Sri Y. Brahmiah (died) V. The Income Tax Officer, Ward-I, Karimnagar

ITTA/321/2003

AI Insights

The case involves appeals by the appellant, Sri Y. Brahmiah, against the orders of the Commissioner (Appeals) concerning the assessment years 1990-91, 1991-92, and 1992-93. The appellant, a trader in timber, had declared incomes for these years under different provisions of the Income Tax Act, 1961. Disputes arose over the disallowance of a deduction for losses in the Saw Mill business and the method of calculating profits from timber sales and Saw Mill activities. The Commissioner (Appeals) not only rejected the appellant's contentions but also directed a reassessment that increased the tax liability, which led to the filing of these appeals under Section 260-A of the Act.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 676751 (HC-KARIMNAGAR)
• Appeal Type: Others
• Pronouncement Date: 05-08-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S R ASHOK
• Assessee Lawyers: A V KARTHIKEYA
• Keywords: Assessment; Assessment years; Commissioner (Appeals); Income Tax; Saw Mill; Tax liability; Timber business
• Section: 251; 260-A; 44AC

Judgement Text

"* THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDY and * THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.Nos.77 and 87 of 2002 and 321 of 2003 % 05.08.2014 + I.T.T.A.No.77 of 2002 # Sri Y. Brahmiah (died) Karimnagar …. Appellant Vs. $ The Income Tax Officer, Ward-I, Karimnagar …. Respondent ! Counsel for the Appellants: SRI A.V. SHIVA KARTHIKEYA Counsel for Respondent: SRI S.R. ASHOK Head Note: ? Cases referred: HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A Nos.77 AND 87 OF 2002 AND 321 OF 2003 COMMON JUDGMENT:- (Per Hon’ble Sri Justice L.Narasimha Reddy) These three appeals are by the same assessee covering the Assessment Years 1990-91, 1991-92 and 1992-93. The appellant is a trader in timber and apart from that, he has got other sources of income. He submitted returns for the three Assessment Years referred to above. For the first year, he declared the income of Rs.29,310/- on the basis of the profit and loss account. For the subsequent two years, he invoked the facility under Section 44AC of the Income Tax Act, 1961 (for short ‘the Act’) and has shown the income of Rs.2,24,500/- and Rs.1,56,087/- respectively. The expenditure of Rs.1,53,428/- and Rs.1,11,079/- respectively were shown for those two years. The Assessing Officer accepted all the facts and figures furnished by the appellant. However, he disallowed the claim for deduction of loss on the Saw Mill business. Instead, he treated the income from the Saw Mill business as ‘nil’. Aggrieved by that and on other ancillary aspects, the appellant approached the Commissioner (Appeals) (for short ‘ the Commissioner’). Through a common order dated 13.03.1997, the Commissioner not only rejected the contention of the appellant but also in a way, reopened the assessment and directed the Assessing Officer to undertake an exercise. He has also indicated that the profit from sale of timber and cutting charges in the Saw Mill must be taken at 10% on the turnover. Aggrieved by the order passed by the Commissioner, the appellant filed three appeals before the Tribunal being I.T.A Nos.751 to 753/Hyd/1997. All the three appeals were dismissed by the Tribunal through common order dated 03.08.2001. Hence, these three appeals under Section 260-A of the Act. Heard Sri A.V.Shiva Karthikeya, learned counsel for the appellant and Sri S.R. Ashok, learned Senior Counsel for the respondent. We do not feel it necessary to deal with the facts and figures mentioned in the respective orders of assessment. The short question that arises for consideration is as to whether it was competent for the Commissioner to have fastened a higher liability upon the appellant than the one imposed under the order of assessment, while dealing with the appeals preferred by the appellant herein. We have perused the grounds of appeal as well as the order passed by the Commissioner. The grievance of the appellant was mostly in relation to the disallowance of deduction of loss said to have been incurred in the Saw Mill business for particular assessment years. That in turn was the result of not believing the books of account with reference to the Saw Mill business. The Commissioner not only rejected the contention of the appellant, but also took the view that the income from the timber business and Saw Mill activity ought to have been on a totally different basis than the one that found acceptance with the Assessing Officer. The reference to Section 251 of the Act becomes necessary for this purpose. The provision reads as under: “251. Powers of the Commissioner (Appeals).- (1) In disposing of an appeal, the Commissioner (Appeals) 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 in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence 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 assessment; (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit. (2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.—In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner (Appeals) by the appellant.” From this, it becomes clear that the Commissioner is conferred with the power not only to confirm the order of assessment or reduce the tax liability but also to enhance such liability or annul the very assessment. It is axiomatic that in case the adjudication by the Commissioner is going to result in reduction of the tax liability, no extra steps need to be taken. However, if the Commissioner intends to enhance the tax liability to the detriment of the assessee, that too in an appeal preferred by the assessee, a notice provided for under sub-section (2) of Section 251 of the Act must be issued requiring the appellant to show cause as to why such a course of action be not taken. The reason is not difficult to see. The assessee approaches the Commissioner ventilating his grievance and expecting some relief. If apart from denying the relief, the Commissioner wants to fasten additional liability, the assessee must be put on notice. For all practical purposes, the appeal in such cases tends to assume the character of suo motu revision of the order of the Assessing Officer. In the instant case, the Commissioner made certain observations, as to why the grievance of the appellant cannot be said to be genuine. Had he stopped at that and dismissed the appeals, there would not have been any other complications. However, he proceeded to issue certain directions, which are certainly detrimental to the interest of the appellant. He could have done that only after issuing a notice under sub-section (2) of Section 251 of the Act. Since no such notice was issued, the order dated 13.03.1997 passed by the Commissioner suffered a serious illegality and it is contrary to Section 251(2) of the Act. On this short ground, we allow all the three appeals and set aside the order under appeals as well as the order dated 13.03.1997 and remand the matter to the Commissioner for fresh adjudication and disposal. We make it clear that in case the Commissioner intends to issue any directions, which would have the result of imposing any additional tax liability upon the appellant, he shall be under the obligation to issue notice under sub-section (2) of Section 251 of the Act. There shall be no order as to costs. Miscellaneous Petitions, if any pending in these appeals shall also stand disposed of. ___________________________ L. NARASIMHA REDDY, J ____________________________ CHALLA KODANDA RAM, J Date: 05.08.2014 Note: L.R copy to be marked va HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A Nos.77 AND 87 OF 2002 AND 321 OF 2003 Date: 05.08.2014 va "