Rule 11 allows tribunal to permit additional grounds not in memorandum with leave and hearing for affected parties

HC held Rule 11 empowers the Tribunal to permit additional grounds not set out in the memorandum, though leave is required and need not be in writing; the Tribunal must give affected parties a sufficient opportunity to be heard before relying on any new ground. The HC found the ITAT erred in refusing to entertain a legal ground which arose from existing record, set aside the order, and remanded the matter to the ITAT to decide the additional ground on merits, permitting further remand by the Tribunal if necessary.

---

---

Issues Involved:
1. Whether the ITAT was correct in law in holding that the Grounds of Appeal raised before it could not be entertained as they were not raised as additional grounds of appeal without seeking leave of the court.
2. Whether the ITAT's order is contrary to the ratio of the Apex Court in the case of National Thermal Vs. CIT 229 ITR 383.

Issue-wise Detailed Analysis:

1. Grounds of Appeal and Leave of the Tribunal:
The assessee challenged the ITAT's refusal to adjudicate on an additional ground regarding the calculation of Minimum Alternate Tax (MAT) to be carried forward, arguing that it was part of the grounds of appeal filed. The ITAT held that prior written leave was required to raise additional grounds, and an oral request was insufficient, as it would prejudice the Revenue by denying it the opportunity to counter the request. The ITAT relied on judgments from the Gujarat High Court, Allahabad High Court, and Punjab and Haryana High Court to support its decision.

2. Tribunal's Powers Under Section 254(1):
Section 254(1) of the Income Tax Act provides the Tribunal with wide powers to pass orders as it thinks fit after hearing both parties. The Tribunal's powers are not limited to issues arising from the order appealed from, but also include determining the correct tax liability of the assessee. Rules 11 and 29 of the Income Tax (Appellate Tribunal) Rules, 1963, further support the Tribunal's discretion to allow new or additional questions of law arising from the record before it, provided that the other party is given a sufficient opportunity to be heard.

3. National Thermal Power Co. Ltd. vs. CIT:
The Supreme Court in National Thermal Power Co. Ltd. vs. CIT held that the Tribunal has jurisdiction to examine a question of law arising from the facts on record, even if not raised earlier. The Tribunal's powers are expressed in the widest possible terms, allowing it to consider questions necessary to correctly assess the tax liability of an assessee. This includes questions of law arising from the assessment proceedings, which had not been raised earlier.

4. Application of National Thermal Power Case:
The Apex Court's judgment in National Thermal Power Co. Ltd. was followed by this Court in Avery Cycle Industries Ltd. vs. CIT, which allowed additional grounds to be raised before the Tribunal if relevant facts are on record. Similarly, the Bombay High Court in Ahmedabad Electricity Co. Ltd. vs. CIT held that the Tribunal has jurisdiction to permit additional grounds even if they do not arise from the order of the Appellate Assistant Commissioner, as long as they pertain to the subject matter of the tax proceedings.

5. Tribunal's Reliance on Other Judgments:
The Tribunal's reliance on the Gujarat High Court's judgment in Smt. Arundhati Balkrishna vs. G.M. Singhvi was found to be contrary to the Supreme Court's ruling in National Thermal Power Co. Ltd. The Full Bench of the Bombay High Court in Godavari Sugar Mills Ltd. also supported the assessee's position, emphasizing the Tribunal's wide powers under Rule 11 of the Appellate Tribunal Rules.

6. Tribunal's Discretion and Additional Grounds:
The Tribunal should have exercised its discretion to allow the additional ground, especially since the assessee intended to raise only a legal argument without reference to disputed facts. The Tribunal's reliance on Sahara India's case was misplaced, as the facts of that case were not clear, and the judgment ultimately supported the assessee's position.

Conclusion:
The appeal was allowed, and the substantial questions of law were answered in favor of the assessee. The matter was remanded to the Tribunal for adjudication on the additional ground on merits, with the Tribunal having the liberty to remand the matter further if necessary. The Tribunal's decision was set aside, and it was directed to consider the new ground raised by the assessee, ensuring the correct tax liability is determined.

---