Appeal can be filed against wrong appeal effect given by Assessing Officer

Brief Facts

1. The assessee has filed return of income declaring income of Rs.80,62,76,210/-, Assessing Officer disallowed the deduction claimed under sect ion 80P (2) (d) amounting to Rs.2,91,55,456/-. The assessee filed appeal against the said assessment order before the CIT (A), who has upheld the order of AO. Against the said order assessee preferred an appeal before ITAT. ITAT remanded back the matter to the Assessing Officer for the purpose of determining the quantum of deduction available to the assessee under sect ion 80P(2) (d) of Act.

2. Thereafter, AO has disallowed the deduction claimed under sect ion 80P(2) (d) of the Act amounting to Rs.1,18,81,092/- (20% of the gross dividend and interest earned) assuming the same to be the expenditure incurred by the assessee for earning the dividend and interest income from co-operative institutions. Assessee has again preferred an appeal before CIT (A) against the order of AO, who after considering the provisions of sect ion 14A of the Act as well as section 57 of the Act directed the Assessing Officer to compute the quantum of deduction admissible to the assessee under sect ion 80P(2) (d) of the Act by taking into consideration only the expenses incurred by way of commission /remuneration paid to the banker or any other person for realizing dividend or Interest income.

3. The Assessing Officer while giving appeal effect to the order of the learned CIT (A) applied the provisions of section 14A of the Act. The assessee feeling aggrieved against these findings of the AO preferred appeal before the learned CIT (A). CIT (A) dismissed the appeal of the assessee by stating that the appellant has moved an appeal against appeal effect order by the A.O. The appellant is aggrieved with the computation of disallowance U/s 14A read with Rule 8D. The right course for the appellant is to move a rectification application U/s 154 before the Assessing Officer. No appeal lies against Appeal Effect Order passed wrongly U/s 250/154 of the Income Tax Act by the Assessing Officer. Hence, appeal file by the assessee “not maintainable against the appeal effect order passed by the Assessing Officer”.

Issue

Whether assessee can appeal against appeal effect order passed by the Assessing Officer?

Submission of assessee

1. As per the directions of the CIT (A), it was brought to the knowledge of the Assessing Officer that neither any commission/remuneration was paid to any banker or any other person for realizing such dividend, nor have any administrative, office expenses, etc. been incurred for earning of the dividend and interest income.

2. Assessing Officer while giving appeal effect applied the provisions of sect ion 14A of the Act in complete defiance of the order passed by the learned CIT (Appeals) because the learned CIT (Appeals) directed the Assessing Officer to compute the deduction available to the assessee by taking into consideration only the expenses incurred by way of commission/remuneration paid to the bankers or to any other person for realizing such dividend income. Further, assessing Officer in giving the appeal effect because the assessing officer exceeded his jurisdiction by applying the provisions of sect ion 14A of the Act.

3. Assessee relied on following judgment Andhra Pradesh High Court Bakelite Hylam Ltd. vs. CIT, 37 Taxman 210, wherein it was held that “Two issues arise for consideration as indicated by the question referred to this Court. The first question is, whether the assessee can appeal against a modification order passed by the ITO giving effect to the order of the appellate authority? In other words, could it be said that the modification order partakes the nature of the order under section 143 of the Act so as to subject itself to an appeal under section 246 of the Act Now, the revenue’s contention is that the order/orders passed by the ITO giving effect to the appellate decisions cannot be described as assessment order in the sense they are understood under section 143. It is, therefore, submitted that no appeal lies. We are afraid, the contention urged by the revenue is not tenable. An order of assessment is one in which there is computation of income or computation of tax or both. That computation of income and tax can be made by the ITO not only in regular assessment made under section 143 but also in orders passed from time to time giving effect to the decisions of the appellate authorities. The order passed by the ITO giving effect to the decision of the appellate authority is as much an assessment order as the one passed by him by way of regular assessment under section 143. We are fortified in this view by the decision of the Calcutta High Court in Kooka Sidhwa & Co. v. CIT [1964] 54 ITR 54 and the decision of the Punjab High Court in Gopi Lal v. CIT [1967] 65 ITR 477. We, therefore, hold that an assessee has a right to appeal against a modification order as if it was an assessment order itself, and the appellate authority is bound to entertain an appeal and decide it on merits.”

4. Also by Bombay High Court in case of Caltex Oil Refining ( India) Ltd. Vs. CIT, 73 Taxman 231, wherein it was held that “ In the light of these decisions and for the reasons given above, we are of the opinion that the impugned order of the assessment passed by the ITO pursuant to the directions of the appellate authorities with a view to giving effect to the directions contained therein is an order of assessment within the meaning of sec t ion 143 or sec t ion 144 of the Ac t and an appeal lies under sec t ion 2246(c ) against such an order . ”

Revenue contention

D.R for the revenue argues that no appeal lies against Appeal Effect Order passed by Assessing officer. The appellant may apply to the Assessing Officer for rectification U/s 154 of the Income Tax Act, 1961 but no appeal be filed against appeal effect order passed by AO.

ITAT held as under

1. The learned CIT (Appeals) earlier directed the Assessing Officer to compute the deduction in view of the expenses incurred by way of commission/remuneration paid to bankers or to any other person for realizing such dividend income.

2. The learned CIT (A) has not issued any direction to the Assessing Officer for applying the provisions of sect ion 14A of the Act. The appeal effect order passed by the Assessing Officer in contravention of the order of the learned CIT (Appeals) is appealable order and appeal lies against the order of the Assessing Officer before the learned CIT (Appeals).

3. Decisions relied upon by the learned counsel for assessee in the case of Bakelite Hylam Ltd. (supra) and in the case of Caltex Oil Refining (India) Ltd. (supra) clearly support the contention of the assessee.

4. The learned CIT (A) was, therefore, not justified in holding that no appeal lies against the appeal effect order passed wrongly under section 250/154 of the Act by the Assessing Officer. The order of the learned CIT (A) is thus set aside and consequently the matter in issue is restored to the file of the learned CIT (A).

Analysed by CA Rahul Sureka