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Recently, ITAT has explained and illustrated Rule 27 of the ITAT Rules, 1963 which empowers the respondent to defend the order appealed against on any of the grounds decided against him, though he may not have appealed or filed a cross objection.

Case Details:
I.T.A. No. 1873/DEL/2012 AY: 2003-04
Income Tax Officer (Appellant) vs. IME International Pvt. Ltd (Respondent)
Date of Order: 08-01-2016

Brief Facts of the Case:
The assessee filed its return declaring a loss of Rs. 49,953/- and return was processed u/s. 143(1) of the Income Tax Act, 1961. Thereafter, information was received from Director of Investigation, New Delhi that assessee has received accommodation entries of Rs. 46,50,000/- from various parties. The Assessing Officer (AO) reopened the case of the Assessee u/s. 147 by issuing a notice u/s. 148. In the assessment order the AO treated the said share application money as accommodation entry and the amount of Rs. 46,50,000/- was treated as unexplained income of the assessee and the same was added u/s. 68.

On appeal, CIT(A), partly allowed the appeal of the assessee thereby deleting the addition in dispute but upholding the reopening in the case of Assessee. Aggrieved with the order of the CIT(A), Revenue filed appeal before the Tribunal.

the Assessee moved an Application under Rule 27 of the ITAT Rules, 1963 and stated that the it  can support the order of the CIT(A), though it may not have appealed, against on any of the grounds decided against the assessee. According to the assessee, CIT(A) had decided the legal issue against the assessee and deleted the addition made by the AO. But assessee had not filed the Appeal or Cross Objection against the order passed by the CIT(A), but now assessee was invoking Rule 27 of the ITAT Rules, 1963 and raising the legal issue by challenging the action of the AO for issuing the notice u/s. 148 of the I.T. Act.  The Revenue opposed the Application made under Rule 27 of the ITAT Rules, 1963 made by the assessee.

ITAT observation on Rule 27:
ITAT observed that a bare reading of the Rule 27 manifests that the assessee, without having filed any cross appeal or cross objection can support the impugned order on any of the grounds decided against him.

ITAT further observed that there are two essential elements of the Rule 27:

(a) condition precedent for invoking this Rule; and

(b) Scope of interference.

(a) Condition precedent for invoking this Rule

“this Rule has been enshrined with a view to dispense justice to a assessee who is otherwise entitled to assail the correctness of the impugned order by filing appeal or cross objection, whether or not actually filed. This is borne out from the expression `though he may not have appealed’ used in the context of a assessee. This amply indicates the existence of a pre-right of the respondent to appeal, which may have remained un-availed. This Rule cannot help the respondent in a situation where he is otherwise debarred from filing cross appeal or cross objection. If no right to file a cross appeal or cross objection statutorily vests in the respondent, then it cannot be inferred indirectly by taking recourse to Rule 27.

(b) Scope of interference

“This is contained in the later part of the rule, which provides that the respondent `may support the order appealed against on any of the grounds decided against him’. A cursory reading of this part divulges that the respondent can support the impugned order on any of the grounds which were decided against him.”

Illustration:

“It can be understood with the help of a simple example in which the AO initiates reassessment and makes an addition by disallowing some expenses. The assessee challenges the assessment order before the CIT(A) on both the counts, that is, the initiation of reassessment and also the addition made by AO. The CIT(A) upholds the initiation of reassessment but deleted the addition on merits. In an appeal by the Revenue before the tribunal against the deletion of addition, the assessee under Rule 27 argued that the initiation of reassessment may be declared as invalid. This is a situation in which the assessee is supporting the impugned order (that are, the deletion of additions made by AO) under rule 27 on the ground decided against it (that is, upholding of the initiation of reassessment). Crux of the matter is that the order appealed against can be challenged by the Assessee only qua the aspects of the issue decided against him in deciding such overall issue against the appellant, which has been assailed in the appeal. It means that there is an inherent limitation on the power of the Assessee in not challenging the order appealed against under rule 27 de hors the ground decided against the appellant. This shows that if a particular independent issue has been decided against the assessee in the order appealed by the appellant on another independent issue decided against him, then the assessee under rule 27 has no power to challenge the correctness of such independent issue decided against him before the tribunal, while arguing for upholding the order on the issue decided against the appellant.”

Held:
It was held in the instant case that both, the condition precedent for invoking this rule and the scope of interference stood fulfilled in the facts and circumstances of the instant case.

Download Full Judgment Click Here >>

ITAT explains and illustrates Rule-27 of ITAT Rules 1963. Two essential elements are condition precedent and scope of interference | 13-01-2016 |

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