Power of appellate authority to entertain new deduction claims during assessment and remit matter for AO examination, appeal allowed

Appellate authorities may entertain a new claim for deduction raised for the first time during assessment proceedings, including pure legal contentions or mixed questions, because income-tax proceedings are not strictly adversarial; consequently an appellate forum can remit the matter for factual examination. The tribunal found error in the lower forum's refusal to direct the assessing officer to examine an additional claim for deduction of service tax and set aside prior orders, directing the assessing officer to investigate the allowability of the service tax deduction on the evidence on record.

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Issues: (i) Whether an appellate authority may entertain an additional claim for deduction (service tax) made for the first time during assessment proceedings and, if so, whether the claim for deduction under section 37 of the Income-tax Act, 1961 of Rs.40,82,852/- should be examined on merits.

Analysis: The issue turns on the distinction between the power of the assessing officer to accept a claim without a revised return and the power of appellate authorities to admit and decide new claims or grounds arising in the matter. Coordinate judicial authorities have recognised that Goetze (India) Ltd. is confined to the power of the assessing officer and does not prohibit appellate authorities from entertaining additional claims; appellate discretion extends to permitting new factual or legal claims within the contours of the subject matter of the appeal. Where there is no statutory bar, an additional claim made during assessment proceedings can be remitted for examination on the evidence before the assessing authority. The matter was therefore remitted to the assessing authority for examination of the allowability of the service tax deduction in light of the evidence on record.

Conclusion: Issue (i) decided partly in favour of the assessee; the claim for deduction under section 37 is to be examined by the Assessing Officer on the merits after remand.

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