Commissioner of Income Tax vs Srimal Rikabchand and Co.

K. Jagannatha Shetty, Actg. C.J.

These references are u/s 256(2) of the income tax Act, 1961 (''the Act''). The Tribunal has referred the following question of law for the opinion of this Court:

Whether, on the facts and in the circumstances of the case, the Income- tax Appellate Tribunal was justified in refusing permission to the revenue to raise the ground of applicability of section 147(6)?

The assessee is a partnership firm. For the assessment year 1973-74 corresponding to the previous year ending 5-11-1972 the assessee filed return on 28-8-1973 and the assessment was completed on 7-12-1973. For the assessment year 1974-75 corresponding to the previous year ending 25-10-1973, the return was filed on 28-9-1974 and the assessment was completed on 15-3-1975. The ITO while completing the assessment of another firm by name Sukhani & Co., found that the partners of the assessee were either the same or very closely related to the partners of Sukhani & Co., and that one of the partners of the assessee, viz., Srimal Rikabchand, was the manager of Sukhani & Co. Since the transactions between these two firms were so interconnected, the ITO came to the conclusion that the income of Sukhani & Co. was that of the assessee only and that, therefore, it should be assessed in the hands of the assessee only. Accordingly, he issued a notice u/s 148 to the assessee and re-opened the assessments u/s 147(a) of the Act. The assessee appealed and pointed out that there being no omission to disclose any material facts, the reassessments were not valid u/s 147(a). The AAC accepted that contention and held that the reassessments were invalid u/s 147(a).

The revenue appealed to the Tribunal. In the memorandum of appeal, there was no contention raised that the reassessment could be sustained also u/s 147(b). But in the course of the arguments, the revenue wanted to raise that contention and permission was sought as required under rule 11 of the income tax Appellate Tribunal Rules, 1963. The Tribunal, for the reasons stated, refused to accede to the request of the revenue to raise that additional ground. The Tribunal found that the ITO himself had categorically stated before the AAC that the assessments were reopened only u/s 147(a) and it was only on that basis the arguments were proceeded throughout and the matter was decided by the AAC. The Tribunal, however, found that the reassessments could not be sustained u/s 147(a).

The short question for our consideration is, whether the Tribunal was justified in refusing permission to the revenue to raise the additional ground as to the applicability of section 147(b).

We are not concerned here with regared to the applicability of section 147(b). We are concerned only whether the discretion exercised by the Tribunal in refusing permission to the revenue to raise additional ground to sustain the reassessments u/s 147(b).

In Manji Dana Vs. Commissioner of Income Tax, Madhya Pradesh Bhandara and Nagpur, the Supreme Court has observed that the exercise of discretion by the Tribunal in rule 12 of the Appellate Tribunal Rules, 1946, which is analogous to rule 11 of the income tax Appellate Tribunal Rules, 1963 to allow or not to allow a question not set-forth in the memorandum of appeal to be raised would not generally be a question of law.

In the instant case the Tribunal, in our opinion, has given cogent reasons why it should refuse permission to raise additional ground not set-forth in the memorandum of appeal. It will be seen from the records, that a specific question was put by the AAC to the ITO while disposing of the appeal, and the ITO firmly stated that he reopened the assessment only u/s 147(a). The arguments of the revenue were also proceeded on that basis. The Tribunal was, therefore, justified in refusing permission to the revenue to raise the additional ground not set-forth in the memorandum of appeal. We do not think that the discretion exercised by the Tribunal in refusing permission to the revenue is arbitrary or unjustified. In the circumstances, we answer the question in the affirmative and against the revenue.