CIT-A not to reject new claims made first time on the ground that it was not raised before AO. Litigants can also forget vital issues while filing appeal – ITAT
ABCAUS Case Law Citation:
ABCAUS 1179 (2017) (03) ITAT
Assessment Year : 2009-10
Date/Month of Pronouncement: March, 2017
Brief Facts of the Case:
The appellant assessee was director in four companies and proprietor of five concerns and was deriving income from house property and other sources also. He filed his return of income declaring total income of Rs. 3.77 crores. Within three months thereafter, he filed a revised return disclosing income at Rs. 98.50 lakhs. The reason for the revision was that in the original return, by mistake he failed to reduce the rental income and dividend income from the net profit. However, the Assessing Officer (‘AO’) completed the assessment u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) determining his income at Rs.2.29 crores.
The assessee carried the matter before the First Appellate Authority (FAA) being the CIT(A) and raised several grounds dealing with not claiming/reducing certain income/losses and expenses. However, CIT(A) held that the assessee had agitated the above issues before the AO during the assessment proceedings, that same would require investigation and therefore could not be adjudicated and that there were no good reasons for not raising those grounds before the AO.
Observations made by the Tribunal:
The Tribunal observed that the CIT(A) had taken an extreme view which was not supported by any logic or principles of judicial discipline. As an appellate authority he was supposed to decide the issues on merits as he is entrusted with a very delicate responsibility. He is to take care of interest of revenue as well as of taxpayers. It is the duty of the representatives of the sovereign and the citizens that due taxes are collected/paid. Collection of due taxes expects that, if the assessee has paid taxes due credit should be given for payment of such taxes. Similarly,if it has failed to claim any deduction/exemption for which it is entitled, same should not be rejected on frivolous pretexts. The CBDT in the year 1955 has asked the officers of the department not to take advantage of mistakes of the taxpayers. In the case under consideration, if the FAA was of the opinion that further facts were to be verified he should have called for a remand report from the AO. Besides, the assessee has a right to raise additional grounds. Inclusion of such a right in the Act/Rules is recognition of the principle that sometimes litigants can forget to raise certain vital issues at the time of filing of appeal. But, that should not come in way to the basic rule-collection of due taxes only.
The Tribunal observed that the Hon’ble Bombay High Court had held as under:
“14.A long line of authorities establish clearly that an assessee is entitled to raise additional grounds not merely in terms of legal submissions but also additional claims to wit claims not made in the return filed by it. It is necessary for us to refer to some of these decisions only to deal with two submissions on behalf of the Department. The first is with respect to an observations of the Supreme Court in Jute Corporation of India v. CIT [1991] 187 ITR 688 (SC) ; [1991] Supp (2) SCC 744. The second submission is based on a judgment of the Supreme Court in Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 (SC) ; [2006] 157 Taxman 1.
(A) In Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 (SC), for the assessment year 1974-75 the appellant did not claim any deduction of its liability towards purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as it entertained a belief that it was not liable to pay purchase tax under that Act. Subsequently, the appellant was assessed to purchase tax and the order of assessment was received by it on November 23, 1973. The appellant challenged the same and obtained a stay order. The appellant also filed an appeal from the assessment order under the Income-tax Act. It was only during the hearing of the appeal that the assessee claimed an additional deduction in respect of its liability to pur chase tax. The Appellate Assistant Commissioner (AAC) permitted it to raise the claim and allowed the deduction. The Tribunal held that the Appellate Assistant Commissioner had no jurisdiction to entertain the additional ground or to grant relief on a ground which had not been raised before the Income-tax Officer. The Tribunal also refused the appellant’s application for making a reference to the High Court. The High Court upheld the decision of the Tribunal and refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court.
15. The Supreme Court held as under (page 693) : “In CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC), a 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 (ITR page 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 or annul 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 power is co-terminus 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 to 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 coterminus 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 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.” (emphasis supplied)
(B) It is clear, therefore, that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. That they may choose not to exercise their jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction.
16. At page 694, after referring to certain observations of the Supreme Court in Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1 (SC) the Supreme Court observed as under : “The above observations do not rule out a case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made, or that the ground became available on account of change of circum stances or law. There may be several factors justifying raising of such new plea in appeal, and each case has to be considered on its own facts. If the Appellate Assistant Commissioner is satisfied, he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid principles or any hard and fast rule can be laid down for this purpose.” (emphasis supplied)
17. The underlined observations in the above passage do not curtail the ambit of the jurisdiction of the appellate authorities stipulated earlier. They do not restrict the new/additional grounds that may be taken by the assessee before the appellate authorities to those that were not available when the return was filed or even when the assessment order was made. The sentence read as a whole entitles an assessee to raise new grounds/make additional claims :
“if the ground so raised could not have been raised at that parti cular stage when the return was filed or when the assessment order was made . . .”
“or”
if “the ground became available on account of change of circum stances or law”.
18. The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The first part, viz., “if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made . . .” clearly relate to cases where the ground was available when the return was filed and the assessment order was made but “could not have been raised” at that stage. The words are “could not have been raised” and not “were not in existence”. Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category, viz., where “the ground became available on account of change of circumstances or law”.
19. The facts in Jute Corporation of India Ltd. [1991] 187 ITR 688 (SC), various judgments referred to therein as well as in subsequent cases, which we will refer to, establishes this beyond doubt. In many of the cases, the grounds were, in fact, available when the return was filed and/or the assessment order was made. In Jute Corporation of India Ltd. [1991] 187 ITR 688 (SC), the ground was available when the return was filed. The assessee did not claim any deduction of its liability to pay purchase tax as “it entertained a belief that it was not liable to pay purchase tax under the Bengal Raw Jute Taxation Act, 1941”. Thus, the ground existed when the return was filed. The assessment order was even made and received by the assessee. It is only after the appeal was filed that the assessee claimed a deduction in respect of the amount paid towards the purchase tax under the said Act. It is also significant to note that the assessee’s entitlement to claim deduction had been held to be valid in view of an earlier judgment of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). This was, therefore, a case of error in perception/ judgment. Despite the same, the Supreme Court upheld the decision of the Appellate Assistant Commissioner in allowing the deduction. The words “could not have been raised” must, therefore, be construed liberally and not strictly.
20. It is indeed a question of exercise of discretion whether or not to allow an assessee to raise a claim which was not raised when the return was filed or the assessment order was made. As held by the Supreme Court there may be several factors justifying the raising of a new plea in appeal and each case must be considered on its own facts. However, such cases include those, where the ground though available when the return was filed or the assessment order was made, was not taken or raised for reasons which the appellate authorities may consider valid. In other words, the jurisdiction of the appellate authorities to consider a fresh or new ground or claim is not restricted to cases where such a ground did not exist when the return was filed and the assessment order was made.
(A) A Full Bench of this court in Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351 (Bom) considered a similar situation. In that case, the appellant-assessee did not claim a deduction in respect of the amounts it was required to transfer to contingencies reserve and dividend and tariff reserve either before the Income-tax Officer or before the Appellate Assis tant Commissioner in appeal. Subsequently, this court had, in Amalga mated Electricity Co. Ltd. v. CIT [1974] 97 ITR 334 (Bom), held that such amounts represented allowable deductions on revenue account. The appel lant, therefore, raised a new claim and additional grounds before the Tribunal in that connection. The Tribunal rejected the same. The second question which was raised in the reference before the Division Bench was as under (page 354 of 199 ITR) :
“(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in not allowing the assessee leave to raise in its own appeals additional grounds and in the Departmental appeals cross-objections regarding the deductibility of the sums transferred to contingency reserve and tariff and dividend control reserve ?”
(B) The Division Bench which heard the reference, finding that there was a conflict of decisions, placed the papers before the hon’ble Chief Justice for constituting a larger Bench to resolve the controversy. The Full Bench answered the reference in the affirmative and in favour of the asses see. The Full Bench held (page 357 of 199 ITR) :
“Thus, the Appellate Assistant Commissioner has very wide powers while considering an appeal which may be filed by the assessee. He may confirm, reduce, enhance or annul the assessment or remand the case to the Assessing Officer. This is because, unlike an ordinary appeal, the basic purpose of a tax appeal is to ascertain the correct tax liability of an assessee in accordance with law. Hence, an Appellate Assistant Commissioner also has the power to enhance the tax liability of the assessee although the Department does not have a right of appeal before the Appellate Assistant Commissioner. The Explanation to sub-section (2), however, makes it clear that for the purpose of enhancement, the Appellate Assistant Commissioner cannot travel beyond the proceedings which were originally before the Income-tax Officer or refer to new sources of income which were not before the Income-tax Officer at all. For this purpose, there are other separate remedies provided under the Income-tax Act.”
(C) It is unnecessary to refer to all the judgments that the Full Bench referred to while answering the reference. The Full Bench referred to the observations of the Supreme Court in Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 (SC) set out above. It is important to note that even in this case, therefore, the ground existed when the return was filed. The mere fact that a decision of a court is rendered subsequently does not indi cate that the ground did not exist when the law was enacted. Judgments are only a declaration of the law. The assessee could have raised the ground in its return itself. It did not have to await a decision of a court in that regard. Indeed, even if a judgment is against an assessee, it is always open to the assessee to claim the deduction and carry the matter higher. The words “could not have been raised”, therefore, cannot be read strictly. Neither the Supreme Court nor the Full Bench of this court meant them to be read strictly. They include cases where the assessee did not raise the claim for a reason found to be reasonable or valid by the appellate autho rities in the facts and circumstances of a case.
29. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the Assessing Officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254.
30. A Division Bench of the Delhi High Court dealt with a similar submission in CIT v. Jai Parabolic Springs Ltd. [2008] 306 ITR 42 (Delhi). The Division Bench, in paragraph 17 of the judgment held that the Supreme Court dismissed the appeal making it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal. In paragraph 19, the Division Bench held that there was no prohibition on the powers of the Tribunal to entertain an additional ground which, according to the Tribunal, arises in the matter and for the just decision of the case.”
In view of the judgment of the Hon’ble Bombay High Court, the Tribunal opined that the appellate authorities should not reject the new claims made before them for the first time on the ground that same was not agitated before the AO.
Held:
The mater was remanded back to the file of the FAA for fresh adjudication keeping in mind the judgment of Hon’ble Bombay High Court and to afford a reasonable opportunity of hearing to the assessee.
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