TaxTMI 
TaxTMI 
TaxTMI 
2005 (11) TMI 186
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....itional grounds of appeal common to all the assessment years under appeal:- "(i) That the action of initiating proceeding under section 10 on the alleged ground of escapement of interest chargeable to tax, is bad in law. (ii) That the Ld. Assessing Officer erred in having entertained this belief without holding that assessee is a Credit Institution falling within the ambit of section 2(5A) or 2(5B) of the Interest-tax Act, 1974. (iii) That the Ld. Assessing Officer further erred in having computed the chargeable interest without setting of the interest paid for earning of such interest received and thereby wrongly calculated chargeable interest at Rs. 1,17,13,969. (iv) That the order of the ld. Assessing Officer and the CIT(A) being bad for lack of jurisdiction, the same should be declared as bad in law and annulled." 4. We shall first take up the issue regarding admission of additional grounds of appeal, reproduced above, raised by the assessee. According to the learned counsel of the assessee, these additional grounds are legal issues and no new facts which are not on record, are involved in these additional grounds. The Assessing Officer passed the orders under section ....
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....e help of the revenue. 6. We have heard the rival submissions of the parties and we have perused the decisions on which reliance is placed from both the sides. The Tribunal, while dealing with the subject-matter of the appeal in exercise of its power, it may allow the party to take up a new ground of appeal. In other words, the Tribunal has power to permit the assessee to raise a new ground of appeal, not set forth in the Memorandum of Appeal, even without formal amendment of the grounds set forth in the Memo of Appeal provided that a new ground does not involve a further investigation into the facts. This power of Tribunal is spelt out from rule 11 of Income-tax (AT) Rules, 1963. Hon'ble Punjab & Haryana High Court has held in the case of Vijay Kumar Jain v. CIT [1975] 99 ITR 349 that the Tribunal may allow a party to press a ground which he does not press before the 1st Appellate Authority although he has taken and include in the grounds of the first appeal. The proposition of law on the issue of admission of additional or new grounds by 1st Appellate Authority was laid down by the Hon'ble Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 a....
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....nds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal." 6.1 Thus, the settled legal position, which emerges from the aforesaid judicial pronouncements, is that the purpose of assessment proceeding is to tax/assess the taxable liability/income of the assessee correctly in accordance with law and if the assessee is entitled to certain relief, deduction or benefit, the assessee should not be denied or deprived of it, even if the claim pertaining to the same is made for the first time before the Tribunal during pendency of appeal before it. In the present case, the issues raised in additional grounds are the legal issues which goes to the root of the matter and for deciding these legal issues no new facts arc-required to be considered as all the fact....
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....f the assessee to make a return under section 7 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for any assessment year, chargeable interest for that year has escaped assessment or has been under assessed or has been made the subject of excessive relief under this Act, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has, in consequence of information in his possession, reason to believe that chargeable interest assessable for any assessment year has escaped assessment or has been under assessed or has been the subject of excessive relief under this Act." From the analysis of the above provisions, it is clear that it is prerequisite that the Assessing Officer should record the reasons to the effect that interest income has escaped assessment under Interest-tax Act, 1974. While recording the reasons the Assessing Officer must have reasons to believe on the basis of material available with him that income chargeable to tax has escaped assessment. There has to be a direct nexus between the formation of belief and availability of mater....
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....s "information" occurring in relevant section 10 of the Interest Tax Act, 1974. In the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996, 997, Hon'ble Supreme Court has observed that- "... In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of law in its bearing on the assessment must be made directly and solely by the ITO." Even for the sake of argument, it is taken that audit observation will form the basis of initiation of reassessment proceeding, in the present case, the audit party has simply observed that "under the Interest Tax Act, Interest Tax is leviable on the chargeable interest income of 'credit institution' inter alia..." audit report is silent on the issue whether the appellant-company is a "cre....
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....ging section. Sub-section (2) of this section provides that there shall be charged on every credit institution/ finance company for every assessment year commencing on and from 1-4-1992, interest-tax in respect of its chargeable interest of the previous year at the rate of 3 per cent of such chargeable interest. The Ld. Counsel continued and submitted that it is clear that the only credit institutions arc liable to interest-tax on the chargeable interest earned during the previous year. The Ld. Counsel also submitted that in the assessment year 1992-93 no such proceeding was initiated. The Ld. Counsel further submitted that to attract Interest Tax Act it is to be determined whether the assessee is a credit institution or financial company. On perusal of the assessment order, it is amply clear that there is no such finding recorded, except merely the recording of alleged belief that the assessee-company earned interest income and there was escapement of chargeable interest on the said interest earned on loans and advances. 12.2 The Ld. Counsel thereafter referred to the provisions of subsection (5A) of section 2 which defines the category under which a company can be treated as a &....
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....ch interest-tax shall be charged in respect of any chargeable interest accruing or arising after 31-3-1983, shall be three and a half per cent of such chargeable interest. (2) Notwithstanding anything contained in sub-section (1) but subject to the other provisions of this Act, there shall be charged on every credit institution for every assessment year commencing on and from 1-4-1992, interest-tax in respect of its chargeable interest of the previous year at the rate of three per cent of such chargeable interest:" Provided that the rate at which interest-tax shall be charged in respect of any chargeable interest accruing or arising after 31-3-1977, shall be two per cent of such chargeable interest. (3) Notwithstanding anything contained in sub-sections (1) and (2), no interest-tax shall be charged in respect of any chargeable interest accruing or arising after 31-3-2000." Now, it is clear from the provisions from charging section that interest tax is leviable on every credit institution and the credit institution is defined in section 2(5A), the same is reproduced below:- "(i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any....