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February 16, 2021

Can ITAT give findings pertaining to an assessment year not covered by the appeal?

by CA Shivam Jaiswal in Income Tax

Can ITAT give findings pertaining to an assessment year not covered by the appeal?

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 CIT v. Manick Sons (1969), where the issue under consideration was whether the Tribunal can give findings pertaining to an assessment year not covered by the appeal or not.

Facts of the Case:

  • For AY 1952-53 respondents M/s. Manick & Sons were assessed to tax in the status of a registered firm and their income was computed at Rs. 15,331 inclusive of Rs. 15,000 being undisclosed income.
  • For AY 1953-54 the respondents returned Rs. 40,887 as their income from business.
  • The Income-tax Officer discovered an aggregate amount of Rs. 74,692 as “cash credits” which, in his view, were not satisfactorily explained by the respondents.
  • The Income-tax Officer accordingly brought to tax a total income of Rs. 1,31,179 being Rs. 56,487 as income from business and Rs. 74,692 as income from “other sources” and assessed the respondents as an unregistered firm.

Appeal to Appellate Authorities

  • The Appellate Assistant Commissioner in appeal reduced the income of the respondents from business to Rs. 38,420 and income from “other sources” to Rs. 46,620.
  • In second appeal the Tribunal reduced the income from business to Rs. 28,820 and confirmed the finding that the source of the cash credits aggregating to Rs. 46,620 had remained unexplained.
  • But the Tribunal observed that “there were certain special features in the case which needed proper consideration in determining the final assessment.”
  • The Tribunal then aggregated the income for AY’s 1952-53 and 1953-54 for the two years, which he rounded off at Rs. 1,00,000 and apportioned in equal shares in the two years.
  • For AY 1952-53, the Tribunal recorded that the respondents had given an undertaking to file a voluntary return for assessment on the basis of total income of- Rs. 50,000.

At the instance of the Commissioner of Income-tax, following questions were referred to the High Court (HC)

  • Whether it was not beyond the jurisdiction of the Appellate Tribunal to reopen the concluded assessment for assessment year 1952-53 and to direct that the income should, be revised in that year at Rs. 50,000 as against Rs. 15,331 already fixed?
  • Whether the Tribunal was justified in directing that any portion of the cash credits be assessed to income-tax in any year other than the AY 1953-54
  • Whether the Tribunal was justified in finding that a portion of the cash credits were covered by the intangible additions made in 1952-53 and 1953-54 assessment?
  • Whether the Tribunal was justified in directing that the income under the head ‘business’ for the AY 1953-54 be reduced to Rs. 50,000?

The High Court declined to answer questions (1) & (2) and answered questions (3) & (4) in the affirmative

Observations of the Supreme Court (SC)

  • The assessee argued that the addition made by the Tribunal was with the consent of the parties.
  • Therefore, no grievance could be raised before the Court.
  • The department argued that there was no sanction in law permitting the Tribunal to give findings pertaining to an assessment year, other than the year, which was the subject matter of an appeal before it.
  • The Supreme Court held that the approach adopted by the Tribunal was incorrect.
  • It was only permitted to give directions pertaining to the assessment year before it, and not pertaining to any other year.
  • Further, the manner in which the income for the two years was clubbed on an ad hoc basis was not justifiable.

In simple words, the Appellate Tribunal has no power to give any directions with respect to an assessment year not covered by the appeal

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