2002 (12) TMI 20 - HC - Income Tax

Scope of the appellate power of the Tribunal under section 254 - Tribunal will have the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings, the Tribunal was bound to allow such questions to be raised when it is necessary to consider the question in order to correctly assess the tax liability of an assessee Thus it is held that Tribunal was not justified in law in not entertaining the additional grounds raised by the assessee simply on the ground that such grounds have not been raised either before the assessing authority or before the first appellate authority

Summary

Issues:
1. Entertaining additional grounds in an appeal before the Tribunal.
2. Deductibility of interest paid on money borrowed for property construction.

Issue 1: Entertaining Additional Grounds in an Appeal Before the Tribunal

The High Court analyzed the scope of the appellate powers of the Tribunal under section 254 of the Income-tax Act based on the Supreme Court's decision in National Thermal Power Co.'s case. The Supreme Court emphasized that the Tribunal has the widest possible powers to pass orders and is not restricted to deciding grounds arising from the order of the Commissioner of Income-tax (Appeals). The Court highlighted that both the assessee and the Department have the right to file appeals or cross-objections before the Tribunal, and the Tribunal should not be prevented from considering questions of law arising in assessment proceedings, even if not raised earlier. The Court referred to previous decisions to support the view that the Tribunal should have discretion in allowing additional grounds to be raised by the assessee, depending on the circumstances of each case. Consequently, the Court concluded that the Tribunal was obligated to consider additional grounds raised by an assessee before it, either allowing or rejecting them based on the facts and circumstances of the case.

Issue 2: Deductibility of Interest Paid on Money Borrowed for Property Construction

The second issue revolved around the deductibility of interest paid on money borrowed for property construction. The Tribunal had held that the interest paid on the borrowed money for property construction was not an allowable deduction since it was not payable to the partners of United Investment Corporation by the assessee-company. However, the High Court did not delve into this issue in detail due to its decision on the first issue. The Court refrained from considering the second question until the Tribunal reconsiders the new grounds raised by the assessee in light of the Court's ruling on the first issue. Therefore, the deductibility of the interest paid on money borrowed for property construction remains pending until the Tribunal reexamines the case.

In conclusion, the High Court ruled in favor of the assessee regarding the Tribunal's obligation to entertain additional grounds raised in an appeal. The Court remanded the proceedings to the Tribunal for reconsideration of the new grounds raised by the assessee. The issue of the deductibility of interest paid on money borrowed for property construction was left unresolved pending the Tribunal's reconsideration of the case.