COMMISSIONER OF INCOME TAX CENTRAL-II vs. DIVINE INFRACON PVT. LTD

2015

The aforesaid controversy arises in the backdrop of the following facts:

1 The Assessee filed a return for the Assessment year 2008-09 declaring a total income of Rs.3,84,027/- on 30th September, 2009. Thereafter, on 14th September, 2010 search and seizure operations were conducted at the registered office of the Assessee Company. Subsequent thereto, a notice under Section 153A of the Act was issued against the Assessee on 26th September, 2012. Pursuant to the notice issued under Section 153A, the AO passed an order dated 28th March, 2013 assessing the total income of the 2015:DHC:6553-DB

2 The Assessee preferred an appeal against the Assessment Order before the CIT(A), being Appeal No. 320/2013-14, inter alia challenging the addition on merits as well as on the ground that the addition was beyond the scope of Section 153A of the Act. According to the Assessee, the share application money was duly disclosed in its return and the addition was unrelated to any incriminating material found during the search and, thus, was beyond the scope of assessment under Section 153A of the Act.

3 The CIT(A) disposed of the Appeal by an order dated 24th January 2014. The CIT(A) found merit in the Assessee’s contention that the addition made was beyond the scope of Section 153A of the Act as the addition was not based on any incriminating material found during the search. However, the CIT(A) upheld the conclusion of the AO that the share application money reflected in the books of the Assessee was unexplained. 2015:DHC:6553-DB

4 The Revenue accepted the aforesaid order passed by the CIT(A) and did not prefer any appeal before the Tribunal. The Assessee, on the other hand, impugned the order of CIT(A), inter alia, on the following ground :- “That the learned CIT (Appeals) has grossly erred in law and on facts in sustaining the addition made by assessing officer under section 68 of the Act amounting to Rs.20,25,00,000/- particularly having regard to the fact that very assumption of juri iction to bring to tax the aforesaid sum was beyond the scope of provisions of section 153A of the Act, as was held by learned Commissioner of Income Tax (Appeals) in the impugned order.”

5 During the course of the proceedings before the Tribunal, the representative of the Revenue sought to assail the finding of the CIT(A) that the additions made were outside the scope of Section 153A of the Act. The Tribunal entertained the aforesaid plea and permitted the representative of the Revenue to raise contentions in that regard, but finally the conclusions of the CIT(A) were sustained.

The Revenue has now preferred an appeal impugning the decision of the 2015:DHC:6553-DB

The learned counsel for the Assessee submitted that the Tribunal erred in permitting the Revenue to challenge the finding of the CIT(A) with regard to the scope of Section 153A of the Act. He submitted that since the Revenue had not appealed against the decision of the CIT(A), it could not raise the issue before the Tribunal. He referred to the decision of this Court in CIT vs. Edward Keventer (Successors) Pvt. Ltd.: (1980) 123 ITR 200(Del), in support of his contention that it would not be open for the respondent to travel outside the scope of the subject matter of the Appeal.

He submitted that the scope of the subject matter of the Appeal was limited to the finding of the CIT(A) with regard to the merits of the addition made; the issue whether the same was beyond the scope of Section 153A of the Act was not the subject matter before the Tribunal and, thus, the Tribunal could not have entertained any plea in that regard.

The learned counsel for the Assessee also referred to the decision of the Supreme Court in Hindustan Coca Cola Beverages P.Ltd v. Joint Commissioner of Income Tax: (2007) 293 ITR 226. In that case, the Tribunal had decided to reopen an appeal decided earlier and permitted the Assessee to urge a ground, which had not been considered by the Tribunal while deciding the appeal. The decision of the Tribunal to reopen the matter was not appealed against by the Revenue but, the Revenue successfully assailed the final order passed by the Tribunal before the High Court, inter alia, on the ground that the matter could not be reopened by the Tribunal. In this context, the Supreme Court held that, “We have already noticed that the order passed by the Tribunal to reopen the matter for further hearing as regards ground No. 7 has attained its finality. In the circumstances, the High Court could not have interfered with the final order passed by the Income- tax Appellate Tribunal.”

We find considerable merit in the contention advanced on behalf of the Assessee. Concededly, the issue whether the additions made by the AO were beyond the scope of Section 153A had been decided by the CIT(A) in favour of the Assessee and the decision on the said issue had attained finality as the 2015:DHC:6553-DB

It is also relevant to note that by virtue of Section 253(2) of the Act, the Principal Commissioner or Commissioner may, if he objects to an order passed by the CIT(A) under Section 250 of the Act, direct the AO to prefer an appeal to the Tribunal. It is not disputed that no such directions to file an appeal against the CIT(A)’s order dated 21st January, 2014 were issued by the concerned Income Tax Authority.

In the circumstances, there could be no dispute that the CIT(A)’s order in so far as it relates to the issue regarding the assessment being beyond the scope of Section 153A of the Act had attained finality, and thus, could not have been disturbed by the Tribunal.

It is also relevant to refer to the decision of the Mysore High Court in Pathikonda Balasubba Setty v. CIT: (1967) 65 ITR 252 wherein the court observed as under: “The effect of these provisions is that the Appellate Tribunal's powers are limited to passing such orders as they may think fit on the appeal. The expression 'on the appeal', clearly and indubitably points to the conclusion that the powers of the 2015:DHC:6553-DB

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The learned counsel for the Revenue has referred to the decision of the Supreme Court in National Thermal Power Corporation Ltd. vs. Commissioner of Income Tax: 229 ITR 383 (SC) in support of the contention that it is open for the Tribunal to consider all questions of law where no investigation into facts are necessary. We find that the aforesaid decision is wholly inapplicable to the facts of the present case. It is trite law that the Tribunal may, under Section 254(1) of the Act, pass such orders as it thinks fit; nonetheless, the decision must be in respect of the subject matter of the dispute. Indisputably, the Tribunal can examine all questions which relate to the subject matter of an appeal but, once an issue has attained finality and is not a subject matter of the dispute before the Tribunal, it would not be open for the Tribunal to reopen the issue on the pretext of examining a question of law.

In view of the aforesaid, the Appeal preferred by the Revenue (being ITA No. 771/2014) is rejected. As indicated above, the Appeal preferred by the Assessee (ITA No. 185/2015) is only consequential to the Appeal filed by the Revenue and is, accordingly, also disposed of.

It is clarified that the question whether an assessment could be framed under Section 153A of the Act, even where no incriminating documents have been found during the search is left open.