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February 17, 2021

Tribunal has no power of enhancement – SC

by CA Shivam Jaiswal in Income Tax

Tribunal has no power of enhancement – 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 MCorp Global Pvt. Ltd. v. CIT (2009), where the issue under consideration was whether the Tribunal could take back a benefit conferred by the AO or enhance the assessment or not.

Facts of the Case:

  • During the relevant assessment year, the assessee carried on the business of trading in lamination machines & binding and punching machines.
  • In addition, it was also engaged in the leasing business.
  • During the relevant year, the assessee had bought 5,46,000 soft drink bottles from M/s Glass & Ceramic Decorators worth Rs. 19,54,953.
  • The bottles were directly supplied to M/s Coolade Beverages Pvt. Ltd in terms of a Lease.
  • By an assessment order, the AO found that M/s Coolade had received only 42,000 bottles out of the total of 5,46,000 bottles receivable by them from the assessee and that the remaining bottles stood received after 31.3.1991, i.e., between the period 3.4.1991 and 18.4.1991 and consequently, the AO restricted the depreciation only to 42,000 bottles and consequently dis-allowed the depreciation of Rs. 18,04,572.

Order of Commissioner of Income Tax (Appeals) [CIT(A)]

  • In Appeal, the CIT(A) after formulating the “User Test” remanded the matter to the AO who on remand held that all 5,46,000 bottles stood paid for and dispatched before 31.3.1991 and, therefore, the assessee was entitled to 100% depreciation on all 5,46,000 bottles.
  • On appeal, the Tribunal held that the assessee was not entitled to depreciation at all. Therefore, the entire claim was directed to be disallowed.
  • Confirming the decision of the Tribunal, the High Court (HC) held that the appellant (assessee) was not entitled to claim depreciation under Section 32(1)(ii) of the Income-tax Act, 1961 in respect of two separate transactions dated 15.2.1991 and 15.3.1991.

Observations of Supreme Court (SC)

The assessee relied on the Supreme Court’s judgment in the case of Hukumchand Mills Ltd. v. CIT (1967) (SC) to argue that the Tribunal does not have the power to enhance an assessment. The department supported the order of the Tribunal

The Supreme Court accepted the assessee’s contention and held that the Tribunal has no power to take back a benefit conferred by the AO, i.e., the Tribunal does not have the power of enhancement.

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