Kerala High Court
Popular Automobiles vs Commissioner Of Income-Tax on 6 July, 1990
Equivalent citations: [1991]187ITR86(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of an assessee to income-tax, the Income-tax Appellate Tribunal has referred the following question of law for the decision of this court:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that an appeal against the order of the Commissioner of Income-tax (Appeals) not acceding to the request of the Income-tax Officer for enhancing the assessment is competent ?"
2. The respondent is the Revenue. We are concerned with the assessment year 1979-80. The assessee is a registered firm. It is a dealer in automobile spare parts. For the year 1979-80, the Income-tax Officer made an assessment under Section 143(3) of the Income-tax Act read with Section 144B of the Act by an order dated September 17, 1982. Various additions were made in the assessment order. Against the said additions, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). When the appeal was posted for hearing, the Income-tax Officer submitted an application on February 2, 1983, before the Commissioner of Income-tax (Appeals) bringing to his notice that Section 37(3A) of the Income-tax Act is applicable in the instant case and that the assessment may be enhanced by the disallowance under Section 37(3A) of the Act of a sum of 15% of Rs. 14,66,586 being the total of the sales commission and advertisement expenses as reduced by a sum of Rs. 5,00,464 disallowed out of the sales . commission in the assessment and the amount worked out to Rs. 2,16,987. The Commissioner of Income-tax (Appeals) did not accept the request of the Income-tax Officer. He passed the appellate order on March 31, 1983. No mention was made in the order about the request made by the Income-tax Officer in his communication dated February 2, 1983, praying for the enhancement of the disallowance under Section 37 (3A) of the Act. Against the aforesaid order of the Commissioner of Income-tax (Appeals) dated March 31, 1983, the Revenue filed an appeal before the Income-tax Appellate Tribunal and contended that the Commissioner of Income-tax (Appeals) erred in deleting the entire disallowance under commission and that as the expenses were in the nature of sales promotion expenses, 15% of the amount has to be disallowed under Section 37(3A) of the Income-tax Act, 1961. Repelling the plea of the assessee that the appeal filed by the Revenue is incompetent, the Income-tax Appellate Tribunal, after adverting to the specific plea made by the Income-tax Officer in his letter dated February 2, 1983, praying for an enhancement, held that the Commissioner of Income-tax (Appeals) ought to have considered this issue and the failure to do so is a clear error and, in this view, ordered a remit of the matter to the Commissioner of Income-tax (Appeals) for considering the said issue afresh. It was further stated that an opportunity should be given to the assessee of being heard. The appeal filed by the Revenue was allowed on this aspect. It is thereafter at the instance of the assessee that the question of law formulated hereinabove has been referred for the decision of this court.
3. We heard counsel for the applicant/assessee, Mr. M. C. Sen and also counsel for the respondent/Revenue, Mr. P. K. R. Menon. Counsel for the assessee submitted as follows :
(1) The Income-tax Officer was incompetent to make a request before the Commissioner of Income-tax (Appeals) pleading for enhancement of the disallowance under Section 37(3A) of the Income-tax Act. The statute does not clothe the Income-tax Officer with such a power, (ii) The power vested in the Commissioner of Income-tax (Appeals) under, Section 251(1) (a) of the Income-tax Act to enhance the assessment is a suo motu discretionary power. The Income-tax Officer has no right to call, for its exercise, (iii) In any view of the matter, in so far as the appellate order passed by the Commissioner of Income-tax (Appeals) is silent with regard to the request made by the Income-tax Officer dated February 2, 1983, praying for enhancement in the disallowance, the appeal filed by the Revenue complaining about the failure to enhance the assessment is incompetent.
4. On the other hand, counsel for the Revenue submitted that the power of the Commissioner of Income-tax (Appeals) under Section 251 of the Income-tax Act is of very wide import, that in disposing of the appeal, his powers are co-equal to that of the assessing authority, that the Commissioner of Income-tax (Appeals) was bound to consider the request of the Income-tax Officer to enhance the assessment, and if he failed to do so without any reasonable cause, it is open to the Revenue to file a second appeal before the Tribunal from the order passed by the Commissioner of Income-tax (Appeals) in appeal.
5. We heard counsel at length. Section 246 of the Income-tax Act deals with appellate orders. Any assessee aggrieved by the orders specified in the said section can appeal to the Deputy Commissioner (Appeals) or the Commissioner of Income-tax (Appeals), as the case may be. Section 250 of the Act deals with the procedure in appeal. It is as follows :
"250. Procedure in appeal.--(1) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall fix. a day and place for the hearing of the appeal, and shall give notice of the same to the appellant and to the Assessing Officer against whose order the appeal is preferred.
(2) The following shall have the right to be heard at the hearing of the appeal, --
(a) the appellant, either in person or by an authorised representative ;
(b) the Assessing Officer, either in person or by a representative.
(3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall have the power to adjourn the hearing of the appeal from time to time.
(4) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) may, before disposing of any appeal, make such further enquiry as he thinks fit, of may direct the Assessing Officer to make further inquiry and report the result of the same to the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals).
(5) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) may, at the hearing of an appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable, (6) The order of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision, (7) On the disposal of the appeal, the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall communicate the order passed by him to the assessee and to the Chief Commissioner or Commissioner."
6. Under Section 251(1)(a) of the Income-tax Act, 1961, the Commissioner of Income-tax (Appeals) in an appeal against an order of assessment shall have the power to confirm, reduce, enhance or annul the assessment, or he may set aside the assessment and refer the case back to the Assessing Officer. It is true that the Income-tax Act does not specifically provide that it is open to the Income-tax Officer to alert or bring to the notice of the appellate authority any lapse or omission that has resulted in the assessment and request for enhancement. The question is whether the absence of such specific provision in the statute is, in any way, relevant or conclusive. The further question is what is the nature and content of the power and the jurisdiction of the Commissioner of Income-tax (Appeals). The final question as to whether the appeal filed by the Revenue before the Income-tax Appellate Tribunal is competent will depend upon the answer to the first two aspects.
7. In CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, at page 229, delivering the judgment of the Supreme Court, Subba Rao J. said :
"The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is coterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do."
8. A Bench of this court in Deputy CST v. Subbhalakshmi Ammal [1981] 47 STC 269, at page 271, stated the law as follows :
"Under Section 34 of the Act, the Appellate Assistant Commissioner, in disposing of an appeal filed against the order of assessment, may confirm, reduce, enhance or annul the assessment, set aside the assessment and direct the assessing authority to make a fresh assessment after such further enquiry as may be directed or pass such other orders as he may think fit. Once an appeal against the assessment order is before the Appellate Assistant Commissioner, he can examine the correctness not only of the ultimate computation of tax arrived at by the Sales Tax Officer, he can also revise every process which led to the ultimate computation of tax and completion of the assessment. In other words, what he can revise is not merely the ultimate conclusion recorded by the assessing authority as to the quantum of the liability of the assessee to tax, but he is entitled to examine the correctness of every ground stated or decision reached by the Sales Tax Officer in the course of making such assessment."
9. Again, in McDowell and Co. Ltd. v. Asst. CST [1986] 62 STC 164, 168 ; [1985] KLT 428, a Bench of this court, holding that the first appellate authority exercising jurisdiction under the Kerala General Sales Tax Act has the power even to enhance an assessment under Section 34(3)(a)(i) of the Act. and that it is a special jurisdiction, quoted the following observations contained in the decision of the Supreme Court in CIT v. Rai Bahadur Hardutory Motilal Chamaria ([1967] 66 ITR 443 at pp. 449 and 450):
"... His competence is not restricted to examining those aspects of the assessment which are complained of by the assessee ; his competence ranges over the whole assessment and it is open to him to correct the Income-tax Officer not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment. It is also well-established that an assessee having once filed an appeal cannot withdraw it. In other words, the assessee having filed an appeal and brought the machinery of the Act into working cannot prevent the Appellate Assistant Commissioner from ascertaining and settling the real sum to be assessed, by intimation of his withdrawal of the appeal. Even if the assessee refuses to appear at the hearing, the Appellate Assistant Commissioner can proceed with the enquiry and if he finds that there has been an under-assessment, he can enhance the assessment."
10. The observations were made by Lord Wright in King v. Income-tax Special Commissioners ([1936] 1 K B 487 ; [1935] 20 TC 385 (CA)). The court held that the power or jurisdiction so vested in the appellate authority is a special power or jurisdiction and it is the statutory duty of the appellate authority to exercise the said jurisdiction in cases where it is so warranted. In Rex v. Special Commissioners of Income-tax (ex parte Elmhirst) [1935] 2.0 TC 381 (KB) at pages 383 and 384, Lord Hewart C. J. observed as follows :
"... If, on any appeal, it appears to the Commissioners that the person assessed or surcharged ought to be charged in an amount exceeding the amount contained in the assessment or surcharge they shall charge him with the excess. It is a duty that they owe to the hidden parties to the appeal, namely, the general body of the taxpayers of this country--they shall charge him with the excess ...... The fact that the notice of appeal had been given not merely made it possible but made it obligatory upon the Gommissioners that they should take certain steps, not merely or primarily in the interests of the individual appellant but in the performance of their duties imposed upon them in the interests of the general body of the taxpayers, to see what the true assessment ought to be, and that process, a public process directed to public ends, cannot be stopped at the option or the whim of the appellant who after giving notice begins to realise that if he pursues his appeal it may be the worse for him. The matter has passed out of his hands : he has given rise by his notice of appeal not merely to the opportunity but to the duty of performing a public task which may have an effect entirely opposite to that which he contemplated and desired."
11. The above decision was affirmed in appeal. (See [1935] 20 TC 385 (CA)), See also Simon's Taxes. (1976 Edn.), Third Edition, Vol. A (pages 612 and 620).
12. The above decisions establish that it is the statutory duty cast on the Commissioner of Income-tax (Appeals) to take steps to see that a true and proper assessment is made and that all steps are taken in that process. The Commissioner of Income-tax (Appeals) is performing a public task and, in the discharge of the duties imposed on him, he should, in all fairness, take reasonable steps, not only in the interest of the assessee but also see that a true and proper assessment is made by the Revenue. It cannot be doubted that a compellable statutory duty is imposed upon the Commissioner of Income-tax (Appeals) to exercise the jurisdiction either suo motu or on motion by the assessing authority, to examine whether the assessment made is justified and proper and if it is pointed out by the assessing authority that a lapse or omission has occurred in making the assessment, it is the duty of the Commissioner of Income-tax (Appeals) to advert to the same and dispose of the matter in accordance with law, The Commissioner of Income-tax (Appeals) should act judicially and fairly in discharging the said duty imposed on him by law.
13. It was conceded before us that it is open to the Commissioner of Income-tax (Appeals) to enhance the assessment suo motu. The question that was mooted was that the Commissioner of Income-tax (Appeals) was not obliged to do so, on a motion made by the Income-tax Officer in that regard. In other words, it was argued that the power vested in the Commissioner of Income-tax (Appeals), even to enhance an assessment, is a suo motu discretionary power and the Income-tax Officer has no right to demand the exercise of that power in any particular case. We see no force in this plea. In Knight v. IRC [1974] 49 TC 179 (CA) at page 212, Stamp L. J. said :
"The other fact which it was submitted led to the conclusion that the determination of the General Commissioners was a nullity was the fact that the Inspector of Taxes invited the General Commissioners to increase the four estimated assessments, not merely to the figure which had been agreed, but in the case of two of the years of assessment in question by treating the money in the mother's account as derived from the appellant's trade, and adduced evidence in support of the submission that they ought to be so treated. This submission is based on the provisions of Section 52(2) of the Income Tax Act, 1952, which it is urged impliedly precludes evidence in support of an increased assessment being produced by the Inspector of Taxes : and see the observations of Lord Diplock in In re Vandervell's Trusts [1970] 46 TC 341, at p. 372 ; [1971] AC 912, at page 942 (HL). It would be anomalous if the General Commissioners, having power under Section 52(6) to make an increased assessment, had no power to admit or invite evidence adduced on behalf of the Crown, who alone would have an interest to adduce it, designed to enable the General Commissioners to exercise the power which Parliament has conferred upon them. It would also be anomalous if the Crown, adducing evidence in support of an existing assessment, was precluded by the effect of Section 52(2) from adducing evidence of the taxpayer's true income because it would thereby be adducing evidence leading to an increased assessment."
14. Similarly, in Way v. Underdown (H.M. Inspector of Taxes) [1974] 49 TC 215, 231 (CA), in disposing of a petition similar to the one raised herein, Plowman J. stated as follows :
"Even if it is right that the Inspector can only give reasons in support of the assessment and is not entitled to argue that it should be increased, the Commissioners undoubtedly have power under Section 52(6) to increase assessments, and it may be that the Inspector in the present case was doing no more than reminding the Commissioners what their jurisdiction was."
15. In the light of the above decisions, we hold that it is open to the Income-tax Officer to bring to the notice of the Commissioner of Income-tax (Appeals) any lapse or omission or error in the assessment and invite the appellate authority to exercise the power vested in him to enhance the assessment or take other steps to undo the harm or error. It is idle to contend that though the Commissioner of Income-tax (Appeals) can exercise the power to enhance the assessment even suo motu, such a power cannot be exercised when the occasion for the exercise of such power is on an alert made by the Income-tax Officer or brought to his notice by the Income-tax Officer (assessing authority). The Income-tax Officer cannot prefer an appeal against his own assessment. It may be that it is open to him either to rectify the order under Section 154 of the Act or initiate proceedings for reassessment, if it is justified in law, or request the Commissioner of Income-tax to exercise his suo motu power of revision under Section 263 of the Income-tax Act. It is also open to the Income-tax Officer to point out the error or omission and request the Commissioner of Income-tax (Appeals), before whom the appeal filed by the assessee is pending, to take reasonable steps to see that a true and proper assessment is rendered in the case. The powers aforesaid are concurrent. We hold that the Income-tax Officer had locus standi or right to alert the Commissioner of Income-tax (Appeals) and bring to his notice that Section 37(3A) of the Act is applicable in the instant case and that an enhancement in disallowance is called for on that account. The Appellate Tribunal has found that such a motion was made by the Income-tax Officer, by his letter dated February 2, 1983, before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) is exercising a quasi-judicial function. He should have adverted to the request made by the Income-tax Officer in his letter dated February 2, 1983, and disposed of the matter fairly and reasonably. It was his statutory duty to do so. On the other hand, he failed in his duty and disposed of the appeal even without adverting to the said request made by the Income-tax Officer. We are of the view that it is a patent jurisdicitional error. The Commissioner of Income-tax (Appeals) has abnegated in discharging the dutyjmposed on him by law. Since the Revenue was prejudiced by the failure of the Commissioner of Income-tax (Appeals) to discharge his statutory duty aforesaid, it is open to the Revenue (Income-tax Officer) to file an appeal from the order passed by the Commissioner of Income-tax (Appeals) and assail the same. Against the order of the Commissioner of Income-tax (Appeals), the appeal filed by the Revenue under Section 253(2) of the Income-tax Act is competent and maintainable. We hold so.
16. The fact that in the order passed by the Commissioner of Income-tax (Appeals), the request made by the Income-tax Officer was not stated will not, in any way, disable the Revenue in filing the appeal, if, as a matter of fact, a request was made to the Commissioner of Income-tax (Appeals) to set right the error or omission and enhance the disallowance. The only question to be looked into is, was a request made by the assessing authority (Income-tax Officer) before the Commissioner of Income-tax (Appeals) ? If it is not so stated in the appellate order, is it at least discernible from the files ? That it was so done in this case is evident from the order passed by the Tribunal dated September 30, 1985, and also from the statement of case forwarded by the Appellate Tribunal to this court. The Appellate Tribunal has found that such a request was made before the Commissioner of Income-tux (Appeals) by the Income-tax Officer in his letter dated February 2, 1983, bringing to his notice that Section 37(3A) of the Act is applicable and that an enhanced disallowance is called for. In M. Ganapathi Asari v. CIT [1970] 75 ITR 290, at page 300, the Madras High Court said :
". . . But the objection of the Commissioner under Section 33(2) may cover not only the merits of the order passed by the Appellate Assistant Commissioner but also what the officer had omitted to do in his order. The objection of the Commissioner for purposes of maintainability of his appeal should, of course, be an order passed by the Appellate Assistant Commissioner, But the objection is not necessarily confined to what the order has stated but may extend to what the order has omitted to say ..."
17. The said decision lays down the law correctly on this point.
18. All the contentions raised by the assessee's counsel fail. We hold that the appeal filed against the order of the Commissioner of Income-tax (Appeals) not acceding to the request of the Income-tax Officer for enhancing the assessment is competent.
19. We answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue.
20. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.