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February 13, 2021

ITAT has jurisdiction to decide a question of law raised for the first time before it – SC

by CA Shivam Jaiswal in Income Tax

ITAT has jurisdiction to decide a question of law raised for the first time before it – SC

Income Tax Appellate Tribunal (ITAT) is a quasi-judicial institution which specializes in dealing with appeals under the Direct Taxes Acts. According to Section 254, 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. On a question of fact, the Appellate Tribunal order is a final order and no appeal can lie to High Court against this order. However, if the fact finding had not been done properly by the Appellate Tribunal, the assessee can file a writ petition to the High Court challenging the fact-finding process. If the High Court is satisfied that the claim of the assessee is correct then it will direct the Appellate Tribunal to conduct the fact finding as per the proper procedure.

Let us refer to the case of National Thermal Power Co. Ltd. v. CIT (1998), where the issue under consideration was whether a fresh claim could be made for the first time before the Tribunal or not.

Facts of the Case:

  • The assessee carried on the business of construction, generation, operation and maintenance of thermal power stations and associated transmission network
  • During AY 1978-79, the assessee had deposited its funds which were not immediately required, on short-term deposits with banks.
  • Interest received on such deposits during the previous year relevant to AY 1978-79 amounted to Rs. 22,84,994.
  • This was offered by the assessee for tax assessment and the assessment was completed on that basis.

Appeal before the Commissioner of Income-tax (Appeals) [CIT(A)]

Before the Commissioner of Income-tax (Appeals), a number of grounds were taken by the assessee challenging the assessment. However, the inclusion of this amount of Rs. 22,84,994 was neither challenged by the assessee nor considered by the Commissioner of Income-tax (Appeals).

Additional Grounds raised in appeal before the Income Tax Appellate Tribunal (ITAT)

  • From the order of the Commissioner of Income-tax (Appeals), the assessee filed an appeal before the Tribunal.
  • The inclusion of the said amount of Rs. 22,84,994 was not objected to even in the grounds of appeal as originally filed before the Tribunal.
  • However, by a forwarding letter, the following additional grounds were sought to be raised by the assessee:
  • The sum of Rs. 22,84,994 deducted from “Statement of expenditure during construction” cannot be included in the total income.
  • It is contended that on admission (erroneous), no income (the sum of Rs. 22,84,994) can be included in the total income.
  • The authorities below have erred and failed in their duty in not adjudicating the facts and evidence on record and mechanically including Rs. 22,84,994 in the total income.

Observations of the Supreme Court (SC)

  • The issue before SC was where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same or not.
  • Under Section 254 of the Income-tax Act, 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 power of the Tribunal in dealing with appeals was thus expressed in the widest possible terms.
  • The purpose of the assessment proceedings before the taxing authorities was to assess correctly the tax liability of an assessee in accordance with law.
  • If, for example, as a result of a judicial decision given while the appeal was pending before the Tribunal, it was found that a non-taxable item was taxed or a permissible deduction was denied, SC did not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts were on record in respect of that item.
  • SC did not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals).
  • Both the assessee as well as the Department had a right to file an appeal/cross-objections before the Tribunal.
  • SC failed to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

Reference to earlier case by Supreme Court (SC)

  • In the case of Jute Corporation of India Ltd. v. CIT, SC, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority had all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions.
  • In the absence of any statutory provision, the appellate authority was vested with all the plenary powers which the subordinate authority may have in the matter.
  • There was no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer.
  • SC further observed that there may be several factors justifying the raising of a new plea in an appeal and each case had to be considered on its own facts.
  • The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons.
  • The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason.
  • The same observations would apply to appeals before the Tribunal also.

Conclusion by Supreme Court (SC)

The view that the Tribunal was confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) took a narrow view of the powers of the Appellate Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings, SC failed to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

In simple words, the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee

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