Rajasthan High Court - Jaipur
Commissioner Of Income-Tax vs Mahindra And Company on 20 January, 1995
JUDGMENT V.K. Singhal, J.
1. The Income-tax Appellate Tribunal has referred the following questions of law arising out of its order dated September 10, 1981, in respect of the assessment year 1972-73 under Section 256(1) of the Income-tax Act :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the finding of the Commissioner of Income-tax (Appeals) that the provisions of Section 52(2) of the Income-tax Act, 1961, could not be invoked in this case and in deleting the addition made on this account ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals), deleting the addition of Rs. 4,29,593 made by the Income-tax Officer on account of profit on the amalgamation of the companies, Eastern Trading Syndicate, Jaipur, and Shree Vijay Laxmi Trading Ltd., Pali, Marwar, with the assessee company ?"
3. The brief facts of the case are that the assessment of the assessee in respect of the period ending on December 31, 1971, was completed by the Income-tax Officer under Section 143(3) of the Act and deduction under section 47(vi) was claimed for a sum of Rs. 4,25,415 which was the profit arising out of the amalgamation of Eastern Trading" Syndicate Pvt. Ltd., with Shree Vijay Laxmi Trading Company Ltd. (sic). The Income-tax Officer was of the view that this surplus which has been claimed under Section 47(vi) of the Act is allowable and the claim appears to be proper. Besides allowing this item as not liable to tax, tax was levied in respect of different sources of income including tax on capital gains and income from rent, etc.
4. The assessee has challenged the liability for the capital gains and the rental income which was determined by the Income-tax Officer before the Appellate Assistant Commissioner, The Appellate Assistant Commissioner set aside the assessment order for the purpose of recomputing the capital gains after affording proper opportunity to the assessee and for the purpose of recomputing the rental income of the property known as 4, Fairlie Place, Calcutta. In respect of other grounds of appeal, relief of Rs. 445 was given to the assessee. In pursuance of the direction given by the Appellate Assistant Commissioner, the Income-tax Officer framed the assessment order and referred the same to the Inspecting Assistant Commissioner under Section 144A of the Income-tax Act. The assessee was given opportunity and after hearing the assessee, a direction was given by the Inspecting Assistant Commissioner that the profit arising out of amalgamation is liable to tax. The present controversy is only with regard to this addition which was made by the Income tax Officer on the directions being given by the Inspecting Assistant Commissioner as to whether the Inspecting Assistant Commissioner could have given such a direction under Section 144A in respect of a source of income which was considered by him as exempt and not liable to tax in the original assessment order and for which no appeal was filed by the assessee and the directions by the appellate authority were only in respect of the capital gains and income from rent.
5. Mr. Bafna has relied on the decision of this court in the case of Rambilas Chandram v. CIT [19851 156 ITR 344 wherein it was observed that where a case is sent back to the Income-tax Officer without any restrictions, then the Income-tax Officer can make additions of such source of the income of the assessee in the first assessment, he can make such addition in the fresh order of assessment.
6. Learned counsel for the assessee had relied on the decision in Surrendra Overseas Ltd. v. CIT [1979] 120 ITR 872, wherein the Calcutta High Court has observed that the Income-tax Officer has no jurisdiction to consider a question which was not connected or covered or related to any grounds of appeal. If the Appellate Assistant Commissioner has set aside the assessment with direction to the Income-tax Officer, the Income-tax Officer has no jurisdiction to conduct an enquiry beyond the said directions and make a fresh assessment without reference to the earlier assessment. Reliance has also been placed on the decision of the Calcutta High Court in ITO v. Ryam Sugar Co. Ltd. [1976] 105 ITR 819, wherein the mistake committed in the original assessment order was tried to be rectified while giving effect to the appeal order and the Calcutta High Court was of the view that such correction could not be made. Reliance has also been placed in the case of CIT v. Fundilal Rikhabchand [1994] 208 ITR 348 (Raj), wherein, it was held that where the Appellate Assistant Commissioner has only set aside the assessment, then a fresh assessment has to be made in accordance with the directions given by the appellate authority and the Income-tax Officer is bound by those directions.
7. The decision of the Allahabad High Court in the case of Cawnpore Chemical Works Pvt. Ltd. (No. 1) v. CIT [1992] 197 ITR 296, has also been relied on to show that where the order of the Appellate Assistant Commissioner is specific, it is not open to the Income-tax Officer to conduct a fresh enquiry beyond the said directions and to proceed to make a fresh assessment without any reference to the earlier assessment.
8. The decision in the case of CIT v. Kamla Town Trust [1992] 198 ITR 191 (All), has been relied on for the proposition that even if an erroneous decision is given it operates as res judicata between the parties and the Income-tax Officer cannot travel beyond the directions and recompute the income of the assessee.
9. We have considered over the matter. From a perusal of the record of the assessee, it is evident that initially the question of claiming the deduction under Section 47(vi) of the Income-tax Act was made by the assessee in respect of the surplus which has arisen on account of the amalgamation between Eastern Trading Syndicate Pvt. Ltd. and Shree Vijay Laxmi Trading Ltd. (sic). This order of the Income-tax Officer had become final and was not challenged either by the assessee or by the Revenue. Even no steps were taken under Section 263 of the Income-tax Act for cancellation of the assessment order on this point. The assessee has challenged the liability with regard to capital gains and rental income besides other income which does not include the income from profit on account of the amalgamation of the two companies. The Appellate Assistant Commissioner has given a specific direction in this case that the capital gains and rental income are to be recomputed. While giving effect to the order of the Appellate Assistant Commissioner, the Income-tax Officer was bound by the direction given by the Appellate Assistant Commissioner and his jurisdiction does not extend beyond recomputation of income from these two sources. The power which has been given to the Inspecting Assistant Commissioner under Section 144A cannot be exercised so as to extend the jurisdiction of the Income-tax Officer. The power under Section 144A is meant only for the guidance of the Income-tax Officer and in fresh assessment, the Inspecting Assistant Commissioner may be justified in giving direction to the Income-tax Officer for making assessment in respect of any source of income which has not even been considered by the Income-tax Officer. In a case where the matter has travelled before the appellate authority may be the Appellate Assistant Commissioner/Commissioner of Income-tax (Appeals) or the Income-tax Appellate Tribunal, the Income-tax Officer is bound by the directions given by such authority, The power under Section 144A could not be invoked for extending the jurisdiction of the Income-tax Officer which is limited to the extent of the directions being given by such an appellate authority. The Inspecting Assistant Commissioner cannot annul or extend the scope of the order of the appellate authority. If this interpretation is taken that the Inspecting Assistant Commissioner has the power to extend the jurisdiction of the Income-tax Officer, the result would be that in a particular case even the order passed by the Income-tax Appellate Tribunal on a particular point may be considered by the Inspecting Assistant Commissioner on being referred by the Income-tax Officer and directions contrary to the Income-tax Appellate Tribunal could be given in such a case. This is not intended even by the Legislature and as such the only reasonable conclusion which can be arrived at in the facts and circumstances of the case or which could be taken is that the jurisdiction of the Income-tax Officer as well as the Inspecting Assistant Commissioner in respect of a matter where the assessment order has been set aside by the appellate authority is limited to the extent of the directions being given by such an authority. The jurisdiction of the Inspecting Assistant Commissioner is coterminous with the jurisdiction of the Income-tax Officer and the Inspecting Assistant Commissioner cannot exercise jurisdiction on matters on which the Income-tax Officer has no jurisdiction. In respect of additions being made on account of capital gains or rental income, directions could have been given but such directions cannot be given in respect of any other source of income. In this case another important fact which has to be taken note of is that initially while framing assessment under Section 143(3), the Income-tax Officer had already considered the said claim and allowed it by way of deduction. Such an order even if it is illegal then the proper remedy for the Revenue was to get it cancelled in proceedings under Section 263 and not to cover that point in the proceeding under Section 143(3) read with Section 250 of the Income-tax Act. In these circumstances, we are of the view that the Income-tax Appellate Tribunal was justified in holding that the scope of assessment made by the Income-tax Officer in pursuance of the directions issued under Section 250 of the Income-tax Act by the Appellate Assistant Commissioner was limited and the Income-tax Officer was not competent to tax the sum of Rs. 4,29,593 when at the time of original assessment, the same was not the subject matter of appeal. In view of this position of law, we answer the first question in favour of the assessee and against the Revenue. The Tribunal was justified in upholding the finding of the Commissioner of Income-tax (Appeals) that the provisions of Section 52(2) of the Income-tax Act, 1961, could not be invoked in this case and in deleting the addition made on this account. There is no necessity to answer the second question. Accordingly, the reference is answered in favour of the assessee and against the Revenue.