2020 (2) TMI 371 - HC - Income Tax

High Court allows additional grounds, criticizes CIT (Appeals) handling, remands to reassess merits.

The High Court held that the CIT (Appeals) had jurisdiction to consider additional grounds raised by the appellant, but criticized the CIT (Appeals) for ... CIT (Appeals) jurisdiction to entertain the additional grounds - rejection of the application under section 154 - amount of short term capital gain on the sale of debts funds was inadvertently considered as business income in the appellant's return - whether the CIT (Appeals) had the jurisdiction to entertain this additional grounds in the appeal instituted by the appellant questioning the Assessing Officer's order dated 12/12/2011 made under section 143 (3) of the said Act, even though such grounds neither flow from any change of circumstances or the law nor is it that such grounds were unavailable to the appellant/assessee at the stage of filing the return or during the progress of the assessment proceedings before the Assessing Officer? HELD THAT:- The substantial questions of law as framed are required to be answered in favour of the appellant/assessee and against the respondent/revenue to the extent of holding that the CIT (Appeals), in the facts and circumstances of the present case, did have the jurisdiction to entertain the two additional grounds raised by the appellants in the context of payment of the amount of ₹ 52,14,543/- as short terms capital gain and the addition of amount of ₹ 5,90,093/- to the business income in the return filed by the appellant. However, in the present case the ITAT after holding that the CIT (Appeals) lacked the jurisdiction to entertain the two additional grounds has proceeded to observe that even on merits, the CIT (Appeals) was wrong in exercising discretion in favour of the appellants or accepting the case of the appellants on merits. Issues Involved:1. Jurisdiction of the CIT (Appeals) to adjudicate on grounds not raised before the Assessing Officer.2. Powers of the CIT (Appeals) to admit and adjudicate fresh claims not included in the revised return or during assessment proceedings.Detailed Analysis:Jurisdiction of the CIT (Appeals):The primary issue is whether the CIT (Appeals) had the jurisdiction to entertain additional grounds raised by the appellant that were not presented during the assessment proceedings before the Assessing Officer. The appellant filed returns for the assessment year 2009-2010, declaring a total income of 'Nil,' but the Assessing Officer assessed the total income at Rs. 70,80,040/- and imposed a tax liability of Rs. 27,62,035/-. The appellant sought rectification under section 154 of the Income Tax Act, 1961, arguing that Rs. 52,14,543/- was incorrectly considered as business income instead of short-term capital gain and Rs. 5,90,093/- was wrongly added as a balancing charge. The application was rejected, and the appellant appealed to the CIT (Appeals), who allowed the appeal against the assessment order but dismissed the appeal against the rectification order.The ITAT set aside the CIT (Appeals)'s decision, leading to the present appeal. The appellant argued that the ITAT's reliance on the Supreme Court's decisions in Goetze (India) Ltd. and Additional Commissioner of Income-Tax, Gujarat Vs. Gurjargravures P. Ltd. was misplaced, as these cases did not curtail the appellate authority's jurisdiction. The appellant cited the Bombay High Court's decision in Commissioner of Income Tax Vs. Pruthvi Brokers & Shareholders P. Ltd., which held that appellate authorities have wide powers to admit new claims.Powers to Admit and Adjudicate Fresh Claims:The second issue concerns the CIT (Appeals)'s power to admit fresh claims not included in the revised return or during assessment proceedings. The appellant contended that the CIT (Appeals) has the jurisdiction to entertain new claims, as supported by the Supreme Court's decision in Jute Corporation of India Ltd. Vs. Commissioner of Income Tax and the Bombay High Court's decision in Pruthvi Brokers. The ITAT's contrary view was inconsistent with these precedents.The High Court noted that the CIT (Appeals) has co-terminus powers with the Assessing Officer and can entertain additional grounds, including those available when the original return was filed. The appellate authorities' jurisdiction is not restricted to grounds arising from a change of circumstances or law. The ITAT erred in relying on Gurjargravures and Goetze, as these cases did not limit the appellate authorities' powers.Merits of the Additional Grounds:The ITAT also observed that the CIT (Appeals) had not adequately addressed the merits of the additional grounds raised by the appellant. The High Court agreed, noting that the CIT (Appeals)'s brief statement that the appellant's claim was correct was insufficient. The High Court remanded the case to the CIT (Appeals) to properly assess the merits of the additional grounds.Conclusion:The High Court concluded that the CIT (Appeals) had the jurisdiction to entertain the additional grounds raised by the appellant. However, the CIT (Appeals) had not adequately addressed the merits of these grounds. The High Court set aside the ITAT's order and remanded the case to the CIT (Appeals) for a proper assessment of the merits of the additional grounds. The CIT (Appeals) was instructed not to revisit the issue of jurisdiction but to focus on the merits of the additional grounds. The appeal was disposed of without any order as to costs.