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February 16, 2021

Can additional grounds be raised during appellate proceedings when the same were not made before AO during assessment?

by CA Shivam Jaiswal in Income Tax

Can additional grounds be raised during appellate proceedings when the same were not made before AO during assessment?

An income tax return (ITR) is basically a document that is filed as per the provisions of the Income Tax Act, reporting one’s income, profits and losses and other deductions as well as details about tax refund or tax liability. After filing an ITR if the case if selected for scrutiny by the Assessing Officer (AO), income tax liability is determined by the Assessing Officer first. A tax payer aggrieved by various actions of Assessing Officer can appeal before Commissioner of Income Tax (Appeals).

Further appeal can be preferred before the Income Tax Appellate Tribunal. On substantial question of law, further appeal can be filed before the High Court and even to the Supreme Court. The Commissioner of Income-Tax (Appeals) is the first appellate authority and the Income Tax Appellate Tribunal (ITAT) is the second appellate authority. Appeal to the ITAT can be filed by any of the aggrieved party either by the taxpayer or by the Assessing Officer.

Let us refer to the case of Jute Corporation of India Ltd. v. CIT (1991), was whether additional grounds could be raised before the appellate Authority in respect of a claim not made during the course of assessment proceedings or not.

Facts of the Case:

  • The Appellant was a Government Corporation engaged in jute industry.
  • While filing the return for the assessment year 1974-75, the Appellant had not claimed any deduction on its liability to pay purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as the Appellant was under the bona fide belief that it was not liable to pay purchase tax.
  • However, the AO while passing the assessment order assessed the purchase tax.

Order of Appellate Assistant Commissioner (AAC)

  • The Appellant being aggrieved by the assessment order preferred an appeal before the AAC.
  • During the pendency of appeal proceedings, the Appellant raised an additional ground claiming deduction of certain amount on account of liability of purchase tax.
  • The AAC permitted the assessee to raise the additional ground and after hearing the AO, accepted the assessee’s claim and allowed the claim of the assessee.

Order of Income Tax Appellate Tribunal (ITAT)

  • The department being aggrieved filed an appeal before the ITAT.
  • The ITAT held that the AAC had no jurisdiction to entertain the additional ground or to grant relief to the assessee on a ground which had not been raised before the AO.
  • ITAT further rejected the assessee’s application for reference under section 256(1).

Order of the High Court (HC)

  • On an application under section 256(2), the High Court also refused to call for a statement of the case.
  • The Appellant being aggrieved by the decision of the High Court filed a SLP before the Supreme Court (SC).

Observations of the Supreme Court (SC)

  • There was no provision in the Act which put restrictions on the right of the assessee from raising an additional ground in appeal.
  • Further, there was no provision in the Act placing restriction on the power of the appellate authority in entertaining an additional ground of appeal.
  • In the absence of any statutory provision, the general principle relating to the amplitude of appellate authority’s power being co-terminus with that of AO should normally be applicable.
  • If the tax liability of the assessee was admitted and if the AO was afforded opportunity of hearing by the appellate authority in allowing the assessee’s claim for deduction on the settled view of law, there appeared to be no good reason to curtail the powers of the appellate authority under section 251(1)(a) of the Act.
  • Reversing the order of the High Court, Supreme Court held that there may be several factors justifying the raising of additional ground in appeal, and each case had to be considered on its own facts.
  • If the AAC was satisfied, he would be acting within his jurisdiction in considering the question so raised in all its aspects.
  • Of course, while permitting the assessee to raise an additional ground, the AAC should exercise his discretion in accordance with law and reason.
  • He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons.
  • The satisfaction of the AAC depended upon the facts and circumstances of each case and no rigid principles or any hard and fast rule could be laid down for this purpose.

In conclusion, additional grounds could be raised during the course of appellate proceedings in respect of claims not made before Assessing Officer during the course of assessment proceedings

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