federation Ltd. (1992) 193 ITR 624 (Ker.); CIT v. Indian Express (Madurai) (Pvt.) Ltd. (1983) 140 ITR 705 (Mad.) and CED v. Bipinchandra N. Patel (1990) 186 ITR 29 (Bom.) fol.

Addl. CIT v. Gurjargravures (P.) Ltd. (1978) 111 ITR 1 (SC) distinguished.

CTT v. Karamchand Premchand (Private) Ltd. (1969) 74 ITR 254 (Guj.); CIT v. Celluloses Products of India Ltd. (1985) 151 IM 499 (Guj.) (FB); Hukumchand and Mannalal Co. v. CIT (1980) 126 ITR 251 (MP) and CIT v. Anand Prasad (1981)128 ITR 388 (Delhi) dissented from.

Ugar Sugar Works Ltd. v. CIT (1983) 141 ITR 326 (Bom.) overruled.

Amalgamated Electricity Co. Ltd. v. CIT (1974) 97 ITR 334 (Rom.); Bamasi (P.R.) v. CIT (1972) 83 ITR 223 (Bom.); CIT v. Western Rolling Mills (Pvt.) Ltd. (1985) 156 ITR 54 (Bom.); CED v. Brahadeeswaran (R.) (1987) 163 ITR 680 (Ma6.); Jagarnath Therani v CIT (1925) 2 ITC 4 (Pat.); Narrondas Manordass v. CIT (1957) 31 ITR 909 (Bom.); Oswal Cotton Spinning and Weaving Mills v. CIT (1981) 129 ITR 761 (P&H); Panchura Estate Ltd. v. Government of Madras (1973) 87 ITR 698 (Mad.) and Vijay Kumar Jain v. CIT (1975) 99 ITR 349 (P&H) ref.

S.E. Dastur with NA. Dalvi instructed by Messrs Mulla and Mulla Craigie, Blunt and Caroe for the Assessee.

Dr. Balasubramanian and P.S. Jetley for the Commissioner.

JUDGMENT

MRS. SUJATA MANOHAR, J.---Income-tax Reference No.481 of 1976 is in respect of two questions of law which have been referred by the Income-tax Appellate Tribunal to the High Court under section 256(1) of the Income-tax Act, 1961. This income-tax reference came up for hearing before a Division Bench of this High Court (see (1991) 190 ITR 413). As far as the first question was concerned, the Division Bench answered the question in the affirmative and in favour of the Revenue. The second question which was before the Division Bench was as follows (see (1991) 190 TTR 413, 414):

"(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in not allowing the assessee leave to raise in its own appeals additional grounds and in the departmental appeals cross- objections regarding the deductibility of the sums transferred to contingency reserve and tariff and dividend control reserve?"

In respect of the second question, the pertinent facts are as follows:--

This question refers to the assessment years 1962-63 to 1971-72. The assessee-company which is governed by the Electric Supply Act of 1948 was required to transfer certain amounts to contingency reserve and dividend and tariff reserve. The assessee-company did not claim these amounts as deductions either before the Income-tax Officer or before the Appellate Assistant Commissioner in appeal in respect of these assessment years. Subsequently, our High Court held in the case of Amalgamated Electricity Co. Ltd. v. CIT [(1974) 97 ITR 334], that such amounts represented allowable deductions on revenue account.

At the time when this decision came, the assessee had already filed appeals before the Tribunal against the orders of the Appellate Assistant Commissioner for the assessment years 1962-63, 1963-64, 1966-67, 1967-68, 1968-69 and 1969-70. The Department had filed appeals before the Tribunal for the assessment years 1964-65, 1965-66, 1970-71 and 1971-72. For these assessment years, the assessee had filed cross-objections. In view of the decision of our High Court in Amalgamated Electricity's case (1974) 97 ITR 334, the assessee sought to raise a new claim before the Appellate Tribunal and it sought to raise additional grounds in that connection. It also sought to raise an additional grounds in its cross-objections in connection with this deduction. The Tribunal, however, refused to grant leave to the assessee to raise such an additional ground.

Question No.(2) is with reference to the refusal of this leave by the Tribunal to raise additional grounds. The Division Bench which heard the reference, while dealing with question No.(2), came to the conclusion that there was a conflict of views taken by our High Court in the cases of Ugar Sugar Works Ltd. v. CIT (1983) 141 ITR 326 and in the case of CED v. Bipinchandra N. Patel (1990) 186 ITR 29. The Division Bench, therefore, by its order dated February 19, 1991 (see (1991) 190 ITR 413), has directed that question No.(2) should be placed before the Honourable Chief Justice for constituting a larger Bench to resolve the controversy. Accordingly, this question has been referred to us for decision.

Income-tax Reference No.45 of 1977 (see (1991) 191 ITR 311, 313) relates to a number of questions which were referred to the High Court by the Tribunal under section 256(1) of the Income-tax Act, 1961. One of the questions so referred was as follows:--

"(3)Whether, on the facts and circumstances of the case, the Tribunal erred in law in not allowing the additional ground raised for allowing the applicants Rs.42,443 as revenue loss under section 32(1)(iii) of the Income-tax Act, 1961, incurred due to destruction of the sugar godown because of cyclone during the relevant assessment year?"

The facts relating to this question are as follows:--

The assessee had constructed a sugar godown during the previous year relevant to the assessment year 1962-63. On the ground that it was a shed and a temporary structure, the assessee claimed the expenditure incurred thereon as revenue expenditure. The shed was destroyed in the next assessment year by a cyclone. In view, however, of the stand taken by the assessee that the expenditure for construction of the shed was revenue expenditure, the assessee could not claim any deduction when the shed was destroyed in the following year under section 32(l)(iii) of the Income-tax Act as then in force. In the assessment proceedings, however, the assessee's stand for the earlier year was not accepted. The Tribunal decided the assessee's appeal for the assessment year 1962-63 some time in 1972 holding that the shed which was constructed was not a temporary shed and that it constituted a capital asset on which depreciation was to be allowed. For the next assessment year 1963-64, depreciation could not be allowed in view of section 34(2)(ii) as then in force, as the shed was destroyed by cyclone during the year. Thus, the question of claiming a deduction under section 32(1)(iii), admittedly, arose as a result of the Tribunal's order in the assessee's case for the assessment year 1962-63. The assessee sought to raise an additional ground of appeal to the effect that Rs.42,443 be allowed as revenue loss under section 32(1)(iii) of the Income-tax Act, 1961, incurred due to the destruction of the sugar godown because of a cyclone on June 10, 1961. The Tribunal did not permit the assessee to raise this additional ground as the same was not raised and did not arise out of the order of the Appellate Assistant Commissioner from which the appeal had been preferred to the Tribunal. The above question, therefore, was, inter cilia, referred to the High Court for determination by the Tribunal under section 256(1) of the Income-tax Act.

The Division Bench of the High Court which heard the reference, by its judgment and order, dated February 28, 1991 (see (1991) 191 ITR 311), decided the other questions which were before it. But, in respect of the above question, it came to the conclusion that there was a conflict between two authorities of this High Court. They had, therefore, already referred this question to a Larger Bench in the case of Ahmedabad Electricity Co. Ltd. v. CIT (1991) 190 ITR 413 (Bom.) in Income-tax Reference No.481 of 1976. They, therefore, directed the above question to be placed before a Larger Bench for consideration. This question also, therefore, is referred to us. Both these questions relate to the jurisdiction of the Income-tax Appellate Tribunal to permit additional grounds to be raised before it which were not raised before the Appellate Assistant Commissioner or the Income-tax Officer.

Chapter XX of the Income-tax Act, 1961, deals with appeals and revision. An assessee, aggrieved by an order of assessment or any order enumerated in section 246,` can (at the relevant time) file an appeal before the Appellate Assistant Commissioner. The Department does not have a right of appeal before the Appellate Assistant Commissioner. Under section 251 of the Income-tax Act, 1961 (as it stood at the relevant time), in disposing of an appeal, the Appellate Assistant Commissioner has the following powers:--

(a)in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; or he may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment in accordance with the directions given by the Appellate Assistant Commissioner and after making such further inquiry as may be necessary, and the Assessing Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment;

(b)in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty;

(c)in any other case, he may pass such orders in the appeal as he thinks fit.

Under section 251, subsection (2), an Appellate Assistant Commissioner shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. An explanation to subsection (2) states, "In disposing of an appeal, the Appellate Assistant Commissioner may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner by the appellant". Thus, the Appellate Assistant Commissioner has very wide powers while considering an appeal which may be filed by the assessee. He may confirm, reduce, enhance or annul the assessment or remand the case to the Assessing Officer. This is because, unlike an ordinary appeal, the basic purpose of a tax appeal is to ascertain the correct tax liability of an assessee in accordance with law. Hence an Appellate Assistant Commissioner also has the power to enhance the tax liability of the assessee although the Department does not have a right of appeal before the Appellate Assistant Commissioner. The explanation to subsection (2), however, makes it clear that for the purpose of enhancement, the Appellate Assistant Commissioner cannot travel beyond the proceedings which were originally before the Income-tax Officer or refer to new sources of income which were not before the Income-tax Officer at all. For this purpose, there are other separate remedies provided under the Income-tax Act.

From the order of the Appellate Assistant Commissioner, an appeal is provided to the Income-tax Appellate Tribunal. Section 253 of the Income-tax

Act provides for such an appeal by an assessee who is aggrieved by any of the orders which are enumerated in that section. Under subsection (2) of section 253, the Department also has a right of appeal to the Income-tax Appellate Tribunal. Under subsection (4), the Department or the assessee may, on receipt of a notice that an appeal against the order of the Appellate Assistant Commissioner has been preferred, either under subsection (1) or subsection (2) by the other party may, notwithstanding that he may not have appealed against such order or any part of it, file a memorandum of cross objections; and such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal.

Under section 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". This gives a very wide power to the Appellate Tribunal to pass, on the appeal, such orders as it may think fit.

In the case of the Appellate Assistant Commissioner, there is an express power granted to him to enhance the tax liability. This is because the Department does not have a right of appeal before the Appellate Assistant Commissioner. As far as the Appellate Tribunal is concerned, the Department also has a right to file an appeal or cross-objections, as the case may be, if it is aggrieved by any part of the order of the Appellate Assistant Commissioner. Therefore, any express power of enhancement has not been conferred on the Appellate Tribunal. The Tribunal can, in a given case, in dealing with an appeal filed by the Department or considering its cross-objections, enhance the tax liability of the assessee if the Tribunal accepts the contention of the Department.

Dr. Balasubramanian, learned Advocate for the Department, contends that, under section 254, the Tribunal can decide only points raised or allowed to be raised before it; and further that the Tribunal cannot permit raising of points not arising from the order of the Appellate Assistant Commissioner. We do not find anything in section 254 which would thus restrict the powers of the Appellate Tribunal while considering an appeal before it. As we have said earlier, the basic purpose of an appeal procedure in an income-tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either before the Appellate Assistant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The appellate authorities, of course, cannot travel beyond the proceedings and examine new sources of income. For this purpose, other separate remedies are provided to the Department under the Income-tax Act. But, apart from this, there is nothing in section 254 or section 251 which would indicate that the appellate authorities are confined to considering only the objections raised before them or allowed to be raised before them either by the assessee or by the Department, as the case may be. They can consider the entire proceedings to determine the tax liability of the assessee. But they cannot travel beyond the proceedings to bring in new sources of income. The explanation to section 251(2) clearly brings out this aspect. The Explanation clarifies the extent of the powers of an Appellate Assistant Commissioner. But, even before the Explanation was added to section 251, that section and the corresponding previous section had been interpreted by our High Court and other High Courts in the same manner.

As far back as in 1957, in the case of Narrondas Manordass v. CIT (1957) 31 ITR 909), the Bombay High Court had considered the scope of section 31(3) of the Indian Income-tax Act, 1922. This section is equivalent to section 251 of the present Income-tax Act, except that, under section 31(3), there was no Explanation of the kind which is present in section 251. Nevertheless, the Court had to say this about the interpretation of section 31(3); The Court said that section 31(3) relating to appeal is enacted for the purpose of ascertaining the tax liability of the assessee. The statute provides that once an assessment comes before the Appellate Assistant Commissioner, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee. His competence ranges over the whole assessment and it is open to him to correct the Income tax Officer's order not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment. The Court said (at page 921): "The principle which clearly emerges from these observations is that the Appellate Assistant Commissioner cannot travel beyond the subject-matter of the assessment. Note that it is not the subject-matter of the appeal but the subject-matter of the assessment, and when the learned Judges (of the Patna High Court in Jagarnath Therani v. CIT (1925) 2 ITC 4) say that the Appellate Assistant Commissioner is not entitled to assess new sources of income, this expression is ... in this sense that a source from which income may spring may not have been considered by the Income-tax Officer at all, and if that be the position then it would not be open to the Appellate Assistant Commissioner to assess the assessee with regard to that source. It is in this sense that the source is looked upon by the Patna High Court as a new source ... Therefore, if an income is the subject-matter of the consideration by the Income-tax Officer, and even though the Income-tax Officer may come to the conclusion that that income is not subject to tax, it would be open to the Appellate Assistant Commissioner to take a different view and to bring that income to tax". Therefore, even without the Explanation, the Court had interpreted the provisions of section 31(3) as conferring on the Appellate Assistant Commissioner powers much wider than those of an ordinary Court of appeal. Once an assessment comes before an Appellate Assistant Commissioner, his competence is not restricted to examining those, aspects of the assessment which are complained of by the assessee but ranges over the whole assessment and it is open to him to correct the Income-tax Officer's order not only with regard to a matter raised by the assessee in the appeal but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment. The explanation to section 251, therefore, neither confers any additional powers on the Appellate Assistant Commissioner nor does it take away any powers of the Appellate Assistant Commissioner.

Similarly, the absence of such an Explanation in section 254 which deals with the powers of the Tribunal also makes no difference to the scope of the powers of the Tribunal. Looking to the wide language in which this power is granted to the Tribunal, we do not find any reason for restricting this power only to the points at issue arising from the order of the Appellate Assistant Commissioner and raised by the assessee or by the Department before the Tribunal.

In this connection, a reference may also be made to the Income-tax (Appellate Tribunal) Rules, 1963, which have been framed under section 255(5) of the Income-tax Act, 1961. Under Rule 11 of the Appellate Tribunal Rules, 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 confirmed to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule; provided that the Tribunal shill 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. So that, in deciding the appeal, the Tribunal is not restricted to the grounds which are taken or which have been allowed to be taken in the memorandum of appeal.

Similarly under Rule 29, the parties to the appeal shall not be entitled to produce additional evidence, either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced. These rules, therefore, indicate that the scope of enquiry before the Tribunal can be wider than the points which are raised before the Tribunal. The Tribunal, therefore, would ordinarily have the power to allow additional points to be raised before it so long as they arise from the subject-matter of the proceedings and not necessarily only from the subject-matter raised in the memorandum of appeal. This point, however, is not res integra. There are a large number of authorities on this question.

In the case of Hukumchand Mills Ltd. v. CIT (1967) 63 ITR 232), the Supreme Court was required to consider the powers of the Appellate Tribunal under section 33(4) of the Indian Income-tax Act, 1922, which is equivalent to the present section 254 of the Income-tax Act, 1961. In the case before the Supreme Court, the assessee company was incorporated in the then native State of Indore. It was assessed in British India, except for the assessment year 1948-49, as a non-resident on such income as fell within section 4(1)(a) or (c) read with section 42 of the Indian Income-tax Act, 1922. After the Constitution of India came into force, Indore became a Part B State and the Indian Income-tax Act, 1922, was brought into force, in Part B States with effect from April 1, 1950. For the assessment year 1950-51, the assessee became assessable as a resident. The Tribunal, in that case, had permitted the Department to raise for the first time the contention that the Income-tax Officer had not considered the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, and remanded the matter to the Income-tax Officer to ascertain whether any depreciation was allowed under the Indore Industrial Tax Rules and, if he was of the opinion that these rules related to income-tax or super tax or any law relating to tax on profits of business, to take into consideration such depreciation actually allowed under these Rules also for the purpose of computing the written down value. The assessee contended that the Tribunal should not have allowed the Department to raise the contention for the time before it and remanded the case. The Supreme Court held that the Appellate Tribunal had sufficient power under section 33(4) of the old Income-tax Act to entertain the contention of the Department and to remand the case to the Income-tax Officer.

After referring to section 33(4) which gave to the Appellate Tribunal power to pass "such orders thereon as it thinks fit", the Supreme Court said (at page 237): "The word `thereon', of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words `pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act". And a little later, the Court explained, (at page 237): "In the present case, the subject of the appeal before the Tribunal was the question as to what should be the proper written down value of the buildings, machinery, etc. of the assessee for calculating the depreciation allowance under section 10(2)(vi) of the Act." Therefore, the Supreme Court clearly said that the Tribunal could permit additional grounds to be raised for the first time before it so long as these additional grounds were the subject-matter of the proceedings; because, quite clearly, the Court has interpreted the subject-matter of the appeal widely as covering the various issues arising in the proceedings whether raised earlier or not.

The position was further clarified by the Supreme Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710. The Supreme Court has held (headnote): "Under section 33(4), the Appellate Tribunal is competent to pass such orders on appeal `as it thinks fit'. There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the Departmental authorities. All questions, whether of law or of facts, which relate to the assessment of the assessee may be raised before the Tribunal".

In the case of CIT v. S. Nelliappan (1967) 66 ITR 722), the Supreme Court once again considered the scope of section 33(4) of the Indian Income tax Act, 1922. The Court reiterated that in hearing an appeal the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. The Tribunal was, therefore, competent to allow the assessee to raise the contention relating to the cash credits which was not made the subject-matter of a ground in the memorandum of appeal. The Court said that the Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of its findings merely because the findings were inconsistent with the case pleaded by the assessee.

Coming to our High Court in the case of Ramgopal Ganpatrai and Sons Ltd. v. CEPT (1953) 24 ITR 362), the Court considered the provisions relating to appeals in respect of the Excess Profits Tax Act. The Court observed that an Appellate Tribunal has jurisdiction to deal with an order which is in appeal before it on any ground even though such a ground was not taken earlier. It said, inter alia, that the Appellate Court may even reverse or modify the order on a point of law taken by itself suo motu, without being asked to do so by the appellant. When a statute confers a right of appeal and permits an order of the trial Court to be challenged, the Appellate Court has full jurisdiction to reverse or modify that order on any ground which is open to it in law. The Court further said that it was not suggesting that the Appellate Court had no discretion is refuse the appellant to urge a ground not taken in the Court below, but the Appellate Court did have competence and jurisdiction to allow a point of law to be taken before it which was not taken in the Court below.

In the case of CIT v. Breach Candy Swimming Bath Trust (1955) 27 ITR 279 (Bom.), the High Court was required to consider the powers of the Income-tax Appellate Tribunal. In that case, the assessee for the first time raised a new contention before the Tribunal to the effect that it was a charitable trust and hence the income derived by the charitable trust was exempt from taxation. The Tribunal permitted the assessee to raise this point and answered it in its favour. The question which was referred to the High Court was whether the Tribunal was competent in law in permitting an assessee to raise a ground at the time of the hearing of the appeal a ground which was not raised either before the Income-tax Officer or before the Appellate Assistant Commissioner, or in the grounds of appeal before the Appellate Tribunal. The Court said that the Tribunal has the authority to permit a new point to be raised, provided that the party who is affected by the raising of this new point has been given sufficient opportunity of being heard on this point (vide rule 12 of the Appellate Tribunal Rules, 1946). (See also in this connection B.R. Bamasi v. CIT (1972) 83 ITR ?23 (Bom.)).

In the case of J. S. Parkar v. V.B. Palekar (1974) 94 ITR 616 (Bom.), the Court said that a new contention could be raised before the Tribunal in an appeal which had not been taken either before the Appellate Assistant Commissioner or before the Income-tax Officer. In the case of CED v. Bipinchandra N. Patel (1990) 186 ITR 29 (Bom.), our Court was required to consider whether, in an appeal to the Appellate Tribunal under the Estate Duty Act, 1953, the Tribunal had the power to admit an additional ground which was not raised either before the Assistant Controller or before the Appellate Controller. The Court (to which one of us was a party) held that it was permissible for the Tribunal to allow such an additional ground, especially as the ground pertained to a legal question. The Court in that case considered various authorities of our High Court which have been referred to earlier and also referred to the decision of the Andhra Pradesh High Court in the case of CIT v. Gangappa Cables Ltd. (1979) 116 ITR 778 (AP) as also Addl. CIT v. Gurjargravures (P.) Ltd. (1978) 111 ITR 1 (SC) while arriving at this conclusion.

In the case of Addl. CIT v. Gurjargravures (1978) 111 ITR 1), the Supreme Court was concerned with a case where the Tribunal had allowed a point to be raised-which had not been taken either before the Income-tax Officer or before the Appellate Assistant Commissioner. The Supreme Court held that such a point should not have been allowed to be raised. It said, however, that it was not called upon to consider a case where the assessee had failed to make a claim although there was evidence on record to support it; nor was it called upon to consider a case where a claim was made but there was no evidence or insufficient evidence adduced in support of the claim. In the case before the Supreme Court, neither any claim had been made before the Income-tax Officer, nor was there any material on record supporting such a claim and, therefore, such a claim ought not to have been allowed to be raised by the Tribunal before it for the first time.

This decision has now been explained by the Supreme Court in the case of Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688, as turning upon its own special facts. We will revert to it a little later. This decision of the Supreme Court in the case of Add]. CIT v. Gujrargravures (P.) Ltd. (1978) 111 ITR 1), was also distinguished by the Andhra Pradesh High Court in the case of CIT v. Gangappa Cables Ltd. (1979) 116 ITR 778. The Andhra Pradesh High Court also said that the Appellate Tribunal disposing of an appeal under the Income-tax Act has got the power to allow the assessee to put forward a new claim, notwithstanding the fact that such a claim was not raised by him before the Income-tax Officer or the Appellate Assistant Commissioner provided that there is sufficient material on record to allow such a claim.

The Andhra Pradesh High Court relied upon the decisions of the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710) and Hukumchand Mills Ltd. v. CIT (1967) 63 ITR 232) in support of its finding that the words "pass such orders as the Tribunal thinks fit" are wide enough to empower a tribunal to consider a claim which was not made earlier, provided there was sufficient evidence on record to support such a claim.

The Punjab and Haryana High Court has also taken a similar view in the case of Atlas Cycle Industries Ltd. v. CIT (1982) 133 ITR 231). The Punjab and Haryana High Court relied upon the Supreme Court decision in the case of CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 in support of its finding that questions, whether of law or of fact, which relate to, the assessment of the assessee, can be raised before the Tribunal. There is nothing in the Income-tax Act which restricts the Tribunal to the determination only of questions raised before the Departmental authorities. The Punjab and Haryana High Court also distinguished the Supreme Court decision in the case of Addl. CIT v. Gurjargravures (P.) Ltd. (1978) 111 ITR 1) on the ground that that decision turned upon the peculiar facts and circumstances of that case, since that was a case where material was not available in support of the plea which was raised before the Tribunal for the first time. (See also in this connection two other decisions of the Punjab and Haryana High Court to similar effect in the case of Oswal Cotton Spinning and Weaving Mills v. CIT (1981) 129 ITR 761) and in the case of Vijay Kumar Jain v. CIT (1975) 99 ITR 349).

The Kerala High Court has taken a similar view in the case of CIT v. Kerala State Cooperative Marketing Federation Ltd. (1992) 193 ITR 624). The Kerala High Court has observed that the appeal provisions under the Income tax Act are for the purpose of assessing the correct tax liability of the assessee and, for that purpose, the Tribunal can permit additional grounds to be raised before it which had not been raised either before the Income-tax Officer or before the Appellate Assistant Commissioner.

A similar view has been taken by the Madras High Court in the case of CIT v. Indian Express (Madurai) (Pvt.) Ltd. (1983) 140 ITR 705). The Madras High Court has also said that the primary purpose of the Income-tax Act is to levy and collect income-tax and the purpose of statutory provisions, especially those relating to the administration and management of income-tax, is to ascertain the tax liability correctly. The various provisions relating to appeal, reference, etc. cannot be equated to a lis or dispute arising between two parties as in a civil litigation. The very object of the appeal is not to decide a point raised as a dispute but any point which goes into the adjustment of the tax-payer's liability. Therefore, the proceeding before such authorities lack the basic elements of adversary proceedings. Under section 33(4) of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal as it thinks fit and there is nothing in the Act which restricts the Tribunal to a determination of the questions raised before the Department. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. The Madras High Court also relied upon the Supreme Court decisions in the cases of CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710) and CIT v. Nelliappan (1967) 66 ITR 722, as also Hukumchand Mills Ltd. v. CTT (1967) 63 ITR 232). It did not follow a contrary decision of the Gujarat High Court in the case of CIT v. Karamchand Premchand (Private) Ltd. (1969) 74 ITR 254, in view of the above Supreme Court decisions. (See also in this connection CED v. R. Brahadeeswaran (1987) 163 ITR 680, 682 (Mad.) These decisions of the Madras High Court have taken a view which is different from the view earlier taken by the Madras High Court in the case of Panchura Estate Ltd. v. Government of Madras (1973) 87 ITR 698).

There are, however, some judgments of High Courts which have taken as somewhat different view. The case of Addl. CIT v. Grjargravures (P.) Ltd. (1978) 111 TTR 1 (SC), we have already referred to earlier. The decision of the Supreme Court in that case turned upon the special facts of that case, especially because there was absolutely no material on the basis of which the plea could have been raised before the Tribunal. The Gujarat High Court has also taken a different view in the case of CIT v. Karamchand Premchand (Private) Ltd. (1969) 74 ITR 254), the Gujarat High Court has taken the view that the Tribunal can consider only the points which have been dealt with by the Appellate Assistant Commissioner. In that case, the Gujarat High Court held that where, in an appeal to the Appellate Assistant Commissioner by the assessee against an order of assessment, the assessee had not questioned the decision of the officer on a point decided and the Appellate Assistant Commissioner had not in his order considered that point, the assessee was not entitled to question the decision of the officer on the point in an appeal to the Appellate Tribunal against the order of the Appellate Assistant Commissioner. The High Court said that the Tribunal was not entitled to allow the assessee to agitate the question under the guise of granting leave under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963. The Gujarat High Court held that, while the powers of the Appellate Assistant Commissioner were very wide, under section 253 which dealt with an appeal to the Tribunal, the jurisdiction of the Tribunal was confined only to point raised before the Appellate Assistant Commissioner which were the subject-matter of the appeal before the Tribunal. It said that, if a particular matter is not considered and decided by the Appellate Assistant Commissioner and the decision on it does not form part of the order of the Appellate Assistant Commissioner, there can be no appeal against it. Apparently, there was no dispute before the Court on this proposition (see page 262): and hence the Court said that the jurisdiction of the Tribunal in appeal was limited.

The Gujarat High Court did not consider the nature of the appeal or the nature of appellate proceedings in an income-tax appeal where the analogy of adversary proceedings does not strictly apply. If the whole purpose of the income-tax appeal, whether it is before the Appellate Assistant Commissioner or before the Tribunal, is to ascertain the correct tax liability of the assessee, we do not see any reason why the jurisdiction of the Tribunal should be restricted in the manner set out by the Gujarat High Court in the case of CIT v. Karamchand Premchand (Private) Ltd. (1969).

The Gujarat High Court had emphasised the word "thereon" in section 254 of the Income-tax Act. In our view, this word does not in any manner restrict the jurisdiction of the Appellate Tribunal. The word "thereon" merely refers to the appeal. Section 254 states that the Appellate Tribunal, while deciding the appeal, may pass such order on the appeal as it thinks fit. To read the word "thereon" as restricting the jurisdiction of the Appellate Tribunal is, in our view, not warranted. It does not refer to the scope of jurisdiction at all. The words which prescribe the extent of jurisdiction of the Tribunal under section 254 are the words "may pass such orders ... as it thinks fit". These are words which prescribe the jurisdiction of the Appellate Tribunal. The word "thereon" merely refers to the fact that the Tribunal, while deciding the appeal, has to exercise this jurisdiction.

Looked at from a slightly different point of view, if the word "thereon" can be said to refer to the subject-matter of the appeal, then, as stated by the Supreme Court in the case of Hukumchand Mills (1967) 63 TTR 232), the subject-matter of the appeal is the entire tax proceedings of the assessee which is before the Tribunal for consideration; and this will cover the proceedings before the Income-tax Officer, before the Appellate Assistant Commissioner as well as before the Tribunal -- including the grounds raised before the Tribunal, any additional grounds which may be allowed to be raised before the Tribunal as also cross-objections, if any, before the Tribunal. Undoubtedly, the Tribunal has a discretion to decide whether any additional points can be allowed to be raised before it at the stage of appeal before it. And it may not permit such a new point to be raised for good reasons. But the extent of jurisdiction of the Tribunal is not confined only to points which were considered by the Appellate Assistant Commissioner and which may be challenged in appeal before the Tribunal. The Tribunal can permit other grounds also to be raised before it, provided, of course, that they arise out of the proceedings.

We do not, therefore, agree with the view taken by the Gujarat High Court in the case of CIT v. Karamchand Premchand (Private) Ltd. (1969) 74 ITR 254). The view taken by the Gujarat High Court in the case of CIT v. Karamchand Premchand (Private) Ltd. (1969) 74 ITR 254), was reiterated by a Full Bench of the Gujarat High Court in the case of CIT v. Cellulose Products of India Ltd. (1985) 151 ITR 499). This view has also been followed by the Madhya Pradesh High Court in the case of Hukumchand and Mannalal Co. v. CIT (1980) 126 ITR 251) and the Delhi High Court in the case of CIT v. Anand Prasad (1981) 128 ITR 388). For reasons set out above, we differ from the view taken in these cases.

Our High Court in the case of Ugar Sugar Works Ltd. v. CIT (1983) 141 ITR 326) also followed the judgment of the Gujarat High Court in the case of CIT v. Karamchand Premchand (Private) Ltd. (1969) 74 ITR 254) and held that there was a distinction between the jurisdiction of the Appellate Assistant Commissioner and that of the Tribunal. It said that, while the Appellate Assistant Commissioner's jurisdiction ranges over the whole assessment and is not confined to matters raised by the assessee, the Tribunal's jurisdiction is restricted to the points which were decided by the Appellate Assistant Commissioner and which may be challenged in the memorandum of appeal before the Tribunal. For reasons set out earlier, in our view, the view expressed in this judgment cannot be accepted. It is contrary to the decisions of the Supreme Court referred to earlier as well as the decisions of our High Court which have also been set out earlier.

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 Ltd. v. CIT (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 (Pvt) Ltd. (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 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 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". The Supreme Court considered the observations in the case of Gurjargravures (P.) Ltd. (1978) 111 ITR 1 (SC), and said that these do not rule out the 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. 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. The Supreme Court said that it was not overruling the decision in Gurjargravures (P.) Ltd. (1978) 111 ITR 1, since it could be distinguished on facts.

The ratio of this judgment would apply to the jurisdiction of the Appellate Tribunal also. The observations of the Supreme Court, in fact, cover all Appellate Authorities under the Income-tax Act. We do not find anything in section 254(1) of the Income-tax Act which limits the jurisdiction of the Appellate Tribunal in any manner.' For reasons which we have set out earlier, the phrase "pass such orders thereon" does not in any way restrict the jurisdiction of the Tribunal, but, on the contrary, confers the widest possible jurisdiction on the Appellate Tribunal including jurisdiction to permit any additional ground of appeal if, in its discretion, and for good reason, it thinks it necessary or permissible to do so. (See also in this connection a decision of the Bombay High Court in the case of CIT v. Western Rolling Mills (Pvt.) Ltd. (1985) 156~ITR 54).

In view of the above decisions, it is quite clear that the Appellate Tribunal has jurisdiction to permit additional grounds 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.

In the premises, the question before us in Income-tax Reference No. 481 of 1976 is answered in the affirmative and in favour of the assessee. Similarly, in Income-tax Reference No. 45 of 1977, the question which is before us is answered in the affirmative and in favour of the assessee. In the circumstances, there will be no order as to costs.

The proceedings may, accordingly, be placed before the Tribunal for its decision in the light of the above.

M.BA./2269/TQuestion answered in affirmative.