http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

PETITIONER: C.I.T., M.P., BHOPAL

       Vs.

RESPONDENT: M/S NIRBHERAM DELURAM

DATE OF JUDGMENT:       05/03/1997

BENCH: S.C. AGRAWAL, G.B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      In this  appeal, by  special leave,  the question  that falls for  consideration relates  to the scope of the powers of the  Appellate Assistant  Commissioner while dealing with appeals against  orders  of  the  Assessing  Officers  under Section  251  of  the  Income  Tax  Act,  1961  (hereinafter referred to  as  ’the  act’).  The  matter  relates  to  the assessment year  1956-57. M/s Nirbheram Daluram (hereinafter referred to as ’the asessee’) is a partnership firm carrying on business  in grains, rice, gunny bags and oil seeds, etc. Under order  dated March  11, 1957 assessment was originally made on  a total income of Rs. 28,724/-. On re-assessment in proceedings initiated  under Section  147  of  the  Act  the Income Tax Officer included in the total income a sum of Rs. 2,45,000/- referable  to ostensible  transactions  in  hundi loans shown  by the  assessee. The  assessee filed an appeal against the  said assessment  order passed by the Income Tax Officer.  The  Appellate  Assistant  Commissioner  not  only sustained the  said addition  of Rs.  2,45,000/- but he also took notice  of 10  other items  of ostensible  hundi  loans amounting to  Rs. 2,30,000/-  and directed  that  the  total income be  enhanced by the sum of Rs. 2,30,000/-. On further appeal,  the  Income  Tax  Appellate  Tribunal  (hereinafter referred to  as ’the Tribunal’) deleted the said addition of Rs. 2,30,000/-  made by the Appellate Assistant Commissioner on the  view  that  in  doing  so  the  Appellate  Assistant Commissioner on  the view  that in  doing so  the  Appellate Assistant Commissioner had exceeded his jurisdiction. At the instances of  the Revenue,  the Tribunal was directed by the High  Court   of  Madhya  Pradesh  to  refer  the  following questions of law for opinion :-      "(1) Whether  in   the  facts   and      circumstances  of   the  case,   he      Tribunal was  justified in deleting      a sum  of  Rs.  2,30,000/-  freshly      added by  the  Appellate  Assistant      Commissioner ?      (2)  Whether   the   sum   of   Rs.      2,30,000/-   was   added   by   the      Appellate Assistant Commissioner on

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

    new sources  of income of items not      considered  by   the   Income   Tax      Officer from  the point  of view of      assessability ?      (3)  Whether     the      Appellate      Assistant   Commissioner   had   no      jurisdiction or power to the sum of      Rs. 2,30,000/-  under the facts and      circumstances in which he has added      the same ?      By the  impugned judgment  dated February 28, 1980, the High Court has answered these questions against the Revenue. The  High  Court  has  held  that  the  Appellate  Assistant Commissioner had no jurisdiction to consider the new entires which were  not considered  at all by the Income Tax Officer and to add the  amount of Rs. 2,30,000/- to the total income of the  assessee. According  to the  High Court,  the  items containing that  amount constituted  new sources  of  income which were  not the  subject matter of assessment before the Income Tax Officer and, therefore, it was not open in appeal to consider these sources and to assess them. In taking this view the  High Court  has places reliance on the decision of this Court in Additional commissioner of Income Tax, Gujarat v. Gurjargravures Pvt. Ltd. (1978) 111 ITR 1, wherein it was held that  the Appellate Assistant Commissioner had no power to grant  exemption under  Section 84  of the  Act since the Income Tax  Officer did  not considered  the time  form  the point of  view of  its non-taxability.  Feeling aggrieved by the said  decision of  the High Court, the Revenue has filed this appeal.      Shri Ranbir  Chandra, the learned counsel appearing for the Revenue,  has submitted that the High Court was in error in construing narrowly the powers conferred on the Appellate Assistant Commissioner  under Section  251 of  the Act.  The learned  counsel  has  pointed  out  that  the  decision  in Additional  Commissioner   of   Income   Tax,   Gujarat   v. Gurjargravures Pvt. Ltd. (supra), on which reliance has been placed by  the High  Court, was  a decision  of a  two judge Bench and  that its  correctness has been doubted by a Bench of three  Judges in  Jute Corporation  of India  Pvt Ltd. v. Commissioner of Income Tax, (1991) 187 ITR 688.      In Jute  Corporation   of India Ltd. v. Commissioner of Income Tax  (supra) this  court has  referred to the earlier decision of  this court  in Commissioner  of Income  Tax  v. Kanpur Coal  Syndicate, (1964)  53 ITR 225, which was also a decision of a three judge bench wherein the scope of Section 31(3)(a) of  the Income  Tax Act,  1922  (which  was  almost identical to  Section 251(1)(a)  of the  Act] was considered and it was held :-      "If an  appeal lies,  Section 31 of      the Act describes the powers of the      Appellate Assistant Commissioner in      such  an   appal,   Under   Section      31(1)(a), in  disposing of  such an      appeal,  the   Appellate  Assistant      Commissioner may, in the case of an      order   of   assessment,   confirm,      reduce,  enhance   or  annual   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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

    appeal. The  scope of  his power is      coterminous  with  the  Income  Tax      Officer. He  can do what the Income      Tax Officer  can do and also direct      him to  do what  he has  failed  to      do."      After referring  to these  observations, this  Court in Jute Corporation of India Ltd. (supra) has stated :-      "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  o   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 limitation, if any,      prescribed   by    the    statutory      provision. In  the absence  of  any      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."      (p.693)      Taking note  of the decision in Additional Commissioner of Income Tax v. Gurjargravures Pvt. Ltd. (supra), the Court has said :      "Apparently, this view taken by the      two  judge   Bench  of  this  court      appears to  be in conflict with the      view taken by the three Judge Bench      of  this   Court  in   Kanpur  Coal      Syndicate 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

    the  notice   of   the   Bench   in      Gujargravures Pvt.  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.      [p. 694]      Having regard  to the  decision in  Jute Corporation of India Ltd.  (supra), it must be held that the High Court was in error  in holding  that the  appellate power conferred on the Appellate  Assistant Commissioner  under Section 251 was confined to  the matter  which had  been considered  by  the Income Tax  Officer and the Appellate Assistant Commissioner exceeded his  jurisdiction of  making  an  addition  of  Rs. 2,30,000/- on  the basis  of the  other 10  items of  hundis which had  not been  explained by  the assessee.  This means that even  if question  No.2 is answered in the affirmative, questions nos. 1 and 3 must be answered in the negative. The appeal is,  therefore, allowed, the impugned judgment of the High Court in so far as it relates to questions Nos. 1 and 3 is set  aside and  the said  questions are  answered in  the negative, i.e.,  in favour  of the  Revenue and  against the assessee. No order as to costs.