Raising additional grounds orally under Rule 27 of ITAT Rules upheld. High Court explains the scope of Rule 27
under ABCAUS Case Law Citation:
ABCAUS 3314 (2020) (05) HC
Important case law relied upon by the parties:
Commissioner of Income Tax v Divine Infracon Pvt. Ltd,
Commissioner of Income Tax vs. Sundaram & Co. Pvt. Ltd. (1964) 52 ITR 763 (Madras)
In the instant case, the appellant assessee had filed the appeal against the order passed by the Income Tax Appellate Tribunal (ITAT) allowing Revenue’s appeal and further remanding the matter to the Assessing Officer (AO) for fresh adjudication.
The ITAT had inter alia rejected the additional jurisdictional grounds urged by the Appellant under Rule 27 of the Income tax (Appellate Tribunal) Rules, 1963 (ITAT Rules)
The appellant had challenged the correctness of the reasoning of the ITAT for declining to consider issues which according to him go into the root of the matter and related to the assumption of jurisdiction and validity of the reassessment proceedings u/s 153C of the Act.
In the instant case, CIT(A) had allowed the appeal in favour of the assessee and deleted all the additions/disallowances made by the AO in the reassessment proceedings u/s 153C of the Act.
Before the Tribunal, the assessee made an oral application under Rule 27 of ITAT Rules and urged additional grounds against the findings of the CIT(A) pertaining to the issue of recording of satisfaction note, and the necessary condition of existence of nexus between assessment and incriminating material by contending that the findings were in the teeth of the law as settled by various courts in respect of the said issues.
The ITAT rejected the oral application on the technical ground that no application had been filed by the assessee to consider the legal issues premised on Rule 27 of the ITAT Rules. However, on merit, the ITAT overturned the decision of the CIT(A) and allowed appeal in favour of the Revenue and restored the issues to the file of the Assessing Officer (AO).
Aggrieved with the findings of the ITAT pertaining to Rule 27, the assessee approached the Hon’ble High Court which admitted the appeal and the following question of law was framed:
“What is the scope of Rule 27 of the Appellate Tribunal Rules, 1964 in the context of Section 253 (4) of the Income Tax Act,1995?”
Raising additional grounds orally under Rule 27 of ITAT Rules upheld
The Hon’ble High Court opined that the Rule 27 ought not to be applied narrowly and there was no merit in saying that by permitting the assessee before the Tribunal to invoke Rule 27 before the Tribunal, to challenge the ground decided against him, scope of the subject matter of appeal would get expanded.
The Hon’ble High Court stated that a bare reading of Rule 27 manifest that a Respondent has a right to support the impugned order, without having filed any cross appeal or cross objection. This means that the provision is to enable a Respondent to effectively defend the order appealed before the Appellate forum.
The Hon’ble High Court pointed out that the expression “though he may not have appealed” also indicates that the provision is to be resorted to in a situation where a Respondent may otherwise have a right to file an appeal or cross objections, but has chosen not to avail of this remedy. Thus, a party who has not availed of the option of filing an appeal, in a given situation, if arrayed as a Respondent before the Appellate Tribunal, can upon Rule 27, to support the order under appeal.
The High Court said that the expression used also suggests that recourse to Rule 27 would only be available in case the remedy of appeal is otherwise available with the Respondent, and he has elected not to avail the same. In other words, in case a Respondent would not have such a right of filing a cross appeal or cross objection, then he would not have the option to invoke the said provision.
The Hon’ble High Court opined that invocation of Rule 27 for challenging the decision of the CIT(A) on the legal ground was well within the scope of Rule 27. The assessee as a respondent before the Tribunal was within its right to support the order under appeal before the Tribunal by attacking the grounds decided against him.
The Hon’ble High Court noted that by invoking Rule 27, the assessee sought to support the final order of the CIT(A) in his favour, by assailing that part of the said order, wherein the CIT(A) upheld the initiation of reassessment u/s 153C of the Act. The Court pointed out that Rule 27 cannot be invoked by a Respondent on an issue which is independently decided against him in the order appealed by the Appellant. In other words, if there is an issue, which is separately decided against a Respondent (in appeal), and the decision on the said issue has no bearing on the final decision of the CIT(A), then invocation of Rule 27 to challenge the correctness of the same cannot be sustained.
The Hon’ble High Court stated that it cannot read Rule 27 in a restrictive manner to hold that the said provision can only be invoked to support the order in appeal and while doing so, the subject matter of the appeal before the ITAT should be confined only to the extent of the grounds urged by the Appellant.
The Hon’ble High Court stated that the position of law is that the appellant (Respondent before ITAT) could have invoked Rule 27 to assail those grounds that were decided against him if those grounds/issues had a bearing on the final decision of the CIT(A).
The Hon’ble High Court opined that the impugned order passed by the ITAT suffered from perversity in so far as it refused to allow the assessee to urge the grounds by way of an oral application under Rule 27.
Accordingly, the Hon’ble High Court answered the question of law in favour of the assessee and set aside the impugned order. The matter was remanded back before the ITAT with a direction to hear the matter afresh by allowing assessee to raise the additional grounds, under Rule 27 of the ITAT Rules.
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