Case Law Details
M/s. Tongani Tea Co. Limited Vs JCIT (ITAT Kolkata)
Rule 27 of Income Tax (Appellate Tribunal) Rules can be invoked only to support the order appealed against on any of the grounds decided against the respondent
Conclusion –
The scope of rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 is limited only to support the order appealed against on any of the grounds decided against him.
Facts –
Vide original assessment, AO determined total income of assessee at INR 10,78,00,000, however, assessee determined book profit u/s 115JA at INR 8,18,91,021. A fresh assessment was completed by AO vide order dated 28.12.2007, however, AO didn’t compute book profit u/s 115JA which was rectified by AO by an order dated 17.11.2009 passed u/s 154.
Assessee challenged the invocation of provision of section 154 and preferred an appeal before CIT(A) on ground that the issue relating to computation of book profit being a highly debatable issue was beyond the scope of section 154. However, CIT(A) decided the same against the assessee but directed AO to exclude 60% of the profit as agricultural product while computing book profit and also directed similar relief in interest income.
The relief allowed by CIT(A) was challenged by revenue before Tribunal. Against tribunal, assessee sought to invoke Rule 27 of Income Tax (Appellate Tribunal) Rules to raise a preliminary issue challenging the invocation of provision of section 154 by AO. Tribunal found merit in the preliminary issue raised by assessee and held that computation of part of book profit u/s 115JA being highly debatable issue was beyond the scope of rectification permissible u/s 154. Tribunal uphold the relief allowed to the assessee by CIT(A).
Assessee submitted that once the Tribunal found that the issue involved in the proceedings u/s 154 was highly debatable in nature, then the Tribunal not only should have dismissed the Revenue’s appeal, but should have allowed further relief to the assessee by cancelling the AO order passed u/s 154 in its totality.
Held –
The scope of rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 is limited and the respondent in an appeal before the Tribunal can invoke the said Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 only to support the order appealed against on any of the grounds decided against him and cannot seek any further or more relief than what has been granted to him by the Commissioner (Appeals).
FULL TEXT OF THE ITAT JUDGMENT
By this Miscellaneous Application, the assessee is seeking rectification of the mistake alleged to have crept in the order of the Tribunal dated June 23, 2017 passed in ITA No. 587/KOL/2012.
2. The assessee in the present case is a Company. In the assessment originally completed under section 143(3)/147 vide an order dated 27.12.2005, the total income of the assessee under the normal provisions of the Act was determined by the Assessing Officer at Rs.10,78,00,000/-, while the book profit under section 115JA was determined by him at Rs.8,18,91,021/-. The said assessment was subsequently set aside by the ld. CIT vide an order passed under section 263 and in pursuance of the said order passed by the ld. CIT under section 263 as modified by the Tribunal, a fresh assessment was completed by the Assessing Officer. In the assessment so completed vide an order dated 28.12.2007, the Assessing Officer computed the income of the assessee as per the normal provisions of the Act, but did not compute the book profit under section 115JA, although certain observations were made by him as regards the computation of book profit under section 115JA in the body of the fresh assessment order. The mistake in not computing book profit of the assessee-company under section 115JA was subsequently realized by the Assessing Officer and the same was rectified by him vide an order dated 17.11.2009 passed under section 154, whereby he computed the book profit of the assessee-company under section 115JA at Rs.2,42,22,069/-.
3. Against the order passed by the Assessing Officer under section 154, an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging the invocation of provisions of section 154 by the Assessing Officer on the ground that the issue relating to computation of book profit being a highly debatable issue was beyond the scope of section 154. The ld. CIT(Appeals) did not find merit in the case of the assessee on this issue and decided the same against the assessee. He, however, found some merit in the other issue raised by the assessee relating to computation of book profit by the Assessing Officer under section 115JA and directed the Assessing Officer to exclude 60% of the profit as agricultural profit while computing the book profit under clause (ii) of section115JA of the Act. He also directed the Assessing Officer to allow a similar relief to the assessee in respect of interest income. This relief allowed by the ld. CIT(Appeals) to the assessee was challenged by the Revenue in the appeal filed before the Tribunal. The assessee, on the other hand, did not prefer any appeal against the order of the ld. CIT(Appeals) before the Tribunal. At the time of hearing of the Revenue’s appeal before the Tribunal, the ld. Counsel for the assessee, however, sought to invoke Rule 27 of the Income Tax (Appellate Tribunal) Rules to raise a preliminary issue challenging the invocation of provisions of section 154 by the Assessing Officer, which had been decided against the assessee by the ld. CIT(Appeals). The Tribunal found merit in the said preliminary issue raised by the ld. Counsel for the assessee and held that the computation part of book profit under section 115JA, in so far as the assessee’s case for the year under consideration was concerned, being a highly debatable issue, was beyond the scope of rectification permissible under section 154. The impugned order of the ld. CIT(Appeals) giving relief to the assessee accordingly was upheld by the Tribunal on the basis of the said decision on the preliminary issue.
4. The ld. Counsel for the assessee submitted that once the Tribunal found that the issue involved in the proceedings under section 154 was highly debatable in nature, then the Tribunal not only should have dismissed the Revenue’s appeal, but should have allowed further relief to the assessee by cancelling the Assessing Officer’s order passed under section 154 in its totality. He contended that there is thus a mistake in the order of the Tribunal in not cancelling the order of the Assessing Officer passed under section 154 in its entirety and the same being apparent from record is liable to be rectified under section 254(2). Relying on the decision of the Hon’ble Gujarat High Court in the case of Principal CIT –vs.- Sun Pharmaceuticals Industries Limited (86 com148) as well as the decision of the Delhi Bench of this Tribunal in the case of ITO –vs.- Smt. Gurinder Kaur [102 ITD 189], he contended that the scope of Rule 27 of Income Tax (Appellate Tribunal) Rules is wide enough giving sufficient powers to the Tribunal to cancel the order passed by the Assessing Officer under section 154 and there is thus a mistake in the order of the Tribunal in not cancelling the order passed by the Assessing Officer under section 154 when the rectification made by the said order by the Assessing Officer was found by the Tribunal to be beyond the scope of section 154.
5. The ld. D.R., on the other hand, contended that the scope of Rule 27 of the Appellate Tribunal Rules, 1963 is very specific and the respondent by invoking the said Rule can only defend the order appeal against on any of the grounds decided against him even without filing an appeal. He contended that neither the assessee can claim nor the Tribunal can allow more relief by relying on Rule 27 of the Appellate Tribunal Rules than what is allowed by the ld. CIT(Appeals) to the respondent. He contended that there is thus no mistake in the order of the Tribunal dated 23.06.2017 passed in ITA No. 587/KOL/2012 as alleged by the assessee in the present Miscellaneous Application.
6. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessee in the present case as respondent had raised the issue relating to validity of the order passed by the Assessing Officer under section 154 by invoking the provisions of Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 and after having found that the invocation of proceedings under section 154 by the Assessing Officer on a highly debatable issue was not justified, the Tribunal upheld the ld. CIT(Appeals)’s order whereby relief was allowed by the ld. CIT(Appeals) to the assessee partly on the issue of computation of book profit involved in the proceedings under section 154. According to the assessee, there is a mistake in the order of the Tribunal, inasmuch as the Tribunal after having found that the issue relating to the computation of book profit under section 115JA was beyond the scope of section 154 being a highly debatable issue ought to have cancelled the Assessing Officer’s order passed under section 154 in its totality. The case of the assessee thus is that the Tribunal should have allowed more relief to the assessee than what was allowed by the ld. CIT(Appeals) while allowing the claim made by the assessee as respondent by invoking Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. In support, the ld. Counsel for the assessee has relied on the decision of the Hon’ble Gujarat High Court in the case of Principal CIT – vs.- Sun Pharmaceuticals Industries Limited (supra) as well as the decision of the Delhi Bench of this Tribunal in the case of ITO –vs.- Smt. Gurinder Kaur (supra).
7. We have carefully perused both the judicial pronouncements cited by the ld. Counsel for the assessee in support of the assessee’s case. In the case of Sun Pharmaceuticals Industries Limited (supra), the assessee was a Company registered under the Companies Act and in the reassessment completed in its case, various additions were made by the Assessing Officer. In the appeal filed before the ld. CIT(Appeals), the assessee-company challenged the validity of reopening of assessment and also disputed the various additions made by the Assessing Officer in the reassessment. The ld. CIT(Appeals) allowed the appeal of the assssee by accepting the assessee’s grounds against the additions made by the Assessing Officer. On the question of validity of reopening of assessment, the ld. CIT(Appeals), however, held against the assessee. Aggrieved by the order of the ld. CIT(Appeals), the Revenue filed an appeal before the Tribunal. The assessee-company, however, did not prefer any appeal obviously because it was granted full relief by the ld. CIT(Appeals) by deleting all the additions made by the Assessing Officer. Even after the Department preferred appeal before the Tribunal, the assessee did not file its Cross Objection raising the question of validity of the reopening of assessment. Later on, the assessee-company, however, raised the legal issue of the validity of assessment before the Tribunal by relying on Rule 27 of the Appellate Tribunal Rules and despite objections raised from the Department, the Tribunal not only permitted the assessee to raise the legal issue but also decided the same in favour of the assessee by holding that the reopening of assessment was bad in law. Against the order of the Tribunal, the Department preferred an appeal before the Hon’ble Gujarat High Court and the relevant question raised on the issue was whether the Tribunal was right in law in allowing the respondent-assessee to raise the question of validity of notice for reopening of assessment taking recourse to Rule 27 of the Appellate Tribunal Rules without the assessee having filed cross appeal or cross objection before the Tribunal against the order of the ld. CIT(Appeals). It is thus very clear that in the case of Sun Pharmaceuticals Industries Limited (supra) cited by the ld. Counsel for the assessee in support of the assessee’s case, no further or additional relief was sought by the assessee than what was allowed by the ld. CIT(Appeals) by relying on Rule 27 of the Appellate Tribunal Rules and after referring to the said Rule 27, it was clearly observed by the Hon’ble Gujarat High Court in para no. 9 that this Rule provides that the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. Explaining further, it was observed by Their Lordships that this Rule embodies the fundamental principle that the person, who may not have been aggrieved by an order of the lower authority or the Court and has therefore not filed any appeal against such order, is free to defend the order before the Appellate Forum on all grounds including the ground, which may have been held against him by the lower authority or the Court, whose order is otherwise in his favour. To put the controversy beyond doubt, it was further clarified by the Hon’ble Gujarat High Court in paragraph no. 11 of its order that Rule 27 makes it clear that the respondent in appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the grounds decided against him. It was also held that when the order of the Commissioner is at large before the Tribunal, the respondent before the Tribunal would be entitled to defend the order of the Commissioner on all grounds including on grounds held against him by the Commissioner without filing an independent appeal or cross objection. (emphasis supplied)
8. Similarly, in the case of Smt. Gurinder Kaur (supra) cited by the ld. Counsel for the assessee, an appeal was filed by the assessee before the ld. CIT(Appeals) against the order of the Assessing Officer raising several grounds both against the jurisdiction of the Assessing Officer to reopen the assessment and on merits. The ld. CIT(Appeals) annulled the assessment holding it to be null and void but did not decide on merits. The Department filed an appeal against the order of the ld. CIT(Appeals) before the Tribunal contending that the ld. CIT(Appeals) was wrong in annulling the reassessment holding it to be null and void on the ground that the Assessing Officer only had to ‘reason to suspect’ and not to ‘reason to believe’ that income chargeable to tax had escaped assessment. During the course of appellate proceedings before the Tribunal, following points were sought to be raised on behalf of the assessee in defence of the order of the ld. CIT(Appeals):-
“(a) No reasons were recorded for reopening the assessment as required by section 148(2).
(b) The reasons recorded, if any, were not supplied to the assessee despite repeated requests.
(c) The notice under section 148 has not been served on the assessee and non-service of the notice is fatal to the validity of the reassessment.
(d) The Assessing Officer has not taken the approval of the Jt. CIT before issuing the notice under section 148 as required by section 151(1) of the Act.
(e) Section 148 cannot be used for making a fishing or roving enquiry. In this case, the Assessing Officer was merely called upon by the DCIT to examine and investigate the matter whereas the Assessing Officer chose to shortcut the proceedings and proceeded to issue the notice before formation of the belief. (f) The mere allegation made by the CIB that the assessee purchased the gift from Kochhar is not relevant for the formation of the belief and before issuing the notice under section 148, the Assessing Officer failed to carry out the necessary enquiry which alone could have given him the material for the formation of the requisite belief. Since no such investigation was carried out, the notice under section 148 was based merely on the allegation of the CIB and was based only on reason to suspect”.
The Department, however, raised a preliminary objection to the effect that the assessee could not go beyond the order of the ld. CIT(Appeals) and raise the points, such as non-recording or non-disclosure of the reasons for reopening the assessment, non-service of the notice under section 148 and the question of approval of the JCIT under section 151(1). It is important to note here that no further or additional relief than what had been allowed by the ld. CIT(Appeals) was sought by the assessee and while meeting the preliminary objection raised by the Department, reliance was not only placed on behalf of the assessee on Rule 27 of the Appellate Tribunal Rules but also on various judicial pronouncements to contend that the assessee was entitled to raise these points. The Tribunal first relied on Rule 27 to hold that it was open to the assessee to raise the question of non-recording of reasons as the respondent in an appeal can support the order appealed against on any of the grounds decided against him, even though he may not have filed an independent appeal or cross objection and then proceeded to consider and decide the case of the assesese even de hors Rule 27 of the Appellate Tribunal Rules. In this regard, reliance was placed by the Tribunal on the various judicial pronouncements cited on behalf of the assesese including the decision of the Hon’ble Supreme Court in the case of Hukam Chand Mills Ltd. –vs.- CIT [63 ITR 232] to hold that even assuming that Rule 27 of the Appellate Tribunal Rules was not strictly applicable, the Tribunal had the inherent powers under section 254(1) to entertain the argument of the respondent which amounted to a new ground. It is thus clear that the facts involved in the case of Smt. Gurinder Kaur (supra) cited by the ld. Counsel for the assessee were materially different, inasmuch as no further or additional relief was sought by the assessee before the Tribunal than what had been allowed by the ld. CIT(Appeals) and the case was not only made out by the assessee de hors Rule27, but the same was also considered and decided by the Tribunal assuming that Rule 27 was not strictly applicable. In the present case, the case was argued by the assessee by relying on Rule 27 of the Appellate Tribunal Rules, 1963 and no case having been made out de hors the said Rule, there was no occasion for the Tribunal to consider such alternative claim. (emphasis supplied)
9. It is observed that the Chandigarh Bench of this Tribunal had an occasion to consider the scope of Rule 27 of the Income Tax (Appellate Tribunal) Rules in the case of Inspecting Assistant Commissioner –vs.- Panipat Cooperative Sugar Mills Limited [3 ITD 734] and it was held by the Tribunal that the right granted to the respondent under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 is limited. All that the respondent can do is to support the order of the appellate authority as a respondent, who has neither come in appeal nor in cross objection. He cannot ask for a finding different from that of the first appellate authority on the basis of rearguing the grounds rejected by the first appellate authority. (emphasis supplied)
10. It is also observed that there is a decision of the Hon’ble Bombay High Court in the case of CIT –vs.- Jamnadas Virji Shares & Stock Brokers Pvt. Limited [258 CTR 458], which is directly on the issue. In the said case, the Assessing Officer had disallowed the entire claim of the assessee for deduction on account of bad debts amounting to Rs.28,69,951/-. On appeal filed by the assessee, the ld. CIT(Appeals) confirmed the said disallowance to the extent of Rs.14,96,064/- and allowed the appeal of the assessee to a limited extent by granting the claim to the extent of Rs.13,73,887/-. The order of the ld. CIT(Appeals) giving the said relief to the ass essee was challenged by the Revenue in the appeal filed before the Tribunal. Although there was no appeal validly filed by the assessee before the Tribunal, the assessee invoked Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. The Tribunal accepted the case made out by the assessee by relying on the said Rule 27 and set aside the order of the ld. CIT(Appeals) in its entirety by restoring the issue relating to the disallowance to the Assessing Officer to the extent of Rs.28.69 lakhs. The matter was carried by the Revenue to the Hon’ble Bombay High Court and Their Lordships held that it was only open to the assessee to support the order of the CIT(Appeals) on any of the grounds decided against him. It was held that the right of the assessee to support the order of the CIT(Appeals) would mean that the assessee would be entitled to urge that the deletion of the disallowance to the extent of Rs.13.73 lakhs by the CIT(Appeals) was correct and proper and he would not be entitled to avail of the benefit of the provisions of Rule 27 in regard to that part of the order of the CIT(Appeals) which, upon consideration of the evidence, confirmed the disallowance of Rs.14.96 lakhs made by the Assessing Officer. The order of the Tribunal accordingly was confirmed by the Hon’ble Bombay High Court only to the extent to which it restored the proceedings to the Assessing Officer as regards the amount of Rs.13.73 lakhs. (emphasis supplied)
11. The ratio laid down in the various judicial pronouncements as discussed above makes it clear that the scope of Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 is limited and the respondent in an appeal before the Tribunal can invoke the said Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 only to support the order appealed against on any of the grounds decided against him and cannot seek any further or more relief than what has been granted to him by the ld. CIT(Appeals). We, therefore, find no mistake in the order of the Tribunal dated 23.06.2017 (supra) in not granting such more relief to the assessee by relying on Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. In our opinion, there is thus no mistake much less a mistake apparent from record in the order of the Tribunal dated 23.06.2017 (supra) as alleged by the assessee in the present Miscellaneous Application. We, therefore, dismiss this Miscellaneous Application filed by the assessee being devoid of any merit.
12. In the result, the Miscellaneous Application filed by the assessee is dismissed.
