ITAT duty bound to grant relief even if no specific ground is raised or even without alternative submission-High Court

ITAT duty bound to grant relief even if no specific ground raised. Even without alternative submission, Tribunal must pass consequential orders suo motu.

ITAT duty bound to grant relief even if no specific ground

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 Question:
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.

ITAT duty bound to grant relief even if no specific ground

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