M/S. ASIAN PAINTS LTD, MUMBAI V. THE ADDL CIT CEN RG- VIII, MUMBAI

ITA 5092/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7246 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 10-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 25-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K PAHWA
• Assessee Lawyers: H N SHAH
• Keywords: Gift; Principle of natural justice; Source of fund; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D.K. AGARWAL, J.M. AND SHRI A.L. GEHLOT , A.M. ITA NO. 5092/M/07 ASSESSMENT YEAR: 2003-04 ASIAN PAINTS LTD., APPELLANT 6A, SHANTI NAGAR, SANTACRUZ(E), MUMBAI 400 055 (PAN AAACA3622K) VS. ADDL. COMMISSIONER OF INCOME-TAX, RESPONDENT CENTRAL RANGE VIII, MUMBAI. ITA NO. 5164/M/07 ASSESSMENT YEAR: 2003-04 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CENTRAL CIRCLE, 32, ROOM NO. 32(2), GROUND FLOOR, AAYAKAR BHAVAN, MUMBAI 20. VS. ASIAN PAINTS LTD., RESPONDENT 6A, SHANTI NAGAR, SANTACRUZ(E), MUMBAI 400 055 (PAN AAACA3622K) ASSESSEE BY : MR. H.N. SHAH REVENUE BY : MR. S.K. PAHWA ORDER PER A.L. GEHLOT, A.M.: THESE CROSS APPEALS FILED ARE DIRECTED AGAINST THE ORDER OF CIT (A) CENTRAL VIII, MUMBAI, PASSED ON 18.06.2007 FOR THE ASSESSMENT YEAR 2003-04. 2. THE COMMON GROUND RAISED IN THESE CROSS APPEALS IS IN RESPECT OF ADDITION ON ACCOUNT OF NOTIONAL INTEREST. ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 2 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAD GIVEN INTEREST-FREE LOANS TO THE FOLLOWING SUBSIDIARY COM PANIES:- S.NO. NAME OF THE PARTY AMOUNT (RS.) 1. PENTASIA INVESTMENT(I) LTD. 58930000 2. TECHNICAL INSTRUMENTS MFG. COMPANY LTD. 10002000 0 3. ASIAN PAINTS INDUSTRIAL COATINGS LTD. 60000000 4. THE AO FURTHER NOTICED THAT ALL THE INTEREST-FRE E LOANS WERE PROVIDED BY THE ASSESSEE IN THE EARLIER YEARS AND N O FRESH LOANS WERE ADVANCED IN THE CURRENT YEAR. THE AO NOTICED THAT T HE ASSESSEE WAS INCURRING HUGE EXPENSES ON BORROWINGS AND, THEREFOR E, HAD THESE LOAN BEEN RECOVERED FROM THE SUBSIDIARY COMPANIES, THE I NTEREST EXPENSES OF THE ASSESSEE WOULD HAVE BEEN LESS. THE AO DISALL OWED INTEREST CLAIM OF ASSESSEE AT RS. 2,62,74,000/- BY APPLYING 12% OF INTEREST. IN RESPECT OF INTEREST-FREE LOANS TO PENTASIA INVESTME NT INDIA LTD., THE ASSESSEE SUBMITTED THAT THIS COMPANY HAS MERGED WIT H THE ASSESSEE COMPANY AS PER THE HIGH COURTS ORDER DATED 27.10.2 003 W.E.F. 1.4.2002.THE CIT(A) FOLLOWING THEIR EARLIER YEARS O RDERS FOR AY 2000- 01, 2001-02 AND 2002-03 DELETED THE DISALLOWANCE OF INTEREST AMOUNT RELATED TO PENTASIA INVESTMENT(I) LTD AND ASIAN PAI NTS INDUSTRIAL COATINGS LTD. HOWEVER, THE CIT(A) CONFIRMED THE ADD ITION OF INTEREST AMOUNT PERTAINING TO TECHNICAL INSTRUMENTS MANUFACT URING LTD. 5. THE REVENUE IS IN APPEAL THROUGH SOLE GROUND AGA INST THE ACTION OF THE CIT(A) IN DELETING DISALLOWANCE OF INTEREST AMOUNT RELATED TO PENTASIA INVESTMENT(I) LTD AND ASIAN PAINTS INDUSTR IAL COATINGS LTD. AND THE ASSESSEE IS IN APPEAL AGAINST ACTION OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF INTEREST PERTAINING TO TECHNICAL INSTRUMENTS MANUFACTURING LTD. 6. AT THE OUTSET, THE LEARNED AR SUBMITTED THAT THI S ISSUE IS COVERED BY THE DECISION OF ITAT WHEREIN THE ITAT HA S PASSED AN ORDER ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 3 IN ITA NO. 5063/M/05 AND OTHERS FOR AY 2001-02 TO 2 002-03 AND FOR THE BLOCK PERIOD 01.04.95 TO 21.03.2002 VIDE ORDER DATED 9 TH JANUARY, 2009. THE ITAT HAS SENT THE MATTER BACK TO THE FILE OF THE AO TO RE- ADJUDICATE THE ISSUE IN THE LIGHT OF JUDGMENTS IN T HE ORDER. THE LEARNED AR FURTHER SUBMITTED THAT SINCE PENTASIA IN VESTMENT (I) LD. HAS BEEN MERGED WITH THE ASSESSEE COMPANY WITH EFFE CT FROM 01.04.2002, THE DISALLOWANCE RELATED TO THIS COMPAN Y SHOULD NOT BE SENT BACK AND THE SAME MAY BE DECIDED HERE. 7. THE LEARNED DR SUBMITTED THAT THE ENTIRE ISSUE M AY BE SENT INCLUDING THE ISSUE RELATED TO PENTASIA INVESTMENT (I) LD. TO THE FILE OF CIT(A) IN STEAD OF TO THE FILE OF AO. THE LEARNED A R DID NOT OBJECT TO SENDING THIS MATTER TO THE FILE OF CIT(A) INSTEAD O F AO. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT ON IDENTICAL SET O F FACTS THE ITAT HAS SENT THE MATTER BACK TO THE FILE OF THE AO. SINCE T HE FACTS OF THE CASE UNDER CONSIDERATION ARE IDENTICAL TO THAT OF AY 200 1-02 TO 2002-03 AND BOTH THE PARTIES AGREED TO REMIT THE MATTER BAC K TO THE FILE OF CIT(A) INSTEAD OF AO, WE REMIT THE MATTER BACK TO T HE FILE OF THE CIT(A) IN STEAD OF AO WITH IDENTICAL DIRECTIONS AS GIVEN B Y THE ITAT IN THE ABOVE ORDER CITED SUPRA INCLUDING THE DISALLOWANCE RELATED TO PENTASIA INVESTMENT (I) LD. AS THE FACTS AND CONTENTION OF T HE ASSESSEE ARE SUBJECT TO VERIFICATION. 9. NOW, WE DECIDE THE OTHER GROUNDS RAISED BY THE A SSESSEE IN ITS APPEAL. 10. GROUND NO. 2 IS IN RESPECT OF AD HOC ADDITION O F RS. 50 LACS ON ACCOUNT OF NON-INCLUSION OF DAMAGED STOCK IN VALUAT ION OF CLOSING STOCK. ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 4 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT THE ASSESSEE HAD TAKEN THE VALUE OF UNSERVICEA BLE, DAMAGED AND INERT STOCK OF GOODS AT NIL. THE AO WAS OF THE VIEW THAT THE ASSESSEE DID NOT FOLLOW THE CORRECT METHOD OF VALUATION OF C LOSING STOCK AS THE ASSESSEE ITSELF ADMITTED THAT THE ASSESSEE TOTALLY EXCLUDED THE DAMAGED STOCK FOR THE PURPOSE OF VALUATION. IT WAS ALSO ADMITTED THAT AS AND WHEN SUCH STOCK WAS SOLD, THE SALE CONSIDERA TION WERE TAKEN INTO CONSIDERATION. THE ASSESSEE EXPRESSED HIS INAB ILITY TO DISCLOSE SUCH SALE VALUE OF DAMAGED GOODS IN THE CURRENT YEA R. THE AO ESTIMATED THE REALIZABLE VALUE OF THE DAMAGED STOCK AT RS. 50.00 LAKHS, WHICH WAS ABOUT 0.4% OF THE TOTAL STOCK. THE ADDITION MADE BY THE AO HAS BEEN CONFIRMED BY THE CIT(A). 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. THE LEARNED AR DID NOT ARGUE MU CH ON THE ISSUE. IN PRINCIPLE WE AGREE WITH THE FINDINGS OF THE AO T HAT STOCK OF DAMAGED GOODS SHOULD ALSO BE REQUIRED TO BE VALUED AT THE END OF THE YEAR. AS REGARDS ESTIMATION OF AMOUNT OF THE SAID S TOCK WE FIND THAT THERE IS NO MATERIAL AVAILABLE ON RECORD FOR ESTIMA TION OF A DIFFERENT AMOUNT OF THE STOCK THAN ESTIMATED BY THE AO. WE, T HEREFORE, CONFIRM THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE . 13. GROUND NO. 3 IS IN RESPECT OF ADDITION OF RS. 4 .70 LACS BEING 50% OF EXPENDITURE INCURRED ON ACCOUNT OF PRESENTAT ION OF GIFT ARTICLES. 14. THE ASSESSEE CLAIMED AN AMOUNT OF RS. 9,39,208/ - ON ACCOUNT OF GIFT ARTICLES PRESENTED. THE ASSESSEE DID NOT F URNISH THE REQUIRED DETAILS BEFORE THE AO AND, THEREFORE, THE AO DISALL OWED THE CLAIM OF THE ASSESSEE. THE CIT(A) AFTER CONSIDERING THE SUBM ISSIONS AND AFTER CONSIDERING THE DECISION OF BOMBAY HIGH COURT IN TH E CASE OF ALLANA SONS PVT. LTD., 26 ITR 619 AND ALSO THE DECISION OF ITAT CHANDIGARH BENCH IN THE CASE OF PUNJAB POWER PACKS LTD., 68 TT J 259 HELD THAT ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 5 DISALLOWANCE IS WARRANTED. HOWEVER, THE CIT(A) WAS OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ENTIRE DISAL LOWANCE. HENCE, THE CIT(A) REDUCED THE DISALLOWANCE TO 50% I.E. RS. 4,6 9,604/- AS AGAINST THE DISALLOWANCE OF RS. 9,39,208/- MADE BY THE AO. 15. AT THE OUTSET, THE LEARNED AR SUBMITTED THAT TH IS ISSUE IS COVERED BY THE DECISION OF ITAT IN ASSESSEES OWN C ASE FOR AY 1996-97 IN ITA NO. 949/MUM/2000 VIDE ORDER 5 TH FEBRUARY, 2004 WHERE THE ITAT DISMISSED THE SIMILAR GROUND RAISED BY THE REV ENUE IN ITS APPEAL. THE ALTERNATIVE SUBMISSION OF THE AR WAS THAT THE D ISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE CIT(A) IS ON HIGHER SIDE. 16. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UP ON THE ORDER OF CIT(A) AND SUBMITTED THAT IN THE SAID YEAR 1996-97 THE ITAT NOTICED THAT THERE IS NO DISPUTE THAT PRESENTATION ARTICLES DO NOT CARRY THE LOGO OR NAME OF THE COMPANY BUT IN THE CASE UNDER C ONSIDERATION, THE ASSESSEE DID NOT FILE ANY SUCH PROOF OR DETAILS OF THE EXPENSES IN SUPPORT OF ITS CLAIM. 17. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT IN EARLIER YEAR FO R AY 1996-97 THE ITAT HAS DISMISSED THE GROUND RAISED BY THE REVENUE IN ITS APPEAL BY HOLDING THAT THE PRESENTATION OF ARTICLES DOES NOT CARRY ANY LOGO OR NAME OF THE COMPANY. BUT IN THE CASE UNDER CONSIDER ATION THE ASSESSEE HAS NOT FILED DETAILS OF EXPENSES. SOME E XPENDITURE OF GIFTS RELATED TO PUBLIC SERVANT WHICH IS ADMITTEDLY NOT A LLOWABLE EXPENSES. KEEPING IN VIEW THE FACTS THAT IN THE PAST DISALLOW ANCES MADE WERE DELETED BUT IN THE YEAR UNDER CONSIDERATION IN ABSE NCE OF DETAILS OF EXPENDITURE RELATED TO PUBLIC SERVANT WHICH ARE NOT ALLOWABLE AND AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE UNDER CONSIDERATION, WE ARE OF THE VIEW THAT IT WILL BE F AIR AND JUSTICE IF THE DISALLOWANCE IS RESTRICTED TO THE EXTENT OF 10% AS AGAINST THE 50% OF ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 6 DISALLOWANCE SUSTAINED BY THE CIT(A), WE ACCORDINGL Y RESTRICT THE DISALLOWANCE TO 10%. THUS THIS GROUND IS PARTLY ALL OWED. 18. GROUND NO. 4 IS IN RESPECT OF ADDITION OF RS. 9 8.36 LACS ON ACCOUNT OF PRIOR PERIOD ADJUSTMENTS. 19. THE ASSESSEE DID NOT MAKE ANY CLAIM OF RS. 98.3 6 LACS ON ACCOUNT OF PRIOR PERIOD ADJUSTMENTS IN THE RETURN O F INCOME FILED BUT THE ASSESSEE CLAIMED THAT SUCH WAS PRESSED DURING T HE COURSE OF ASSESSMENT PROCEEDINGS. THE AO DID NOT ALLOW THE CL AIM OF THE ASSESSEE. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE CLAIM WAS MADE BEFORE THE AO VIDE LETTER DATED 28.02.2006 BUT THE SAME HAS NOT BEEN ALLOWED. THE DETAILS OF SUNDRY EXPENSE S WRITTEN OFF SUBMITTED BEFORE THE AO IS REPRODUCED FROM PAGE 22 OF CIT(A)S ORDER AS UNDER:- S.N O. PARTICULAS AMOUNT 1 UUNADJUSTED BALANCES IN DEALERS A/C W/O 33,70,647 2 UUNADJUSTED BALANCES IN DEPOSIT A/C W /O 32,73,741 3 UUNADJUSTED BALANCES IN AGENTS A/C WW/O 5,97,602 3 UUNADJUSTED BALANCE IN EMPLOYEES A/C W/O 25,94,034 98,36,024 20. THE CIT(A) HELD THAT CLAIM FOR DEDUCTION CAN BE MADE ONLY IN THE RETURN OF INCOME FILED. HE FURTHER HELD THAT IF A CLAIM FOR DEDUCTION IS NOT MADE IN THE RETURN OF INCOME FILED , IT CANNOT BE CLAIMED SUBSEQUENTLY, FOR WHICH HE PLACED RELIANCE ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD., 2 84 ITR 323 WHEREIN IT WAS HELD THAT SUCH CLAIM IS NOT ALLOWABLE. THE C IT (A) FINALLY REJECTED THE ASSESSEES CLAIM BY FURTHER OBSERVING AS UNDER:- 10.3..IT IS FURTHER NOTICED THAT THE APPELLANT IS CLAIMING THAT IN THE PRIOR PERIOD ITEMS, THERE IS AN AMOUNT OF RS. 98,36,024/- ON ACCOUNT OF BALANCES WRITTEN OFF. THE APPELLANT IS CLAIMING THAT IT HAS WRITTEN OFF DEALER DEPOSITS AN D UNADJUSTED BALANCE IN EMPLOYEES ACCOUNT. THIS TYPE OF DEDUCTIO N CAN BE ALLOWED ONLY UNDER THE PROVISIONS OF SECTION 36(1)( VII). THEREFORE, ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 7 IT HAS TO BE SEEN WHETHER THE GROUND NO. 6 OF THE A PPEAL THAT THE APPELLANT IS NOT PROPERLY WRITING OFF ITS ACCOUNTS. IT WAS NOTICED THAT THE APPELLANT HAS WRITTEN OFF CERTAIN AMOUNTS FROM DEALERS WHEN THERE WAS AMOUNT DUE TO THOSE DEALERS AS PER B OOKS OF ACCOUNT ON ACCOUNT OF SECURITY DEPOSITS. SUCH A POS SIBILITY CANNOT BE RULED OUT IN THE PRESENT CASE ALSO. FURTHER, WHE N THE APPELLANT HAS ALREADY CLAIMED DEDUCTION ON ACCOUNT OF DEBTS W RITTEN OFF, IT IS NOT UNDERSTOOD WHY THE APPELLANT NOT CLUBBED THE SE AMOUNTS WRITTEN OFF WITH OTHER DEBTS WHICH WERE ALSO WRITTE N OFF AND FOR WHICH THE APPELLANT HAS CLAIMED DEDUCTION IN THE PR OFIT & LOSS ACCOUNT. IF THESE AMOUNTS WERE REALLY WRITTEN OFF I N THE CURRENT YEAR, THE APPELLANT HAS NOT EXPLAINED AS TO HOW THE SE AMOUNTS CAN BE TREATED AS PRIOR PERIOD EXPENSES. THERE IS N O EVIDENCE ON RECORD THAT THESE AMOUNTS ARE REALLY IRRECOVERABLE. ON THESE FACTS AVAILABLE ON RECORD, THE CLAIM IS NOT ALLOWABLE. TH IS FINDING IS WITHOUT PREJUDICE TO THE FACT THAT THE APPELLANT CA NNOT CLAIM ADDITIONAL DEDUCTION OTHER THAN BY FILING REVISED R ETURN. THEREFORE, THIS GROUND OF APPEAL IS NOT ALLOWED. 21. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THOUGH THE CIT(A) HAS HELD THAT THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE BY RELYING O N THE JUDGMENT ION THE CASE OF GOETZE (INDIA) LTD., 284 ITR 323, BUT, IT WAS OBSERVED BY HIM THAT SUCH CLAIM IS ALLOWABLE U/S 36(1)(VII). TH E CIT(A) FURTHER HELD THAT THERE IS NO EVIDENCE ON RECORD THAT THESE AMOUNTS ARE REALLY IRRECOVERABLE. HE ACCORDINGLY, DISALLOWED THE CLAIM OF THE ASSESSAEE. IN THIS APPEAL, THE PRELIMINARY QUESTION THAT FALLS FOR CONSIDERATION RELATES TO SCOPE OF POWERS OF CIT(A) WHETHER THE CI T(A) WAS HAVING POWER TO ADMIT ASSESSEES CLAIM WITHOUT FILING REVI SED RETURN OF INCOME. TO PROPERLY APPRECIATE THE ISSUE, WE WOULD LIKE TO REPRODUCE THE FINDING GIVEN BY HONBLE SUPREME COURT IN CASE OF GOETZ INDIA LTD. CITED SUPRA, READS AS UNDER:- THE DECISION IN QUESTION IS THAT THE POWER OF THE T RIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961, IS TO ENTE RTAIN FOR THE FIRST TIME A POINT OF LAW PROVIDED THE FACT ON THE BASIS OF WHICH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DOES NOT IN ANY WAY RELATE TO THE POWER OF THE AO T O ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY FILING A REVI SED RETURN. IN THE CIRCUMSTANCES OF THE CASE, WE DISMISS THE CIVIL APPEAL. HOWEVER, WE MAKE IT CLEAR THAT THE ISSUE IN THIS CA SE IS LIMITED TO THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT I MPINGE ON THE POWER OF THE INCOME-TAX APPELLATE TRIBUNAL UNDER SE CTION 254 OF THE INCOME-TAX ACT, 1961. THERE SHALL BE NO ORDER A S TO COSTS. ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 8 21.1 FROM THE ABOVE FINDING OF THE APEX COURT, WE FIND THAT THE APEX COURT HAS DECIDED THE ISSUE FOR A LIMITED PURP OSE IN RESPECT OF POWER OF THE ASSESSING AUTHORITY. THE APEX COURT CL ARIFIED IN ITS JUDGMENT ITSELF THAT THEIR FINDING DOES NOT IMPINGE ON THE POWER OF THE INCOME TAX APPELLATE TRIBUNAL UNDER SECTION 254 OF THE ACT. WE FIND THAT THE CIT(A) HAS ALSO SIMILAR POWER U/S 251(1)(C ). THE SAID SECTION READS AS UNDER:- SECTION 251(1): IN DISPOSING OF AN APPEAL, THE COM MISSIONER (A) SHALL HAVE THE FOLLOWING POWERS- (A) IN AN APPEAL AGAINST AN ORDER OF ASSESSMENT, HE MAY CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT (AA) IN AN APPEAL AGAINST THE ORDER OF ASSESSMENT I N RESPECT OF WHICH THE PROCEEDING BEFORE THE SETTLEMENT COMMISSI ON ABATES UNDER SECTION 245HA, HE MAY, AFTER TAKING INTO CONS IDERATION ALL THE MATERIAL AND OTHER INFORMATION PRODUCED BY THE ASSESSEE BEFORE, OR THE RESULTS OF THE INQUIRY HELD OR EVIDE NCE RECORDED BY, THE SETTLEMENT COMMISSION, IN THE COURSE OF THE PROCEEDING BEFORE IT AND SUCH OTHER MATERIAL AS MAY BE BROUGHT ON HIS RECORD, CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSES SMENT. B) IN ANY APPEAL AGAINST AN ORDER IMPOSING A PENALT Y, HE MAY CONFIRM OR CANCEL SUCH ORDER OR VARY IT SO AS EITHE R TO ENHANCE OR TO REDUCE THE PENALTY; C) IN ANY OTHER CASE, HE MAY PASS SUCH ORDERS IN TH E APPEAL AS HE THINKS FIT.: 21.2 THE ISSUE RELATED POWER OF FIRST APPELLATE AUTHORITY HAS BEEN EXAMINED BY THE HONBLE SUPREME COURT IN THE C ASE OF COMMISSIONER OF INCOME-TAX V. NIRBHERAM DELURAM 224 ITR 610(SC). THE BRIEF FACTS OF THAT CASE WERE THAT DURING REA SSESSMENT PROCEEDINGS THE ITO MADE ADDITION TO THE ASSESSEE'S INCOME TO THE EXTENT OF RS. 2,45,000 ON ACCOUNT OF OSTENSIBLE TRA NSACTIONS IN HUNDI LOANS SHOWN BY THE ASSESSEE. ON APPEAL, THE AAC, WH ILE SUSTAINING THE AFORESAID ADDITION ALSO TOOK NOTICE OF 10 OTHER ITEMS OF OSTENSIBLE HUNDI LOANS AMOUNTING TO RS. 2,30,000 AND DIRECTED THAT THE TOTAL INCOME BE ENHANCED BY THE SUM OF RS. 2,30,000. THE TRIBUNAL, HOWEVER, DELETED THE SAID ADDITION HOLDING THAT THE AAO HAD EXCEEDED ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 9 HIS JURISDICTION. THE HIGH COURT PLACING RELIANCE O N THE DECISION OF THE SUPREME COURT IN ADDL. CIT V. GURJARGRAVURES (P .) LTD. [1978] 111 ITR 1 HELD THAT THE AAC HAD NO JURISDICTION TO CONS IDER THE NEW ENTRIES WHICH WERE NOT CONSIDERED AT ALL BY THE ITO AND TO ADD THE AMOUNT OF RS. 2,30,000 TO THE TOTAL INCOME OF THE A SSESSEE. ACCORDING TO THE HIGH COURT, THE ITEMS REPRESENTING THE SAID AMOUNT CONSTITUTED NEW SOURCES OF INCOME WHICH WERE NOT THE SUBJECT-MA TTER OF ASSESSMENT BEFORE THE ASSESSING OFFICER AND, THEREF ORE, IT WAS NOT OPEN TO THE AAC IN APPEAL TO CONSIDER THE NEW SOURC ES AND TO ASSESS THEM. 21.3 ON APPEAL TO THE SUPREME COURT, THE SUPREME COURT HAS HELD AS UNDER:- (PAGES 612 TO 614) IN JUTE CORPN. OF INDIA LTD.' S CASE (SUPRA) THIS COURT HAS REFERRED TO THE EARLIER DECISION OF THIS COURT IN CIT V. KANPUR COAL SYNDICATE [1964] 53 ITR 225, WHICH WAS ALSO A DECISION OF A THREE JUDGE BENCH WHEREIN THE SCOPE O F SECTION 31(3)(A) OF THE INDIAN INCOME-TAX ACT, 1922 [WHICH WAS ALMOST IDENTICAL TO SECTION 251(1)(A) OF THE 1961 ACT] WAS CONSIDERED AND IT WAS HELD: ' 'IF AN APPEAL LIES, SECTION 31 OF THE ACT DESCRIB ES THE POWERS OF THE APPELLATE ASSISTANT COMMISSIONER IN SUCH AN APPEAL. UNDER SECTION 31(3)(A), IN DISPOSING OF SUCH AN APPEAL, THE APPEL LATE ASSISTANT COMMISSIONER MAY, IN THE CASE OF AN ORDER OF ASSESS MENT, CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT; UNDER CLAU SE (B) THEREOF HE MAY SET ASIDE THE ASSESSMENT AND DIRECT THE INCO ME-TAX OFFICER TO MAKE A FRESH ASSESSMENT. THE APPELLATE ASSISTANT COMMISSIONER HAS, THEREFORE, PLENARY POWERS IN DISPOSING OF AN A PPEAL. THE SCOPE OF HIS POWER IS COTERMINOUS WITH THAT OF THE INCOME -TAX OFFICER. HE CAN DO WHAT THE INCOME-TAX OFFICER CAN DO AND ALSO DIRECT HIM TO DO WHAT HE HAS FAILED TO DO'.' (P. 693) AFTER REFERRING TO THESE OBSERVATIONS, THIS COURT I N JUTE CORPN. OF INDIA LTD.'S CASE (SUPRA) HAS STATED : 'THE ABOVE OBSERVATIONS ARE SQUARELY APPLICABLE IN THE INTERPRETATION OF SECTION 251(1)(A) OF THE ACT. THE DECLARATION OF LAW IS CLEAR THAT THE POWER OF THE APPELLATE ASSISTANT COMMISSIONER IS CO-TERMINOUS WITH THAT OF THE INCOME-TAX OFFICER, A ND IF THAT IS SO, THERE APPEARS TO BE NO REASON AS TO WHY THE APPELLA TE AUTHORITY CANNOT MODIFY THE ASSESSMENT ORDER ON AN ADDITIONAL GROUND EVEN IF NOT RAISED BEFORE THE INCOME-TAX OFFICER. NO EXCEPT ION COULD BE TAKEN ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 10 TO THIS VIEW AS THE ACT DOES NOT PLACE ANY RESTRICT ION OR LIMITATION ON THE EXERCISE OF APPELLATE POWER. EVEN OTHERWISE, AN APPELLATE AUTHORITY WHILE HEARING THE APPEAL AGAINST THE ORDE R OF A SUBORDINATE AUTHORITY, HAS ALL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DECIDING THE QUESTION BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATION, IF ANY, PRESCRIBED BY T HE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISI ON, THE APPELLATE AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS WHI CH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. THERE APPEARS TO BE NO GOOD REASON AND NONE WAS PLACED BEFORE US TO JUS TIFY CURTAILMENT OF THE POWER OF THE APPELLATE ASSISTANT COMMISSIONE R IN ENTERTAINING AN ADDITIONAL GROUND RAISED BY THE ASSESSEE IN SEEK ING MODIFICATION OF THE ORDER OF ASSESSMENT PASSED BY THE INCOME-TAX OFFICER.' (P. 693) TAKING NOTE OF THE DECISION IN GURJARGRAVURES (P. ) LTD.'S CASE (SUPRA), THE COURT HAS SAID : '... APPARENTLY, THIS VIEW TAKEN BY THE TWO JUDGE B ENCH OF THIS COURT APPEARS TO BE IN CONFLICT WITH THE VIEW TAKEN BY TH E THREE JUDGE BENCH OF THIS COURT IN KANPUR COAL SYNDICATE CASE [ 1964] 53 ITR 225. IT APPEARS FROM THE REPORT OF THE DECISION IN THE GUJARAT CASE THAT THE THREE JUDGE BENCH DECISION IN KANPUR COAL SYNDICATE CASE [1964] 53 ITR 225 (SC) WAS NOT BROUGHT TO THE NOTIC E OF THE BENCH IN GURJARGRAVURES (P.) LTD. [1978] 111 ITR 1 (SC). IN THE CIRCUMSTANCES, THE VIEW OF THE LARGER BENCH IN KANPUR COAL SYNDICA TE CASE [1964] 53 ITR 225 (SC) HOLDS THE FIELD....' (P. 694) HAVING REGARD TO THE DECISION IN JUTE CORPN. OF IND IA LTD.'S CASE (SUPRA), IT MUST BE HELD THAT THE HIGH COURT WAS IN ERROR IN HOLDING THAT THE APPELLATE POWER CONFERRED ON THE AAC UNDER SECTION 251 WAS CONFINED TO THE MATTER WHICH HAD BEEN CONSIDERE D BY THE ITO AND THE AAC EXCEEDED HIS JURISDICTION IN MAKING AN ADDITION OF RS. 2,30,000 ON THE BASIS OF THE OTHER 10 ITEMS OF HUND IS WHICH HAD NOT BEEN EXPLAINED BY THE ASSESSEE. 21.4 IN THE LIGHT OF THE ABOVE DISCUSSION, WE F IND THAT THE AO HAS NO POWER TO ADMIT FRESH CLAIM OTHERWISE THAN RE VISED RETURN BUT APPELLATE AUTHORITIES INCLUDING CIT(A) & ITAT HAVE POWER TO ADMIT SUCH CLAIM. WITHOUT PREJUDICE TO THE ABOVE FINDING , WE ADMIT THE ASSESSEES CLAIM WHICH IS IN ACCORDANCE WITH THE JU DGMENT OF THE APEX COURT IN THE CASE OF GOETZ INDIA LTD. (SUPRA).IN TH E INTEREST OF NATURAL JUSTICE AND KEEPING IN VIEW THE RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD., 284 ITR 323, WE RE MIT THE MATTER BACK TO THE FILE OF THE CIT(A) WITH A DIRECTION TO DECID E THE ISSUE ON MERIT ITA NOS. 5092 & 5164/M/07 ASIAN PAINTS LTD. 11 IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE O PPORTUNITY OF HEARING TO BOTH THE SIDES. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ON THIS 23RD DAY OF MARCH, 2009. SD/- SD/- (D.K. AGARWAL) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 23 RD MARCH, 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, H BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INITLS 1. DRAFT DICTATED ON 10.3.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 15.03.1 0 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER