70Q COMMISSIONER OF INCOME·TAX, KERALA v. MIS. MANICK SONS February 14, 1969 ). C. SH,l\H, V. RAMASWAMI AND A. N. GROVER, JJ.j Income-tax Act, 1922, s. 33-Tribunal's Jowers-Tribunal cannot
amalgamate income of two assessment years an divide It equally betwe•n them-Cannot take undertaking from a:rsessee fo file fresh return for earlier year and direct Jncotne~uu Officer to make assessment according- ly-Cannot make
<rllowance for 'Intangible additions' without giving reasons. For the asse.sment year 1952-53 the Income-tax Officer added a certain ntnount to the assessec's returned incotnc. as income from undis· closed sources.
For the 05'C>.sment year 1953-54 a still larger amount was added on account of unexplained cash credits. The Income-tax Appellate Tribunal when considering the appeal for 1953-54 took the view that since the income assessed in 1952-53 was much less than in earlier years some of the undisclosed income of that year must have gone into the cash credits disclosed in 1953-54, It therefore calculated the income for both the assessment years 1952-53 and 1953-54 together and after making some allowance for 'intangible
additions' in each year, determined the amalgamated income for the two years at Rs. 1,00,000 as a round figure. On this basis the assessment for 1953-54 was reduced to Rs, 50,000 from the higher figure determined by the Appellate Assistant Commissioner. In respect of the year 1952-53 an undertaking was taken from the assessee to file a fresh voluntary return for Rs. 50,000 in place of the much lower inoome originally assessed.
At the instance of the department a reference was made to the High Court, and 'failing there, the department appealed to this Court. HELD : The appeal must be allowed. Under s. 33(4) of the Income.tax Act, 1922, the Income-tax Appellate Tribunal may after giving both parties to the appeal an opportunity of being heard, pa" such orders thereon as it thinks fit.
The power confer' red by that sub-section is wide, but it is still a judicial power which must be exercised in respect of matters that arise in the appeal and according to law. The Tribunal in deciding
an appeal before it must deal with questions of law and fact which arise out of the order <if assessment made by the Income-tax Officer and the order of the Appellate Assistant Com- missioner.
It cannot assume powers which are inconsistent with the c:xprc'>r;; pro\·i1;ion'i of the Act 0r its schen1e. r1 I:'.!. R·Fl In the present case the Tribunal was entitled to enquire whether the
source of cash credits was explained : if it held that they represented capital or income of earlier years it could exclude them from inc()me liable to be taxed in the year to which the appeal related.
But the Tribunal had no .power to find on amalgamation o'f income an average of more yea·rs than one, and to divide it for the purpose of asse:1sment ·between the two years 1952-53 and 1953-54-equally, [712 G: 714 DJ
In \vorking out the amalgamated income for the two assessment years in question the Tribunal could not without giving any reasons, and with- out supporting evidence, make allowanc~ as it did (or "intangible. add!..
lions", [714 GJ c c II C.l.T. V. MANIC!':: SONS (Shah, J.) The Tribunal hearing an appeal may give directions •for reopening assessment of the year to which the appeal relates : it cannot give any directions to reassess in case of a period not covered by that year. There was no sanction in law to enforce the undertaking given by the respondent when urging his appeal in respect of the year 1953-54, to make a volun- tary return for the year 1952-53; and even if the respondent carried out that undertaking the assessment of 1952-53 could not be reopened other- wise than in the manner prescribed by ·the Act. The undertaking must therefore be ignored.
The implied direction given by the Tribunal to the Income-tax Officer to re-assess the income for year 1952·53 was without jurisdiction. [712 D-E; 714 A] The questions raised on behalf of the revenue clearly flowed from the contentions raised before the Tribunal and enquiry into those questions was not barred. [712 J)..E; 714 A]
Commissioner of Income-tax, Madras v. S. Ne/liappan, 66 I.T.R. 722, distinguished. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2459 of 1966. Appeal by special Jeave from the judgment and order dated
August 2, 1965 of the Kerala High Court in Income-tax Referred Case No. 20 of 1964. Sukumar Mitra and B. D. Sharma, for the appellant. S. Swaminathan and R. Gopalakrishnan, for the respondent.
The Judgment of the Court was delivered by Shah, J. For the assessment year 1952-53 respondents M/s. Manick & Sons were assessed to tax in the status of a registered firm and their income was computed at Rs. 15,33.1 inclusive of Rs. 15,000 being undisclosed income. For the assessment year 1953-54 the respondents returned Rs. 40,887 as their income from business. The Income-tax Officer discovered an aggregate amount of Rs. 74,692 as "cash credits" which, in his view, were not satisfactorily explained by the respondents. The Income-tax Officer accordingly brought to tax a total inc.ome of Rs. 1,31,179 being Rs. 56,487 as income from business and Rs. 74,692 as income from "other sources" and assessed the respondents as an unregistered firm.
The Appellate Assistant Commissioner in ap- peal reduced the income of the respon3ents from business to Rs. 38,420 and income from "other sources" to Rs. 46,620. In second appeal the Tribunal reduced the income from business to Rs. 28,820 and confirmed the finding that the source of the cash credits aggregating to Rs. 46,620 had remained unexplained. But the Tribunal observed that "there were certain special features in the case which needed proper consideration in determining the final assessment." The Tribunal then aggregated the income for [!969] 3 s.c.R.
the assessment years 1952-53 and 1953-54 fur the two years, which he rounded off at Rs. 1,00,000 and apportioned in equal shares in the two years. For the assessment year 1952-53, the Tribunal recorded that the respondents had given an undertaking to file a voluntary return for assessment on the basis of total income of Rs. 50,000.
At the instance of the Commissioner of Income-tax, four questions were referred to the High Court of Kerala : "( 1) Whether it was not beyond the jurisdiction of the Appellate Tribunal to reopen the concluded assess-
ment for assessment year 1952-53 and to direct that the income should be revised in that year at Rs. 50,000 as against Rs. 15,331 already fixed? (2) Whether on the facts and circumstances of the
case and the evidence on record, the Tribunal was justi- fied in directing that any portion of the cash credits be assessed to income-tax in any year other. than the assess- ment year 1953-54?
( 3) Whether on the facts -and circumstances of the case and evidence on record, the Tribunal was. justified in finding that a portion of the cash credits were covered by the intangible additions made in 1952-53 and 1953-
54 assessment ? ( 4) Whether on the facts and circumstances of the case and the evidence on record, the Tribunal was justi- fied in directing that the income under the head 'busi-
ness' for the assessment year 1953-54 be reduced to Rs. 50,000 ?" The High Court declined to answer questions (I) & (2) and answered questions (3) & (4) in the affirmative. The Commis-
sioner appeals with special leave. Tile judgment of the Tribunal is not a reasoned decision on the questions arising before it : it is cryptic and in parts obscure, and gives no grounds for its conclusion.
The judgment again !ends contenance to· a method of assessment which the Indian Income-tax Officer aggregated to Rs. 74692 which amount was the Tribunal observed that the cash credits discovered by the Income-tax Officer aggregated to. Rs. 7 4692 which amount was reduced by the Appellate Assistant Commissioner to Rs. 50,620. (It is common ground that the correct figure should be Rs. 46,620.) The Tribunal then observed that on the evidence on record "these residuary items must remain unexplained."
But the Tribunal thought that because in the assessment year 1952-53 the total income of Rs. 15,331 was compartively small compared to the c c C.I.T. v. MANICK SONS (Shah, J.) income of the earlier years "some of that year's profits must have come into the profits of the next year". The Tribunal then set out a consolidated statement of account for two years :
"!. Trade profits assessed for assessment Rs. year 1952-53 15,331 2. Trade profits on the basis of books and without the estimates and additions impugned in this appeal (Rs. 56,487 less Rs. 45,600) . .
40,887 3. Trading deficiency : (a) Palluruthy branch 1,000 (b) Pavaratty branch 5,000 4. Unexplained cash Credits 50,620 Less set off- Intangible addition for 1952-53 Rs. 15,000 Intangible addition for 1953-54 as above.
6,000 Rs. 6,000 21,000 29,620 Assessable for both the year 91,838" and observed : ''The assessee has undertaken to file a voluntary re- turn for assessment year 1952-53 on the basis of a total
income of Rs. 50,000. In these circumstances, the total business income of the assessee for the year under appeal is reduced to Rs. 50,000 only." The unexplained cash credits found by the Appellate Assistant Commissioner an<l accepted by the Tribunal were Rs. 46,620. The total income of the two years on the basis adopted by the Tribunal was therefore Rs. 87,838. But the income of the two years was rounded off at Rs. 1,00,000 and divided equally bet- ween the two years. For making up a consolidated statement of account the Tribunal gave no reasons nor did it give any reasons "for debiting the intangible additions" of Rs. 15,000 and Rs. 6,000 against the cash credits. Counsel for. t)le respondents suggested that the Tribunal was presumably of the view that Rs. 15,000 brought to tax as business income in the assessment in 1952-53 must have been entered in the books of account of the next year and that Rs. 6,000 called "trading deficiency" in the two branches was entered as cash credit.
The appeal before the. Tribunal raised a simple question-· whether the cash credits aggregating to Rs. 46,620 or any part thereof were liable to be taxed as income of the respondents in the year 1953-54. For that purpose the Tribuna! had to .consider whether the respondents furnished any explanation leadm~ to a justifiable inference that the amount or a part thereof ~hd not represent income of the respondents. In the view of. the !ribu- nal the cash credits had remained unexplained. But the 'Tnbunal still reduced the cash credits by Rs. 21,000, and then proceeded to amalgamate the income for the two years and to divide it equally. For reducing the cash credits by Rs. 21,000 no reasons have been given, and amalgamati~ of the income for the two years and apportionment is without authority of law.
An assessment which has become final may be reopened in appeal by the Appellate Assistant Commissioner or the Tribunal or in revision by the Commissioner, or under an order of rectifi- cation of mistake, or pursuant to· a notice of reassessment. The Tribunal hearing an appeal may give directions for reopening assessment of the year to which the appeal relates : it cannot give any directions to reassess in case of a period not covered by that year. There is no sanction in law to enforce the undertaking given by the respondent when urging his appeal in respect of the year 1953-54, to make a voluntary return for the year 1952-53; and even if the respondents carried out that undertaking the assess- ment of 1952-53 could not be reopened otherwise than in the manner prescribed by law.
The undertaking must therefore be ignored. Under s. 33(4) of the Income-tax Act, 1922, the In- come-tax Appellate• Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders there· on as it thinks fit.
The power conrerred by that sub-section is wide, but it is still a judicial power which must. be exercised in respect of matters that arise in the appeal and according to law The Tribunal in deciding an appeal before it must deal with questions of law and fact which arise out of the order of assess- ment made by the Income-tax Officer and-tlfe order of the Appel- late Assistant Commissioner. It cannot assume powers which are inconsistent with' the express provisions of the Act or its scheme. The Tribunal was entitled to enquire whether the source of the cash credits was explained: if it held that they represented capital or income of earlier years, it could exclude them from income lia~le to be taxed in the year to which the appeal related. But the Tnbunal had no power to find on amalgamation of income an
average of more years than one, or to give credit for wjrnt is call- ed intangible additions. without explaining why credit w~ given. There is no warrant for the claim made by. counsel for. the respondents that the order passed by the Tribunal was by con- sent. The Tribunal has not stated so, and if the order was made l>y consent of the departmental ·authorities and the respondents, c
c c.1.T. v. MAN!CK SONS (Shah, J.) the objection should have been prominently raised when the Com- missioner asked for. a reference to the High Court. Counsel urged that the final order passed by the Tribunal
operates to the prejudice of the respondents, and the Commissioner is not aggrieved by that order. Counsel said that even though the Tribunal has found that the total income for the two years in question was approximately Rs. 91,838 (wlllch if a correctioo account had been made would have been Rs. 87,838), the Triblljlllll has directed assessment of Rs. 50,000 in the year 1952-53 and another Rs. 50,000 in the year 1953-54. But this is only a super- ficial way of looking at the. matter. In the assessment year 1952- 5 3 the respondents were assessed ill the status of a registered firm and the income of the firm had to be distributed amqngst the partners, and the shares of the partners could be assessed to tax in their hands. The rate of tax on this income unless ·the partners have large individual income, would be comparatively low. In the year 1953-54 the respondents were an unregistered firm and the total income of the unregistered firm was liable to be taxed._
It was also cointended that the arguments raised before this Court were never set up either before the TnbunaJ or before the High Court and should not be permitted to be raised. The
question raised clearly flow from the contentions raised before the Tribunal· and contemplate an enquiry into matters urged by counsel by the Commissioper. The decision of this Court Commissioner of Income-tax,
Madras v. S. Nelliappan(') on which reliance was placed by counsel for the respondents has little bearing in this case. In S. Neiliappan's case(') it was held that the conclusion whether a cash credit in the books of account of an assessee is properly explained is one on a question of fact on which no reference can be made to the High Court under s. 66 of the Indian Income- tax Act. The Court in that case did not lay down that it is open to .the Tribunal to make a consolidated assessment of tax in res- pect of the assessment of income for the two years and then divide the income in equal shares.
Turning then to the questions : counsel for the respondents conceded _that the Tribunal had no jurisdiction to direct the Income-tax Ofi!.cer to re-open the assessment tor the year 19.52- 53.
He submitted however that the Tribunal did not give any such directiCl!DS : it merely recorded an undertaking given by the respondents that they_ will voluntarily submit a return for Rs. 50,000 for the year 1952-53. But the context in which the statement recording the undertaking occurs !a p'•.r>:;raph 7 of the (1) 66 I.T.R. 722.
judgment of the Tribuna.l and the direction given in paragraph 8 leave no room for doubt that the Tribunal did give -a direction to the Income-tax Officer to re-assess the' income for the year 1952-53. On the answer to the first question no further enquiry need be made on the second question.
The Tribunal has given no reasons in support of the view that the "intangibfe additions" of Rs. 21,000 covered a part of the cash credits. Our attention has also not been invited to any evidence which establishes a connection between the. cash credits for Rs. 21,000 -and the additions of Rs. 15,000 made in tbe assess- ment for 1952-53 aaid Rs. 6,000 added in 1953-54.
The fourth question contemplates an inquiry whether tlie Tribunal was justified in directing that tbe income under the head "business" for the assessment year 1953-54 be reduced to
Rs. 50,000. The question is somewhat misleading. The direction o.f the Tribunal was that the total income of the respondents be reduced to Rs. 50,000 for the year 1953-54, the business income being Rs. 28,820 and the balance being income from other
sources. For reasons already set out the Tribunal had no juris- diction to proceed to combine the income for the two years 1952- 53 and 1953-54 and to divide it for the purpose of assessm~t between the two years equally.
The Tribuna! had to assess the income for the year in question. The appeal is allowed, and the answers to the questions re- corded by the High Court are discharged. The answers to the
questions will be as follows : Q. ( 1 )-Tribunal had no jurisdiction. Q. (2 )-Tribunal had no jurisdiction. Q. ( 3 )-in the negative. Q. ( 4 )-in the negative. There will be no order as to costs in this appeal.
G.C. Appeal allowed.