Commissioner of Income-tax Vs. Trehan Enterprises - Court Judgment

Arun Kumar Goel, J.

1. The Income-tax Appellate Tribunal, Amritsar Bench, Arnritsar, has stated the case under Section 256(1) of the Income-tax Act, 1961, for opinion of this court. The question on which opinion is sought for, is as under :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was right in contending that the Commissioner of Income-tax (Appeals) should have treated the requirements to be met when certificates in Forms Nos. 10C and 10D had been filed before him instead of the same having been filed along with the return as required in Sub-section (5) of Section 80HH of the Act ?'

2. With a view to properly understand the whole gamut of this case, it is necessary to notice the legal provisions applicable to this case as well as the facts thereof. Under Section 80HH of the Income-tax Act, certain deductions in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas are allowed. The extent of such deductions while computing the total income of the assessee, from such profits and gains is an amount equal to 25 per cent, thereof allowed to such assessee. With a view to avail of such deduction from the profits and gains, the assessee is required to file certificates in Form No. 10C of the Income-tax Act. For ready reference Sub-section (5) of Section 80HH is reproduced hereinbelow :

'(5) Where the assessee is a person other than a company or a cooperative society, the deduction under Sub-section (1) shall not be admissible unless the accounts of the industrial undertaking or the business of the hotel for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in (he Explanation below Sub-section (2) of Section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.'

3. The respondent-firm during the assessment year 1976-77 appears to have claimed benefit under sections 80J and 80HH, which were denied on two counts : (i) for the reasons detailed in the assessment year 1975-76, and (ii) as no certificate in Form No. 10C of the Income-tax Rules was not furnished. On this basis, the Assessing Officer, i.e., Income-tax Officer, 'C' Ward, Jammu, vide his order dated March 21, 1979, framed the assessment for the relevant assessment year 1976-77 against the respondent-firm.

4. Feeling dissatisfied with this order of the assessing authority, the respondent filed an appeal before the Commissioner of Income-tax (Appeals), Amritsar Range, Amritsar. This came to be registered as Appeal No. 1/CW-JMU/79-80. Vide order dated January 31, 1981, this appeal was disposed of. The matter relating to a case stated by the Tribunal for the opinion of thiscourt under Section 256(1) of the Act is dealt with in paragraph 4 of the Commissioner of Income-tax (Appeals)' order. While partly allowing the appeal, the contention raised with reference to sections 80J and 80HH on behalf of the respondent-firm was rejected and the assessment framed by the Income-tax Officer was upheld on this aspect of the case. This order was passed by the Commissioner of Income-tax (Appeals) in exercise of powers vested in it under Section 250 of the Income-tax Act.

5. Feeling aggrieved and dissatisfied with the order of the Commissioner of Income-tax (Appeals), the respondent preferred an appeal under Section 253 of the said Act before the Income-tax Appellate Tribunal, Amritsar, which has reversed the decision of the Commissioner of Income-tax (Appeals) and has ordered the restoration of the issue to his file for further disposal after dealing with the Income-tax Officer's second objection.

6. The circumstances of the case reveal that the necessary certificate from the chartered accountant in Form No. 10C was not furnished by the asses-see during the course of assessment proceedings. Here it may also be observed that during the course of appeal before the Commissioner of Income-tax (Appeals), Shri A. K. Anand, Chartered Accountant, had filed his affidavit. His stand in paragraph 2 was that Forms Nos. 10C and 10D under the Income-tax Act were also filed during the assessment proceedings before the Income-tax Officer, a carbon copy whereof was attached with the said affidavit. Thus, it is obvious that during the course of proceedings in appeal before the Commissioner of Income-tax (Appeals), copies of such certificates were available on the file even if it be accepted that those had not been filed during the course of assessment proceedings before the Income-tax Officer.

7. In the aforesaid background this case is to be examined keeping in view the powers of the appellate authority under Section 251 of the Income-tax Act and to see whether it was within its power to have accepted the same or in the absence of requisite certificate having been furnished along with return of income, the appellate authority was powerless and helpless. In this behalf, the provision of Section 251 of the Income-tax Act needs to be noted :

'251(1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers-

(a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment ; or he may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment in accordance with the directions given by the Commissioner (Appeals) and after making such further inquiry as may be necessary, and the Assessing Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment ;

(b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty ;

(c) in any other case, he may pass such orders in the appeal as he thinks fit.

(2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction.

Explanation.--In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner (Appeals) by the appellant.'

8. A perusal of this Section clearly indicates that while hearing an appeal against an assessment order, the Commissioner of Income-tax (Appeals) has virtually all the powers which are vested with the officer framing the assessment. In fact it is in the nature of a plenary power authorising the Commissioner to confirm, reduce, enhance or annul the assessment. He is also competent to set aside the assessment and refer back the case to the Assessing Officer for fresh assessment as per direction. An examination of the powers conferred upon the Commissioner of Income-tax (Appeals) under Section 251(1)(a) clearly shows that those are in the nature of reassessment. While confirming, reducing, or enhancing, it is implicit that in either of these situations he will have to examine the case and it is only thereafter that one of such eventualities may arise. It may also be worthwhile to notice here that taxation appeals cannot be put at par with civil appeals under the Code of Civil Procedure. There it is the adjudication of claims of two parties which is known as the adversary system. This is not the situation in tax appeals because in such appeals the revenue authority concerned is not as an adversary or opponent in the sense of the term like in civil cases. The whole purpose of the revenue authority being arrayed as an opponent is one to ensure that the assessment is made as per requirements of law irrespective of its outcome.

9. Once we have come to the conclusion that the Commissioner of Income-tax (Appeals) has the authority of reassessment on a construction of Section 251(1)(a), we are of the view that no exception can be taken to the decision of the Income-tax Appellate Tribunal in I. T. A. No. 227 (ASR) of 1981 in the present case. Even if it be assumed for the sake of argument that the necessary certificates in Forms Nos. 10C and 10D were not attached along with his return of income, still what could be done by the Income-tax Officer being within the competence of the Commissioner of Income-tax (Appeals), he ought to have gone into ignoring the affidavit of chartered accountant, referred to hereinabove, and then frame assessmentor remit the case back to the Income-tax Officer to proceed in accordance with law in the face of such certificates.

10. In CIT v. Kanpur Coal Syndicate : [1964]53ITR225(SC) while dealing with a case of appeal under Section 31 of the Indian Income-tax Act, 1922, it was observed as under (page 229) :

'If an appeal lies, Section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under Section 31(3){a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment ; under Clause (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous 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. If the Income-tax Officer has the option to assess one or other of the entities in the alternative, the Appellate Assistant Commissioner can direct him to do what he should have done in the circumstances of a case.'

11. In relation to the powers of the appellate authority under the Central Sales Tax Act to entertain 'C' Form, which were required to be furnished at the time of assessment by the assessing authority on sufficient cause being shown, the Supreme Court took an almost identical view in the case reported in State of Andhra Pradesh v. Hyderabad Asbestos Cement Production Ltd. : [1994]3SCR785 .

12. A Full Bench of the Madras High Court in State of Tamil Nadu v. Arud-murugan and Co. [1982] 51 STC 381, observed as under (page 392) :

'An appellate authority under the taxing enactments sits in appeal, only in a manner of speaking. What it does, functionally, is only to adjust the assessment of the appellant in accordance with the facts on the record and in accordance with the law laid down by the Legislature. An appeal is a continuation of the process of assessment, and an assessment is but another name for adjustment of the tax liability to accord with the taxable event in the particular taxpayer's case. There can be no analogy or parallel between a tax appeal and an appeal, say, in civil cases. A civil appeal, like a law suit in the court of first instance out of which it arises, is really and truly an adversary proceeding, that is to say, a controversy or tussle over mutual rights and obligations between contesting litigants ranged against each other as opponents. A tax appeal is quite different. Even as the assessing authority is not the taxpayer's 'opponent', in the strictly procedural sense of the term, so too the appellate authority sitting in appeal over the assessing authority's order of assessment is not strictly an arbitral tribunal deciding a contested issue between two litigants ranged on opposite sides. In a tax appeal, the appellate authority is very much committed to theassessment process. The appellate authority can itself enter the arena of assessment, either by pursuing further investigation or causing further investigation to be done. It can do so on its own initiative, without being-prodded by any of the parties. It can enhance the assessment, taking advantage of the opportunity afforded by the taxpayer's appeal, oven though the appeal itself has been mooted only with a view to a reduction in the assessment. These are special and exceptional attributes of the jurisdiction of a tax appellate authority. These attributes underline the truth that the appellate authority is no different, functionally and substantially, from the assessing authority itself.'

13. To similar effect is the decision of the said court reported in CAT v. Indian Express (Madurui) (Pvt.) Ltd. : [1983]140ITR705(Mad) .

14. That under Section 254 of the Income-tax Act, the Appellate Tribunal after giving both the parties to the appeal an opportunity of being heard passes such orders thereon as it thinks fit. The amplitude and scope of such powers is sufficiently wide. On this ground also no exception can be taken to the orders passed by it in appeal on October 3, 1986, as, in our view, it was the only order it should and in fact it had passed which is perfectly legal and justified.

15. Nothing to the contrary was brought to our notice for taking a contrary view of the matter.

16. In view of the aforesaid discussion as well as in view of the legal position, the question referred under Section 256(1) of the Income-tax Act to this court is answered in favour of the assessee and against the Revenue.