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Issues Involved:
1. Whether the Tribunal was justified in disposing of the appeal as it did. 2. Whether the Tribunal was right in law in entertaining the assessee's contention relating to the applicability of section 34(1)(b) under rule 27 of the Appellate Tribunal Rules. 3. Whether the setting aside of the assessment made under section 34(1)(b) was correct in law. Detailed Analysis: Issue 1: Justification of Tribunal's Disposition of the Appeal The Tribunal's power to decide appeals is derived from section 33 of the Indian Income-tax Act. According to section 33(4), the Tribunal can pass such orders as it thinks fit after giving both parties an opportunity to be heard. The Tribunal's decision should not be confined to the grounds set forth in the memorandum of appeal, as per rule 12 of the Appellate Tribunal Rules. The Tribunal can also allow the respondent to support the order of the Appellate Assistant Commissioner on any grounds decided against him, under rule 27. In this case, the Tribunal permitted the assessee to raise the question of the applicability of section 34, which was a ground decided against the assessee by the Appellate Assistant Commissioner. Therefore, the Tribunal acted within its powers and was justified in its disposition of the appeal. Issue 2: Applicability of Section 34(1)(b) under Rule 27 The Tribunal entertained the assessee's contention regarding the applicability of section 34(1)(b) under rule 27, which allows the respondent to support the order of the Appellate Assistant Commissioner on any grounds decided against him. The subject-matter of the appeal before the Tribunal was the reduction of tax rebate in respect of Rs. 3,54,716. The Tribunal permitted the assessee to argue that section 34 was not applicable, even though the assessee had not filed an independent appeal against the adverse finding of the Appellate Assistant Commissioner. This was in line with the principle that a respondent can justify and support the decision in his favor on any grounds, even if those grounds were decided against him by the lower authority. Therefore, the Tribunal was right in law to entertain the assessee's contention under rule 27. Issue 3: Correctness of Setting Aside the Assessment under Section 34(1)(b) To apply section 34(1)(b), the department must establish that income, profits, or gains chargeable to income-tax have escaped assessment, been under-assessed, assessed at too low a rate, or been made the subject of excessive relief. The Tribunal concluded that the case did not fall within any of these conditions, particularly emphasizing that the income of the assessee had not been the subject of "excessive relief" and that there had been no assessment at "too low a rate." However, the court found that the first assessment was at too low a rate due to the improper application of the Finance Act, 1956, provisions regarding the reduction of rebate. The court held that the wrong allowance of rebate amounted to an assessment at too low a rate, thereby justifying the initiation of proceedings under section 34(1)(b). Consequently, the Tribunal's view that section 34(1)(b) was not applicable was incorrect. Conclusion: - Questions 1 and 2: The Tribunal was justified in its disposition of the appeal and was correct in entertaining the assessee's contention under rule 27. These questions are answered against the department and in favor of the assessee. - Question 3: The setting aside of the assessment under section 34(1)(b) was correct in law, as the initial assessment was at too low a rate. This question is answered in favor of the department. There will be no order as to costs.
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