Commissioner of Income Tax, Cochin v. Madhu Patni and M/s Madhu Trading Agencies

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER FRIDAY, THE 7TH NOVEMBER 2008 / 16TH KARTHIKA 1930 ITR.No. 10 of 2002 -----------------------AGAINST THE ORDER IN RA.281/COCH/1998 IN ITA.699/COCH/1994 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ----------------THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, STANDING COUNSEL FOR INCOME TAX. RESPONDENT: --------------------- SMT.MADHU PATNI, M/S.MADHU TRADING AGENCIES, T.D.ROAD, ERNAKULAM. BY ADV. SRI.K.SRIKUMAR THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 07/11/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **H.L.DATTU, C.J. & A.K.BASHEER, J.** - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.R. No.10 OF 2002 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 7[th] day of November, 2008 ## **O R D E R** ## **H.L.DATTU, C.J.** This Income Tax Reference is filed by the Revenue being aggrieved by the orders passed by the Income Tax Appellate Tribunal, Cochin in I.T.A.No.699/1994 for the assessment year 1987-88. The Revenue has framed the following question of law for our consideration and decision. The same reads as under: “ _Whether in the facts and circumstances of the case, the assessee is entitled to raise and the tribunal is empowered to consider the question of limitation arising in the original orders of assessment, in an appeal filed against the order passed while redoing the original assessment.”_ (2) In our opinion, there appears to be some typographical error while framing the question of law. It should have been, whether on the facts and circumstances of the case the assessee was entitled to raise the additional ground before the first appellate authority for the first time. (3) The facts, as narrated by the tribunal, in its order is as under: 2 ## ITR.NO.10/2002 The assessee is the proprietrix of Madhu Steel Company, dealing business in iron and steel. She is also a partner in M/s. Madhu Trading Agencies, also dealing business in iron and steel. For the assessment year 1987-88, the assessee had filed her original returns on 15.2.1988 under Section 139(4) of the Income Tax Act (the “Act” for short). Subsequently, a search was conducted, both in the assessee's residence and in the business premises, and certain documents had been recovered by the Revenue. After such seizure by the revenue under Section 132 of the Act, the assessee had filed the revised return on 12.6.1989. - (4) The assessing authority had completed the assessment by its order - dated 18.2.1991 and had quantified the tax liability of the assessee. (5) Aggrieved by the said order passed by the assessing authority, the assessee had filed an appeal before the Commissioner of Income Tax (Appeals). The first appellate authority had set aside the order passed by the assessing authority and had remitted back the matter to the assessing authority to redo the matter in accordance with law in the light of the orders passed by him. (6) After such remand, a fresh assessment order was passed by the assessing authority on 24.3.1994. (7) The said revised assessment order was questioned by the assessee before the first appellate authority - Commissioner of Income Tax (Appeals). 3 ## ITR.NO.10/2002 Before the first appellate authority, the assessee's representative had taken up an additional ground in support of the grounds of appeal raised in the Memorandum of Appeal. The additional ground was, that, the orders of assessment passed by the assessing authority is barred by limitation, for the reason that the original return was filed by the assessee only under Section 139(4) of the Act and not under Section 139(1) and hence based on an invalid revised return filed subsequently, the time limit for completing the assessment does not get extended by one year and as such, the assessing authority should have completed the assessment on or before 31.3.1990. The first appellate authority has accepted the additional ground raised by the assessee, keeping in view the observations made by this Court in the case of **Eapan Joseph v. C.I.T** [(1987) 168 ITR 26] and also the observations made by the **Bombay High Court in Inventors Industrial Corporation Ltd., v. C.I.T** [(1992) 194 ITR 548] and accordingly has come to the conclusion that the orders passed by the assessing authority is barred by limitation. (8) The Revenue, being aggrieved by the said order passed by the first appellate authority, had carried the matter by way of second appeal before the Tribunal in I.T.A.No.699/1994. The Tribunal has concurred with the view expressed by the first appellate authority and accordingly has rejected the Revenue's appeal. - (9) Being aggrieved by the orders passed by the Income Tax Appellate 4 ## ITR.NO.10/2002 Tribunal, the Revenue is before us in this reference proceedings. The question of law framed by the revenue is already noticed by us . (10) Sri Jose Joseph, the learned counsel appearing for the Revenue would submit that the first appellate authority was not justified in permitting the assessee to raise additional ground which was not raised by the assessee before the assessing authority when he completed the assessment on 18.2.1991 and on 24.3.1994. Therefore the order passed by the first appellate authority is contrary to the statutory provisions. The learned counsel would further submit, that, the Tribunal without appreciating the case pleaded by the Revenue has rejected the Revenue's appeal. (11) The learned counsel appearing for the assessee while defending the orders passed by the first appellate authority and the Tribunal has placed reliance on the decision of the Apex Court in the case of **Jute Corporation of India Ltd., v. Commissioner of Income Tax and Another** [(1991) 187 ITR 688]. In the said decision, the Apex Court at page 693 has stated as under: “In _CIT v. Kanpur Coal Syndicate_ [1964] 53 ITR 225, three Judge Bench of this court discussed the scope of Section 31(3)(a) of the Indian Income-tax Act, 1922 which is almost identical to section 251(1)(a). The court held as under (at.p.229): _“If an appeal lies, section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal, Under section 31(3)(a), in disposing of such an appeal, the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance_ 5 ## ITR.NO.10/2002 _or annual the assessment; under clause (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his powers is conterminous with that of the Income-tax Officer. He can do what the Incometax Officer can do and also direct him to do what he has failed to do.” (emphasis supplied)._ _The above observations are squarely applicable in the interpretation of section 251(1)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminous with that of the Income-tax Officer, and if that is so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income-tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer”._ ## (12) In **National Thermal Power Corporation v. Commissioner of** ## **Income Tax** [(1996) 229 ITR 387] the Apex Court has stated as under: _“The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (appeals) takes too narrow a view of the_ 6 ITR.NO.10/2002 _powers of the Appellate Tribunal (vide, e.g., CIT v. ANAND PRASAD [(1981) 128 ITR 388 (Delhi)], CIT v. Karamchand Premchand P.Ltd.[(1969) 74 ITR 254 (Guj)] and CIT v. Cellulose Products of India Ltd. [(1985) 151 ITR 499 (Guj) (FB)]. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee”._ (15) In the instant case, as we have noticed earlier, while narrating the assessee's representation for the first time had raised an additional legal issue, which was not taken before the assessing authority or before the first appellate authority. It is only after the assessing authority passed a fresh assessment order and that order when it was called in question before the first appellate authority, for the first time an additional issue is raised and canvassed. This has been allowed by the first appellate authority. The revenue has taken exception in this regard in this tax reference case. In our opinion, elaborate discussion may not be necessary in view of the declaration of law made by the Apex Court, which we have already noticed in the course of our judgment. Therefore, in our opinion, the question of law framed by the Revenue naturally requires to be answered 7 ## ITR.NO.10/2002 against the Revenue and in favour of the assessee and we do so. Ordered accordingly. **(H.L.DATTU) CHIEF JUSTICE** **(A.K.BASHEER) JUDGE** cl/dk. 8 ## ITR.NO.10/2002 **H.L.DATTU, C.J. & A.K.BASHEER, J.** I.T.R. No.10 OF 2002 **O R D E R** 7[th] November, 2008