Itta/87/2002 Of Y. Brahmaiah Krmr v. Income Tax Officer Krmr

*THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDYand*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) KarimnagarVs. …. Appellant $ The Income Tax Officer,Ward-I, Karimnagar …. Respondent ! Counsel for the Appellants: SRI A.V. SHIVA KARTHIKEYA Counsel for Respondent: SRI S.R. ASHOK <Gist : >Head Note: ? Cases referred: HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’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 theAssessment Years 1990-91, 1991-92 and 1992-93. The appellant is a trader in timber and apart from that, he has got othersources of income. He submitted returns for the three Assessment Yearsreferred 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 (forshort ‘the Act’) and has shown the income of Rs.2,24,500/- andRs.1,56,087/- respectively. The expenditure of Rs.1,53,428/- andRs.1,11,079/- respectively were shown for those two years. The Assessing Officer accepted all the facts and figures furnished bythe appellant. However, he disallowed the claim for deduction of loss onthe Saw Mill business. Instead, he treated the income from the Saw Millbusiness as ‘nil’. Aggrieved by that and on other ancillary aspects, theappellant approached the Commissioner (Appeals) (for short ‘ theCommissioner’). Through a common order dated 13.03.1997, theCommissioner not only rejected the contention of the appellant but also in away, reopened the assessment and directed the Assessing Officer toundertake an exercise. He has also indicated that the profit from sale oftimber and cutting charges in the Saw Mill must be taken at 10% on theturnover. Aggrieved by the order passed by the Commissioner, theappellant filed three appeals before the Tribunal being I.T.A Nos.751 to 753/Hyd/1997. All the three appeals were dismissed by the Tribunalthrough common order dated 03.08.2001. Hence, these three appealsunder Section 260-A of the Act. Heard Sri A.V.Shiva Karthikeya, learned counsel for the appellant andSri S.R. Ashok, learned Senior Counsel for the respondent. We do not feel it necessary to deal with the facts and figuresmentioned in the respective orders of assessment. The short question thatarises for consideration is as to whether it was competent for theCommissioner to have fastened a higher liability upon the appellant thanthe one imposed under the order of assessment, while dealing with theappeals preferred by the appellant herein. We have perused the grounds of appeal as well as the order passedby the Commissioner. The grievance of the appellant was mostly in relationto the disallowance of deduction of loss said to have been incurred in theSaw Mill business for particular assessment years. That in turn was theresult of not believing the books of account with reference to the Saw Millbusiness. The Commissioner not only rejected the contention of theappellant, but also took the view that the income from the timber businessand Saw Mill activity ought to have been on a totally different basis than theone that found acceptance with the Assessing Officer. The reference to Section 251 of the Act becomes necessary for thispurpose. The provision reads as under: “251. Powers of the Commissioner (Appeals).- (1) In disposing of an appeal, the Commissioner (Appeals) shallhave the following powers— (a) in an appeal against an order of assessment, he may confirm,reduce, enhance or annul the assessment; The reference to Section 251 of the Act becomes necessary for thispurpose. The provision reads as under: “251. Powers of the Commissioner (Appeals).- (1) In disposing of an appeal, the Commissioner (Appeals) shallhave 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 ofwhich the proceeding before the Settlement Commission abatesunder section 245HA, he may, after taking into consideration all thematerial and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, theSettlement Commission, in the course of the proceeding before itand 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 confirmor cancel such order or vary it so as either to enhance or to reducethe penalty; (c) in any other case, he may pass such orders in the appeal as hethinks fit. (2) The Commissioner (Appeals) shall not enhance an assessmentor a penalty or reduce the amount of refund unless the appellant hashad a reasonable opportunity of showing cause against suchenhancement or reduction. Explanation.—In disposing of an appeal, the Commissioner(Appeals) may consider and decide any matter arising out of theproceedings in which the order appealed against was passed,notwithstanding that such matter was not raised before theCommissioner (Appeals) by the appellant.” From this, it becomes clear that the Commissioner is conferred withthe power not only to confirm the order of assessment or reduce the taxliability but also to enhance such liability or annul the very assessment. It isaxiomatic that in case the adjudication by the Commissioner is going toresult in reduction of the tax liability, no extra steps need to be taken. However, if the Commissioner intends to enhance the tax liability to thedetriment 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 beissued requiring the appellant to show cause as to why such a course ofaction be not taken. The reason is not difficult to see. The assesseeapproaches the Commissioner ventilating his grievance and expectingsome relief. If apart from denying the relief, the Commissioner wants tofasten additional liability, the assessee must be put on notice. For allpractical purposes, the appeal in such cases tends to assume the characterof suomotu revision of the order of the Assessing Officer. In the instant case, the Commissioner made certain observations, asto why the grievance of the appellant cannot be said to be genuine. Had hestopped 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 couldhave done that only after issuing a notice under sub-section (2) of Section251 of the Act. Since no such notice was issued, the order dated13.03.1997 passed by the Commissioner suffered a serious illegality and itis contrary to Section 251(2) of the Act. On this short ground, we allow all the three appeals and set aside theorder under appeals as well as the order dated 13.03.1997 and remand thematter to the Commissioner for fresh adjudication and disposal. We make itclear that in case the Commissioner intends to issue any directions, whichwould have the result of imposing any additional tax liability upon theappellant, 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 standdisposed of. ___________________________ L. NARASIMHA REDDY, J Date: 05.08.2014Note: L.R copy to be markedva ____________________________ CHALLA KODANDA RAM, J HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM va ___________________________ L. NARASIMHA REDDY, J Date: 05.08.2014Note: L.R copy to be markedva ____________________________ CHALLA KODANDA RAM, J HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM va I.T.T.A Nos.77 AND 87 OF 2002 AND 321 OF 2003 Date: 05.08.2014