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TMI Blog2016 (10) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... erely because, it was not raised, it cannot be said that the Commissioner, has no powers to decide, if the Assessing Officer, has failed to advert to the said aspect. On this aspect, we are of the considered view, that it is only a show cause notice and it is always open to the appellant to respond. While considering the scope and powers of the appellate authority, under the Income Tax Act, 1961, courts have consistently held that the power of the first appellate authority are coteminous with that of the Assessing Officer and that the appellate authority can do what the Assessing Officer ought to have done and also direct the latter to do what he has failed. Appeal is also continuation of original proceedings and unless some fetters are placed upon the powers of the appellate authority by express words, the appellate authority can exercise all the powers as that of the original authority. If the Assessing Officer, has erred in concluding the status of the assessee as a firm, it cannot be said the Commissioner of Appeals, has no jurisdiction to go into the issue. In the light of the averments on oath, in the sur rejoinder, made before this court, and on the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessment year 2012-2013 on 29.09.2012, admitting, a total income of ₹ 1,74,36,050/-. The return of income was processed, under Section 143(1) of the Income Tax Act, 1961 and selected for scrutiny. Details were called for, and after considering the same, explanation was given by the assessee. Assessment Order under Section 143(3) of the Income Tax Act, 1961, was passed on 30.03.2015 by the Assistant Commissioner of Income Tax, Chennai, viz. respondent No.2. He has disallowed deductions, made under Section 35(1)(ii) of the Income Tax Act, 1961, to the tune of ₹ 2,62,50,000/-, and assessed the income of the assessee at ₹ 4,36,86,050/-. Aggrieved by the said order, the appellant/assessee preferred an appeal, on 05.05.2015, to the Commissioner of Income Tax, Appeals-4, Chennai/1st respondent. 3. On 26.10.2015, the Commissioner of Income Tax, Appeals-4, Chennai (1st respondent), issued a notice for hearing of the appeal, fixing the date as 29.10.2015. The said notice was received by the appellant on 28.10.2015. The appellant sought time, till the fourth week of November 2015, for submitting reply. 4. Commissioner of Income Tax, Appeals-4, Chennai, issued a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate authority can himself enter into the arena of assessment, either by pursuing further investigation or causing further investigation to be done. On the above proposition, reliance has been made to a Full Bench decision of this court in State of Tamil Nadu vs. Arulmurugan and Co. reported in 51 STC 381. Referring to Section 11 of the Companies Act, 1956, respondents have contended that the maximum number of persons, who can become partners, in a partnership firm is ten persons, for the purpose of carrying on the business of banking and twenty persons for the purpose of carrying on any other business. 9. The respondents have further contended that a partnership between individual members and two other firms would be valid, only when all the partners of both the firms, represent the smaller firms in the larger partnership and mere representation of one of the partners is not valid. It is also contended that a partner may have dual capacity qua the partnership in his personal capacity, and qua the third party in his representative capacity, and that the same does not confer status to the appellant, as firm, automatically, when the other conditions are omitted to be satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the course of assessment by the appellate authority. Decision of the High Court of Jharkand in Central Coalfield Limited and ors. vs. Commissioner of Income Tax (Appeals), Ranchi has also been relied on, supporting the contention of the appellant that is a partnership firm. 13. In the sur-rejoinder filed by the respondents, at paragraph 3 of the said affidavit, it has been contended by the respondents that contents of the show cause notice dated 6.11.2015, proposing to assess the appellant as an AOP cannot be termed, as pre-determination of the issue. Further contention has been made that since the impugned show cause notice itself states, to show cause the asssessee/appellant has all the liberty to put forth its case, objecting to the basis and reasoning for the said show cause notice. Contention has also been made that show cause notice has been issued in order to provide an opportunity to the appellant, to file its reply/objections, if any, against the notice. Therefore, the issue against the appellant has not been concluded as yet, and it does not devolve that the appellant is already treated as an AOP. Reliance has been made on the decision of this court in CIT vs. Lott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submit their explanation and contest the same, on merits and in accordance with law befoer the CIT (Appeals). 14. In these circumstances, I do not find merits in the writ petition, which is liable to be dismised. However, I give liberty to the petitioner to submit their explanation before CIT (Appeals) and make their submissions with regard to the query, raised in the impugned show cause notice dated 06.11.2015. After receiving the explanation and hearing the submissions on behalf of the petitioner, the CIT (Appeals) is directed to pass orders, on merits and in accordance with law. 15. Being aggrieved by the aforesaid order, made by the writ court, instant appeal has been filed. Vide judgment dated 23/4/2016, a Hon'ble Division Bench of this court, has allowed the writ appeal, by setting aside the order made in W.P.No.37072/2015 dated 11.02.2016. Subsequently, on 25.04.2016, the appeal has been listed under the caption for being mentioned , and after hearing the learned counsel for the appellant, order dated 23.04.2016 has been passed recalling the earlier order dated 23.04.2016 and that Writ Appeal No.276/2016 has been directed to be listed for hearing. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income Tax vs. Chaganlal Kailas Co. reported in (1984) 148 ITR 7. 21. Per contra, Mr.T.S.Ravikumar, learned senior standing counsel for the Income Tax department submitted that, though rightly or wrongly, the Commissioner of Income Tax, Appeals-4, Chennai in the impugned show cause notice dated 6.11.2015 has referred the appellant as an AOP, the same is based on the perusal of the assessment records, information and facts available before the said authority and that the Commissioner of Income Tax, Appeals-4, Chennai / 1st respondent, has noticed that the appellant/assessee had been wrongly assessed, as a firm, instead of AOP. To arrive at a prima facie conclusion, the Commissioner of Income Tax, Appeals-4, Chennai has also perused schedules 1 and 2 forming part of the balance sheet, wherein, it was shown that the appellant/assessee had 13 share holders, in the status of individuals, belonging to one Patel family and two other shareholders, namely, M/s.Krupa Trading Co. having six partners and M/s.DCP Trading Co., in all, totalling up to 15 shareholders. 22. Learned counsel for the Revenue also pointed that the Commissioner of Income Tax, Appeals-4, Chennai/1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her submission, and accordingly directed the Registry to post the writ appeal for final hearing, today, learned counsel for the appellant made submissions on the order, recalling the earlier order dated 23.04.2016. She also submitted that there are contradictory statements made by the Commissioner of Income Tax, Appeals-4, Chennai, in the counter/sur rejoinder affidavits. According to her, the impugned show cause notice dated 6.11.2015, has to be set aside, as without jurisdiction. Heard the learned counsel for the parties and perused the material on record. 27. At the outset, we would like to address the question as to whether the Commissioner of Income Tax, Appeals-4, Chennai / 1st respondent, has jurisdiction to issue a show cause notice for enhancement and in this regard, have a cursory look at the statutory provision. 28. Section 251(1) of the Income Tax Act, 1961 states that in disposing of an appeal, the Commissioner (Appeals) shall have the following powers: 251. Powers of the Commissioner (Appeals) (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not open to the AAC to bring the charity collections as a trading receipt and to include in the taxable income. 4. The decision of the Tribunal, in so far as it relates to the jurisdiction of the AAC to enhance the assessment, has been challenged in this reference by the Revenue. The Tribunal has not, however, gone into the merits of the assessability of the receipts under the head Charity and, therefore, that question also does not arise for consideration by us. On the question of jurisdiction of the AAC to enhance the receipts amounting to ₹ 12,696 collected by the assessee by way of charity, we are of the view that the Tribunal has come to the right conclusion. 5. It is, no doubt, true, as has been urged by the learned counsel for the Revenue, that the power of the AAC is plenary and co-extensive with that of the ITO. It has been so held in CIT v. Kanpur Coal syndicate, (1964) 53 ITR 225 (SC). But, that is not conclusive on the question whether the AAC can bring in a new item or source of income which was not before the ITO, and not considered by him at the state of the assessment. On this question, it is seen that the cases have uniformly held that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. The only pre-condition mentioned for exercising the powers to enhance the income is that the same could be done only after providing adequate opportunity of hearing to the assessee. There is no restriction under the Act that the information, which could form basis for enhancement of income, could not be sourced from the AO. The enough safeguard for exercising of such powers in the form of principle of natural justice has been provided. The Hon'ble Division Bench of Punjab and Haryana High Court also considered a case of the Kerla High Court in Popular Automobiles vs. CIT, (1990) 89 CTR (Ker) 248 : (1991) 187 ITR 86 (Ker) wherein, it has been held as under : It was contended before us that it is open to the CIT(A) to enhance the assessment suo motu. The question that was mooted was that the CIT(A) was not obliged to do so, on a motion made by the ITO in that regard. In other words, it was argued that the power vested in the CIT(A), even to enhance an assessment, is a suo motu discretionary power and the ITO has no right to demand the exercise of that power in any particular case. We see no force in this plea.' Ultimately, at Paragraph 8, the Divis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted powers to the Assessing Officer in relation to items of assessment which were never forming part of Appeal before the Appellate Authority.' 30. Section 31(3) of the Tamil Nadu General Sales Tax Act, 1959 deals with the powers of the Assistant Commissioner and Section 251(1) of the Income Tax Act, 1961 deals with the power of the Commissioner (Appeals). They are tabulated hereunder: Section 31(3) of the Tamil Nadu General Sales Tax Act, 1959 Section 251(1) of the Income Tax Act, 1961 In disposing of an appeal, the Appellate Assistant Commissioner may, after giving the appellant a reasonable opportunity of being heard, and for the sufficient reasons to be recorded in writing - (a) in the case of an order of assessment - (i) confirm, reduce, enhance or annul the assessment or the penalty or both ; 251. Powers of the Commissioner (Appeals) (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment. (aa) in an appeal against the order of assessment in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em, an appeal from a sales tax assessment is only a rehearing or a retrial. In the absence of any statutory inhibitions or restrictions, an appellate authority has precisely the same powers, exercisable or in the same manner and to the same extent, as the assessing authority has, in the first instance. If this were not the position, no appellate authority can effectively function while hearing and determining an appeal from an assessment. Under the scheme of section 9 of the Central Sales Tax Act, appeals from Central sales tax assessments will have to be dealt with in the same manner and under the same procedure as provided for under the general sales tax law of the concerned State. The jurisdiction of an appellate authority under the Tamil Nadu General Sales Tax Act, 1959, includes the power to confirm, reduce, enhance, or annual, the assessment. It also includes the power to set aside the assessment with a direction to the assessing authority to make a fresh assessment, and also to pass any other order which the appellate authority may think fit. These powers, which are of the widest amplitude, are expressly conferred both on the Appellate Assistant Commissioner and on the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressly mentioned in the provision conferring the enabling power, does not mean that the legislature intended to exclude that authority from the purview of the provision. 32. In light of the statutory provision Section 251 of the Income Tax Act, 1961 and the decision supra, we have no hesitation to conclude that the Legislature has conferred powers on the first appellate authority to enhance the tax liability, subject to of course, to provide an opportunity to the assessee, by issuing a show cause notice. 33. On the prayer to set aside the show cause notice, it is useful to consider few decisions. 33.1. In State of U.P. v. Brahm Datt Sharma reported in 1987 (2) SCC 179, at Paragraph 9, held as follows: When a show cause notice is issued to a government servant under a statutory provision calling upon him to show cause, ordinarily the government servant must place his case before the authority concerned by showing cause and the courts should be reluctant to interfere with the notice at that stage unless the notice is shown to have been issued palpably without any authority of law. The purpose of issuing show cause notice is to afford opportunity of hearing to the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly without jurisdiction or for some other reason if it is wholly illegal. However, ordinarily the High Court should not interfere in such a matter. 34. The issue to be considered is whether the Commissioner of Income Tax, Appeals-4, Chennai, has jurisdiction to consider the status of the appellant as an AOP, in the appeal by the assessee and consequently, to issue the impugned show cause notice, proposing to disallow ₹ 96,60,000/- paid, as remuneration, as interest to the partners, as not an allowable expenditure, and therefore, as to why the same should not be added back the taxable income. Reasons for the Commissioner of Income Tax, Appeals-4, Chennai, to arrive at a prima facie conclusion that the appellant/assessee as an AOP, as deduced from the impugned show cause notice are, that, From the perusal of the assessment record and the information and facts available in the relevant file before the undersigned, it has been noticed that while completing the assessment, the assessee has been assessed wrongly in the status of firm, instead of an AOP, though the essential conditions to gain the status of the firm required u/s 184 of the IT Act, was absent for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15th partner in the petitioner firm consisting of 16 partners. Since all the partners in both the above firms were not representing in the petitioner firm and only one of the partner each, represented their respective firm, and therefore the petitioner cannot be considered to be a valid partnership firm as per the law laid down by the Hon'ble Supreme Court of India in the case of Dulichand Laxminarayanan v. Commissioner of Income-Tax [1956] 29 ITR 535(SC). It is submitted that later decision in Kylasa Sarabhaiah vs CIT (1965) 56 ITR 219 and which followed by the Madras High Court in A.Asha Co., v CIT (1973) 87 ITR 57 has only distinguished the facts with that of the decision in Dhulichand Laxminarayanan (1956) 29 ITR 535 that a firm can be a partner in another firm, provided all the partners of the smaller firms are signatories to the deed of the larger firm and never disapproved it. 3. I submit that the petitioner has accepted that the assessing officer has the power to issue notice in the event of change of status of the assessee. Further the petitioner has also accepted that the power of the appellate authority is co terminus with the power of the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his aspect, we are of the considered view, that it is only a show cause notice and it is always open to the appellant to respond. 38. While considering the scope and powers of the appellate authority, under the Income Tax Act, 1961, courts have consistently held that the power of the first appellate authority are coteminous with that of the Assessing Officer and that the appellate authority can do what the Assessing Officer ought to have done and also direct the latter to do what he has failed. Appeal is also continuation of original proceedings and unless some fetters are placed upon the powers of the appellate authority by express words, the appellate authority can exercise all the powers as that of the original authority. If the Assessing Officer, has erred in concluding the status of the assessee as a firm, it cannot be said the Commissioner of Appeals, has no jurisdiction to go into the issue. 39. In the light of the averments on oath, in the sur rejoinder, made before this court, and on the facts and circumstances of the case, we are of the considered view that the Commissioner of Income Tax, Appeals-4, Chenai, without being influenced by any of the observations made in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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