Himachal Gramin Bank vs Deputy Commissioner of Income Tax and Another

Sanjay Karol, J.—Himachal Gramin Bank, a banking institution, with respect to the assessment year 1990-91 filed a return showing loss of Rs. 1,51,03,247. Vide order dated November 19, 1990, the assessee was informed u/s 143(1A) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), that the following deductions claimed in the return were disallowed and thus the total loss of the assessee was reduced to Rs. 1,36,42,304:

Travelling expenses 60 Provision for gratuity 9,61,482 Provision for bonus 4,62,000 Previous year expenses 6,053 Entertainment u/s 37(2A) 30,748 ------------- 14,60,343 -------------

The deductions were disallowed for non-compliance with the statutory conditions stipulated u/s 43B of "the Act".

On April 4, 1991, the assessee filed an application u/s 154 of "the Act" seeking rectification, which was disallowed by the Assistant Commissioner of Income Tax in terms of its order dated September 6, 1991. The application was rejected with the following observations:

I have considered the submissions of the assessee and has also discussed the case with counsel for the assessee. But I do not agree with the views of the assessee''s counsel inasmuch as no evidence whatsoever was filed along with the return of income filed by the assessee regarding the payment of bonus to the employees. It was, however, filed along with the application u/s 154, which cannot now be considered as the adjustments were made on the basis of information available on the file. Moreover, the Central Board of Direct Taxes, vide their Circular No. 581, dated September 28, 1990, has clearly mentioned that the scope of the powers to make prima facie adjustments u/s 143(1)(a) is somewhat coterminus with the powers to rectify a mistake apparent from the record u/s 154 and thus the sums disallowed as prima facie adjustments cannot be rectified, being a mistake apparent from record.

(emphasis supplied)

Aggrieved by the same, the assessee filed an appeal No. IT/127/1991-92, before the Commissioner of Income Tax (Appeals), Shimla, which was allowed in terms of the order dated February 24, 1992, with the following observation:

I have considered the submissions of the learned Counsel for the appellant and find merit in them. As regards the Assessing Officer''s action in rejecting the application u/s 154 the appellant has not; laid much stress thereon. As regards the Board''s Circular No. 319, dated January 11, 1982 [1982] 134 ITR 165, I feel that the appellant is liable for deduction u/s 80P(2)(a)(1). The Board has held as under in the said circular:

For the purpose of the Income Tax Act, 1961, or any other enactment for the time being in force relating to only tax on income, profits or gains, a regional rural bank, shall be deemed to be a co-operative society.

Therefore, the provisions of Section 80P of the Income Tax Act, 1961, will also be applicable in respect of regional rural banks.

In view of the said circular the appellant is liable for deduction u/s 80P. Therefore, the Assessing Officer is directed to allow such deduction to the appellant as per law. The appellant will get relief accordingly. In the result, the appeal is allowed.

(emphasis supplied)

The Revenue filed an appeal No. I.T.A. No. 1065/Chandi/1992 before the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench and the same was decided on September 22, 1999, in terms of its following order:

We have heard both the parties and perused the record. We hold that the Commissioner of Income Tax (Appeals) was not justified in directing the Assessing Officer to allow deduction u/s 80P as per law. In the present case, the proceedings were u/s 154 pursuant to the adjustments made u/s 143(1)(a) and at no stage of the proceedings was the question of deduction of Section 80P raised except for the first time before the Commissioner of Income Tax (Appeals) in the arguments only. The scope of an appeal against order u/s 154 is a restricted one and not on the same level as that of an appeal against order u/s 143(3). The reliance on the Supreme Court decision is accordingly misconceived. Accordingly, we hold that the Commissioner of Income Tax (Appeals) exceeded his jurisdiction by entertaining a new claim not raised earlier probably even in the return of income or thereafter.

(emphasis supplied)

The appeal filed by the Revenue was allowed and the order passed by the Commissioner of Income Tax (Appeals) was set aside.

Aggrieved by the same, the assessee''s present appeal was admitted on the following substantial questions of law:

Whether or not the action of the respondent is justified to impose the additional tax on the amount of adjustment made u/s 143(1)(a) by disallowing the certain expenses both statutory and not statutory in view of the Circular No. 669, dated October 25, 1993 [1993] 204 ITR 105 , and the judgment of the hon''ble Supreme Court in the case of Allied Motors (P.) Ltd. Vs. Commissioner of Income Tax, Delhi, as the assessee/appellant moved an application u/s 154 claiming the payment of expenses within stipulated time and also that the expenses disallowed were non-statutory expenses ?

In view of Circular No. 319, dated January 11, 1982 [1982] 134 ITR 165, wherein the entire income of the assessee is exempt from the payment of tax, whether the charging of additional tax charged u/s 143(1A) is justified or not.

Whether or not the appellate authority was justified in entertaining additional grounds at the time of hearing of appeal in view of the provisions of Section 250(5) of the Income Tax Act, 1961, and once entertained can the same be rejected in further appeal ?

Whether the hon''ble Tribunal was justified in accepting the appeal of the respondents on the grounds specified in appeal or not?

Whether or not the additional tax u/s 143(1A) is chargeable in case where the total income remained loss even after the adjustments in view of the Explanatory Notes attached to the amendment carried in the year 1989 ?

Whether the scope of appeal against an order u/s 154 is different from that of an appeal against order u/s 143(3) or not ? And thus the Commissioner of Income Tax (Appeals) was justified in allowing the appeal of the assessee petitioner.

We have heard Mr. M. M. Khanna, senior advocate and Mr. Vinay Kuthiala, advocate, learned Counsel for the parties.

During the course of hearing, Mr. Khanna has focused his submissions purely on the substantial question of law No. 3. He has persuaded us to agree that if the same is decided in his favour, then the matter can be remanded back to the Assessing Officer for consideration of the other issues, questions and respective contentions raised by the parties before us. We accordingly proceed to decide.

Admittedly, the plea that the assessee was liable for benefits u/s 80P of the Act was raised for the first time in an appeal before the Commissioner of Income Tax (Appeals).

It is not in dispute that the assessee would be entitled to the statutory benefits u/s 80P, subject, however, to the fulfilment of conditions stipulated therein. Whether the assessee has fulfilled the conditions stipulated thereunder or not, has not been considered either by the Commissioner of Income Tax (Appeals) or by the Income Tax Appellate Tribunal in their orders dated February 24, 1992, and September 22, 1999. None of the authorities below have gone into this aspect of the matter. The Income Tax Appellate Tribunal non-suited the assessee solely on the ground that the Commissioner of Income Tax (Appeals) had exceeded its jurisdiction by entertaining a new claim not raised before the Assessing Officer.

In Jute of Corporation of India Ltd. Vs. Commissioner of Income Tax and another, the apex court has held as under (headnote of SCC):

The Appellate Assistant Commissioner is invested with wide powers u/s 251(1)(a) of the Act while hearing an appeal against the order of assessment made by the Income Tax Officer. The amplitude of the power includes power to set aside the assessment order or modify the same. The Act does not contain any express provision debarring an assessee from raising an additional ground in appeal and there is no provision in the Act placing restriction on the power of the appellate authority in entertaining an additional ground in appeal. Even otherwise an appellate authority while hearing appeal against the order of a subordinate 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. Thus, the power of the Appellate Assistant Commissioner is coterminus with that of the Income Tax Officer. There is, therefore, no justification in curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground suo motu or raised by the assessee in seeking modification of the order of the assessment passed by the Income Tax Officer if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made, or that the ground became available on account of change of circumstances or law.

(emphasis supplied)

The apex court has reiterated the aforesaid view in National Thermal Power Co. Ltd. Vs. Commissioner of Income Tax, and Commissioner of Income Tax, M.P., Bhopal Vs. M/s. Nirbheram Deluram,

Mr. Kuthiala has submitted that the order passed by the Assistant Commissioner of Income Tax dated September 6, 1991, was not in original assessment proceedings but on an application filed u/s 154 of the Act. According to him, the scope to exercise jurisdiction u/s 154 is restrictive in nature and in this regard he has drawn our attention to a decision rendered by the apex court in Commissioner of Income Tax (CNTL), Ludhiana Vs. Hero Cycles Pvt. Ltd., Ludhiana, .

Commissioner of Income Tax (CNTL), Ludhiana Vs. Hero Cycles Pvt. Ltd., Ludhiana, in fact lays down that rectification u/s 154 can be made where a glaring mistake of fact or law committed by the Assessing Officer, becomes apparent from the record. It is not in dispute that if the assessee was to fulfil the statutory conditions, he would be entitled to the benefit of the provisions of Section 80P and also the Circular No. 319 issued by the Board on January 11, 1982 [1982] 134 ITR 165.

In our considered view, the Assessing Officer was duty bound to have considered the same which admittedly has not been done at all. Section 154 itself empowers the Assessing Officer to amend any order passed by it under the provisions of the Act.

In our view, keeping in view the provisions of the Act and also the ratio of law laid down by the apex court, it cannot be said that the Commissioner of Income Tax (Appeals) had exceeded its jurisdiction by entertaining a new ground raised before it. Further, the provisions of Section 255 of the Act clearly empowers the Commissioner to entertain any ground of appeal not specified in the grounds of appeal. The question of law is answered accordingly.

Perusal of the order passed by the authorities below would, however, show that none of the authorities have gone into the question as to whether the assessee is to be given benefit of various circulars including Circular No. 689, dated August 24, 1994 [1994] 209 ITR 75, Circular No. 319, dated January 11, 1982 [1982] 134 ITR 165, Circular No. 669 dated October 25, 1993 [1993] 204 ITR 105, issued by the Department and the relevant provisions of the statute entitling the appellant to the benefit of the statutory provisions and more particularly sections 43B and 80P of the Act.

We are, therefore, of the considered view that the matter needs to-be considered afresh by the Assessing Officer. It shall be open to the parties to place all material before the Assessing Officer, who shall decide the matter after affording adequate opportunities to the parties as expeditiously as possible and not later than four months from the date of receipt of the order.

It shall be open for the parties to raise all such pleas and contentions, including the one raised before us before the Assessing Officer. Other substantial questions of law have not been answered. It shall also be open to the parties to agitate the same either before the Assessing Officer or in any other appropriate proceedings which may subsequently arise.

In view of the above observations, the appeal is accordingly disposed of.