IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA. I.T. Appeal No. 1 of 2000 Reserved on : 16.6.2008 Date of Decision : June 19th, 2008 Himachal Gramin Bank …Appellant Versus: Deputy Commissioner, Income Tax and another …Respondents. Coram: The Hon’ble Mr.Justice R. B. Misra, Judge. The Hon’ble Mr.Justice Sanjay Karol, Judge. Whether approved for reporting?1 Yes For the appellant Mr. M. M. Khanna, Sr. Advocate with Ms. Reena Mahajan, Advocate. For the respondents : Mr. Vinay Kuthiala, Advocate Sanjay Karol, Judge. Himachal Gramin Bank, a Banking Institution, with respect to the Assessment Year 1990-91 field a return showing loss of Rs.1,51,03,247/-. Vide order dated 19.11.1990, the assessee was informed under Section 143(1A) of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) that the following deductions claimed in the return were disallowed and thus the total loss of the assessee was reduced to Rs.1,36,42,304/-:- 1 Whether reporters of Local Papers may be allowed to see the judgment? 2 “Travelling Expenses 60 Provision for Gratuity 9,61,482 Provision for bonus 4,62,000 Previous year expenses 6,053 Entertainment u/s 37(2A) 30,748 ------------- 14,60,343” ------------- The deductions were disallowed for non-compliance of the statutory conditions stipulated under Section 43B of ‘the Act’. 2. On 4.4.1991, the assessee filed an application under Section 154 of ‘the Act’ seeking rectification, which was disallowed by the Assistant Commissioner of Income Tax in terms of its order dated 6.9.1991. The application was rejected with the following observations:- “3. I have considered the submissions of the assessee and has also discussed the case with the counsel of the assessee. But I do not agree with the views of the assessee’s counsel inasmuch no evidence whatsoever was filed alongwith the return of income filed by the assessee regarding the payment of Bonus to the employees. It was, however, filed alongwith the application u/s 154, which cannot now be considered as the adjustments were made on the basis of information available on the file. Moreover, the Central Board of Direct Taxes vide their Circular No. 581, dated 28.9.1990 has clearly mentioned that the scope of the powers to make prima-facie adjustments under section 143(1)(a) is somewhat coterminus with the powers to rectify a mistake apparent from the record under section 154 and thus the sums disallowed as 3 prima-facie adjustments cannot be rectified, being a mistake apparent from record.” (Emphasis supplied) 3. Aggrieved by the same, the assessee filed an appeal No. IT/127/91-92, before the Commissioner of Income Tax (Appeals), Shimla, which was allowed in terms of the order dated 24.2.1992 with the following observation:- “4. I have considered the submissions of the ld. counsel for the appellant and find merit in them. As regards the A.O’s action in rejecting the application u/s 154 the appellant has not laid much stress thereon. As regards the Board’s circular No. 319 dated 11.1.1982 I feel that the appellant is liable for deduction u/s 80P(2)(a)(1). The Board has held as under in the said circular – “For the purpose of the Income-tax Act, 1991 or any other enactment for the time being in force relating to only tax on income, profits or grains, a Regional Rural Bank, shall be deemed to be a Co- operative Society. Therefore, provisions of section 80-P of the Income-Tax Act will also be applicable in respect of Regional Rural Banks.” In view of the said circular the appellant is liable for deduction u/s 80-P. Therefore, the A.O. is directed to allow such deduction to the appellant as per law. The appellant will get relief accordingly. In the result the appeal is allowed.” (Emphasis supplied) 4. The revenue filed an appeal No. ITA No. 1065/Chandi/92 before the Income Tax Appellate Tribunal 4 (ITAT), Chandigarh Bench and the same was decided on 22.9.1999 in terms of its following order :- “5. We have heard both the parties and perused the record. We hold that the CIT(A) was not justified in directing the AO to allow deduction u/s 80-P as per law. In the present case the proceedings were u/s 154 pursuant to the adjustments made u/s 143(1)(a) and at no stage of the proceedings was the question of deduction of 80-P raised except for the first time before the CIT(A) in the arguments only. The scope of an appeal against order u/s 154 is a restricted one and not on the same level as that of an appeal against order u/s 143(3). The reliance on the Supreme Court decision is accordingly misconceived. Accordingly we hold that the CIT(A) exceeded his jurisdiction by entertaining a new claim not raised earlier probably even in the return of income or thereafter.” (Emphasis supplied) The appeal filed by the revenue was allowed and the order passed by CIT(A) was set-aside. 5. Aggrieved by the same, the assessee’s present appeal was admitted on the following substantial questions of law:- 1. Whether or not the action of the respondent is justified to impose the additional tax on the amount of adjustment made under section 143(1)(a) by disallowing the certain expenses both statutory and not statutory in view of the circular No. 669 dated 25.10.93 and the judgment of the Hon’ble Supreme Court in the case of M/s Allied Motors (1997) 224 ITR 677 5 as the assessee/appellant moved an application u/s 154 claiming the payment of expenses within stipulated time and also that the expenses disallowed were non-statutory expenses? 2. In view of circular No. 319 dated 11.1.1982 wherein the entire income of the assessee is exempt from the payment of tax, whether the charging of Additional Tax charged u/s 143(1A) is justified or not. 3. Whether or not the appellate authority was justified in entertaining additional grounds at the time of hearing of appeal in view of the provisions of section 250(5) of the Income Tax Act, 1961, and once entertained can the same be rejected in further appeal? 4. Whether the Hon’ble Tribunal was justified in accepting the appeal of the respondents on the grounds specified in appeal or not? 5. Whether or not the additional tax u/s 146(1A) is chargeable in case where the total income remained loss even after the adjustments in view of the Explanatory Notes attached to the amendment carried in the year 1989? 6. Whether the scope of appeal against an order under section 154 is different from that of an appeal against order under section 143(3) or not? And thus CIT(A) was justified in allowing the appeal of the assessee/petitioner.” 6. We have heard Mr. M. M. Khanna, Senior Advocate and Mr. Vinay Kuthiala, Advocate, learned counsel for the parties. 6 7. During the course of hearing, Mr. Khanna has focused his submissions purely on the substantial question of law No.3. He has persuaded us to agree that if the same is decided in his favour, then the matter can be remanded back to the Assessing Officer for consideration of the other issues, questions and respective contentions raised by the parties before us. We accordingly proceed to decide. 8. Admittedly, the plea that the assessee was liable for benefits under Section 80-P of ‘the Act’ was raised for the first time in an appeal before the Commissioner of Income Tax (Appeals). 9. It is not in dispute that the assessee would be entitled to the statutory benefits under Section 80-P, subject however to the fulfillment of conditions stipulated therein. Whether the assessee has fulfilled the conditions stipulated thereunder or not, has not been considered either by the CIT(A) or by the ITAT in their orders dated 24.2.1992 and 22.9.1999. None of the authorities below have gone into this aspect of the matter. The ITAT non-suited the assessee solely on the ground that CIT(A) had exceeded its jurisdiction by entertaining a new claim not raised before the Assessing Officer. 10. In Jute Corporation of India Ltd. v. Commissioner of Income Tax and another (1991 Supp(2) SCC 744), the Apex Court has held as under:- “The Appellate Assistant Commissioner is invested with wide powers under Section 7 251(1)(a) of the Act while hearing an appeal against the order of assessment made by the Income Tax Officer. The amplitude of the power includes power to set aside the assessment order or modify the same. The Act does not contain any express provision debarring an assessee from raising an additional ground in appeal and there is no provision in the Act placing restriction on the power of the Appellate Authority in entertaining an additional ground in appeal. Even otherwise an Appellate Authority while hearing appeal against the order 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 limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. Thus the power of the Appellate Assistant Commissioner is co-terminus with that of the Income Tax Officer. There is, therefore, no justification in curtailment of the power of the AAC in entertaining an additional ground suo motu or raised by the assessee in seeking modification of the order of the assessment passed by the ITO if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made, or that the ground became available on account of change of circumstances or law.” (Emphasis supplied) 8 The Apex Court has reiterated the aforesaid view in National Thermal Power Co. Ltd. v. Commissioner of Income Tax (1997(7) SCC 489) and Commissioner of Income Tax v. Nirbheram Daluram (1997(10) SCC 373). 11. Mr. Kuthiala has submitted that the order passed by the Assistant Commissioner of Income Tax dated 6.9.1991 was not in original assessment proceedings but on an application filed under Section 154 of ‘the Act’. According to him, the scope to exercise jurisdiction under Section 154 is restrictive in nature and in this regard he has drawn our attention to a decision rendered by the Apex Court in Commissioner of Income Tax v. Hero Cycles Pvt. Ltd. (1997(8) SCC 502). 12. Hero Cycles (supra) in fact lays down that rectification under Section 154 can be made where a glaring mistake of fact or law committed by the Assessing Officer, becomes apparent from the record. It is not in dispute that if the assessee was to fulfil the statutory conditions, he would be entitled to the benefit of the provisions of Section 80-P and also the Circular No. 319 issued by the Board on 11.1.1982. 13. In our considered view, the Assessing Officer was duty bound to have considered the same which admittedly has not been done at all. Section 154 itself empowers the Assessing Officer to amend any order passed by it under the provisions of the Act. 9 14. In our view keeping in view the provisions of the Act and also the ratio of law laid down by the Apex Court, it cannot be said that the CIT(A) had exceeded its jurisdiction by entertaining a new ground raised before it. Further the provisions of Section 255 of ‘the Act’ clearly empowers the Commissioner to entertain any ground of appeal not specified in the grounds of appeal. The question of law is answered accordingly. 15. Perusal of the order passed by the authorities below would however show that none of the authorities have gone into the question as to whether the assessee is to be given benefit of various circulars including Circular Nos.689, dated 24.8.1994, 319, dated 11.1.1982, 669 dated 25.10.1993 issued by the department and the relevant provisions of the statute entitling the appellant to the benefit of the statutory provisions and more particularly Sections 43B and 80P of ‘the Act’. 16. We are, therefore, of the considered view that the matter needs to be considered afresh by the Assessing Officer. It shall be open for the parties to place all material before the Assessing Officer, who shall decide the matter after affording adequate opportunities to the parties as expeditiously as possible and not later than four months from the date of receipt of the order. 17. It shall be open for the parties to raise all such pleas and contentions, including the one’s raised before us before the 10 Assessing Officer. Other substantial questions of law have not been answered. It shall also be open for the parties to agitate the same either before the Assessing Officer or in any other appropriate proceedings which may subsequently arise. In view of the above observations, the appeal is accordingly disposed of. ( R. B. Misra ), Judge. ( Sanjay Karol ), Judge. June 19th, 2008 (rana)