ITAT has power u/s 254 to order fresh enquiry either suo motu or on grounds raised. For justice to be done, truth must prevail-High Court
ABCAUS Case Law Citation:
ABCAUS 2455 (2018) 08 HC
The instant appeal had been filed by the Appellant Assessee challenging the order passed by the Income Tax Appellate Tribunal (ITAT) in inter alia directing examination by the Assessing Officer of the fair market value of the shares bought back and application of Section 2(22)(e) of the Income Tax Act, 1961 (the Act) if the consideration for buy back of shares was in excess of the fair market value of the shares
The Tribunal had held that in case the buy back price was not based on the real valuation and it was artificially inflated by the parties then it was certainly a device for transfer of the reserves and surplus to the holding company by avoiding the payment of tax and therefore it will be treated as a colourable device.
The Tribunal observed that neither the Assessing Officer nor the DRP had decided this issue of actual fair market price of the share of the assessee as on the date of buy back. Hence the Tribunal set aside the issue of examination of the fair market price of the share vis-à-vis the buy back price of the
assessee to the record of the Assessing officer for adjudication as per law.
Aggrieved by the remand directions of the Tribunal, the assessee preferred this appeal before Hon’ble High Court.
Relying on the judgments of various High Courts (including Allahabad High Court, Calcutta High Court Karnataka High Court, Gujarat High Court and Bombay High Court), it was contended that the Tribunal cannot exceed the parameters or the grounds of the appeal raised by the aggrieved Appellant Assessee Company and what issue has neither been raised by the Assessee Company nor by the Revenue, cannot be dealt with or suo motu taken up by the learned Tribunal and such an exercise in excess of its jurisdiction as has been done in the instant case, deserves to be quashed and set aside.
The Hon’ble High Court re-formulate the following substantial question of law on the power of the Tribunal to do so;
“Whether the Income Tax Appellate Tribunal has power under Section 254 of the Income Tax Act, 1961, to give directions for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on any grounds raised by either party to the appeal which have not been investigated or enquired into by the lower Authorities earlier and which may result in enhancement of tax liability of the assessee?”
The Hon’ble High Court observed that the appeal called upon to decide the ambit, scope and parameters of the powers of the ITAT while dealing with the appeals filed before it under Section 253 of the Act.
The Hon’ble High Court opined that Section 254(1) of the Act clearly stipulates that the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such Orders thereon as it thinks fit. The emphasis on the word ‘thereon’ sought to be placed by the assessee on the basis of case laws relied upon by him as against the words ‘as it thinks fit’ is slightly misplaced. The emphasis while analyzing the powers of the Tribunal should be on the words ‘as it thinks fit’ rather than on the word ‘thereon’. The word ‘thereon’ only relates to the ‘subject matter’ of the appeal in first part of the Sub-section (1) and therefore while the Tribunal is dealing with the subject matter of the appeal, it can pass any such relevant Order as it thinks fit, which would be rational, germane, reasonable, appropriate, necessary and expedient in its opinion subject to the requirement that it gives an opportunity of hearing to both the parties to the appeal. Neither the powers are restricted nor the power to allow the fresh and new ground to be raised before it is restricted nor the powers to enhance an assessment or tax liability or reduce the tax especially enumerated in the Proviso to Sub-section (2) of Section 254 of the Act also is restricted.
The Hon’ble High Court observed that the powers under Section 254 of the Act with the Tribunal to pass such Orders ‘as it thinks fit’ cannot be lesser than the powers conferred upon the lower and first Appellate Authority, viz., the Commissioner of Income Tax(Appeals) who under Section 251(1)(a) of the Act has power to dispose of an appeal against the Order of assessment and he may confirm or reduce or enhance or annul the assessment. The higher and final Appellate Authority under the Act cannot be intended by the Parliament to have lesser power than the first Appellate Authority as is well settled that the powers of the Appellate Authorities are always co-extensive with that of the Assessing Authority and therefore what the Assessing Authority or the first Appellate Authority could do in the matter of assessment, the Tribunal cannot be said to have any lesser power to do so.
The Hon’ble High Court opined that Section 254 of the Act, does not have any narrower scope to put fetters on the powers of the Tribunal. The Appellant may be either Assessee or Revenue before the Tribunal and the Tribunal has also powers to allow fresh ground of appeal or allow the other party to the appeal to file its cross objections and even suo motu pass appropriate Orders ‘thereon’ and therefore the words ‘as it thinks fit’, confer wide powers upon the Income Tax Appellate Tribunal to pass such Orders on the subject matter of appeal ‘as it thinks fit’ whether the issue is raised by either party to the appeal or not. The Tribunal is not bound to decide the appeal in a particular or narrower manner or limited to the grounds raised in the appeal before it. The confines or boundary limit is only “subject matter” of the appeal.
The Hon’ble High Court stressed that Truth being the cherished ideal and ethos of India, pursuit of Truth should be the guiding star of the entire justice system. For justice to be done, truth must prevail. It is truth that must protect the innocent and it is truth that must be the basis to punish the guilty. Truth is the very soul of justice. Therefore truth should become the ideal to inspire the courts to pursue. This can be achieved by statutorily mandating the courts to become active seekers of truth. It is of seminal importance to inject vitality into our system. Concern for and duty to seek the Truth should not become the limited concern of the Courts or Tribunals and adjudicating Authorities but should percolate down in other Executive wings of the State as well.
The Hon’ble High Court opined that the ultimate object of providing the multiple Tiers of appellate forums and mechanism in the Income Tax law and then further providing for remedies by way of Appeals before the Constitutional Courts on the substantial questions of law is nothing but to allow the quest for Truth to be taken to its logical end.
It was held by the Hon’ble High Court that the Income Tax Appellate Tribunal (ITAT) has the power to give directions for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on any grounds raised by either party to the appeal which have not been investigated or enquired into by the lower Authorities earlier and which may result in enhancement of tax liability of the assessee and in the present case, the Appellate Tribunal was right and within its jurisdiction in directing the examination of the fair market value of the shares bought back by it during the relevant previous year.
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