ASSESSING OFFICER IS HAVING NO POWER TO CONSIDER A NEW ISSUE IN A CASE REMANDED TO DECIDE SPECIFIC ISSUES.

[Mr. M. GOVINDARAJAN]

                        An assessee, aggrieved by an assessment order may file an appeal to Commissioner of Income Tax (appeal).   The appellate authority is entitled to either confirm, reduce or enhance or annul the assessment; or the appellate authority may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment in accordance with the directions by the appellate authority after making such further inquiry as may be necessary and the Assessing Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment.  Such fresh assessment may either result in some tax becoming payable on the basis of such fresh assessment.   However such assessment is to be made afresh in context of the directions given by the appellate authority.  

                        In ‘Saheli Synthetics P. Limited V. Commissioner of Income Tax’ – 2008 -TMI - 30071 – (GUJARAT HIGH COURT) the High Court held that it is not possible to define a set aside assessment as either open set aside or a conditional set aside or a limited set aside of assessment made by the appellate authority is always in accordance with the directions given by the appellate authority for making a fresh assessment.  But most material part of Section 251 is the opening portion which stipulates ‘in an appeal against an order of assessment’.  The entire gamut of powers is governed within the four corners of the subject matter of the appeal which is the assessment of income which forms part of the order of assessment in the light of the return of income filed by the assessee.  The Court also pointed out the fine distinction between assessment simpliciter (assessment of income) and the assessment order. 

                        An assessment order may contain a number of assessments of incomes under one head, depending upon the source of income, and/or under more than one head.  Even in a case where, an appellate authority wants to exercise powers of enhancement, under Section 251(2) of the Act such powers have to be exercised after giving a notice for enhancement providing for a reasonable opportunity of showing cause.   In the absence of notice it could not be done so.  A fortiori if it is not open to the appellate authority to enhance an assessment of income without issuing show cause notice one can never contemplate that the appellate authority can set aside an assessment so as to enable the Assessing Officer to exercise powers of enhancement vested in the appellate authority without the appellate authority discharging the statutory obligation case on the appellate authority by virtue of Sec. 251(2).

                        Where an assessment is set aside simpliciter, without any enhancement proposal, it is always in the context of the appeal against an order of assessment and cannot be read to mean that the appellate authority granted powers to the Assessing Officer in relation to items of assessment which were never forming part of appeal before the appellate authority.  Processing a new source of income which was on the record before the Assessing Officer but is not forming part of the subject matter of appeal before the appellate authority can be undertaken by the appellate authority only in the course of enhancement of the assessment and therefore any set aside, which does not involve a proposal for enhancement, cannot be used for the purpose of expanding the scope of the powers available to the Assessing Officer while making fresh assessment pursuant to a set aside.

                        In ‘Deputy Commissioner of Income Tax (Assessment) V. Surat Electricity Co. Limited’ – (2011) 337 ITR 271 (Guj) the assessee received contribution from the consumers which was treated by the assessing officer as revenue in nature and brought the same to tax for the assessment year 1988-89.  The Assessing Officer also did not allow deduction on account of investment allowance on the ground that the assessee did not create necessary reserves as per the provisions of Sec. 32A of the Act.  The assessee preferred an appeal against this order.  The Commissioner of Income Tax (Appeals) after considering the facts of the case as well as the submissions advanced by the assessee held that the assessee’s submissions and claims deserve proper examination by the Assessing Officer and set aside the impugned order with the directions to reframe the assessment afresh as per law after giving the assessee a reasonable opportunity of being heard in the matter.   Against this order also the assessee went on appeal before the Tribunal.

                        In the meantime the Assessing Officer framed assessment under Section 143(3) read with Section 250 of the Act and proceeded to invoke the provisions of Section 115 J of the Act and thus he travelled beyond the adjudication of the issues involved before the Commissioner (appeals).  The assessee went in appeal to the Commissioner (Appeals).   The Commissioner (Appeals) did not accept the contention of the assessee that the Assessing Officer was required to confine himself to the directions on the specific issues and not to embark on an omnibus enquiry and investigation into fresh issues not considered earlier.  The assessee went on appeal to the Tribunal against the order of Commissioner (Appeals).

                        The Tribunal took both the appeals filed by the assessee together and issued a common order in which the Tribunal held that this was a case of partial set aside which was justified by the facts and circumstances in respect of two issues viz., receipts on account of the service lines and investment allowance which were raised before the Commissioner (Appeals) and had been considered by him while setting aside the assessments.  There was no occasion for the Commissioner (Appeals) to take resort to total set aside of the assessments and no such course had actually been adopted by him.   Therefore  the Tribunal held that the set aside order passed by the appellate authority was a partial set aside in respect of the aforesaid two specific issues. 

                        The Revenue filed the appeal before the High Court aggrieved against the order of the Tribunal.   The High Court framed the question of law as – “Whether the Appellate Tribunal is right in law and on facts in holding that the Assessing Officer was not empowered to travel beyond the two specific issues contained in the order passed by the Commissioner of Income Tax (Appeals) in the proceedings under Section 115J of the Income Tax Act, 1961, to cover the tax liability of the assessee?”

                        The assessee relied on ‘Saheli Synthetics P. Limited V. CIT’.  The decision of the High Court in the said case has been discussed in earlier paras.  The Department side is not able to dispute the aforesaid position.  Examining the facts of the present case the High Court held that it is apparent that the Assessing Officer was required to make a fresh assessment in accordance with the directions given by the Commissioner (Appeals) and could not have travelled beyond the same.   The High Court dismissed the appeal filed by the Revenue.