1967 (11) TMI 22 - HC - Income Tax

Assessee preferred an appeal before the AAC and claimed deduction from the computation of the total income - held that tribunal was in error in holding that the assessee had no right of appeal before the AAC

Summary

Issues Involved:
1. Competence of the Tribunal to consider the admissibility of the appeal before the Appellate Assistant Commissioner.
2. Right of the assessee to appeal before the Appellate Assistant Commissioner on the question of allowability of the expenditure.

Detailed Analysis:

1. Competence of the Tribunal to Consider the Admissibility of the Appeal:

The first issue was whether the Tribunal was competent to consider the question of the admissibility of the appeal filed by the assessee before the Appellate Assistant Commissioner. The Tribunal is invested with authority to hear appeals against orders passed by Appellate Assistant Commissioners under section 28 or section 31 of the Indian Income-tax Act. Rule 12 of the Appellate Tribunal Rules states that the appellant shall not, except by the leave of the Tribunal, urge any ground not set forth in the memorandum of appeal. However, the Tribunal is not confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal.

The Tribunal's powers are similar to those of a court of appeal under the Civil Procedure Code. The subject matter of appeal before the Tribunal includes the grounds of appeal raised by the appellant, the grounds allowed by the Tribunal, and the contentions raised by the respondent in support of the order made by the Appellate Assistant Commissioner.

The Appellate Assistant Commissioner's powers under section 31 of the Act are broader, including revisional jurisdiction to revise the assessment and enhance it. However, the Supreme Court in Commissioner of Income-tax v. Shapoorji Pallonji Mistry indicated that the Appellate Assistant Commissioner should not travel outside the record to find new sources of income.

In this case, the Tribunal considered whether the Appellate Assistant Commissioner had jurisdiction to entertain the appeal regarding the allowability of the Rs. 12,000 expenditure. The Tribunal concluded that the Appellate Assistant Commissioner should have remanded the matter to the Income-tax Officer for consideration, rather than allowing the claim outright. Thus, the Tribunal did not exceed its jurisdiction in deciding on the maintainability of the appeal. Therefore, Question No. 1 was answered in the affirmative and against the assessee.

2. Right of the Assessee to Appeal Before the Appellate Assistant Commissioner:

The second issue was whether the Tribunal was right in holding that the assessee had no right to appeal before the Appellate Assistant Commissioner. The Supreme Court in Commissioner of Income-tax v. Rai Bahadur Hardutroy Motilal held that the Appellate Assistant Commissioner could not assess a source of income not disclosed in the returns or the assessment order. The power of enhancement is restricted to sources of income considered by the Income-tax Officer.

The assessee argued that the Appellate Assistant Commissioner had the right to consider whether the income computed by the Income-tax Officer should be reduced by excluding an admissible business expenditure. The revenue contended that since the Income-tax Officer had not considered the expenditure, the Appellate Assistant Commissioner could not allow it.

The judgment clarified that nothing prevents an assessee from making a new claim for deduction before the Appellate Assistant Commissioner, who may remand the matter to the Income-tax Officer for consideration. The absence of materials in the assessment order does not affect the right of the assessee to appeal. The Tribunal erred in holding that the assessee had no right to appeal. Therefore, the second question was answered in the negative and in favor of the assessee.

In conclusion, the first question was answered in the affirmative and against the assessee, while the second question was answered in the negative and in favor of the assessee. No order as to costs was made due to the divided success.