AMILAL AGRAWALLA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE short question which arises for consideration in this reference concerns the scope and ambit of the jurisdiction of the AAC to entertain a new claim for exemption made before him for the first time. The assessee is a company carrying on business of copper engraving and manufacturing of labels. The assessee was admittedly entitled to exemption in respect of a portion of its profit for the asst. year 1963 -64 under S. 84 of the IT Act, 1961, but due to some oversight the assessee omitted to make a claim for such exemption at the time of assessment by the ITO, with the result that this profit was subjected to tax in the assessment order dated 12th Feb., 1965, made by the ITO. The assessee realised that by reason of its omission to make a claim, profit exempt from payment of tax had been erroneously subjected to tax and it, therefore, included in the memorandum of appeal against the order of assessment, a ground that the ITO had erred in not exempting such profit from tax under S. 84. The assessee pointed out to the AAC at the hearing of the appeal that the benefit of S. 84 had been allowed to the assessee in the subsequent assessment years and, if that was so, there was no reason why it should not be granted to the assessee also in the assessment year in question. The AAC, however, refused to entertain this contention on the ground that the claim for exemption under S. 84 was not advanced before the ITO, and it was, therefore, not possible to say that the ITO had erred in not granting the benefit of S. 84 to the assessee. The assessee thereupon preferred a further appeal to the Tribunal in which, apart from raising various grounds relating to other items in the assessment order, the assessee challenged the decision of the AAC that the assessee was not entitled to claim exemption under s. 84 at the appellate stage because no such claim had been put forward by him before the ITO. The Tribunal found that this challenge to the view taken by the AAC was wellfounded and the AAC ought to have entertained the claim of the assessee for exemption under S. 84. The Tribunal observed in a very brief order :

(2.) THE Tribunal accordingly directed the ITO to allow appropriate relief under S. 84. The CIT was aggrieved by this decision and he, therefore, applied for a reference and on the application the following question of law was referred for the opinion of this Court :

(3.) NOW the question as to what is the scope and ambit of the power of the AAC in dealing with an appeal against an order of assessment is no longer open to doubt or controversy. It must be regarded as settled by several decisions which are binding upon us. The leading decision on the subject is the decision of the Bombay High Court in Narrondas Manordass vs. CIT (1957) 31 ITR 909 (Bom). Any discussion of this topic is bound to commence with a reference to this decision. But, before we go to this decision, we may profitably look at the language of S. 251 which sets out the powers which may be exercised by the AAC in disposing of an appeal before him. It may be pointed out that the powers exercised by the AAC under S. 251 are conferred in almost identical terms as the powers under S. 31 of the Indian IT Act, 1922, and, therefore, decisions given on the interpretation of S. 31 of the Indian IT Act, 1922, would be equally applicable in determining the proper scope and ambit of the powers of the AAC under S. 251. Sec. 251, in so far as it is material for the purpose of the present discussion, provides in cl. (a) that in disposing of an appeal against an order of assessment, the AAC "may confirm, reduce, enhance or annul the assessment, or he may set aside the assessment and refer the case back to the ITO". The AAC is given the power not only to confirm, reduce or annul the assessment but also to enhance it. This is rather a striking departure from the ordinary powers of a Court of appeal because, under the scheme of appeal envisaged in the Act, an appeal against an order of assessment can be preferred only by an assessee and not by the Revenue and, in the appeal by the assessee, the AAC is given the power to make an order prejudicial to the assessee. If the assessee accepts the assessment made by the ITO and does not prefer an appeal against it, the assessment becomes final, however erroneous it may be, subject only to reopening by the ITO under S. 147 and revision by the CIT under S. 263. There is nothing that the AAC can do about it. But, if the assessee prefers an appeal, the whole assessment is thrown open before the AAC and the AAC can interfere with any part of the assessment, whether in favour of the assessee or against him. Once an appeal is preferred by the assessee and the assessment is brought before the AAC, the competence of the AAC is not restricted to examining those aspects of the assessment which are complained of by the assessee ; his competence ranges over the whole assessment and it is open to him to correct even that part of the assessment which is in favour of the assessee and in respect of which there is naturally no complaint by him. This is the only interpretation by which meaning can be given to the words "enhance. . .the assessment". This was also the view taken by the Bombay High Court in Narrondas Manordass vs. CIT (1957) 31 ITR 909(Bom). Chagla, C.J., speaking on behalf of the Division Bench, observed in that case :