CA Hiral Raja

Sub-section (1) of section 254 of the Income Tax Act, 1961 states as under:

“254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.”

The moot question is whether the Tribunal has the power to enhance the assessment/In other words, can the Tribunal take back what assessing officer has given?

Supreme Court in the case of Hukumchand Mills Ltd. V. Commissioner of Income-tax, Central, Bombay 1967-(063)-ITR -0232 -SC had dealt with the powers of the Tribunal while interpreting section 33(4) of the Income Tax Act, 1922 (equivalent to section 254(1) of the Income Tax Act, 1961) as follows:

“33(4) The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner.

The word “thereon”, of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words “pass such orders as the Tribunal thinks fit” include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act”.

From the above, it can be clearly seen that there is no blanket restriction on the powers of the Tribunal to enhance the assessment but the restriction on enhancement is in light of the judge – made law, or to put it differently, in light of the ratio decidendi of the binding judicial pronouncements. Further this view has been confirmed by various judicial pronouncements viz., Pathikonda Balasubha Setty (Decd.) Vs. CIT 1967 – 65 – ITR- 252 (Mys), and in the latest Supreme Court judgment in the case of MCorp Global Pvt. Ltd. Vs. Commissioner of Income Tax, Ghaziabad 2009-(222)-CTR -0110 -SC.

Hon’ble Supreme Court in case of State of Kerala Vs. Vijaya stores 1979 116 ITR 15 SC had held that in the case of assesee’s appeal, and in absence of cross objection or cross appeal from the revenue, an assessee cannot be worse off as a result of his having carried the matter in appeal before the Tribunal. Further Hon’ble Allahabad High Court in case of Pahulal Ved Prakash Vs. CIT 1990 186 ITR 589 (ALL) had come to the conclusion that “It is settled that the Tribunal, while dealing with an appeal, in the absence of any cross appeal or cross objection, cannot give a finding adverse to the appellant which would make his position even worse than it was against the orders appealed against”.

This brings us to another issue as to whether the Tribunal cannot enhance the assessment even if the orders passed by the Assessing officer are not in accordance with the law or there are computational errors in the orders passed by the Assessing Officer? Hon’ble Supreme Court in the case of CIT Vs. Assam Travel Shipping Service (1993) 199 ITR 1 (SC), after taking note of Hukumchand Mill’s case (supra) observed that “The expression ‘as it thinks fit’ is wide enough to include the powers of remand to the authority competent to make the requisite order in accordance with the law in such a case, even though the Tribunal itself could not have made the order enhancing the penalty”. Thus it is clear that though the Tribunal does not have powers of enhancement, in fit cases, it can remit the matter to the file of the CIT(A) or the AO for deciding the matter in accordance with the law irrespective of whether or not the order so being passed in accordance with the law may result in enhancement. Thus there can be situations in which the assessee ends up paying more, as a result of the matter having been carried in appeal before the Tribunal, than what it would have paid if the AO’s order was simply accepted by the assessee. In the case of Assam Travel Shipping Service (supra), the assessee was imposed penalty of Rs. 6,944 under s. 271(1) (a) which was less than the minimum penalty of Rs. 65,700 which could have been imposed on the facts of that case. The first appellate authority cancelled the penalty order on the ground that the penalty imposed is not in accordance with the law. When the matter traveled in appeal before the Tribunal, a view was taken that the penalty imposed by the AO “was not in accordance with the law and since the Tribunal had no rights to enhance the penalty, there was no alternative but to set aside the order of penalty imposed by the ITO and, in that view, the Tribunal upheld the order of the AAC (i.e., the first appellate authority)”. While Hon’ble Gauhati High Court upheld this stand of the Tribunal, Hon’ble Supreme Court did not do so. Their Lordships, on the facts of this case, observed that “The expression ‘as it thinks fit’ is wide enough to include the powers of remand to the authority competent to make the requisite order in accordance with the law in such a case, even though the Tribunal itself could not have made the order enhancing the penalty”. In the light of the above, Tribunal is not always prevented from passing orders which may result in enhancement of the assessee’s tax liability beyond the tax liability determined by the AO. In other words, it is not always necessary that as a result of the proceeding following assessee having been carried in appeal, the assessee cannot be worse off vis-a-vis the position in the event of his having simply accepted the order which is so carried in appeal. The rule preventing enhancement of assessee’s tax liability, beyond the liability fixed by the AO, is not universal and without exceptions to the said rule. Similar view was expressed by Bombay Tribunal in case of Joint Comissioner of Income Tax Vs. Sakura Bank Ltd. (2006) 100 ITD 0215 T BOM.

Hence from the above, it can clearly be inferred that;

  • There is no blanket restriction on the powers of the Tribunal to enhance the assessment as per Section 254(1) of the Income Act, 1961.
  • The restriction on enhancement of the assessment by the Tribunal is in light of the binding judicial pronouncements.
  • Various judicial pronouncements confirm that in case of assessee’s appeal, and in absence of cross objection or cross appeal from the revenue, an assessee cannot be worse off as a result of his having carried the matter in appeal before the Tribunal.
  • In case the orders passed by the Assessing Officer are not in accordance with the law or there are computational errors in the orders passed by the Assessing Officer, then the Tribunal, even though does not have the power of enhancement, can remand back the case to the CIT (A) or Assessing Officer for deciding the matter in accordance with the law irrespective of whether or not the order so being passed in accordance with the law may result in enhancement.

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