1982 (11) TMI 47 - HC - Income Tax

Summary

Issues Involved:
1. Scope of the appellate jurisdiction of the Income-tax Appellate Tribunal.
2. Admissibility of additional grounds raised by the assessee before the Tribunal.
3. Interpretation of the Tribunal's power under Section 254(1) of the Income-tax Act.
4. Analysis of relevant Supreme Court decisions on the Tribunal's jurisdiction.
5. Examination of the Tribunal's discretion to entertain new pleas not raised before lower authorities.

Issue-wise Detailed Analysis:

1. Scope of the Appellate Jurisdiction of the Income-tax Appellate Tribunal:
The judgment primarily addresses the scope of the appellate jurisdiction of the Income-tax Appellate Tribunal. The Tribunal was established in 1941 and has since become a model for other quasi-judicial bodies in India. Its primary function is to hear and determine appeals from orders passed by the Appellate Assistant Commissioner (AAC). The Tribunal has the power to decide whether it has jurisdiction over a matter, and many of its jurisdictional determinations have been reviewed by High Courts and the Supreme Court. The scope of the Tribunal's appellate jurisdiction is defined under Section 254(1) of the Income-tax Act, 1961, which states: "The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit." The term "thereon" is interpreted to mean "on the appeal", allowing the Tribunal to pass orders on the appeal as it deems fit.

2. Admissibility of Additional Grounds Raised by the Assessee Before the Tribunal:
The case at hand involves an assessee who raised an additional ground of appeal before the Tribunal, which was not raised before the Income-tax Officer (ITO) or the AAC. The additional ground pertained to the deductibility of gratuity liability provisions made in the balance sheet. The Tribunal overruled the Department's preliminary objection regarding its jurisdiction to entertain this new plea and directed the case to be sent back to the ITO for further examination. The Department challenged this decision, leading to the present reference. The question for decision was whether the Tribunal was right in admitting the additional ground raised by the assessee, which was not in dispute before the ITO or the AAC.

3. Interpretation of the Tribunal's Power Under Section 254(1) of the Income-tax Act:
The Tribunal's power under Section 254(1) has been interpreted in various judicial decisions. The Supreme Court, in landmark cases such as Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC), CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), and CIT v. Nelliappan [1967] 66 ITR 722 (SC), has elucidated the scope of the Tribunal's appellate jurisdiction. These decisions establish that the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. The Tribunal can entertain new pleas and adjust the tax liability of the assessee in light of its findings, even if such findings are inconsistent with the case pleaded by the assessee.

4. Analysis of Relevant Supreme Court Decisions on the Tribunal's Jurisdiction:
- Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC): The Supreme Court held that the Tribunal has the power under Section 33(4) of the Indian Income-tax Act, 1922, to entertain new arguments and remand the case to the ITO for further inquiry.
- CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC): The Supreme Court observed that the Tribunal is competent to pass such orders on the appeal as it thinks fit, and it is not restricted to the determination of questions raised before the departmental authorities. The Tribunal can grant relief on any ground justified by the facts, even if it was not raised earlier.
- CIT v. Nelliappan [1967] 66 ITR 722 (SC): The Supreme Court held that the Tribunal could allow the assessee to raise new contentions not set forth in the memorandum of appeal, and it is not precluded from adjusting the tax liability based on its findings.

5. Examination of the Tribunal's Discretion to Entertain New Pleas Not Raised Before Lower Authorities:
The judgment emphasizes that the Tribunal's jurisdiction is wide enough to entertain new pleas, whether consistent or inconsistent with earlier pleas. The Tribunal's role is to ensure the correct adjustment of the taxpayer's liability in accordance with the law. The Tribunal's appellate jurisdiction is not limited by what has been discussed before the departmental authorities. The judgment also distinguishes the Tribunal's function from adversarial proceedings in civil litigation, highlighting that the Tribunal's task is to review and adjust assessments accurately.

Conclusion:
The judgment concludes that the Tribunal was justified in entertaining the additional ground raised by the assessee, even though it was not raised before the ITO or the AAC. The Tribunal's jurisdiction is broad and includes the authority to consider new contentions to ensure the correct assessment of the taxpayer's liability. The answer to the question referred is in the affirmative, in favor of the assessee, and against the Department. The assessee is entitled to its costs, with counsel's fee set at Rs. 500.