VIP Road Chartered Accountants Association

Assessment pursuant to Appellate/Revisional orders

1. Introduction

Under the Income-tax Act, 1961 ("the Act"), an appellate or revisional authority has wide powers. Normally such authorities are required to decide the issues before them and give directions to the assessing authority. They have the power to annul the assessment where it is found that the assessment itself is illegal and void. Generally they have the power to set aside the assessment when it is found that the case requires further investigation by the Assessing Officer and issue directions accordingly. With effect from 1-6-2001, the power to set aside has been withdrawn in the case of an appeal before the Commissioner of Income-tax (Appeals). As such, now the Commissioner of Income-tax (Appeals) does not have power to set aside the assessment order. However, he has the power to direct the Assessing Officer to make further investigation and give the remand report, so that the issue will be decided by the Commissioner of Income-tax (Appeals) himself after giving proper opportunity to the assessee. Under the Act, the assessment is governed by the provisions of sections 142, 143 and 144 of the Act. Even for the purposes of giving effect to the appellate/revisional orders the said provisions will be applicable. In such an assessment the Assessing Officer is also bound by the directions of the appellate/revisional authority. In Bhopal Sugar Industries Ltd. vs. ITO (1960) 40 ITR 618, 622 (SC), the Hon’ble Supreme Court held that where an order passed by the Assessing Officer virtually refuses to carry out the direction which a superior Tribunal has given to him in exercise of its appellate powers in respect of an order of assessment made by him, such refusal is in effect a denial of justice, and is further more destructive of one of the basic principles in the administration of justice based, as it is in our country, on a hierarchy of courts. If a subordinate Tribunal refuses to carry out directions given to it by a superior Tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice. In Baradakanta Mishra vs. High Court of Orissa, AIR 1976 SC 1899, 1904, the Hon’ble Supreme Court held that if an order of assessment is without jurisdiction and therefore void, an order of appellate authority cannot make it valid even through a remand order. However, an order which is not void ab initio but which suffers from some infirmity, however great that infirmity may be, can merge with an appellate order which is valid and the appellate order can govern the matter [V. Subramonia Iyer vs. CIT (1978) 113 ITR 685, 688 (Ker)].

2. Scope
It is now well established that the scope of the fresh assessment following the appellate order depends on the subject matter of the appeal and the appellate order as a whole in its proper context. Where, the appellate authority sets aside the assessment and directs the Assessing Officer to make a fresh assessment, the Assessing Officer is bound by the directions of the appellate authority in making the fresh assessment. But, subject to such directions, the Assessing Officer has the same powers in framing a fresh assessment as he had originally in making an assessment under section 143(3). Where a case is sent to the Assessing Officer without any restrictions, there are no restrictions at all on the powers of the Assessing Officer when he proceeds to make the fresh assessment in place of the once set aside by the appellate authority. In such circumstances, the Assessing Officer can make fresh additions in the fresh assessment order even though such additions were not made in the original assessment [Rambilas Chandram vs. CIT (1985) 156 ITR 344, 352 (Raj); Abhai Ram Gopi Nath vs. CIT (1971) 79 ITR 339 (All)]. Where the remand order is very specific and is not unrestricted or open, the Assessing Officer cannot travel beyond the direction given by the first appellate authority. In such a case, the Assessing Officer cannot assume jurisdiction to tax a new source of income while making a fresh assessment in pursuance of such remand order [CIT vs. S.V. Divakar (1993) 201 ITR 914, 918, 919 (Ori)]. Further, where a particular matter/point has attained finality, such a matter/point cannot be made subject-matter of an order which is passed in pursuance of the directions given by the appellate authority [CIT vs. Cochin Refineries Ltd. (1996) 220 ITR 398, 405-06, 407 (Ker)]. In CIT vs. S.V. Divakar (supra), the Hon’ble Orissa High Court held as under:

"Wherever an assessment is set aside without imposing any restrictions or limitations, the Assessing Officer has the same power for making the assessment afresh as he could have originally done. In such a case, all matters and aspects that have relevance can be considered. A difficulty arises when the assessment has been set aside with a specific direction and the Assessing Officer stumbles upon a new source which was not noticed by him while making the original assessment. The information relating to such new source may be on various accounts, for example, the direction by the appellate authority in another case, or revelation due to any investigation. There may be so many other circumstances, on account of which the information may come into the possession of the Assessing Officer. The power to consider the new source of income would depend on the nature of the order of remand. While deciding an appeal from an order passed by the Assessing Officer, the Appellate Assistant Commissioner has no jurisdiction to assess a source of income which has not been processed by the Assessing Officer and which is not disclosed either in the return filed by the assessee or in the assessment order and the Appellate Assistant Commissioner, therefore, cannot travel beyond the subject matter of the assessment. Consequently the Appellate Assistant Commissioner, while setting aside the assessment, cannot empower the Assessing Officer to go into points which he himself could not have investigated in the exercise of his power of enhancement. The principle that the Assessing Officer cannot assume jurisdiction to tax a new source of income while making an assessment in pursuance of an order of remand, applies where there is a specific direction given in the order of remand. Where, however, the remand is an open one, the Assessing Officer shall not be restricted to any particular source and all the relevant aspects can be taken into consideration by him including any new source of income which was not the subject matter of assessment earlier. In short, the scope of fresh assessment following the appellate order depends on the subject matter of the appeal and the appellate order read as a whole in its proper context."

In CIT vs. Mahindra and Co. 215 ITR 922 (Raj), the facts were that the assessment of the assessee in respect of the period ending on December 31, 1971, was completed by the Income-tax Officer under section 143(3) of the Income-tax Act and deduction under section 47(vi) was claimed in respect of a sum of Rs. 4,25,415/- which was the profit arising out of the amalgamation of two companies with the assessee company. The Income-tax Officer was of the view that this surplus was allowable. Besides allowing this item as not liable to tax, tax was levied in respect of different sources of income including tax on capital gain and income from rent, etc. The Appellate Assistant Commissioner set aside the assessment order for the purposes of recomputing the capital gains after affording proper opportunity to the assessee and for the purpose of recomputing the rental income of the property. In pursuance of the direction given by the Appellate Assistant Commissioner, the Income-tax Officer framed the assessment order and referred the same to the Inspecting Assistant Commissioner under section 144A of the Income-tax Act. The assessee was given opportunity and after hearing the assessee, a direction was given by the Inspecting Assistant Commissioner that the profit arising out of the amalgamation was liable to tax. The Commissioner of Income-tax (Appeals) deleted the addition and the Tribunal upheld the order. On reference, the Hon’ble Rajasthan High Court held as under:

"The Tribunal was justified in holding that the scope of assessment made by the Income-tax Officer in pursuance of directions issued under section 250 of the Income-tax Act by the Appellate Assistant Commissioner was limited and the Income-tax Officer was not competent to tax the sum of Rs. 4,29,593/- when at the time of original assessment, the same was not the subject matter of appeal."

In CIT vs. Late Jawaharlal Nagpal 171 ITR 136 (M.P.), the facts were that the assessee, an individual, filed his return for the assessment year 1973-74 declaring a total income of Rs. 14,840/-. The Income-tax Officer in his order of assessment added the following sums to the income: Rs. 17,500/- on account of low withdrawals, Rs. 25,000/- on account of gift received from one L and Rs. 40,000/- on account of gift made by N. These were assailed before the Appellate Assistant Commissioner, inter alia, on the ground that the assessee was not given adequate opportunity of hearing. The Appellate Assistant Commissioner found that the assessee was not given adequate opportunity of hearing. The Appellate Assistant Commissioner, therefore, set aside the order of assessment and remanded the case to the Income-tax Officer with a direction to him to afford proper opportunity to the assessee in regard to each item of addition made by him. After the matter came back to the Income-tax Officer, the Income-tax Officer made further enquiry and found that apart from the additions made to the total income of the assessee which were objected to by the assessee before the Appellate Assistant Commissioner, certain deposits in the names of certain persons were made by the assessee and that the said deposits represented the income of the assessee from undisclosed sources. The Income-tax Officer accordingly held that a sum of Rs. 1,64,250/- was the income of the assessee from undisclosed sources. The Income-tax Officer also added the value of the perquisite in respect of the use of a car. The Income-tax Officer accordingly completed the assessment on a total income of Rs. 2,65,760/-. The Tribunal held that the new additions made by the Income-tax Officer on the basis of new sources of income were without jurisdiction. The Tribunal also held that the addition of Rs. 5,400/- as value of the perquisite for the use of the car was not justified. On reference, the Hon’ble Madhya Pradesh High Court held as under:

(i). "While deciding an appeal from an order passed by the Income-tax Officer, the Appellate Assistant Commissioner has no jurisdiction to assess a source of income which has not been processed by the Income-tax Officer and which is not disclosed either in the return filed by the assessee or in the assessment order and the Appellate Assistant Commissioner, therefore, cannot travel beyond the subject matter of the assessment. Hence, the Appellate Assistant Commissioner cannot, while setting aside the assessment, empower the Income-tax Officer to go into points which he himself could not have investigated in exercise of his power of enhancement.

(ii). In the fresh assessment proceedings after the original assessment had been set aside, the Income-tax Officer had no jurisdiction to tax new sources of income.

(iii). The Tribunal was right in holding that the unauthorised use of the car of the company by the assessee would not constitute a perquisite."

In S.P. Kochhar vs. ITO 145 ITR 255 (All), the Hon’ble Allahabad High Court held as under:

"When the Tribunal sets aside the assessment and remands the case for making a fresh assessment, the power of the ITO is confined to the subject matter of appeal before the Tribunal. He cannot take up the questions which were not the subject matter of appeal before the Tribunal, even though no specific direction has been given by the Tribunal."

In Kartar Singh vs. CIT 111 ITR 184 (P & H), the Hon’ble Punjab and Haryana High Court held as under:

"Where an assessment is set aside by the Appellate Tribunal and remanded to the Income-tax Officer, it is not open to him to introduce into the assessment new sources of income so as to enhance the assessment. Any power to enhance is confined to the old sources of income which were the subject matter of appeal to the Appellate Tribunal."

In I.T.O. vs. V.S. Chabbra 15 ITD 96 (Bom), the Hon’ble Bombay Tribunal held as under:

"On the question of the ITO’s jurisdiction to include a new item of income in an assessment made pursuant to the AAC’s directions also, the law is clear. It is well settled that even the AAC or the Commissioner (Appeals) cannot go beyond the scope of the appeal before them. Their powers of enhancement are also limited to the scope of the appeal before them, on the grounds of appeal clearly covered by and arising out of the assessment order appealed against. This being so, the ITO, in making an assessment pursuant to an appellate direction, certainly cannot travel beyond what the AAC himself can do. In such an assessment, therefore, the ITO cannot include any item of income not considered by him in the original assessment. Therefore, the ITO, in the instant case not having considered the question of including capital gains in the original assessment, could not include this new item of income in making a fresh assessment pursuant to appellate directions."

3. Limitation

Section 153(1) of the Act provides for the period of limitation for completing an assessment u/s 143 or 144 of the Act to be two years from the end of the assessment year. Section 153(2) of the Act provides for the period of limitation for completing an assessment u/s 147 of the Act to be one year from the end of the financial year in which the notice u/s 148 was served. Section 153(2A) and (3) provide for the extended period of limitation for completing the assessment in consequence of the appellate / revisional orders. Where the assessment is set aside in an appeal or revision, section 153(2A) provides that a fresh assessment will have to be made before the expiry of one year from the end of the financial year in which the order of the appellate authority is received by the Chief Commissioner or Commissioner, as the case may be or the order of revision is passed by the Chief Commissioner or Commissioner. Sub-section (3) of section 153 provides that subject to the provisions of sub-section (2A), a fresh assessment/recomputation in pursuance of or to give effect to, any finding or direction in an appellate/revisional order or in an order of any Court, can be done at any time without any time limit.

In the absence of the statutory provisions to the contrary, as contained in section 153(2A), it is well settled that when the statute lays down the period of limitation for passing an order that requirement is fulfilled as soon as an order is passed within that period. If the order is set aside on appeal and the appellate order directs a fresh order to be passed then there is no requirement of law that the consequential order to give effect to the appellate order must also be passed within the statutory period of limitation. This proposition of law is well settled [Bombay Metropolitan Region Development Authority vs. Gokak Patel Volkart Ltd., JT 1995 (1) SC 155, 161, relying on Director of Inspection vs. Pooran Mall & Sons, (1974) 96 ITR 390 (S.C.)].

Accordingly, the period of limitation prescribed u/s 153(2A) would be applicable only in respect of cases falling under that sub-section and in all other cases the fresh assessment can be made at any time without any time limit. Therefore, the question is to determine whether a case falls u/s 153(2A) or not. Section 153(2A) refers to cases where the assessment is set aside or cancelled by the appellate/revisional order. Therefore, the question that arises is as to whether the period of limitation u/s 153(2A) is applicable only where the original assessment as a whole is set aside or cancelled and not where the appellate authority directs fresh consideration of some aspects. In ACIT vs. Bakhtawar Construction Co. (P) Ltd. 74 ITD 442 (Mum), the Hon’ble Mumbai Bench of the Tribunal, held that the period of limitation is applicable only when the original assessment as a whole is set aside and not otherwise. The Tribunal held that where the appellate authority only directs fresh consideration of some aspects, the provisions of section 153(2A) are not applicable.

In Rikhabdas Jhaverchand vs. CIT 249 ITR 774 (Bom), for the A.Y. 1981-82, the Assessing Officer disallowed the claim for bad debt of Rs. 78,166/- in 1984. In 1989, the Tribunal remitted the matter to the Assessing Officer to verify the correctness of the claim by calling for information from the debtors or by getting the details verified through the Income-tax Officer who assessed the debtors. In 1996, the Assessing Officer completed the assessment u/s 143 read with section 254. The assessee, in a revision petition, challenged the fresh assessment, relying on section 153(2A), on the ground that the Tribunal having set aside the assessment, the order was passed beyond the time limit; i.e., after the expiry of two years from the end of the financial year in which the Tribunal passed the order u/s 254. The petition was rejected by the revisional authority. On a writ petition filed by the assessee, the Hon’ble Bombay High Court held as under:

"If a matter falls u/s 153(2A); i.e., if the Tribunal has set aside or cancelled the assessment, then the fresh order of assessment shall be passed within the prescribed period of two years from the end of the financial year in which the order is passed by the Tribunal
u/s 254.

The revisional authority came to the conclusion that the Tribunal had only directed the Assessing Officer to verify the correctness of the claim of bad debts made by the assessee by calling for information from the debtors or by getting the details verified through the Income-tax Officer who assessed the debtors. In the circumstances, it could not be said that the Tribunal had directed the Assessing Officer to pass a fresh order of assessment, as contemplated by section 153(2A), and section 153(3) clearly stood attracted. The order was not barred by limitation."

4. Conclusion

Accordingly, the fresh assessment pursuant to an appellate/revisional order is to be classified into two types. In the first type, the original assessment as a whole is set aside. In such a case, the Assessing Officer has wide powers in the fresh assessment as in the original assessment and there will be no restrictions. The Assessing Officer can consider all the aspects of the assessment. Such an assessment will have to be completed within the period prescribed u/s 153(2A) of the Act. All the other cases would belong to the second type. In such cases, the assessment as a whole is not set aside but the appellate authority directs the Assessing Officer to reconsider some aspects after proper investigation or to recompute the income as per the directions of the appellate authority. In such situations, the powers of the Assessing Officer are limited to the directions of the appellate authority and the Assessing Officer cannot travel beyond such directions. In such cases the provisions of section 153(2A) would not be applicable and the fresh assessment can be made even beyond the period of limitation prescribed u/s 153(2A) of the Act.

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