2008 (2) TMI 182 - HC - Income Tax

Tribunal upheld the jurisdiction of AO to make addition of unpaid excise duty u/s. 43B - if Appellate Authority could not have processed the item relating to unpaid excise duty, the order of set aside in relation to six items of additions could not have been read by AO to expand jurisdiction - even if the order of Appellate Authority has to be read as a total set aside it is not open to Assessing Officer to process a new source of income which the Appellate Authority itself couldn t have done

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer to bring to tax a new source of income in a de novo assessment.
2. Nature of excise duty collected on grey fabrics as trading receipts and its disallowance under section 43B of the Income Tax Act.
3. Applicability of section 43B to bank guarantees furnished by the assessee.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Bring to Tax a New Source of Income:
The primary issue was whether the Tribunal was right in law in interpreting the Commissioner of Income Tax (Appeals) [CIT(A)]'s order as an open set aside, allowing the Assessing Officer (A.O.) to bring to tax a new source of income during the de novo assessment. The court examined the CIT(A)'s order, which set aside the assessment for six specific items and directed a fresh assessment. The court held that the set aside was not an open set aside but was limited to the items contested in the appeal. The court emphasized that the Appellate Authority could not enhance the assessment by discovering a new source of income not mentioned in the return or considered by the A.O. The court cited several precedents, including CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria and CIT Vs. D.N. Dosani, to support its conclusion that the A.O. exceeded its jurisdiction by taxing a new source of income (unpaid excise duty) that was not part of the original assessment or the appeal. Therefore, the Tribunal's affirmation of the A.O.'s jurisdiction was erroneous, and the first question was answered in the negative, favoring the assessee.

2. Nature of Excise Duty Collected on Grey Fabrics:
Given the court's decision on the first issue, it was unnecessary to address whether the excise duty collected on grey fabrics was in the nature of trading receipts and hence disallowable under section 43B of the Act. The court left this question unanswered.

3. Applicability of Section 43B to Bank Guarantees:
Similarly, the question of whether the bank guarantee furnished by the assessee, which was backed by a bank fixed deposit as margin money, amounted to actual payment under section 43B was also left unanswered due to the resolution of the first issue in favor of the assessee.

Conclusion:
The court concluded that the A.O. did not have the jurisdiction to bring to tax a new source of income during the de novo assessment as the CIT(A)'s order was not an open set aside. Consequently, the Tribunal's decision upholding the A.O.'s jurisdiction was incorrect. The court answered the first question in favor of the assessee and did not address the subsequent questions due to the resolution of the primary issue. The reference was disposed of accordingly, with no order as to costs.