1. The question referred to us by the Income-tax Appellate Tribunal, Bombay Bench 'D' is as follows :
'Whether the Tribunal was right in holding that the appellate Assistant Commissioner had jurisdiction in entertaining the question of relief under section 80-I of the Income-tax Act, 1961, for the first time before him ?'
2. A few facts may be noted here. The question referred to us relates to the jurisdiction of the AAC to entertain a new ground of relief under s. 80-I of the I.T. Act, 1961, which relief was not claimed before the ITO. The assessee was incorporated on July 18, 1970. The authorised capital of the assessee was Rs. 25,00,000. The object of incorporation of the assessee was to take over the running business of Messrs. Western India Strip Mills, a partnership firm. The said business was taken over from September 1, 1970. The issued and paid-up capital of the assessee was Rs 3,00,200 made up of 3,002 equity shares of Rs. 100 each fully paid up. The business of the assessee consists in the manufacture of iron and steel bars, angles, window sections, etc., technically known as re-rollers from ingots and billets etc. The assessment for the very first year, namely, 1971-72, was completed by the ITO on July 15, 1972. Before the ITO the assessee-company did not file a claim with regard to the alleged relief under s. 80-I of the I.T. Act, 1961.
3. The assessee preferred an appeal before the AAC. In additional ground was sought to be raised before the AAC on July 24, 1972, and this was a claim made for relief under s. 80-I read with Sch. VI to the I.T. Act, 1961. The AAC, following the decision of the Gujarat High Court in the case of CIT v. Gurjargravures Pvt. Ltd. : 84ITR723(Orissa) , admitted the additional ground and directed the ITO to go into the merits of the case and thereafter grant the relief under s. 80-I of the I.T. Act, 1961, if admissible.
4. The Department carried the matter in further appeal before the Tribunal, and the Tribunal upheld the action of the AAC. The Tribunal also followed the decision of the Gujarat High Court.
5. Before us, Mr. Jetly for the Commissioner of Income-tax urged that the decision relied on namely, in CIT v. Gurjargravures Pvt. Ltd. : 84ITR723(Orissa) , has been reversed by the Supreme Court, and he invited our attention to the decision of the Supreme Court in Addl CIT v. Gurjargravures P. Ltd. : 111ITR1(SC) . It was submitted that this decision precluded the raising of an additional ground for the first time before the AAC, particularly in respect of a relief claimed for the first time before the AAC and not claimed before the ITO.
6. Mr. Patil appearing for the assessee submitted, however, that the Supreme Court decision had no doubt reversed the Gujarat High Court decision but had left open cases where there was material on record before the ITO which would support a claim. In his submission, if there was sufficient material on record, then a claim could be raised for the first time before the AAC and entertainment by him although such a claim had not been raised earlier before the ITO. He referred us to the observations of the Supreme Court at page 5 of the report in Gurjargravures case : 111ITR1(SC) and to a decision of the Andhra Pradesh High Court in CIT v. Gangappa Cables Ltd. : 116ITR778(AP) .
7. We may now proceed to examine the aforesaid two decisions. In the Supreme Court decision in Addl. CIT v. Gurjargravures Pvt. Ltd. : 111ITR1(SC) , one of the grounds of appeals raised by the respondent-assessee in its appeal before the AAC was that the ITO had erred in not giving the benefit under s. 84 of the I.T. Act, 1961, to the assessee. No such claim had been made before the ITO when the completed the assessment nor was there any material on record supporting such a claim. The point that there was no material on record supporting such a claim. The point that there was no material on record to sustain the claim or to support it was been emphasized by the Supreme Court in the following passage (p. 5) :
'As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mentioned that there was any material on record to sustain the claim for exemption which was made for the first time before the Appellate Assistant Commissioner. We are not here called upon to consider case where the assessee failed to make a claim though there was evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case, neither any claim was made before the Income-tax Officer, nor was there any material on record supporting such a claim. We, therefore, hold that on the facts of this case, the question referred to the High Court should have been answered in the negative.'
8. It is clear that the Supreme Court has not ruled that in no case can the AAC entertain such a claim for the first time, which claim was not made before the ITO. We must restrict the decision to the facts of that case where both the requirements indicated above were satisfied. These two requirements are : (1) That there was no claim initially made before the ITO before he completed the assessment, and (2) that there was no material on record to support the claim. What is to happen when both these requirements are not satisfied and there is substantial material on record to support the claim made This was the precise case dealt with by the Andhra Pradesh High Court in CIT v. Gangappa Cables Ltd. : 116ITR778(AP) . The conclusion reached by the Andhra Pradesh High Court is to be found at page 781 of the reports, which passage may be reproduced here :
'We are of the opinion that when there is sufficient evidence on record to support a claim, neither the AAC nor the Tribunal is barred from entertaining a claim on the basis of the evidence on record which is sufficient is support the claim. The decision of the Supreme Court in Addl. CIT v. Gurjargravures P. Ltd. : 111ITR1(SC) , therefore, is no bar to the entertaining of the claim by the AAC or the Tribunal, in view of the fact that all the necessary material for allowing a claim under s. 80J(1) was before the ITO.'
9. In the instant case, we are not required to consider whether there is any difference between the powers of the AAC and the Tribunal in this behalf. We are concerned with the powers of the AAC (for Commissioner (Appeals)) to entertain a new ground. Before either of the decisions is applied, let as consider whether there was any material on record in the present case which would have enabled the AAC to uphold the assessee's claim for relief made for the first time before the AAC.
10. Section 80-I introduced by the Finance Act, 1967, with effect from April 1, 1968, gave certain deduction in respect of profits and gains from priority industries in the case of certain companies. The expression 'priority industry' to be found in the said section bore the meaning given to the expression in s. 80B, and this makes it necessary for us to turn to the list of articles and things as found in Sch. VI to the I.T. Act, 1961. We are concerned with item No. (1) of the said Schedule which is Iron and Steel (Metal), ferro-alloys and special steels.
11. In paragraph 3 of the assessment order which assessment was completed on July 15, 1972, the ITO has made observation regarding the business of the assessee. The question which he would be required to consider on remand in pursuance of the order of the AAC would be whether the manufacturing business carried on by the assessee as indicated by him (the ITO) would qualify for deduction under s. 80-I read with the VIth Schedule to the I.T. Act, 1961. In the instant case, there is not merely substantial but almost full material on record to enable consideration of the claim made by the assessee. In this view of the matter, we are of the opinion, respectfully following the decision of the Andhra Pradesh High Court, that the AAC had jurisdiction to allow the new ground.
12. The Tribunal has made it clear that it is open to the ITO to go into the merits of the claim and decide the issue according to law. Thus, in appropriate case and even perhaps in this case, the ITO may call upon the assessee, when he considers the merits of the claim for relief under s. 80-I of the I.T. Act, 1961, to seek such additional information as he may be advised to require before finally deciding whether or not the assessee is entitled to the relief claimed. We have been told by Mr. Patil, who appears for the assessee, that for the subsequent year the assessee has obtained relief under s 80-I from the ITO, which view has been ultimately upheld by the Tribunal. This, however, would not have any bearding on the question posed for our consideration in this reference.
13. In the result, the question referred to us is answered in the affirmative and in favour of the assessee. The commissioner to pay the costs of the reference to the assessee.