Income Tax Appellate Tribunal - Mumbai
Shital Trading And Investment Co. (P.) ... vs Income-Tax Officer on 28 December, 1992
Equivalent citations: [1993]45ITD399(MUM)
ORDER
O. Anandaram, Accountant Member
1. In this appeal M/s Shital Trading & Investment Company Pvt. Ltd., Bombay disputes the order of the Commissioner of Income-tax, Bombay City-III, dated 28-3-1988 passed under Section 263 of the Income-tax Act.
2. The assessee filed the return of income on 7-9-1983 declaring net income of Rs. 89,490. The assessment order passed under Section 143(3) on 31-1-1985 determined the total income at Rs. 2,16,607. The Income-tax Officer also granted deductions under Section 80M and Section 80K totalling Rs. 1,25,116 and the taxable income was determined at Rs. 91,491. On 30-8-1985 the ITO passed an order under Section 154. In the said order it was stated that deduction under Section 80M was allowed on gross basis without making any deduction for the expenses incurred for earning the dividend. The assessment order was modified by deducting the expenses and computing the deduction under Sections 80M and 80K at Rs. 70,044. Subsequently on 10-12-1985 another order under Section 154 was passed by the ITO. In this order the ITO added back Rs. 8,022 being the difference in totalling and allowed a deduction of Rs. 70,044 under Section 80M and Section 80K as per the order dated 30-8-1985. The Commissioner of Income-tax scrutinised the assessment records of the assessee and according to him while computing the total income the ITO wrongly allowed set off of carried forward business loss relating to earlier years against the current year's income (Assessment year 1982-83) from other sources without considering the provisions of Section 72(1) of the Income-tax Act. He issued a notice on 7-1-1988 to the assessee. The assessee's representative appeared before the Commissioner and filed a written reply stating that the company is mainly a Trading & Investment Company and investment is its main business and therefore the income earned out of investment is deemed to be business income and as dividend is part of business income the company is entitled to deduction and carry forward losses and therefore there is no error in the assessment order. However the CIT after considering this submission noted that business loss of Rs. 49,959 determined in the assessment for assessment year 1981-82 was allowed to be carried forward and allowing such claim in the assessment for 1982-83 is in violation of Section 72(1) of the Income-tax Act. According to the CIT the claim of the assessee company for set off of business loss against dividend income is in violation of Section 72(1) of IT Act as in the computation of current business income under Section 28 for the assessment year 1982-83 there is a loss of Rs. 85,489 and it has been set off against the capital gain of Rs. 1,51,637 included in the gross total income. Over and above that, the ITO also set off carried forward loss of Rs. 49,959 against the dividend income charged to tax under other sources. According to the CIT the ITO should have considered the claim of the assessee in the light of the provisions of Section 72 and he had not conducted necessary enquiry by calling for the details before passing the assessment order. CIT therefore held that the assessment order passed without conducting necessary enquiries was erroneous and prejudicial to the interest of Revenue on the basis of several decisions of the High Courts. Finally the CIT passed the order under Section 263 on 28-3-1988 setting out all these facts and stating that the ITO did not apply his mind to this issue, that the assessment order is erroneous and prejudicial to the interest of the Revenue and setting aside the assessment with a direction to the ITO to reframe the order according to law after affording reasonable opportunity to the assessee of being heard.
3. Aggrieved by the order under Section 263 assessee has filed an appeal before the Appellate Tribunal. In the appeal there are two grounds in which it is stated that the CIT erred in setting aside the assessment on the specific issue of set off of carry forward loss and the appellant craves leave to add, amend or alter the grounds of appeal. Subsequently on 29-1-1992 an additional ground was filed by the assessee. In the additional ground it is stated that the order under Section 263 is bad in law as the proceedings have been initiated beyond the time specified under Section 263(2) and the same be cancelled. It was stated that as the relevant assessment order was passed on 31-01-1985, the last date for passing any order under Section 263 was 31-3-1987 and the order passed on 28-3-1988 is time-barred.
4. At the time of hearing the appeal before us the arguments were first addressed on the admissibility of the additional ground. The learned authorised Representative stated that the additional ground raised is in the course of the appeal and as it relates to a point of law it should be admitted as a matter of course. The Departmental Representative resisted the additional ground stating that it was not raised before the CIT and the Appellate Tribunal should not permit the additional ground to be taken for the first time before the Income-tax Appellate Tribunal. On this issue in Ahmedabad Electricity Co. Ltd. v. CIT, Bombay High Court held that under Section 254(1) the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, "pass such orders thereon as it thinks fit" and this provision gives very wide powers to the Appellate Tribunal and there is nothing in Section 254 which would restrict the powers of the Appellate Tribunal, while considering an appeal before it and in deciding the appeal the Tribunal is not restricted to the grounds which are taken or which have been allowed to be taken in the Memorandum of appeal. The High Court also held that under Rules 11 & 29 of the Appellate Tribunal Rules the scope of enquiry before the Tribunal could be wider than the points which are raised before the Tribunal. Therefore the Tribunal would ordinarily have the power to allow additional points to be raised before it so long as they arise from the subject matter of the proceedings and not necessarily only the subject matter raised in the Memorandum of appeal. The word "thereon" in Section 254 does not in any manner restrict the jurisdiction of the Appellate Tribunal and merely refers to the appeal. The words which prescribe the extent of jurisdiction of the Tribunal under Section 254 are the words "may pass such order...as it thinks fit". The High Court also held that looked at from a slightly different point of view, if the word 'thereon' can be said to refer to the subject matter of the appeal, then the subject matter of the appeal is the entire tax proceedings of the assessee which is before the Tribunal for consideration and this will cover the proceedings before the ITO, before the AAC as well as before the Tribunal - including the grounds raised before the Tribunal, any additional grounds which may be allowed to be raised as also cross objections, if any, before the Tribunal. Thus the Tribunal has jurisdiction to permit additional grounds to be raised so long as these grounds are in respect of the subject matter of the proceedings. As the additional ground before us relates to the validity of the proceedings under Section 263 and pertains to the subject matter of the appeal we grant permission and allow the additional ground to be raised.
5. As already noted in this case the assessment order passed on 25-1-1985 was modified by the orders passed under Section 154 on 30-8-1985 and 10-12-1085. The contention of the assessee is that the time limit of 2 years for passing the order under Section 263 is to be calculated with reference to end of the financial year during which the assessment order was passed i.e., with effect from 31-3-1985. The rival contention of the Department is that the time limit has to be calculated with reference to the final order effecting the assessment and therefore it has to be calculated with reference to the last date of the final order when the order under Section 154 was passed.
6. In matter of limitations the view that appears to be consistently taken is that the date of limitation has to be calculated with reference to the final order. In the case of Kishanlal Haricharan v. ITO [1972] 86 ITR 141 (SC), the facts were as under :
The firm was first assessed under Section 144. On 31-8-1955, CIT set aside the assessment of the firm and directed the ITO to call for the books and arrive at an estimate of the Income. In pursuance of this order on 29-1-1963 the ITO passed an assessment order. Thereafter, on 16-3-1965 the ITO passed an order of rectification under Section 35(5) of the Income-tax Act by including in the assessee's hands certain income as its share of the firm's income. On appeal to the Supreme Court it was held that the final order was the order of the ITO dated 29-1-1963 in which he substituted his estimate and though it was the same estimate as was originally done, it was nonetheless a fresh order and on the basis of the final order the 4 year period of limitation prescribed under Section 35(5) was to be computed and the order of rectification passed on 16-3-1965 was within time. In International Computers Indian Manufacture Ltd. v. ITO [1983] 5 ITD 60 (Bom.), it was held that when the ITO gave effect to the order of the CIT the original assessment order gets merged in the appeal order but the order giving effect to the appellate order remains an independent order, unaffected by any merger and the Commissioner can exercise jurisdiction under Section 263 qua such order. In the case of Modern Roofings Ltd. v. ITO [1986] 17 ITD 489 (Hyd.) the Appellate Tribunal held that the ITO while giving effect to the order of the CIT (Appeals), must have been held to be still acting under Section 143 in the process of assessing the total income of the assessee and when the order was passed by the ITO, the Commissioner had power to revise the final assessment order and the period of limitation has to be calculated with reference to such order. The ratio of these decisions indicate that the process of assessment does not stop with the first assessment order but continues till the assessment has become final. The assessment may be modified by appellate orders and when another order is passed giving effect to the Appellate Order it is the latter order which has to be taken into consideration for the purpose of computing the period of limitation under Section 263. Applying the same principle when an order under Section 154 is passed modifying the assessment order it is as though the assessment has been done on the date of passing the order under Section 154. That is because the assessed income is rectified by the order passed under Section 154 and that is the order which is effective. The effective assessment and the date of the last order have to be considered as the starting point for the purpose of calculating the period of limitation. It would be shutting eyes to the later development in the assessment to ignore the later orders and consider only the date of the first assessment for the purpose of calculating the period of limitation under Section 263. We therefore hold that the disputed order under Section 263 which was passed within a period of 2 years from the end of the financial year in which the order under Section 154 was passed was validly passed within the period of limitation provided under the Act.
7. In so far as the main ground of appeal is concerned the appellant's contention is that the CIT erred in setting aside the assessment order on the specific issue of set off of carried forward loss. At the time of hearing the appeal the learned Counsel for the assessee stated that the CIT has not said in the disputed order in what manner the assessment order is wrong. It is also stated that the Income-tax Officer has conducted the necessary enquiry and rectified the assessment. Relying upon the CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141 (MP), CIT v. Kashi Nath & Co. [1988] 170 ITR 28 (All), the learned Counsel for the assessee stated that the CIT must give reasons for his conclusion that the assessment order is prejudicial to the interest of the Revenue. If the Commissioner failed to specify as to how the order passed by the ITO can be held to be prejudicial to the interest of the Revenue the order under Section 263 cannot be upheld. The learned Departmental Representative took us through the disputed order and stated that as the Income-tax Officer did not conduct necessary enquiries by calling for the details and carried forward as business loss the loss which has been determined under other sources and it was prejudicial to the interest of the Revenue. A perusal of the assessment order and the orders of rectification under Section 154 show that the ITO has called for the necessary details and after obtaining the necessary details and discussing the case with the assessee passed the assessment order and the orders under Section 154. The order under Section 263 stating that the assessment order was passed without conducting the necessary enquiries does not specify as to what details have been omitted to be called for by the Assessing Officer. The assessee has claimed certain loss in the assessment year 1981-82 and it was determined and was to be carried forward. It was the same loss which was set off in the assessment year 1982-83. When certain loss was determined in the earlier assessment year and was allowed to be carried forward unless that order was modified, the ITO is duty bound to give effect to the earlier assessment order. Whatsoever other mistakes were there in the assessment order they were already rectified. If there is any double deduction of business loss it has not been brought out clearly in the order under Section 263. Unless the order establishes as to how the assessment order was prejudicial to the interest of the Revenue it cannot be sustained. That has not been done in a clear and unambiguous manner in the impugned order. We, therefore, hold that the order under Section 263 failed to establish as to how the assessment was prejudicial to the interest of the Revenue and therefore the order under Section 263 is wrong in setting aside the assessment. The assessee succeeds on this issue.
8. In the result, the appeal is partly allowed.