ITAT duty bound to grant relief even if no specific ground raised. Even without alternative submission, Tribunal must pass consequential orders suo motu.
ABCAUS Case Law Citation:
1062 (2016) (11) HC
Important Case Laws considered:
CIBA of India Ltd vs. CIT (1993) 202 ITR 0001 (Bombay High Court)
CIT Vs. Mahalakshmi Textile Mills Ltd (1967) 66 ITR 0710 (Supreme Court)
The writ petition under consideration raised the following important question of law concerning the scope of an appeal before the Income Tax Appellate Tribunal (ITAT) and the Tribunal’s powers to pass orders thereon.
“Whether the Tribunal is duty-bound to grant relief to the assessee as claimed during the hearing on the basis of the case eventually found by it, even if there is no specific ground of appeal raised before it in support of such relief?”
Brief Facts of the Case:
The appellant assessee was a private limited company engaged in the business of construction and sale of buildings. During the period from 1980–81 to 1987–88, the assessee entered into various agreements for sale of flats in its project for an aggregate consideration of Rs.3,77,34,000/.
During a search of the premises of the assessee on 11 May 1987, the revenue noticed that ‘on–money’ was charged by the assessee from its purchasers over and above the consideration disclosed in the agreements for sale.
The assessee itself came forward with a disclosure of Rs.66 Lakhs ‘on-money’, which was offered for taxation in the two assessment years, namely, 1987-88 and 1988–89, at Rs 26 Lakhs and Rs.40 Lakhs, respectively. This offer was purportedly on the basis that the assessee was following the project completion method of accounting and the project was said to be substantially completed during these two assessment years.
The Assessing Officer (AO) did not accept the project completion method proposed by the assessee, and held that the ‘on–money’ should be assessed in every year in which the agreements for sale were made by the assessee.
Secondly, AO also did not accept the quantum of on–money offered to taxation and held that on–money should be assessed at the rate of 25% of the aggregate of the agreement value plus on-money. He accordingly, made additions on account of ‘on–money’ to the income disclosed by the assessee in the assessment years 1981–82 to 1986–87.
The AO, however, did not make any addition on account of ‘on–money’ for the assessment years 1987–88 and 1988–89 in view of the fact that the assessee–company had itself disclosed ‘on–money’ of Rs.26 lakhs and 40 lakhs respectively for these two years. The AO accepted the quantum of ‘on–money’ offered to taxation for these two years.
In assessee’s appeal for the AYs 1985–86 and 1988-89.
The CIT(A) accepted the assessee’s contention that the amount disclosed should be assessed on the project completion method, but for the assessment years 1986–87 and 1987-88 he did not agree with either the project completion method for assessment or the quantum of ‘on–money’ offered for taxation for these two assessment years, the CIT(A) agreed with the Assessing Officer that the rate of 25% for estimating ‘on–money’ was fair.
Before ITAT, the assessee not only contested the accounting method applied by the AO, namely, the percentage completion method, and the quantum of ‘on–money’ assessed to tax, but raised an alternative plea requiring the assessment of ‘on–money’ for the assessment years 1987-88 and 1988–89 on the normative basis worked out for the project instead of actual ‘on–money’ disclosed by the assessee for the two particular years.
However the ITAT dismissed the assessee’s appeal.
Thereafter, the assessee filed a miscellaneous application u/s 254 of the Income Tax Act, 1961 (Act) pointing out that there was an excess addition on account of ‘on–money’. The basis of the assessee’s plea was the very same ground urged in the appeals, namely, that if the Tribunal were not to accept the assessee’s case that ‘on–money’ of Rs.26,00,000/ and Rs. 40,00,000/ should be added in the last two years, i.e. Assessment Years 1987-88 and 1988–89, on the basis of project completion method, the Tribunal could only take the normative ‘on–money’ (worked out for the whole project on percentage completion method) for addition in the last two years and not what was originally disclosed by the assessee. The contention was that since such disclosure of ‘on–money’ was not accepted by the Department and instead normative figures were worked out, such normative figures ought to be consistently applied for the last two years as well.
The Tribunal rejected the assessee’s miscellaneous application. On the ground that though the issue was raised by the assessee in the appeals, no ground was taken in the assessee’s appeal for Assessment Years 1987–88, and no cross objections were filed for Assessment Years 1988-89 in the revenue’s appeal. The Tribunal was also of the view that the assessee not having taken any objection regarding the income returned by it in its returns of income for the particular assessment years, i.e. Assessment Years 1987–88 and 1988 89, the Tribunal had no scope or necessity to substitute the ‘on–money’ disclosed by it in its returns.
Observations made by the High Court:
The High Court observed that the only reasons why the ITAT denied relief to the assessee were that firstly the assessee had not taken such ground in its appeal and secondly the assessee had not objected to its own returns for Assessment Years 1987–88 and 1988–89, which inter alia disclosed on– money of Rs.26,00,000 and Rs.40,00,000.
According to the High Court, both reasons were non– germane and the ITA erred in law by not making such addition, and instead proceeding on the basis of ‘on-money’ offered in the returns for Assessment Years 1987–88 and 1988–89.
The High Court opined that when an appeal from an assessment is brought before the Tribunal under Section 254(1) of the Act, all questions arising therefrom, including questions which are incidental or consequential to such assessment, are open to be agitated before the Tribunal. The Tribunal is empowered to “pass such orders thereon as it thinks fit”. It is one thing to say that the Tribunal must confine itself to the subject matter of the appeal and not go beyond it, but quite another to say that whilst deciding such subject matter it cannot consider questions which are incidental to, or would follow as a consequence of, its determination. If the Tribunal rejects the assessee’s case on a particular ground, and if such ground affords a certain relief to the assessee without his having to aver any new facts, such relief cannot be denied on the footing that the assessee never claimed it. If the assessee did not claim it, the Tribunal must grant it suo motu, as a matter of law, if the relief does follow as a legal incident.
It was observed that in CIBA of India Ltd. case, the Bombay High Court had held as under:
“It is the duty of the Tribunal, even without an alternative submission, to pass necessary consequential orders, suo motu, to give further directions in the matter as the situation may warrant.”
The Court also relied on the judgment of the Supreme Court in CIT vs Mahalakshmi as under:
“There is nothing in the IT Act which restricts the Tribunal to the determination of questions raised before the Departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal: If, for reasons recorded by the Departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the Departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him.”
The Tribunal was bound in law to consider the alternative plea raised by the assessee at the hearing of the appeals.