1250. Queries regarding jurisdictional problems in regard to interpretation of sub-section (2) and scope of Board’s notification under clause (i) of sub-section (2) answered
Certain jurisdictional problems in regard to the interpretation of the provisions of section 246(2) and of the corresponding sections of other Direct Tax Acts, and also in regard to the scope of the Board’s Notifications issued under section 246(2)(i) have been referred to the Board for clarification. They are posed in the form of questions and answered hereunder :
QUESTION 1 – (1) Who is to rectify any mistake in an order passed by the AAC before the appointed day, i. e., July 10,1978 in a case of a non-company assessee where the total income/loss exceeded Rs. 1 lakh, or in an order passed by the AAC before June 1, 1979 in the case of a company ?
(2) Who is to comply with the requirements of the Appellate Tribunal for a remand report or to pass a fresh order in pursuance of any remand order restoring the appeal to the file of the AAC for redisposal on a particular point or entirely, if the order of the AAC was passed before July 10, 1978 in the case of a non-company assessee with assessed income or loss exceeding Rs. 1 lakh or before June 1, 1979 in the case of a company ?
ANSWER – A provision for the removal of doubts has been made in this behalf in sub-section (2) of section 39 of the Finance (No.2) Act, 1977 by which the posts of Commissioners (Appeals) were created. Vide para 27.5 of the Explanatory Notes on the provisions relating to Direct Taxes in the Finance (No.2) Acts, 1977 [Circular No. 229, dated 9-8-1977], the Board have clarified that any action required to be taken after the appointed day in relation to any appeal disposed of by an AAC before that day will be taken as if the amendments directed to be made by the Finance Act had not been made. In other words, action in relation to such appeals will be taken by the AAC concerned and not by the Commissioner (Appeals). Thus the AAC may rectify any mistake in an order passed by him before the appointed day or take such action or pass such further orders as may be required in any appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal.
The words “any action required to be taken” connote that the requirement for any action to rectify a mistake in an order passed by the AAC before the appointed day would arise after the said date. Those words in section 39(2) of the Finance Act, 1977 would cover cases where the rectification application had been filed after the appointed day or the AAC had issued the show-cause notice on his own after that date.
As for rectification application filed or show-cause notice for rectification issued before the appointed day, the normal rule in section 154 that the authority may amend any order passed by him would apply and the same AAC or any other AAC presently having jurisdiction in respect of the concerned case of the assessee may amend the previous order.
Likewise section 39(2) of the said Finance Act would cover the cases where the Tribunal’s order setting aside the AAC ’s order wholly or partly was passed after the appointed day, i.e., July 10,1978. Where the order of the Tribunal setting aside the AAC’s order for redisposal on a particular point or entirely was passed before the appointed day, it would be covered under section 246(3), being an appeal pending immediately before the appointed day and would stand transferred on that day to the Commissioner (Appeals).
However, the remand order of the Tribunal requiring a remand report to be submitted after enquiry on some points, whether passed before or after July 10, 1978, would be complied with by the AAC whose order was the subject-matter of appeal before the Tribunal.
The above clarification would equally apply to orders passed by AACs before June 1, 1979 in the case of a company. Thus, the AAC may rectify any mistake in an order passed by him before June 1, 1979. He may pass such further orders as may be required in pursuance of any order of the Tribunal passed after June 1, 1979, setting aside his previous order partly or wholly with some directions. However, an appeal restored to the file of the AAC before June 1, 1979, would be treated as a pending appeal under section 246(4) and would stand transferred to the Commissioner (Appeals).
QUESTION 2 – (1) What exactly is the connotation of the expression “amount of income so assessed” in clause (e) of section 246(2) (before its deletion with effect from June 1, 1979) and in the Board’s Notification, dated July 7, 1978 ? Does it mean total income determined after set off of brought forward losses, unabsorbed depreciation, development rebate, etc.?
(2) Who is to deal with an appeal in the case of a non-company assessee where the business loss of the concerned year is less than Rs. 1 lakh but the amounts of brought forward loss, unabsorbed depreciation, unabsorbed development rebate or deficiency under section 80J(3) of that year, if aggregated with the business, loss, exceed Rs. 1 lakh?
ANSWER – (1) Under sections 143(3) and 144, the Income-tax Officer makes the assessment of the total income or loss. Clause (e) of section 246(2) and item (ii) of the Notification refer to cases where the assessee objects to the amount of income assessed or to the amount of loss computed in such order of assessment. They, therefore, refer to the total income which is determined after set off of brought forward loss, unabsorbed depreciation, etc.
(2) The sole purpose of carry forward of loss or of unabsorbed depreciation, etc., is to set off the loss/allowance against the profits of a subsequent year. According to the Supreme Court in CIT v. Harparsad & Co. (P.) Ltd. [1975] 99 ITR 118, the concept of carried forward loss presupposes the permissibility and possibility of the carried forward loss being set off against the profits and gains, if any, of the subsequent year. Therefore, whatever loss or unabsorbed allowance is to be carried forward, will not form part of the loss of the year under appeal and cannot be aggregated. In a case of such type the appeal will lie to the AAC.
QUESTION 3 – (1) Where in the case of a non-company assessee with assessed total income/loss exceeding Rs. 1 lakh or in the case of a domestic company with assessed total income/loss exceeding Rs. 5 lakhs an appeal against the assessment was disposed of by an AAC before July 10, 1978, who is to deal with the appeal against ancillary order for the same assessment year?
(2) In the case of the type mentioned above, if no appeal had been filed against the assessment, will the appeals against the ancillary orders e.g., rectification, penalty, etc. lie to the Commissioner (Appeals)?
ANSWER – Under the powers vested in the Board under section 264(2)(i ), the Board, having regard to the nature of the cases, the complexities involved and other relevant considerations, notified the cases of foreign companies, domestic companies whose assessed total income or loss exceeding Rs. 5 lakhs and the cases of assessee (other than a company) with assessed total income or loss exceeding Rs. 1 lakh as “such person or classes of persons” who would file appeal to the Commissioner (Appeals) against an order of the ITO specified in items (i), (ii) and (iii ) of the Notification No. 2381, dated 7-7-1978. There is no further stipulation that an appeal against an ancillary order like penalty, rectification, etc., mentioned in clauses (d) to (o) of sub-section (1) of section 246 would lie to the Commissioner (Appeals) only if the assessment for that very assessment year had been challenged in appeal before the Commissioner (Appeals). In other words, an appeal against any ancillary order mentioned in item (i) (before its deletion by the Notification No. 2845, dated 4-6-1979) and in item (iii) [now item (ii) of the Notification, dated 4-6-1979] passed by the ITO for the same year for which the assessed total income/loss exceeds Rs. 5 lakhs or Rs. 1 lakh, as the case may be, will lie to the Commissioner (Appeals) irrespective of whether the assessment was appealed against or not or the appeal was disposed of by the AAC before July 10, 1978.
QUESTION 4 – Whether originally assessed income or income as revised by the order of rectification would determine the jurisdiction of the first appellate authority?
ANSWER – Since clause (e) of sub-section (2) of section 246 and item (ii) of the Notification refer to the amount of income assessed or amount of loss computed in any order of assessment under sections 143(3) and 144, any subsequent revision of such amount will not be relevant. Section 246 treats an order under section 154 separately for the purposes of appeal.
QUESTION 5 – Who is to deal with an appeal against pre-assessment penalty orders, like an order under section 221 for default in payment of advance tax or an order under section 140A(3) in the case of a non-company assessee who is ultimately assessed on a total income/loss exceeding Rs. 1 lakh?
ANSWER – The use of the non obstante clause “notwithstanding anything contained in sub-section (1)” in sub-section (2) of section 246 would show that the appealable orders which would fall within the jurisdiction of the Commissioner (Appeals) have been excluded for that purpose from sub-section (1) thereof. If any order in not appealable within the provisions of sub-section (2) it would still remain appealable under sub-section (1) with the result that appeals against such pre-assessment orders would lie to the AAC.
2. The above would apply mutatis mutandis to other direct taxes, to the extent applicable.
3. The above clarifications may be circulated to all the officers including AACs in your charge.
Circular : No. 269 [F. No. 279/71/80-ITJ], dated 29-4-1980.
JUDICIAL ANALYSIS
EXPLAINED IN – The above circular was explained in IAC v. Paliwal Glass Works [1987] 20 ITD 50 (Delhi) (TM), as follows :
“. . . it would be seen from this circular that the authority to comply with the requirements of the Tribunal for a remand report or to pass a fresh order pursuant to any remand order passed by the Tribunal restoring the appeal to the file of the AAC for disposal on a particular point or entirely, was with the AAC in case the order was passed by the AAC before the appointed day. He has to take the action as if the amendments directed to be made by the Finance Act had not been made. Then the Board pointed out that the AAC may rectify any mistake in an order passed by him before the appointed day or take such action or pass such further orders as may be required in an appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal. The Board also clarified that the words ‘any action required to be taken’ connote that the requirement for any action to rectify a mistake in an order passed by the AAC before the appointed day would arise after the said date.
7. It is no doubt true that the Board has clarified later in the same circular that section 39(2) (of the Finance Act) would cover the cases where the Tribunal’s order setting aside the order of the AAC wholly or partly was passed after the appointed day. It is relying upon these words, that the departmental representative contended that the fresh order to be passed pursuant to the direction given by the Tribunal setting aside the order of the AAC, must be by the AAC and not by the Commissioner (Appeals). The learned Judicial Member accepted this view.
8. I may mention here that reading this circular particularly these lines, on which reliance was placed by the departmental representative, it gave me the impression that the Board is placing an interpretation on section 39(2) (of the said Finance Act) in such a way as to equate the cases where the Tribunal passed a remand order with orders setting aside the AAC’s order either wholly or partly after the appointed day, namely, 10-7-1978. To say that the words ‘further action to be taken’ used in sub-section (2) of section 39 would cover cases where the Tribunal set aside the order of the AAC to pass a fresh order, in my opinion, is to state the proposition too broadly. When the Tribunal sets aside an order passed by the AAC, the appeal gets restored to the file of the AAC for disposal de novo and the AAC has to again follow the entire procedure that he is required to follow earlier while disposing of the original appeal. There is no difference in the procedure to be followed. That fresh disposal would create the same rights and liabilities on the parties as the earlier order. Against this order the aggrieved party can file a further appeal to the Tribunal.
9. Such being the case, it is in my opinion, difficult to accept the position that those words would cover cases where the Tribunal sets aside the orders of the AAC for fresh disposal of the appeal. It may be that the Board in the interests of smooth administration and in order to avoid dislocation of work, might have prescribed this procedure. Administrative convenience is of paramount importance as it is different from legal interpretation. In this context much depends upon the interpretation to be placed on the direction given by the Tribunal. That direction has to be read in juxtaposition with the direction given in the circular of the Board.
10. Now again adverting to the circular, one would get the impression by going through the circular that the Board was prescribing the authority to deal with the situations arising out of orders passed by the Tribunal pursuant to remand order. A remand report or a remand order contemplated in the Board’s circular have different connotation in law from an order setting aside an appeal. In the case of remand order, unless the matter is restored to the file of the AAC for redisposal, the Tribunal continues to be in seisin of the matter. But when the matter is set aside by the Tribunal, the Tribunal not only disposes of the appeal finally, but it has the effect of effacing the order of the AAC, as if it never existed and that order would have no legal consequences till a fresh order is passed, which is not the case in the case of a remand. To my mind, the Board was explaining the situation arising out of the remand orders though the expressions ‘remand order’ and ‘set aside’ were both used in the circular. Further, the expression ‘set aside’ used in the paragraph relied on, must be understood in the context of what was posed in the question. The question related as to how the requirements of the Tribunal in the case of a remand report or to pass a fresh order in pursuance to a remand order have to be dealt with. It was in answer to this question that the Board said that the AAC would deal with it. Since a situation arising out of setting aside of an order was not raised in the question, a separate paragraph was added to explain that situation also treating both of them on par. It makes no difference as to who passed the subsequent order, so long as the procedure provided by the law is followed. Understood in this light, the words ‘any action required to be taken’ used in section 39(2) could not include orders of set aside because in those cases, what is to be done is not to give effect to the direction of the Tribunal but giving a fresh hearing, reconsidering the matter, appreciate fresh evidence and then come to fresh conclusions. It is not like rectification of mistakes or complying with direction of ministerial nature. Thus, the words used in section 39(2) cannot cover a case of an appeal which was set aside by the Tribunal in toto.” (pp. 64-66)
