FEBRUARY 13, 2015

By Ramesh Chander, Commissioner of Income Tax

SPECIFIED adverse orders of the Assessing Officers (for short AO) are allowed to be challenged by way of appeal before the Commissioner of Income Tax (Appeals) {for short CIT(A)}u/s 246A of the Income Tax Act {for short the Act}. Likewise, specified orders of the CIT(A) which are found to be adverse and not acceptable can be challenged further in appeal before the Income Tax Appellate Tribunal {for short 'the ITAT or Tribunal"} u/s 253 of the Act. Though before the CIT(A), Revenue is not given any right to file appeal but before the ITAT apart from the assessee even the Revenue has the right to file appeal. As provided under sub section (1) of section 254 the Tribunal after giving both the parties to the appeal, an opportunity of being heard decide and pass appropriate orders.

2. Additional Grounds before the Tribunal:

2.1 While sub-section (1) of Section 250 specifically enables an appellant to raise before the CIT(A) a ground not specified in the grounds of appeal, but the provisions of section 253 or of sec. 254 do not specifically provide for raising of additional ground or plea by the appellant before the ITAT. However, Rule 11 of the Appellate Tribunal Rules, 1962 implicitly provides for raising up of additional ground or plea before the Tribunal.

2.2 Regarding the raising of additional ground it has to be noted that only the appellant in an appeal is allowed this opportunity. That is, the respondent as such cannot raise an additional ground except where he has filed cross objections in an appeal filed by the opposite party. As per the provisions of section 253(4) the Cross objection so filed is deemed to be an appeal by the Tribunal within the meaning of section 253(3). When it is so, on filing cross objection, the cross objector too becomes an appellant and thereafter he is assumed to have the claim of filing additional ground or plea though in reference to his own grounds raised in the memo of the cross objection.

3. Controversy about raising of additional ground :

3.1 Controversies do arise as to when and under what circumstances the additional ground or plea can be raised before the Tribunal. Before elaborating on this aspect, it is important to bear in mind that before the Tribunal, appeals against the orders of the first appellate authority i.e. the Commissioner of Income (Appeals) are carried. Logically speaking, when the orders impugned before the Tribunal are of the CIT(A) only such grounds or issues can be raised for the ITAT which arise from his {the CIT(A)'s} orders. In other words, if a ground or plea cannot be said to be arising out of the order of the CIT (A), in principle, it can be said that such a ground cannot as such be raised before the Tribunal. At this juncture, it will be relevant to refer the Calcutta High Court judgment in the case of Indian Steel and Wire Products Ltd. v. CIT {1994} 208 ITR 740 Cal ( 17-06-1993) where inter alia it held;

"the tribunal is supposed to decide only issues which were the subject matter of the first appeal. Otherwise, the Tribunal would be reduced to the first appellate authority."

Likewise, other High Courts have held. Thus, as a matter of rule it can be said that an issue or a ground which as such does not arise out of the order of the CIT(A) cannot be raised. However, in view of the Supreme Court judgments there is a unanimity that purely a legal ground can be raised at any point of time including during the second appeal before the Tribunal as a main ground or as an additional ground if the relevant facts are already on record in respect of that. In the context of raising of additional ground most relied judgment is of the Supreme Court in NTPC Ltd. V. CIT - 2002-TIOL-279-SC-IT-LB {for short 'NTPC case') wherein applying its earlier decision in the case of Jute Corporation of India Ltd - 2002-TIOL-1027-SC-IT-LB {for short 'Jute Corporation case} it held as under;

"U/s 254 power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability…..we do not see any reason why the assessee should be prevented from raising that question before the ITAT for the first time, so long as the relevant facts are on record in respect of that item…..the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee."

04. Analysis of the applicability of NTPC case:

4.1 As mentioned, drawing strength from the NTPC case instances are noticed where as a matter of routine especially by way of additional grounds legal points are found raised before the Tribunal even if these were not even indirectly raised before the AO or before the CIT(A). In this process, at times the very taxability of some item of income which was duly shown by the assessee at its own in the return of income is contested for the first time before the Tribunal. In view of the NTPC case the benches of the Tribunal are entertaining and adjudicating such legal grounds if sufficient relevant facts are available on records.

4.2 It would be relevant to keep in view the factual short matrices of the NTPC case which were that for the first time before the Tribunal, in view of two orders of the Special Bench of the Tribunal, assessee contended that interest earned before setting up of business is not taxable. The Tribunal declined to entertain these additional grounds. Instead of examining the grounds so framed by the Tribunal, the Supreme Court reframed the question for its consideration as under;

"Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same”.

Observing that the Tribunal in dealing with the appeals has widest possible powers and that purpose of assessment before taxing authorities is to assess correctly the tax liability Supreme Court viewed as under;

"We do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as relevant facts are on record in respect of that item."

"We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier."

Supreme Court while observing so took note and support of its earlier judgment in Jute Corporation case where Supreme Court had dealing with the powers of Appellate Assistant Commissioner had observed that an appellate authority has all the powers that the original authority may have in deciding the question before it subject to restrictions or limitations, if any.

4.3 In the context of the NTPC judgment it will be relevant to note that in Jute Corporation case the Supreme Court, in turn, had considered its own judgment in CIT (Addl.) v. Gurjargravures P. Ltd (1978) 111 ITR 1 {for short 'Gurjargravures case'} which the Supreme Court viewed to be in conflict with its earlier larger Bench judgment in CIT v. Kanpur Coal Syndicate - 2002-TIOL-828-SC-IT-LB {for short 'Kanpur Coal case'}. The Supreme Court held that larger Bench decision in Kanpur Coal case holds the field. However, while holding so it did not specifically over rule Gurjargravures case as in their opinion this decision was founded on the special facts of that case.

4.4.1 Now, it would be of relevance to see as to what was being held in Kanpur Coal case which has been relied upon and followed by the Supreme Court in its Jute Corporation case which in turn has been followed by it in its NTPC case. On careful study of the Kanpur Coal Case we will notice that it was a case adjudicated under Income Tax Act, 1922 where 'as it think fit ' was held to include the power to set aside so as to make fresh assessment.

4.4.2 Short facts of the Kanpur Coal case were that for AY 1948-49 the AO levied tax upon the total income in the hands of the Association of Persons {for short 'AOP'} whereas the claim of the assessee was to tax separately the individual members of the AOP. Since, the AO did not accede to assesee's request appeal before the AAC was filed which was eventually dismissed. Against the order of AAC appeal to Tribunal was filed which held that though AO had power to assess the income either as AOP or in individual capacity but Tribunal had no power to direct the AO to exercise his power in one way or the other. This order of the Tribunal was carried in appeal before the High Court which held that Tribunal had the power to set aside and to give consequential and ancillary directions to the said officer to assess in the individual capacity.

5.1 Important point to be noted is that in Kanpur Coal case the issue was specifically raised before the AO whereas in the Jute Corporation & NTPC cases the issues were never ever raised before the AO. If this important difference in factual matrices is kept in view we will be able to appreciate the Supreme Court judgment in NTPC case in correct perspective. Had their lordships of the Supreme Court been made aware about this crucial and important difference in fact situation, their judgments in Jute Corporation case as well as in NTPC case would have been different.

5.2 Thus, it is very clear that subsequent judgments of the Supreme Court need to be applied in correct perspective especially when Gurjargravures has not been overruled because in these NTPC & Jute Corporation cases while applying Kanpur Coal case inadvertently it has been over looked that in this (Kanpur Coal) case before the AO there was specific claim which he refused to entertain. In other words, sweeping principle cannot at all be inferred from Supreme Court judgments in NTPC & Jute Corporation cases when Supreme Court judgment in Gurjargravures case which bars raking up of an issue at a later stage if not raised earlier, has not specifically been over ruled. Very clearly NTPC or for that matter Jute Corporation cases though of larger bench cannot always be given preference over Gurjargravures case because by not over-ruling it later benches of the Supreme Court agreed with the proposition as explained in Gurjargravures case. It is felt that for clarity sake the inferred contradictions in between the NTPC & Jute Corporation cases on the one hand and the Gurjargravures & Kanpur Coal cases on the other need sorting out by the larger bench of the Supreme Court.

6. What is the true import of the NTPC case?

6.1 Independent of what has been mentioned above it needs to be appreciated that in NTPC case, the Supreme Court has relied upon the powers of the Tribunal as contained u/s 254(1) whereby "the Appellate Tribunal may pass such orders thereon as it thinks fit." In this context, it needs to be appreciated that the phrase "as thinks fit" has to be interpreted to mean the same as it actually meant in Gurjargravures case because if it is deemed to be meaning anything sweepingly then it would infer as if the ITAT can also introduce new source of income or can even enhance the income already assessed which power is incidently not conferred on Tribunal even indirectly. Powers conferred on the CIT(A) as mentioned u/s 251 include powers

-to confirm the assessment,

-to cancel the assessment,

-to enhance the income already assessed by the AO

-to set aside the assessment ( since omitted w.e.f. 01-06-2001)

As against this in the context of the Tribunal there is no whisper in law as to what all the Tribunal can do while adjudicating an appeal. Quite opposite to the detailed mention of scope about as what all the CIT(A) can do while disposing an appeal, legislature just uses the phrase 'as thinks fit'. If we bear in mind the powers conferred on the CIT(A) who is conferred plenary powers including the powers of AO, the phrase 'as think fit' can only give the very same connotation as it will have in the context of the CIT(A) excepting to enhance the assessment. The word 'thereon' as used in the phraseology of section 254(1) "Appellate Tribunal may pass such orders thereon as it thinks fit" as explained by Gauhati High Court inJeypore Timber & Veneer Mills P. Ltd. v. CIT 137 ITR 416 "implies serious constriction on the exercise of the power by the Tribunal which means it can decide only the points or grounds raised before it whereas the I.T. Authorities can travel beyond the grounds and consider the entire assessment."

5.2 The very fact that ITAT cannot enhance the assessment goes to show that Tribunal's powers in fact are not as wide as they are perceived to be. If the Supreme Court judgment inCIT v. Assam Travels Shipping Service - 2002-TIOL-702-SC-IT is taken note of phrase 'as it thinks fit' can be said to be wide enough just to inter alia remand the matter to the authority to make the requisite order. Tribunal's powers are not so wide as to go beyond the mandate available with the AO or for that matter with the CIT(A). As a matter of fact no appellate authority can be said to be enjoying more powers than what are conferred on the Assessing Officer around whom the entire Income Tax assessment procedure hovers. This is what even the Supreme Court in Jute Corporation of India case held:;

"In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter."

Thus the Appellate Authority cannot enable the AO to do something which he could not have done in law because of lapse of time or because of other legal restrictions. In other words, scope is limited to as to what the AO has done or ought to have done in the light of the facts as available with him as on the date of passing the assessment order. While doing interpretation of any judgment this fundamental and settled principle cannot be overlooked.

6. NTPC case allows raking up of legal ground only in a limited way:

6.1 Before pressing into service the NTPC judgment as a short cut to fully examine facts and circumstances of the case so as to raise and admit any additional legal ground before the Tribunal etc. we should not lose sight of the Supreme Court's own view as echoed in its various judgments. In Union of India v. Major Bahadur Singh (2006) 1 SCC 368 {para 9 & 11}Supreme Court held that the observations made in a judgment must be read in the context in which they appear to have been stated. Their lordships of the Supreme Court further held that circumstantial flexibility, one additional or different fact, may make a world of difference between conclusions in two cases. Disposal of case by blindly placing reliance on a decision was held to be not proper.

6.2 With this preface, it is felt that before embarking upon to rely on NTPC case its factual matrices should not be lost sight of. For applying this judgment following needs to be cumulatively satisfied;

(a) All f acts relevant to the issue should have been found by the lower authorities.

(b) Additional ground proposed

(i) should be a question of law and

(ii) it should be emerging out of the facts found out by the AO/CIT(A).

(c) Additional ground should be the one which could not be raised earlier for bonafide reasons.

(d) Additional ground should have a bearing on the quantification of the taxable income.

6.3 In short, other grounds like the issue relating to assumption of jurisdiction or of limitation or of issuance of notices etc. which as such have no direct relationship or bearing on the quantification of the tax liability cannot be raked up before the ITAT even with the assistance of the NTPC case. Not raking up these issues at earlier stages would simply mean that there was conscious or implied waiver that is why there was participation by the assessee before the AO. In this context, reference can be made of the Supreme Court judgment in Hira Lal v. Kalinath AIR 1962 SC 199 where it was held that if objection to jurisdiction is waived the party is precluded from raking it up later. It is for this reason that in Sushil Kumar Jalan v. ITO ITA 34/Gau/2011-order dated 03-02-2012 Gauhati Bench of the Tribunal also held that participation in the proceedings amounts to acquiescence and thereby the assessee is estopped from contending the issue further.

6.4 Above analysis would show that NTPC judgment of the Supreme Court is basically based on the principle of equity which obviously demanded refund to patently wrongly extracted or paid tax on an income which was never amenable to tax. Stretching this judgment to cover even those cases where the issue is such which is not connected with the assessment of some item of income wrongly included in the taxable income will amount to doing violence with the ratio of that judgment.

7.1 Notwithstanding what has been mentioned above, one would notice that the Supreme Court judgments in NTPC case or Jute Corporation case are basically the result of the failure on the part of the litigants to make their lordships aware about all the relevant provisions of the Income Tax Act which becomes clear from the following observations made by the Court;

"In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter."

7.2 Their lordships were not made aware that in the Income Tax Act there are time limitations prescribed within which only an action can be taken by the assessee before the AO--e.g. revising the claims by filing revised return etc. Likewise, the AO cannot assess or re-assess some item of income after the lapse of prescribed time. These limitations are also based to a great extent on the golden principle of stability and consistency. Any interpretation to circumvent these limitations--may be by advancing a case in an appeal before the Tribunal--would tantamount to opening up the concluded issues and destabilize the issues settled by lapse of time especially where irreparable prejudice would get caused to Revenue's interest because by the time stale claims get adjudicated limitations for all possible actions under the Income Tax Act would have been over. Had their lordships been made aware of these limitation provisions their judgments would have been somewhat different and qualified whereby stale or time barred claims would not have been allowed to be raked up.

8. Summation:

In view of the above it can be concluded that there is no vested right with the appellant to rake up any factual or legal ground after a particular stage in a case is over or the time as mentioned in the law is over even taking shelter of impending appeal proceedings . Even with the aid of Supreme Court judgment in NTPC case it is only on satisfaction of certain conditions that an additional ground can be taken up for the first time before the Tribunal. Claims which have been allowed to become dormant cannot suddenly be allowed to be raked up so as to unsettle the otherwise settled position.