Income Tax Act 1961 s.144A

JUDGMENT

INDORE BENCH

G. G. SOHANI J. - By this reference under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as " the"), the Income Tax Appellate Tribunal, Indore Bench, has referred the following questions of law to this court for its opinion :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that in the reassessment proceeding, after the original assessment has been set aside, the Income Tax officer cannot rope in new sources of income

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that no perquisite for the user of the car of the company for private purposes accrued to him "

The material facts giving rise to this reference, briefly, are as follows :

The assessee is assessed in the status of an individual. For the assessment year 1973-74, the assessee filed a return declaring a total income of Rs. 14,840. The Income Tax Officer, however, computed the total income at Rs. 2,69,515 and passed an order of assessment accordingly. Aggrieved by that order, the assessee preferred an appeal before the Appellate Assistant Commissioner. The addition of Rs. 17,500 on account of low withdrawals, the addition of Rs. 25,000 on account of gift received from one Ladli Prasad and an addition of Rs. 40,000 made on account of gift made by Smt. Nagpal, were assailed before the Appellate Assistant Commissioner, inter alia, on the ground that the assessee was not given adequate opportunity of hearing. The Appellate Assistant Commissioner found that the assessee was not given adequate opportunity of hearing. The Appellate Assistant Commissioner, therefore, set aside the order of assessment and remanded the case to the Income Tax Officer with the following observations :

"A perusal of the assessment order and the contentions raised by the assessee show that while there are certain circumstances giving rise to suspicions against the assessee, the contention raised by the appellant also cannot be brushed aside lightly. In particular, there has been denial of proper opportunity to the assessee in respect of addition on account of low household expenses and certain cash credits/gifts. It is, therefore, considered expedient to set aside the present assessment. The Income Tax Officer is directed to afford a proper opportunity to the assessee in regard to each item of addition made by him and after taking into account the evidence tendered by him, frame a fresh assessment as per law."

After the matter came back to the Income Tax Officer, the Income Tax Officer made further enquiry and found that apart from the additions made to the total income of the assessee, which were objected to by the assessee before the Appellate Assistant Commissioner, certain deposits in the same names of certain persons were made by the assessee and that the said deposits represented the income of the assessee from undisclosed sources. The Income Tax Officer accordingly held that a sum of Rs. 1,64,250 was the income of the assessee from undisclosed sources. The Income Tax Officer also added the value of the perquisite in respect of the use of a car. The Income Tax Officer accordingly completed the assessment, on a total income of Rs. 2,65,760. Aggrieved by that order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). It was contended on behalf of the assessee that in making a fresh assessment in pursuance of the order of remand passed by the Appellate Assistant Commissioner, the Income Tax Officer was not competent to make new additions based on new sources of income. The Commissioner of Income Tax (Appeals) rejected that contention. The objection raised on behalf of the assessee to the addition of Rs. 5,400 being the value of the perquisite in the shape of free use of a car of the company, of which the assessee was the managing director, for his private purposes was also not upheld by the Commissioner of Income Tax (Appeals). Aggrieved by the order passed by the commissioner of Income Tax (Appeals), the assessee preferred an appeal before the Tribunal. The Tribunal found that the assessee had initially preferred an appeal before the Appellate Assistant Commissioner aggrieved by the assertions made by the Income Tax officer, that the grievance of the assessee before the Appellate Assistant Commissioner was that he was not given an adequate opportunity to prove his case in respect of those additions and that the controversy before the Appellate Commissioner was, therefore, limited only with respect to the three additions made by the Income Tax Officer. The Tribunal, therefore, held that the new additions made by the Income Tax officer on the basis of new sources of income were without jurisdiction. The Tribunal also held that the additions of Rs. 5,400 as value of the perquisite for the use of the car was not justified. Aggrieved the order passed by the Tribunal, the Revenue sought a reference and it is at the instance of the Revenue that the aforesaid questions of law have been referred to this court for its opinion.

Learned counsel for the Revenue contended that once the matter was remanded to the Income Tax Officer for making a fresh assessment, it was open to the Income Tax officer to consider the entire matter afresh and make new additions based on new sources of income. Reliance was placed on the decision in CIT v. Seth Manicklal Fomra : [1975]99ITR470(Mad) . In reply, it was contended to behalf of the assessee that the power of the Income Tax Officer was confined to the old sources of income which were the subject-matter of appeal before the Appellate Assistant Commissioner.

Now, in the instant case, the matter was remanded to the Income Tax officer by the Appellate Assistant Commissioner to afford a proper opportunity to the assessee in regard to each item of addition made by him and thereafter to pass an order of assessment afresh. The order of remand, therefore, was limited to making a fresh enquiry into the question of additions made by the Income Tax Officer in the original assessment order. It is true that there is a difference of opinion as reflected in the decisions of the various High Court cited before us, on the question as to whether it is open to the Income Tax Officer to consider the entire matter afresh, notwithstanding the terms of the order of remand. It is, however, not necessary in the instant case to enter into that controversy, because there is another aspect of the matter which arises in this case. In CIT v. Rai Bahadur Hardutroy Motilal Chamaria : [1967]66ITR443(SC) , the Supreme Court has held that while deciding an appeal from an order passed by the Income Tax Officer, the Appellate Assistant Commissioner has no jurisdiction to assess a source of income which has not been processed by the Income Tax Officer and which is not disclosed either in the return filed by the assessee or in the assessment order and the Appellate Assistant Commissioner, therefore, cannot travel beyond the subject-matter of the assessment. From this decision, it follows that the Appellate Assistant Commissioner cannot, while setting aside the assessment, empower the Income Tax Officer to go into points which he himself could not have investigated in exercise of his power of enhancement. Now, if the Appellate Assistant Commissioner could not have empowered the Income Tax Officer to assess a source of income not processed by the Income Tax Officer in the original order of assessment and not disclosed either in the return or in the original order of assessment and not disclosed either in the return or in the assessment order, it is difficult to appreciate as to how the Income Tax Officer could assume jurisdiction to tax that new source of income while making a fresh assessment in pursuance of an order of remand by the Appellate Assistant Commissioner. In Kartar Singh v. CIT , Chinnappa Reddy J., as he then was, observed as follows (p. 185) :

"It is not necessary for us to enter into a detailed discussion of the questions raised in view of the fact that the addition of Rs. 54,075 made by the Income Tax Officer was from a new source and this he was not competent to do. In Shri Gajalakshmi Ginning Factory Ltd. v. Commissioner of Income Tax : [1952]22ITR502(Mad) , the learned judges observed that it would not be the Appellate Assistant Commissioner to introduce into the assessment new sources as his power of enhancement was restricted only to the income which was the subject-matter of consideration for purposes of assessment by the Income Tax Officer. We are of the view that on remand by the Income Tax Appellate Tribunal, it was not opened to the Income Tax Officer to introduce into the assessment new sources of income so as to enhance the assessment. His power to enhance, if it existed, was confined to the old sources of income which were the subject-matter of the appeal to the Income Tax Appellate Tribunal."

In our opinion, therefore, the Tribunal was right in holding that the Income Tax Officer in the reassessment proceedings had no jurisdiction to tax Officer in tax new sources of income. Our answer to question No. (1) referred to this court is, therefore, in the affirmative and against the Revenue.

As regards question No. (2), the Tribunal, in our opinion, was right in holding that the unauthorised use of the company by the assessee could not constitute a perquisite. The view of the Tribunal is supported by a decision of the Madras High Court in CIT v. A. R. Adaikappa Chettiar : [1973]91ITR90(Mad) . We see no cogent reason to take a view different from that taken in : [1973]91ITR90(Mad) . Our answer to question No. (2) referred to this court is, therefore, in the affirmative and against the Revenue.

Reference answered accordingly. Parties shall bear their own costs of this reference in the circumstances of the case.