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Dalmia Dadri Cement Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 33 of 1970
Judge
Reported in[1973]90ITR297(P& H)
ActsIncome Tax Act, 1922 - Sections 10(2) and 35(1)
AppellantDalmia Dadri Cement Ltd.
RespondentCommissioner of Income-tax
Appellant Advocate N.N. Goswami and; S.P. Goyal, Advs.
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Cases ReferredSwadeshi Cotton Mills Co. Ltd. v. Commissioner of Income
Excerpt:
.....parties concerned acquire knowledge of passing of the said order. - 35. (1) the commissioner or appellate assistant commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the commissioner, in revision under section 33a and the income-tax officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee :provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the commissioner,..........filed by the assessee or inthe assessment order. it is not, therefore, open to the appellate assistantcommissioner to travel outside the record, i.e. the return made by theassessee or the assessment order of the income-tax officer, with a view tofinding out new sources of income and the power of enhancement under section 31(3) is restricted to the sources of income which have been thesubject-matter of consideration by the income-tax officer from the point ofview of taxability.'9. in the present case in enhancing the assessment in the manner he has done, the appellate assistant commissioner has not travelled outside the record of the assessment proceedings and has not discovered new sources of income which had not been considered by the income-tax officer. the latter had actually.....
Judgment:

1. The Income-tax Appellate Tribunal, Delhi Bench ' B ', has referred the following questions of law for our opinion:

' 1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the deduction of a sum of Rs. 8,645 representing commission paid on borrowing shares for purposes of pledging them as security with the income-tax department for securing stay of recovery of certain taxes, in the computation of profits and gains of business of the assessee-company ?

2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the deduction of a sum of Rs. 6,174 being the legal expenses incurred by the company in the relevant previous year in connection with income-tax matters as a permissible deduction under the provisions of the Indian Income-tax Act, 1922 ?

3. Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner was competent to substitute the figure of Rs. 3,73,075 as the amount of loss carried forward from the assessment year 1959-60 in place of the sum of Rs. 5,60,148 shown by the Income-tax Officer in the assessment order ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 2,00,348 represented capital expenditure and was not a permissible deduction under Section 10(2)(xv) of the Indian Income-tax Act, 1922 '

2. So far as the first two questions are concerned, they are concluded by authority. The first question has to be answered according to our judgment in Dalmia Dadri Cement Ltd. v. Commissioner of Income-tax, [1972] 86 I.T.R. 577 (Punj.) (I.T.R. No. 19 of 1970, decided on 1st February, 1971). The learned counsel 'for the assessee contends that the decision of the Supreme Court in Commissioner of Income-tax v. Birla Cotton Spinning and Weaving Mills Ltd., [1971] 82 I.T.R. 166 (S.C.) (Civil Appeals Nos. 1351-1353, 1897 and 1241 of 1968, decided on 17th August, 1971) throws doubt on the correctness of our decision. We have gone through the judgment of the Supreme Court. In our view, this decision does not cast any doubts on the view we expressed in I. T. Reference No. 19 of 1970 in any way. Therefore, we mast hold that the answer to the first question is concluded by our decision already mentioned above.

3. So far as the second question is concerned, it is concluded by the decision of the Supreme Court in Commissioner of Income-tax v. Birla Cotton Spinning & Weaving Mills Ltd. (Civil Appeals Nos. 1351-1353, 1897 and 1241 of 1968, decided on 17th August, 1971).

4. So far as the third question is concerned, the position is this. The Income-tax Officer in the assessment order brought forward loss of Rs. 5,66,168. On appeal by the assessee, the Appellate Assistant Commissioner found that in the assessment order for 1959-60 the amount of loss to be carried forward and set off against the income of the accounting year relevant to the assessment year 1960-61, was only Rs. 3,73,075. He thereupon issued a notice to the assessee calling it to explain why the assessment should not be enhanced. The assessee objected to the enhancement on the ground that the Appellate Assistant Commissioner had no jurisdiction to correct the error in the order of assessment passed by the Income-tax Officer. In support of this contention, reliance was placed on Section 35(1) of the Indian Income-tax Act, 1922, which is in the following terms:

' 35. (1) The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under Section 33A and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee :

Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard :

Provided further that no such rectification shall be made of anymistake in any order passed more than one year before the commencementof the Indian Income-tax (Amendment) Act, 1939.'

5. The Appellate Assistant Commissioner proceeded to correct the errorunder Section 31, the relevant part of which is in the following terms :--

'31. (1) The Appellate Assistant Commissioner shall fix a day and place for the hearing of the appeal, and may from time to time adjourn the hearing.

(2) The Appellate Assistant Commissioner may, before disposing of any appeal, make such further inquiry as he thinks fit, or cause fuither inquiry to be made by the Income-tax Officer.

(2A) The Appellate Assistant Commissioner may, at the hearing of an appeal, allow an appellant to go into any ground of appeal not specified in the grounds of appeal, if the Appellate Assistant Commissioner is satisfied that the omfssion of that ground from the form of appeal was not wilful or unreasonable.

(3) In disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment,--

(a) confirm, reduce, enhance or annul the assessment, or

(b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine where necessary the amount of tax payable on the basis of such fresh assessment......

or, in the case of an appeal against a computation of loss under Section 24,

(g) confirm or vary such computation.......

Provided that the Appellate Assistant Commissioner shall not enhance an assessment or a penalty unless the appellant has had a reasonable opportunity of showing cause against such enhancement:

Provided further that at the hearing of any appeal against an order of an Income-tax Officer, the Income-tax Officer shall have the right to be heard either in person or by a representative.

(4) Where as the result of an appeal any change is made in the assessment of a firm or association of persons or a new assessment of a firm or association of persons is ordered to be made, the Appellate Assistant Commissioner may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm or any member of the association. .

(5) The Appellate Assistant Commissioner shall, on the conclusion of the appeal, communicate the orders passed by him to the assessee and to the Commissioner.'

6. The relevant part of the order of the Appellate Assistant Commissioner is as follows :

' I am unable to accept the contention raised by the appellant's representatives. The appellant in ground of appeal No. 7 has objected tothe whole assessment as being bad in law and on facts. Thus, the whole assessment which includes the set off of the loss carried forward from the preceding year is before me and it is open to me to correct a mistake in the assessment, even if it is a mistake apparent from the records for which the Income-tax Officer could also initiate separate proceedings. In regard to the excess depreciation allowed, it would appear that the question of allowance of correct depreciation is also open before me because the appellant has itself agitated this point in ground of appeal No 6. It is, accordingly, open to me to correct a mistake in this regard also. I, therefore, direct the Income-tax Officer to correct the assessment by substituting the depreciation of Rs. 5,749 against the depreciation of Rs. 57,496 allowed by him. '

7. On a further appeal to the Appellate Tribunal by the assessee, the Tribunal dealt with the matter as follows :

' It is no doubt true that the Appellate Assistant Commissioner iscompetent only to correct the mistake appearing in his own order and thathe cannot correct the mistakes appearing in the order of the Income-taxOfficer. The Kerlla High Court has enunciated this principle in AbdulRahiman Sail v. Income-tax Officer, [1958] 33 I.T.R. 106 (Ker.), and it is held that one authority cannotproceed to rectify the mistakes in the order of any other authority. But,the Appellate Assistant Commissioner also has the power of enhancing anassessment. The scope of such powers has been explained by the BombayHigh Court in Narrondas Manordass v. Commissioner of Income-tax, [1957] 31 I.T.R. 909 (Bom.) in thefollowing terms: , ' It is clear that the Appellate Assistant Commissioner has been constituted a revising authority against the decisions of the Income-tax Officer; a revising authority not in the narrow sense of revising what is the subject-matter of the appeal, not in the sense of revising those matters about which the assessee makes a grievance, but a revising authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the Income-tax Officer but he can revise every process which led to the ultimate computation or assessment. In other words, what he can revise is not merely the ultimate amount which is liable to tax, but he is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer.'

8. The above passage was quoted with approval by the Supreme Court in Commissioner of Income-tax v. Mc.Millan & Co., [1958] 33 I.T.R. 182, [1958] S.C.R. 689 (S.C.) and also in a later decision, viz., Commissioner of Income-tax v. Rai Bahadur Hardutroy Motilal Chamaria, [1967] 66 I.T.R. 443, [1967] 3 S.C.R. 508 (S.C.). While recognising the wide powers of the Appellate Assistant Commissioner for enhancing the assessment the Supreme Court has also laid down the limits of such powers. In Commissioner of Income-tax v. Shapoorji Pallonji Mistry, [1962] 44 I.T.R. 891 (S.C.), it was held that in an appeal filed by the assessee the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not mentioned in the return of the assessee or considered by the Income-tax Officer in the order appealed against. In the case of Rai Bahadur Hardutroy Motilal Chamaria, already cited, it was held as follows :

'The Appellate Assistant Commissioner has no jurisdiction under Section 31(3) of the Indian Income-tax Act, 1922, to assess the source ofincome which is not disclosed either in the returns filed by the assessee or inthe assessment order. It is not, therefore, open to the Appellate AssistantCommissioner to travel outside the record, i.e. the return made by theassessee or the assessment order of the Income-tax Officer, with a view tofinding out new sources of income and the power of enhancement under Section 31(3) is restricted to the sources of income which have been thesubject-matter of consideration by the Income-tax Officer from the point ofview of taxability.'

9. In the present case in enhancing the assessment in the manner he has done, the Appellate Assistant Commissioner has not travelled outside the record of the assessment proceedings and has not discovered new sources of income which had not been considered by the Income-tax Officer. The latter had actually considered the loss of the earlier years which was liable to be set off against the income of the present year and he had also considered the depreciation to which the assessee was entitled. The Appellate Assistant Commissioner has merely revised the findings of the Income-tax Officer on these two points. Such revision is well within the competence of the Appellate Assistant Commissioner. The enhancement made by him is, therefore, confirmed.

10. The contention of the learned counsel for the assessee is based on the following observations of the Supreme Court in Commissioner of Income-tax v. Amritlal Bhogilal & Co., [1958] 34 I.T.R. 130, [1959] S.C.R. 713 (S.C.):

' The powers of the Appellate Assistant Commissioner, however wide, have, we think, to be exercised in respect of the matters which are specifically made appealable under Section 30(1) of the Act. If any order has been deliberately left out from the jurisdiction of the Appellate Assistant Commissioner it would not be open to the appellate authority to entertain a plea about the correctness, propriety or validity of such an order. Indeed, if the respondent's contention is accepted it would virtually give the department a right of appeal against the order in question and there can be no doubt that the scheme of the Act is not to give the department a right of appeal to the Appellate Assistant Commissioner against any orders passed by the Income-tax Officer. The order granting registration can be cancelled by the Income-tax Officer himself either under Rule 6B or under Section 23(4). It may be cancelled by the Commissioner in exercise of his revisional power under Section 33B; but it cannot be cancelled by the Appellate Assistant Commissioner in exercise of his appellate jurisdiction under Section 31 of the Act

It is true that, in dealing with the assessee's appeal against the order of assessment, the Appellate Assistant Commissioner may modify the assessment, reverse it or send it back for further enquiry; but any order that the Appellate Assistant Commissioner may make in respect of any of the matters brought before him in appeal will not and cannot affect the order of registration made by the Income-tax Officer. If that be the true position, the order of registration passed by the Income-tax Officer stands outside the jurisdiction of the Appellate Assistant Commissioner and does not strictly form part of the proceedings before the appellate authority. Even after the appeal is decided and in consequence the appellate order is the only order which is valid and enforceable in law, what merges in the appellate order is the Income-tax Officer's order under appeal and not his order of registration which was not and could never become the subject-matter of an appeal before the appellate authority. The theory that the order of the Tribunal merges in the order of the appellate authority cannot therefore apply to the order of registration passed by the Income-tax Officer in the present case.'

11. and also on the observations of the Supreme Court in Commissioner of Income-tax v. Rai Bahadur Hardutroy Motilal Chamaria:

' As we have already stated, it is not open to the Appellate AssistantCommissioner to travel outside the record, i.e., the return made by theassessee or the assessment order of the Income-tax Officer with a view tofind out new sources of income and the power of enhancement under Section 31(3) of the Act is restricted to the sources of income which have beenthe subject-matter of consideration by the Income-tax Officer from thepoint of view of taxability. In this context' consideration' does not mean'incidental' or 'collateral' examination of any matter by the Income-taxOfficer in the process of assessment. There must be something in theassessment order to show that the Income-tax Officer applied his mind tothe particular subject-matter or the particular source of income with aview to its taxability or to its non-taxability and not to any incidental connection. In the present case, it is manifest that the Income-tax Officer has not considered the entry of Rs. 5,85,000 from the point of view of its taxability and, therefore, the Appellte Assistant Commissioner had no jurisdiction, in an appeal under Section 31 of the Act, to enhance the assessment. '

12. These observations do not help the learned counsel for the assessee and the matter is concluded by the decision in Rai Bahadur Hardutroy Motilal Chamaria's case and reference may be made to the observations of the Supreme Court at pages 449-450:

' Therefore, it would be wholly erroneous to compare the powers of the Appellate Assistant Commissioner with the powers possessed by a court of appeal, under the Civil Procedure Code. The Appellate Assistant Commissioner is not an ordinary court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and in view of this peculiar position the statute has conferred very wide powers upon the Appellate Assistant Commissioner once an appeal is preferred to him by the assessee. It is necessary also to emphasise that the statute provides that, once an assessment comes before the Appellate Assistant Commissioner, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the whole assessment and it is open to him to correct the Income-tax Officer not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the Income-tax Officer and determined in the course of the assessment. It is also well established that an assessee having once filed an appeal cannot withdraw it. In other words, the assessee having filed an appeal and brought the machinery of the Act into working cannot prevent the Appellate Assistant Commissioner from ascertaining and settling the real sum to be assessed, by intimation of his withdrawal of the appeal. Even if the assessee refuses to appear at the hearing, the Appellate Assistant Commissioner can proceed with the enquiry and if he finds that there has been an under-assessment, he can enhance the assessment. (See Commissioner of Income-tax v. Nawab Shah Nawaz Khan, [1938] 6 I.T.R. 370 (Lah.)).'

13. It is not disputed by the learned counsel for the assessee that the error is there and that it is a clerical error. But, it is maintained that this can only be corrected by the Income-tax Officer and not by the Appellate Assistant Commissioner in appeal. There is no merit in this contention. We may also refer to ground No. 7 of the grounds of appeal taken before the Appellate Assistant Commissioner wherein the legality and validity of the entire assessment was called into question. The Appellate Assistant Commissioner on its basis came to the conclusion that as the entire assessment was under appeal, he could enhance the assessment. This by itself is sufficient to reject the contention. In any event, the decision of the Supreme Court is clear on the subject and following the same we answer the question referred to us in the affirmative.

14. So far as the last question, i.e., question No. 4, is concerned, it presents no difficulty. The facts bearing on this question are as follows :

On 20th of November, 1958, the assessee company wrote to Messrs, Hazemag of Germany calling for quotations for a dryer plant in its cement manufacturing business. A quotation was received in which the initial water content in limestones was mentioned at 16% and the residual water content at 2%. The assessee wrote to the company on 12th January, 1959, asking whether the plant will be able to reduce the water content from 16% or 14% to 0%. The manufacturers promised that this would be possible but made an enquiry why this was required. There was some correspondence and ultimately on 3rd March, 1959, the company placed the order. The manufacturers asked the assessee to open an irrevocable letter of credit in their favour for 32,000. The same was opened on 24th July, 1959. The assessee had written to the manufacturers to embody the terms of reduction of moisture to 0% in a formal agreement, but the manufacturers refused to do so by their letter dated 23rd July, 1959. After some correspondence, the assessee-company requested the bankers to cancel the letter of credit but they were told that the letter of credit being irrevocable, could not be cancelled without the consent of the manufacturers. The manufacturers taking advantage of this position refiised to release the letter of credit and the assessee was faced with the probable loss of 32,000 or being saddled with an onerous contract. To avoid further loss, a compromise was entered into whereby the letter of credit was released on payment of 15,000 to the manufacturers. This amount which was forsaken by the assessee was claimed as revenue expenditure. The Income-tax Officer, the Appellate Assistant Commissioner as well as the Appellate Tribunal have disagreed with the contention of the assessee that this amount represents revenue expenditure and at the instance of the assessee the matter has been brought to this court.

15. The contention of the learned counsel for the assessee is that this amount does not represent expenditure of a capital nature but is a revenue expenditure. The learned counsel for the department, on the other hand, contends that this amount represents capital expenditure. On the face of it we are inclined to think that the amount represents capital expenditure. 32,000 was sent to Germany to buy a plant. The expenditure for the acquisition of a plant is surely of a capital nature and any loss suffered in that transaction would naturally be of a capital nature. In our opinion, the matter is concluded by the decision of the Supreme Court in Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax, [1967] 63 I.T.R. 65 (S.C.).

16. For the reasons recorded above, we must answer this question in the affirmative.

17. The net result is that questions Nos. 1, 3 and 4 are answered in favourof the department and against the assessee and question No. 2 is answeredin favour of the assessee and against the department. There will be noorder as to costs.


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