IT: While giving effect to order of Commissioner (Appeals), Assessing Officer can compute income lower than that returned
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[2013] 37 taxmann.com 249 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax
v.
Milton Laminates Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 1022 OF 2010†
JANUARY 24, 2012
Section 251, read with section 154, of the Income-tax Act, 1961 - Commissioner (Appeals) - Powers [Orders of Commissioner (Appeals), giving effect to] - Assessment year 2001-02 - Whether Assessing Officer is free to give effect to order of Commissioner (Appeals) without restricting income to returned income; Assessing Officer can compute income lower than that returned - Held, yes [Para 7][In favour of assessee]
FACTS
| ■ | The assessee declared income of Rs. 22.08 lakhs but on scrutiny, the Assessing Officer assessed income at Rs. 1.02 crores. | |
| ■ | On appeal, the Commissioner (Appeals) reversed order and granted several deductions. | |
| ■ | In giving effect to the appellate order, the Assessing Officer calculated the assessee's income at Rs. 49.84 lakhs. | |
| ■ | The assessee filed rectification application under section 154 on ground that several deductions were not taken into consideration by the Assessing Officer while computation. | |
| ■ | The Assessing Officer found that after granting all deduction provided by the Commissioner (Appeals), the income of the assessee would be nil. Since the returned income was Rs. 22.08 lakhs, the assessee's income could not be less than this returned income of the assessee as declared by the assessee. | |
| ■ | On appeal, the Commissioner (Appeals) affirmed the order of the Assessing Officer. | |
| ■ | On appeal, the Tribunal directed the Assessing Officer to allow complete effect to the order of the Commissioner (Appeals) without restricting the income to the returned income. | |
| ■ | On appeal by the revenue: |
HELD
| ■ | The Tribunal had observed that in Gujarat Gas Co. Ltd. v. Jt. CIT [2000] 245 ITR 84/111 Taxman 144, the Gujarat High Court held that the Assessing Officer exercises quasi-judicial functions and a duty is cast upon him to act in a judicial and independent manner and the other authorities cannot control or affect this judgment in the matter of assessment. Accordingly, the High Court concluded that the order of the Assessing Officer, to the extent it stated that the total income should be the returned income was to be set aside. The High Court further directed the Assessing Officer to ignore even the Circular of the Central Board of Direct Taxes, which directed the Assessing Officers not to let the assessed income fall below the returned income. [Para 2.2] | |
| ■ | Additionally, the Tribunal was of the opinion that this was not a case of rectification under section 154, since the issue cannot be one, presently any patent or obvious mistake of law or acts which can be rectified. The Tribunal, therefore, recorded that the Assessing Officer is not justified in having recourse to section 154 in restricting the income determined in consequence of the order of the Commissioner (Appeals). [Para 2.3] | |
| ■ | There was error on the part of the Tribunal in examining the scope of the proceedings under section 154 because such question did not arise at all. In the present case, in fact it was the assessee who filed the rectification application which was entertained by the Assessing Officer. [Para 4] | |
| ■ | Had this been the only basis of the Tribunal's order, the matter was to be considered further. However, in the present case, the central issue is whether the assessee having filed a return of income and disclosed certain income in such return, while giving effect to the Commissioner (Appeals) order in favour of the assessee, computation of assessed income can go below the returned income or not. In this regard, the decision of the High Court in the case of Gujarat Gas Co. Ltd. (supra) is amply clear. A Division Bench of this Court was of the opinion that the CBDT Circular which provided that the assessed income of an assessee should not be below the returned income, was invalid. [Para 5] | |
| ■ | In the cases of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 and Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688/[1990] 53 Taxman 85, the Apex Court while dealing with the powers of the Appellate Assistant Commissioner, observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. 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. [Para 6] | |
| ■ | In view of the above, there is no reason to interfere with the Tribunal's ultimate conclusion in allowing the assessee's appeal. [Para 7] |
CASE REVIEW
CIT v. Shelly Products [2003] 261 ITR 367/129 Taxman 271 (SC) (para 7) distinguished.
CASES REFERRED TO
CIT v. Shelly Products [2003] 261 ITR 367/129 Taxman 271 (SC) (para 2.2), Gujarat Gas Co. Ltd. v. Jt. CIT [2000] 245 ITR 84/111 Taxman 144 (Guj.) (para 2.2) and National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) (para 6).
Manish Bhatt and Mrs. Mauna M. Bhatt for the Appellant.
JUDGMENT
Akil Kureshi, J. - The Revenue is in appeal against the judgment of the Tribunal dated November 7, 2008, raising the following question for our consideration :
"Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow complete effect to the order of the Commissioner of Income-tax (Appeals) without restricting the income to the returned income ?"
2. The question arises in the following factual background :
2.1 The assessee filed his return of income for the assessment year 2001-02 and declared the income of Rs. 22.08 lakhs. The return was taken in scrutiny. The Assessing Officer assessed the income of the assessee at Rs. 1.02 crores. The assessee carried the matter in appeal. The Commissioner of Income-tax (Appeals) substantially allowed the appeal of the assessee by his order dated February 5, 2005, and granted several deductions which were disallowed by the Assessing Officer.
2.2 While giving effect to the appellate order, the Assessing Officer passed consequential order dated February 10, 2006, and computed the assessee's taxable income at Rs. 49.84 lakhs. The assessee filed application under section 154 of the Income-tax Act, 1961, contending that several deductions though granted by the Commissioner of Income-tax (Appeals), were not taken into account by the Assessing Officer while giving effect to such order of the appellate authority. The Assessing Officer disposed of such application by his order dated September 12, 2006. He agreed that there was an error in the previous computation of income pursuant to the Commissioner of Income-tax (Appeals) order. He also carried out certain fresh computation and came to the conclusion that by granting all the deductions provided by the Commissioner of Income-tax (Appeals), the income of the assessee for the year under consideration would be nil. However, since he was of the opinion that by virtue of the decision of the apex court in the case of CIT v. Shelly Products [2003] 261 ITR 367/129 Taxman 271 and the Central Board of Direct Taxes Circular No. 549, dated October 31, 1989, the assessee's assessed income cannot be less than the returned income. He, therefore, revised the total income of the assessee at Rs. 22.08 lakhs. The assessee carried the matter in appeal. The Commissioner of Income-tax (Appeals) dismissed the appeal upon which the assessee approached the Tribunal. The Tribunal by the impugned judgment allowed the assessee's appeal relying on the decision of a Division Bench of this court in the case of Gujarat Gas Co. Ltd. v. Jt. CIT [2000] 245 ITR 84/111 Taxman 144. The Tribunal in this regard observed as under :
"6. In Gujarat Gas Co. Ltd. v. Joint CIT (Asstt.) [2000] 245 ITR 84 (Guj), the effect of the aforesaid Circular No. 549 of the Central Board of Direct Taxes, relied upon by the Assessing Officer was considered. The said circular directed that in scrutiny assessments, the income should not be assessed at a figure lower than the returned income nor the loss to be assessed at a figure higher than the loss, nor further refund to be given except what was due on the basis of the returned income. The hon'ble Gujarat High Court held that the Assessing Officer exercises quasi-judicial functions and a duty is cast upon him to act in a judicial and independent manner and the other authorities cannot control or affect his judgment in the matter of assessment. Accordingly, the hon'ble High Court concluded that the order of the Assessing Officer, to the extent it stated that the total income should be the returned income was to be set aside, with a direction to the Assessing Officer to make assessment without keeping in mind the Central Board of Direct Taxes's Circular dated March 31, 1989. Thus, the hon'ble court directed the Assessing Officer to ignore even the Circular of the Central Board of Direct Taxes, which directed the Assessing Officers not to let the assessed income fall below the returned income."
2.3 Additionally, the Tribunal was of the opinion that this was not a case of rectification under section 154 of the Act since the issue cannot be one, presently any patent or obvious mistake of law or acts which can be rectified. The Tribunal, therefore, recorded that the Assessing Officer is not justified in having recourse to section 154 of the Act in restricting the income determined in consequence of the order of the Commissioner of Income-tax (Appeals).
3. Counsel for the Revenue vehemently contended that the Tribunal erred in holding that the order passed in exercise of the powers under section 154 of the Act was bad. He pointed out that it was the application of the assessee which was entertained by the Assessing Officer. The Tribunal, therefore, misdirected itself while allowing the assessee's appeal. He further submitted that the Tribunal did not even examine the applicability or otherwise of the decision of the apex court in the case of Shelly Products (supra).
4. Having thus heard counsel for the Revenue and having perused the orders on record, it appears that there was some error on the part of the Tribunal in examining the scope of the proceedings under section 154 of the Act when such question did not arise at all. In the present case, in fact it was the assessee who filed the rectification application which was entertained by the Assessing Officer.
5. Had this been the only basis of the Tribunal's order, we would have considered the matter further. However, in the present case, the central issue is whether the assessee having filed a return of income and disclosed certain income in such return, while giving effect to the Commissioner of Income-tax (Appeals) order in favour of the assessee, computation of assessed income can go below the returned income or not. In this regard, the decision of our court in the case of Gujarat Gas Co. Ltd. (supra) is amply clear. A Division Bench of this court was of the opinion that the Central Board of Direct Taxes's Circular which provided that the assessed income of an assessee should not be below the returned income, was invalid.
6. In the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 also, the apex court considering the powers of the Appellate Commissioner as well as the Tribunal to permit additional grounds observed as under (page 386) :
"In the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688, this court, while dealing with the powers of the Appellate Assistant Commissioner, observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. 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. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of the assessment passed by the Income-tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and the same could not have been raised earlier for goods reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also."
7. In view of the above, we do not find any reason to interfere with the Tribunal's ultimate conclusion in allowing the assessee's appeal. Though some of the observations may not appeal to us, nevertheless, for the reasons somewhat different from those recorded by the Tribunal we come to the same conclusion. The decision of the apex court in case of Shelly Products (supra), was rendered in very different background. It was a case where the assessee had filed the return. The assessee had paid self-assessment tax on the income disclosed in the return. The Tribunal on appeal by the assessee held that the order of assessment passed by the Assessing Officer was ab initio void since he had no jurisdiction to deal with such proceedings. The Revenue sought reference before the High Court. When such reference was pending, the assessee applied to the Department for refund of the tax paid. It was in this background the apex court expressed the opinion that liability to pay income-tax does not depend on assessment being made and failure or inability to frame fresh assessment after earlier assessment is set aside or nullified in appropriate proceedings, does not entitle the assessee to claim refund of the advance tax and tax paid on self-assessment because to that extent the assessee has admitted his liability to pay tax in accordance with law. The facts of the present case are, therefore, different. In the case on hand, the assessment was not rendered null. In fact such assessment, which according to the order of the Commissioner of Income-tax (Appeals) had become final tax liability of the assessee, came lower than that declared by him in the return filed.
8. In view of the above observations, we do not find any reason to interfere with the order of the Tribunal, of course subject to the observations made above. The tax appeal is dismissed.
SBRegards
Prarthana Jalan
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