2014 (11) TMI 447 - HC - Income Tax

Whether the Tribunal is right in rejecting the additional grounds of appeal filed by the assessee with regard to market development expenses - Held that - The assessee has failed to claim an expenditure expended on account of market development (advertisement) expenses in the return of income - the assessee has bonafide shown all the expenditure in the balance sheet of the company as stated in the Annual printed report, but the claim was not made in the returns - Noticing the omission, which was due to inadvertance, additional ground was raised in the appeal stage by the assessee - Section 250(5) of the Income Tax Act provides for allowing the appellant to raise such an additional ground and it is for the CIT(A) to state that the omission to raise additional ground was not willful or unreasonable CIT(A) has erroneously thrown the onus on the assessee to explain the omission as not willful or unreasonable - The assessee has given certain reasons with records to show that it was a bona fide claim, but out of inadvertance it was not stated in the return of income - this claim of the assessee is not willful and the additional ground raised by the assessee cannot be termed as unreasonable. The Act does not contain any express provision preventing the assessee from raising additional grounds in appeal and there is also no provision in the Act restricting the Appellate Authority to entertain such additional ground in the appeal - In the absence of statutory bar, the Appellate Authority is vested with the power, which is co-terminus with that of the Original Authority, to allow the assessee to raise additional ground, if the same is bona fide and not willful or unreasonable - the plea of bonafide omission is acceptable - The additional grounds were raised before the first Appellate Authority with reasons CIT(A) failed to exercise the discretion vested in him in accordance with law and reason thus, the order of the Tribunal is set aside and the matter is remitted back to the CIT(A) - Decided in favour of assessee.

Issues Involved:
1. Rejection of additional grounds of appeal regarding market development expenses.
2. Whether the omission to claim market development expenses was willful or unreasonable.
3. The scope of the appellate authority's power to allow additional grounds.

Issue-Wise Detailed Analysis:

1. Rejection of Additional Grounds of Appeal Regarding Market Development Expenses:
The primary issue in this case was whether the Income Tax Appellate Tribunal was correct in rejecting the additional grounds of appeal filed by the appellant concerning market development expenses amounting to Rs. 19,36,427/-. The appellant, a cement manufacturing company, had initially failed to claim this expenditure as a deduction under Section 37(1) of the Income Tax Act in its return of income. This omission was later sought to be rectified by raising additional grounds before the Commissioner of Income Tax (Appeals), which were rejected on the basis that the omission was not explained as not willful or unreasonable. The Tribunal upheld this decision, stating that the additional ground was not a pure question of law and was belatedly raised.

2. Whether the Omission to Claim Market Development Expenses was Willful or Unreasonable:
The appellant contended that the proceedings before the Commissioner of Income Tax (Appeals) are a continuation of the assessment proceedings and that the additional ground should have been considered under Section 250(5) of the Income Tax Act. The appellant argued that the omission was neither willful nor unreasonable and that the expenditure was clearly reflected in the company's balance sheet. The appellant supported this plea by citing decisions in National Thermal Power Co. Ltd. v. Commissioner of Income-Tax and Commissioner of Income Tax, Central - I V. Pruthvi Brokers and Shareholders Pvt. Ltd., which established that appellate authorities have the power to consider additional grounds if they have a bearing on the tax liability of the assessee.

3. The Scope of the Appellate Authority's Power to Allow Additional Grounds:
The court examined Section 250(5) of the Income Tax Act, which allows the appellate authority to permit the appellant to raise additional grounds if satisfied that the omission was not willful or unreasonable. The court noted that the Commissioner of Income Tax (Appeals) failed to properly exercise this discretion and erroneously placed the burden on the assessee to prove that the omission was not willful or unreasonable. The court emphasized that the appellate authority is vested with plenary powers to consider new grounds that have a bearing on the assessee's tax liability, as established in the Supreme Court's decision in National Thermal Power Co. Ltd. v. Commissioner of Income-Tax.

The court further highlighted that the purpose of the appellate process in tax matters is to ensure the correct assessment of tax liability, and this should not be restricted by technicalities. The court referred to the decision in Commissioner of Income-Tax (Central), Madras V. Indian Express (Madurai) Pvt. Ltd., which stated that the appellate authorities should focus on adjusting the taxpayer's liability in accordance with the law and facts, rather than treating the appeal as a mere adversarial proceeding.

Conclusion:
The court concluded that the Commissioner of Income Tax (Appeals) and the Tribunal had erred in not allowing the appellant to raise the additional ground. The court held that the omission to claim the market development expenses was not willful or unreasonable and that the appellant should be allowed to raise this ground. Consequently, the court set aside the order of the Tribunal and remanded the matter back to the Commissioner of Income Tax (Appeals) to consider the additional ground on its merits. The substantial question of law was answered in favor of the assessee, and the appeal was allowed.

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