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Can the Tribunal change the Section under which the Addition was made by AO?

1. During the course of hearings before the Tribunal, the Assessee generally challenges the addition made by the AO during the course of Assessment by contending that the provisions of the particular section under which the said addition is made by the AO is not applicable to the facts of the case. It is argued that unless the conditions precedent for making the addition as per particular section is not fulfilled, then the addition should be deleted.

2. To counter such type of arguments, in most of the cases before the ITAT, the department makes alternate contention during the hearing of the case to defend the action of the AO in making the addition in the Assessment. Department makes an alternate plea that if the addition is not sustainable under the one section under which the addition is made by the AO, then same is covered to another section.

3. For example, if the AO makes an addition u/s 68 of the Act and later if it is found that the provision of section 68 were not applicable in the facts of the case, then the department generally takes plea of applicability of alternate provision of the Act such as Section 69A. This type of alternate contentions may be sometime out of the grounds of appeal taken by the Department before the Tribunal.

4. The question arises as to whether the tribunal has power to adjudicate such type of alternate plea and confirm the addition under some different section than the one as applied by the AO.

5. In this connection, it is relevant to refer the judgment of Gauhati High Court in the case of Jeypore Timber & Veneer Mills (P.) Ltd. v. CIT (1982) 137 ITR 415 (Gau), wherein it was held as under: -

Parliament in its wisdom has conferred upon the Tribunal broad and sweeping powers but at the same time controlled the powers by requisite constriction. The provision of section 254 of the Act is an enabling as well as disabling provision. A passing glance creates an impression that the Tribunal has been endowed with plenary power under section 254 of the Act to pass any order as it thinks fit. However, it is not so, as it will appear in the expression "such orders thereon as it thinks fit", in section 254. The word "thereon" in the expression is a serious constriction on the exercise of power by the Tribunal. It can decide only the points or grounds raised before it whereas the Income-tax authorities can travel beyond the grounds and consider the entire assessment. The Tribunal has no power for the enhancement of any penalty or assessment nor can it remand a case with the object of such enhancement.

6. Further, Hon’ble ALLAHABAD HIGH COURT has recently dealt with such issue in the case of SMT. SARIKA JAIN Vs CIT Income Tax Appeal No. 435 of 2008, wherein the following question of law was framed: -

The short question of law, which has been raised in this appeal is whether the Income Tax Appellate Tribunal was justified in adding a sum of ₹ 12,20,000/-, alleged to have been received by the appellant assessee as gift as his income under Section 69-A of the Act after deleting the said addition as made by the Assessing Officer and confirmed by the CIT (Appeals) under Section 68 of the Act.

7. The argument placed by the AR of the Assessee from the said order is as under: -

……..that all through the case of the parties is as to whether the aforesaid amount alleged to have been received by the appellant assessee is liable to be added under Section 68 of the Act and the question of addition under Section 69- A was never there. Therefore, the Tribunal has erred in making addition under Section 69-A of the Act.

8. The powers of the Tribunal are prescribed u/s 254 of the Act, which states : -

"254. Orders of Appellate Tribunal.
254 (1). The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit."

9. The finding of the High Court are extracted as under: -

The use of the word "thereon" is important and it reflects that the Tribunal has to confined itself to the questions, which are arising or are subject matter in the appeal and it cannot be travelled beyond the same. The power to pass such orders as the Tribunal thinks fit can be exercised only in relation to the matter that arises in the appeal and it is not open to the Tribunal to adjudicate any other question or an issue, which is not in dispute and which is not the subject matter of the dispute in appeal.
In view of the above, it can safely be said that the Tribunal travelled beyond the scope of the appeal in making the addition of the said income under Section 69-A of the Act. It may be worth noting that the Tribunal has recorded a categorical finding that "it is clear that under the provisions of Section 68, the addition made by the Assessing Officer and sustained by the CIT (Appeals) cannot be sustained, meaning thereby that the Tribunal was of the opinion that the Assessing Officer and the CIT (Appeals) committed an error in adding the aforesaid amount in the income of the appellant-assessee under Section 68 of the Act.
In view of the above, when the said income cannot be added under Section 68 of the Act and the Tribunal was not competent to make the said addition under Section 69-A of the Act, the entire order of the Tribunal stand vitiated in law.

10. From the above order of the High Court, one can say that the powers of the Tribunal in passing the appellate order are very wide but at the same time those powers are restricted to the grounds raised before it. Thus, tribunal cannot adjudicate the matter beyond the ground of appeals raised before it. Any such action of the tribunal which is beyond the grounds of appeals raised would surely be beyond the legal and valid jurisdiction of the Hon’ble Tribunal.

- Views stated above are personal

CA Sunil Maloo

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