Jurisdiction of Commissioners of Income-tax (Appeals)--Section 246(2) of the I.T. Act--Board's notification No. 2381* dated 7-7-78, and notification No. 2845+ dated 4-6-79--Clarification regarding - Income Tax - 269/1980

Jurisdiction of Commissioners of Income-tax (Appeals)--Section 246(2) of the I.T. Act--Board's notification No. 2381* dated 7-7-78, and notification No. 2845+ dated 4-6-79--Clarification regarding Circular No. 269 Dated 29/4/1980 To All Commissioners of Income-tax/ All Commissioners of Income-tax (Appeals). Sir, Subject:-- Jurisdiction of Commissioners of Income-tax (Appeals)--Section 246(2) of the I.T. Act--Board's notification No. 2381* dated 7-7-78, and notification No. 2845+ dated 4-6-79--Clarification regarding. Certain jurisdictional problems in regard to the interpretation of the provisions of section 246(2) of the I.T. Act and of the corresponding sections of other Direct Tax Acts, and also in regard to the scope of the Board's Notifications issued under section 246(2)(i) have been referred to the Board for clarification. They are posited in the form of questions and answered here under:- Question 1 (a) Who is to rectify any mistake in an order passed by the AAC before the appointed day, i.e., 10-7-78, in a case of a non-company-assessee where the total income/loss exceeded Rs. 1 lakh, or in an order passed by the AAC before 1-6-79, in the case of a company? (b) Who is to comply with the requirements of the ITAT for a remand report or to pass a fresh order in pursuance of any remand order restoring the appeal to the file of the AAC for redisposal on a particular point or entirely if the order of the AAC was passed before 10-7-78, in the case of a non-company assessee with assessed income or loss exceeding Rs. 1 lakh or before 1-6-79, in the case of a company? Answer A provision for the removal of doubts has been made in this behalf in sub-section (2) of section 39 of the Finance (No. 2) Act, 1977, by which the posts of Cs. I.T. (Appeals) were created. Vide para. 27.5 at page 56 of the Explanatory Notes on the provisions relating to Direct Taxes in the Finance (No. 2) Act, 1977 (Circular No.229++ dated 9-8-77) the Board have clarified that any action required to be taken after the appointed day in relation to any appeal disposed of by an AAC before that day will be taken as if the amendments directed to be made by the Finance Act had not been made. In other words, action in relation to such appeals will be taken by the AAC concerned and not by the Commissioner (Appeals). Thus the AAC may rectify any mistake in an order passed by him before the appointed day or take such action or pass such further orders as may be required in any appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal. The words 'any action required to be taken' connote that the requirement for any action to rectify a mistake in an order passed by the AAC before the appointed day would arise after the said date. Those words in section 39(2) of the Finance Act, 1977, would cover cases where the rectification application had been filed after the appointed day or the AAC had issued the show cause notice on his own after that date. As for rectification application filed or show cause notice for rectification issued before the appointed day, the normal rule in section 154 that the authority may amend any order passed by him would apply and the same AAC or any other AAC presently having jurisdiction in respect of the concerned case of the assessee may amend the previous order. Likewise section 39(2) of the said Finance Act would cover the cases where the Tribunal's order, setting aside the AAC's order wholly or partly, was passed after the appointed day, i.e., 10-7-78. Where the order of the Tribunal setting aside the AAC's order for redisposal on a particular point or entirely was passed before the appointed day, it would be covered under section 246(3), being an appeal pending immediately before the appointed day and would stand transferred on that day of the Commissioner (Appeals). However, the remand order of the Tribunal requiring a remand report to be submitted after enquiry on some points, whether passed before or after 10-7-78, would be complied with by the AAC whose order was the subject-matter of appeal before the Tribunal. The above clarification would equally apply to orders passed by AACs before 1-6-79, in the case of a company. Thus the AAC may rectify any mistake in an order passed by him before 1-6-79. He may pass such further orders as may be required in pursuance of any order of the Tribunal passed after 1-6-79, setting aside his previous order partly or wholly with some directions. However, an appeal restored to the file of the AAC before 1-6-79, would be treated as a pending appeal under section 246(4) and would stand transferred to the CIT (Appeals). Question 2 (a) What exactly is the connotation of the expression 'amount of income so assessed' in clause (e) of section 246(2) (before its deletion, w.e.f. 1-6-79) and in the Board's Notification dated 7-7-78? Does it mean total income determined after set-off of brought forward losses, unabsorbed depreciation, development rebate, etc.? (b) Who is to deal with an appeal in the case of a non-company assessee where the business loss of the concerned year is less than Rs. 1 lakh, but the amounts of brought forward loss, unabsorbed depreciation, unabsorbed development rebate or deficiency under section 80J(3) of that year, if aggregated with the business loss exceed Rs. 1 lakh? Answer: (a) Under sections 143 and 144 the ITO makes the assessment of the total income or loss. Clause (e) of section 246(2) and item (ii) of the notification refer to cases where the assessee objects to the amount of income assessed or to the amount of loss computed in such order of assessment. They, therefore, refer to the total income which is determined after set-off of brought forward loss, unabsorbed depreciation, etc. (b) The sole purpose of carry-forward of loss or of unabsorbed depreciation, etc., is to set off the loss/allowance against the profits of a subsequent year. According to the Supreme Court in [1975] 99 ITR 118 (CIT v. Harprasad Co. P. Ltd.) the concept of carry forward of loss presupposes the permissibility and possibility of the carried forward loss being set off against the profits and gains, if any, of the subsequent year. Therefore, whatever loss or unabsorbed allowance is to be carried forward, will not form part of the loss of the year under appeal and cannot be aggregated. In a case of such type the appeal will lie to the AAC. Question 3: (a) Where in the case of a non-company assessee with assessed total income/loss exceeding Rs. 1 lakh or in the case of a domestic company with assessed total income/loss exceeding Rs. 5 lakhs an appeal against the assessment was disposed of by an AAC before 10-7-78, who is to deal with the appeal against ancillary orders for the same assessment year? (b) In the case of the type mentioned above, if no appeal had been filed against the assessment, will the appeals against the ancillary orders, e.g., rectification, penalty, etc., lie to the CIT (Appeals)? Answer: Under the powers vested in the Board under section 246(2)(i), the Board having regard to the nature of the cases, the complexities involved and other relevant considerations, notified the case of foreign companies, domestic companies whose assessed total income or loss exceeded Rs. 5 lakhs and the cases of assessees (other than a company) with assessed total income or loss exceeding Rs. 1 lakh as "such person or classes of persons" who would file appeal to the CIT (Appeals) against an order of the ITO specified in items (i), (ii) and (iii) of the notification (No. 2381** dated 7-7-78). There is no further stipulation that an appeal against an ancillary order like penalty, rectification, etc., mentioned in clauses (d) to (o) of sub-section (1) of section 246 would lie to the CIT (Appeals) only if the assessment for that very assessment year had been challenged in appeal before the CIT (Appeals). In other words, an appeal against any ancillary order mentioned in item (i) before its deletion by the notification No. 2845# dated 4-6-79, and in item (iii) (now item (ii) of the notification dated 4-6-79), passed by the ITO for the same year for which the assessed total income/loss exceeds Rs. 5 lakhs, or Rs. 1 lakh, as the case may be, will lie to the CIT (Appeals) irrespective of whether the assessment was appealed against or not or the appeal was disposed of by an AAC before 10-7-78. Question 4: Whether originally assessed income or income as revised by the order of rectification would determine the jurisdiction of the first appellate authority? Answer: Since clause (e) of sub-section (2) of section 246 and item (ii) of the notification refer to the amount of income assessed or amount of loss computed in any order of assessment under sections 143(3) and 144, any subsequent revision of such amount will not be relevant. Section 246 treats an order under section 154 separately for the purposes of appeal. Question 5: Who is to deal with an appeal against preassessment penalty orders. like an order under section 221 for default in payment of advance tax or an order under section 140A(3) in the case of a non-company assessee who is ultimately assessed on a total income/loss exceeding Rs. 1 lakh. Answer: The use of the non-obstante clause--"notwithstanding anything contained in sub-section (1)"--in sub-section (2) of section 246 would show that the appealable orders which would fall within the jurisdiction of the CIT (Appeals) have been excluded for that purpose from sub-section (1) thereof. If any order is not appealable within the provisions of sub-section (2) it would still remain appealable under sub-section (1) with the result that appeals against such preassessment orders would lie to the AAC. 2. The above would apply mutatis mutandis to other Direct Taxes, to the extent applicable. 3. The above clarifications may be circulated to all the officers including AACs in your charge. Yours faithfully, (Sd.) Mehrotra, Director, Central Board of Direct Taxes. * See [1978] 114 ITR (St.) 11 ; Indian Tax Laws (1980) Pt. III, p. 166. + See [1979] 118 ITR (St.) 56 ; Indian Tax Laws (1980). Pt. III, p. 166. ++ See [1978] 111 ITR (St.) 9. ** See [1978] 114 ITR (St.) 11 ; Indian Tax Laws (1980), Part III,p.166. # See [1979] 118 ITR (St.) 56 ; Indian Tax Laws (1980), Part III, p.166.