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PETITIONER: JUTE CORPORATION OF INDIA LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX AND ANR.

DATE OF JUDGMENT04/09/1990

BENCH: SINGH, K.N. (J) BENCH: SINGH, K.N. (J) THOMMEN, T.K. (J) KULDIP SINGH (J)

CITATION:  1991 AIR  241            1990 SCR  Supl. (1) 340  1991 SCC  Supl.  (2) 744 JT 1990   346

ACT:     Income Tax Act, 1961: Section 251-- Appeal before Appel- late  Assistant Commissioner--Additional grounds  raised  by assessee  which were not raised before the Income Tax  Offi- cer--Whether could be entertained.

HEADNOTE:     In  respect  of the assessment for the  assessment  year 1974-75,  the appellant-assessee preferred an appeal  before the Appellate Assistant Commissioner. During the hearing  of the  appeal,  the assessee raised an  additional  ground  as regards  its liability to Purchase Tax and claimed a  deduc- tion of Rs.11,54,995. After giving an opportunity of hearing to  the Income Tax Officer, the Appellate Assistant  Commis- sioner allowed the said claim.     The  Revenue preferred an appeal before the  Income  Tax Appellate  Tribunal.  The Tribunal held that  the  Appellate Assistant Commissioner had no jurisdiction to entertain  any additional  ground not raised before the Income Tax  Officer and  set aside the order of the Appellate Assistant  Commis- sioner.     The assessee’s application for making reference  to  the High Court was refused by the Tribunal. The High Court  also rejected  the assessee’s application for calling the  state- ment  of  the case and reference from the  Tribunal.  Hence, this appeal by special leave. Disposing of the appeal, the Court,     HELD: 1.1 The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminus  with that of the Income Tax Officer. If that be 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 restric- tion or limitation on the exercise of appellate power.  Even otherwise  an  Appellate  Authority  while  hearing   appeal against  the  order of a subordinate authority has  all  the powers which the original 341 authority  may have in deciding the question before it  sub- ject to the restrictions or limitation if any prescribed  by

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the  statutory provisions. In the absence of  any  statutory provisions to the contrary the Appellate Authority is vested with all the plenary powers which the subordinate  authority may have in the matter. [155G-H; 156A-B]     1.2 If the Appellate 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 discre- tion 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 for good reasons. The satisfac- tion  of the Appellate Assistant Commissioner  depends  upon the facts and circumstances of each case and no rigid  prin- ciples or any hard and fast rules can be laid down for  this purpose. [157D-F]     Commissioner of Income Tax v. Mc Millan & Co., [1958] 33 I.T.R. 182; Commissioner of Income Tax, U.P. v. Kanpur  Coal Syndicate,,  [1964] 53 I.T.R. 225; Kedarnath Jute  Mfg.  Co. Ltd.  v.  Commissioner of Income  Tax  (Central),  Calcutta, [1971] 82 I.T.R. 363; relied on.     Commissioner  of Income Tax, Bombay v. Shapporji  Patton Ji  Mistry,  [1962]  44 I.T.R. 891;  Addl.  Commissioner  of Income  Tax  Gujarat v. Gurjargravures ?. Ltd.,  [1978]  111 I.T.R. 1; distinguished.     Rai  Kumar  Srimal v. Commissioner of Income  Tax,  West Bengal 111, [1976] 102 I.T.R. 525, approved.     Narrondas  Manordass  v.  Commissioner  of  Income  Tax, [1957] 31 1. T.R. 909 referred to.     2.  In  the instant case, the assessee was  assessed  to Purchase Tax. The appellant disputed the demand and filed an appeal  before  the Appellate Authority  and  obtained  stay order.  The  assessee thereafter claimed deduction  for  the amount of Rs.11,54,995 towards his liability to pay Purchase Tax as deduction for the assessment year 1974-75. The asses- see  had  not actually paid the Purchase Tax as it  had  ob- tained  stay from the Appellate Authority;  nonetheless  its liability to pay tax existed, and it was entitled to  deduc- tion of Rs. 11,54,995. [158B-C] 3. Since the view taken by the Income Tax Appellate Tribunal is 342 not  sustainable  in law, the order of the Tribunal  is  set aside and the matter is remitted to the Tribunal to consider the  merit of the deduction permitted by the  Appellate  As- sistant  Commissioner. If the Tribunal thinks it  necessary, it may remand the matter to the Appellate Assistant Commissioner  (Deputy Commissioner of Appeals)  for  hearing [158F-H]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1935  of 1981.     From  the  Judgment  and Order dated 8.4.  1980  of  the Calcutta High Court in Matter No. 143 of 1980. Sukumar Bhattacharya and G.S. Chaterjee for the Appellant.     J. Ramamurthy. g. Rajappa and Ms. A. Subhashini for  the Respondents. The Judgment of the Court was delivered by     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  appeal before the  Appellate  Assistant

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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 of Purchase  Tax.  The assessee claimed that in view of the decision of this  Court in Kedarnath Jute Company Limited v. Commissioner of  Income Tax,  [19771  82 I.T.R. 363 the aforesaid amount  being  tax liability should be deducted from its income for purposes of charging tax. The Appellate Assistant Commissioner permitted the assessee to raise the additional ground and after  hear- ing the Income Tax Officer, he accepted the assessee’s claim and  allowed  deduction of Rs. 11,54,995  in  computing  the total  income of the assessee for the assessment year  1974- 75.  The  Revenue  preferred 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. Commissioner of Income Tax, Gujarat  v. Gurjargravures  P.  Ltd.. [1978] 111 I.T.R.I.  The  assessee made 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 343 the findings that the question stood covered by this Court’s decision  in Gurjargravures (supra). The assessee  thereupon approached  the High Court under Section 256(2) of  the  Act for  calling  the 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, therefore it refused to call  state- ment  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: "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  deduc- tion  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 power of the Appellate Authority hearing  appeal  against the order of..Income  Tax  Officer. Clause (a) of Section 25 1(1) confers power on the Appellate Authority  namely the Appellate Assistant Commissioner  [now after  the  Amendment of 1987 the Deputy  Commissioner  (Ap- peals)] according to which Appellate AUthority while hearing appeal against an order of assessment. has power to confirm. reduce,  enhance  or annual the assessment;  he  is  further empowered  to  set aside the assessment and remit  the  case back 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 assess- ment. The Appellate Assistant Commissioner is thus  invested with wide powers under s. 251(1)(a) of the Act while hearing an appeal against the order of assessment made by the Income Tax  Officer. The amplitude of the power includes  power  to

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set  aside  the  assessment order or modify  the  same.  The question  is  whether the Appellate  Assistant  Commissioner while hearing an appeal under s. 251(1)(a) has  jurisdiction to  allow  the  assessee to raise an  additional  ground  in assailing  the  order of the assessment before it.  The  Act does not contain any express provision debarring an assessee from raising an addi- 344 tional 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. general principle relat- ing  to the amplitude of appellate authority’s  power  being co-terminus  with that of the initial authority should  nor- mally  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 the judicial  opinion  on  this question.     Section  31 of the Income Tax Act, 1922  also  conferred power on the Appellate Assistant Commissioner to hear appeal against the assessment order made by the Income Tax Officer. The  Chagla,  CJ  of the Bombay High  Court  considered  the question in detail in Narrondas Manordass v. Commissioner of Income Tax, [1957] 31 I.T.R. 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 those matters, which the assessee makes a grievance but  the  subject matter of the appeal not only he  had  the same  powers  which  could be exercised by  the  Income  Tax Officer.  These observations were approved by this Court  in Commissioner  of  Income Tax v. McMillan &  Co.,  [1958]  33 I.T.R. 182 the Appellate Assistant Commissioner on an appeal preferred  by the assessee had jurisdiction to  invoke,  for the  first  time  provisions of Rule 33 of  the  Income  Tax Rules,  1922, for the purpose of computing the income  of  a nonresident  even if the Income Tax Officer had not done  so in the assessment proceedings. But in Commissioner of Income Tax, Bombay v. Shapporji Pallon Ji Mistry, [1962] 44  I.T.R. 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 Bombay  High Court  judgment in Narrondas case and also the  decision  of this Court in McMillan & Co. case 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 s.  31 were not confined to the assessment  reached  through particular  process but the amount which ought to have  been computed if the true total income had been 345 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 provisions 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

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no  power  to  enhance the  assessment  by  discovering  new sources of income. This decision does not directly deal with the question which we are concerned. Power to enhance Tax on discovery  of new source of income is quite  different  than 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  af- forded opportunity of hearing by the Appellate Authority  is allowing  the assessee’s claim for deduction on the  settled view  of law, these appears to be no good reason to  curtail the  powers  of  the appellate authority  under  Section  25 1(1)(a) of the Act.     In Commissioner of Income Tax, U.P.v. Kanpur Coal Syndi- cate, [1964] 53 I.T.R. 225 a three Judge Bench of this Court discussed  the scope of Section 31(3)(a) of the  Income  Tax Act,  1922 which is almost identical to  Section  251(1)(a). The Court held as under: "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 and also direct him to do what he has failed tO do. "                                    (emphasis supplied)     The  above observations are squarely applicable  to  the interpretation of s. 25 1(1)(a) of the Act. The  declaration of  law is clear that the power of the  Appellate  Assistant Commissioner  is  co-terminus with that of  the  Income  Tax Officer, if that he 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 346 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 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  provi- sions. In the absence of any statutory provision the  Appel- late  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 Assist- ant 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  Additional  Commissioner of Income Tax,  Gujarat  v. Gurjargravures  P. Ltd. (supra) this Court has taken a  dif- ferent  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  exemp- tion under Section 84 before the Appellate Assistant Commis- sioner hearing appeal against the order of Income Tax  Offi- cer. 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 any  material

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was  placed  on record supporting such a  claim  before  the Income  Tax Officer at the time of assessment. The  assessee for the first time made claim for exemption under Section 84 before the Appellate Assistant Commissioner who rejected the claim but on further appeal the Appellate Tribunal held 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 of 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  Income  Tax Officer  on  a new ground not raised before the  Income  Tax Officer,  and  therefore  the Tribunal  committed  error  in directing the Appellate Assistant Commissioner to allow  the claim of the assessee under Section 84 of the Act. Apparent- ly this view taken by two Judge Bench of this Court  appears to  be  in conflict with the view taken by the  three  Judge Bench of the Court in Kanpur Coal Syndicate’s case  (supra). It  appears from the report of the decision in Gujarat  case the  three  Judge Bench decision in  Kanpur  Coal  Syndicate (supra)  case was not brought to the notice of the Bench  in the Gurjargravures P. Ltd. (supra). In the 347 circumstances  the  view of the larger Bench in  the  Kanpur Coal  Syndicate, (supra) holds the field. However we do  not consider it necessary to over-rule the view taken in Gurjar- gravures  P. Ltd. (supra) case as in our opinion that  deci- sion  is rounded 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 no evidence on record to support it, or a case where a claim was  made but no evidence or insufficient evidence  was  ad- duced in support. In the present case neither any claim  was made before the Income Tax Officer, nor was there any  mate- rial on record supporting such a claim." The above  observa- tions  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 particu- lar  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  raising of such  new  plea  in 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.  Of  course,  while permitting  the assessee to raise an additional ground,  the Appellate Assistant Commissioner should exercise his discre- tion 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 for good reasons. The satisfac- tion  of the Appellate Assistant Commissioner  depends  upon the facts and circumstances of each case and no rigid  prin- ciples  or any hard and fast rule can be laid down for  this purpose.     In Rai Kumar Srimal v. Commissioner of Income Tax,  West Bengal  111, [1976] 102 I.T.R. 525 a Division Bench of  Cal- cutta  High Court presided over by Sabyasachi Mukharji,  J.,

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as he then was held that the Appellate Assistant Commission- er  was entitled to admit new ground 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  Appel- late Assistant Commissioner was not wilful and not unreason- able. This view is reasonable and it finds favour with us. 348     In  the instant case the assessee was carrying on  manu- facture and sale of jute. In the assessment year of  1974-75 he  did  not  claim any deduction on 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  afore- said  Act. But later on it was assessed to Purchase Tax  and the  order of assessment was received by it on 23.11.  1973. The appellant disputed the demand and filed an appeal before the Appellate Authority and obtained stay order. The  asses- see  thereafter  claimed  deduction for the  amount  of  Rs. 11,54,995  towards  his  liability to pay  Purchase  Tax  as deduction for the assessment year 1974-75. The assessee  had not  actually paid the Purchase Tax as he had obtained  stay from  the Appellate Authority nonetheless 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. Commissioner of Income Tax (Central),  Calcutta, [1971]  82  I.T.R.  363. There was no  dispute  about  these facts.  In these circumstances the Appellate Assistant  Com- missioner  allowed the assessee to raise this  question  and after hearing the Income Tax Officer, he granted the  deduc- tion  from the assessee’s income. The Tribunal took  a  con- trary view placing reliance on the decision of this Court in Gujargravures  P.  Ltd. (supra). As  already  discussed  the facts in the instant case are quite clear, unlike the  facts involved  in Gurjargravures case. 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 error in refusing  to state the case, or making a reference.     The  next question which arises for consideration is  to know  what  order should be passed in  the  present  circum- stances.  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 of 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 Appellate  Income  Tax Tribunal under Article  136  and  set aside the same and remit the matter to the Appellate  Income Tax Tribunal to consider the merit of the deduction  permit- ted by the Appellate Assistant Commissioner. If the Tribunal thinks  it necessary it may remand the matter to the  Appel- late  Assistant  Commissioner (now  Deputy  Commissioner  of Appeals)  for reheating. The appeal is accordingly  disposed of. There will be no order as to costs. G.N.                                 Appeal disposed of. 349