APPELLATE TRIBUNAL: SCOPE AND NATURE OF PROCEEDINGS Joint Authors: Niraj Sheth and Nikhil Ranjan, Advocates 1.

Introduction The Income Tax Appellate Tribunal (the Tribunal) was set up on 25th January 1941, as an independent quasi-judicial body to hear second appeals from the decisions of the Appellate Assistant Commissioners (now Commissioner of Income-Tax (Appeals).At present sections 252 to 255 of the Income-tax Act, 1961 (the Act) and sections 24 to 26 of the Wealth Tax Act, 1957 deals with provisions relating to appeals to the Tribunal. The Tribunal has formulated its own rules and procedures namely the Income Tax (Appellate Tribunal) Rules, 1963 (the Rules) in exercise of the power conferred under section 255(5) of the Act. 2. Nature of Proceedings The Tribunal is not an income-tax authority within the meaning of section 116 of the Act. The Tribunal is constituted and functions under the Ministry of Law, Government of India. However, under the Rules of Allocation of Business, the supervisory control of the Department of Legal Affairs over the Tribunal is in the nature of administrative supervision and control. It does not extend to controlling or questioning judicial decisions of the Tribunal.1 Strictly speaking, the Tribunal is not a Court. However, the Tribunal exercises judicial functions and has the trappings of a court.2 According to the Supreme Court what distinguishes a Court from a quasi-judicial tribunal is that it is charged with a duty to decide disputes in a judicial manner and declare the rights of parties in a definitive judgment. To decide in a judicial manner involves that the parties are entitled as a matter or right to be heard in support of their claim and to adduce evidence in proof of it. And it also imports an obligation on the part of the authority to decide the matter on a consideration of the evidence adduced and in accordance with law. When a question wherefore arises as to whether an authority created by an Act is a Court as distinguished from a quasi-judicial tribunal, what has to be decided is whether having regard to the provisions of the Act it possesses all the at tributes of a Court.3 Section 255(6) invests the Tribunal, for the purpose of discharging its functions, with all the powers of the income-tax authorities under section 131 regarding discovery, production of evidence, summoning witnesses and enforcing their attendance and compelling production of their books of accounts or other documents, issuing commissions and impounding books of accounts and other documents produced before it. As per section 196 of the Indian Penal Code whoever corruptly uses or attempts to use as true or genuine evidence any evidence which he knows to be false or fabricated, shall be punished in the same manner as if he gave or fabricated false evidence. The Tribunal is a civil court within the meaning of section 195 of the Criminal Procedure Code to prosecute for the contempt of lawful authority of public
1 2

I.T.A.T. v. V. K. Agrawal (1999) 235 ITR 175, 187 (SC). Ajay Gandhi v. B. Singh (2004) 265 ITR 451, 456 (SC). 3 Virindar Kumar Satyawadi v. State of Punjab AIR 1956 SC 153.

servants, for offences against public justice and for offences relating to documents given in evidence. Chapter XXXV of the CrPC saves some proceedings from being vitiated on the ground of some irregularities. The statement of facts recorded by a court or quasi-judicial Tribunal in its proceedings as regards the matters which transpired during the hearing before it would not be permitted to be assailed as incorrect, unless steps are taken before the same forum. It is not open to the parties or counsel to say that the proceedings recorded by the Tribunal are incorrect.4 3. Whether Tribunal is a Court? The Tribunal performs judicial functions and, therefore, is a court subordinate to the High Court within its territorial jurisdiction. Under Article 227 of the Constitution, every High Court shall have superintendence over all courts and tribunals throughout the territories in relation to which it exercises jurisdiction. The Supreme Court held that applying the test laid down in the case of Cooper v. Wilson, [1937] 2 K.B. 309 at p. 340, the Labour Court would undoubtedly be a court in the true sense of the term. 5 The test is as follows: a true judicial decision presupposes an existence of dispute between two or more parties and then involves four requisites :- (1) the presentation of their case by the parties; (2) ascertainment of facts by means of evidence adduced by the parties often with the assistance of argument; (3) if the dispute relates to a question of law, submission of legal arguments by the parties; and (4) by decision which disposes of the whole matter by findings on fact and application of law to facts so found. The Supreme Court held that an Industrial Tribunal had all the trappings of a court and performed functions which cannot but be regarded as judicial. The Court referred to the Rules by which proceedings before the Tribunal were regulated. The Court dwelt on the fact that the powers vested in it are similar to those exercised by civil courts under the Code of Civil Procedure when trying a suit. It had the power of ordering discovery, inspection etc. and forcing the attendance of witnesses, compelling production of documents and so on. It gave its decision on the basis of evidence and in accordance with law. In view of the above discussion we can safely assume that the Income-tax Appellate Tribunal is also a court insofar as it discharges its judicial functions. 4. Powers of the President, Bench and the Members The power of the Tribunal is expressed in wide terms under the Act, viz., the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.6 Its powers, thus, are almost similar to the powers of an appellate court under the Code of Civil Procedure. A wide power, however, is not such that it can be exercised in any manner. The Tribunal can interfere with the orders of the lower authorities, but can do so only on judicial considerations and on the basis of reasons that suggest clearly that the lower authority had committed an error of law or such fact that had vitiated its considerations and gone perverse for such reasons. The appellate courts which
4 5

Deeksha Suri v. ITAT (1998) 232 ITR 395 (Del). State of Kerala v. B. Renjith Kumar and Ors. AIR 2009 SC (Supp) 465. 6 Section 254(1).

exercise wide powers to hear appeals both on issues of law as well as issues of fact, exercise the well known refrain that if two opinions are possible and one opinion is formed by the lower authority or court, although it is to arrive at a different opinion it shall not interfere with the order of the lower authority or reverse the order of the lower authority. Its primary task is not to go into the return of the assessee and decide what amount of tax should be levied upon his income, but to see whether the taxing authorities, including the first appellate authority has committed any error of law or of fact and on account of such error, the assessee has suffered. The Tribunal has got to protect, on the other hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what he is bound to pay, and on other hand, it has duty to protect the interests of the Revenue and to see that no one dodges the revenue and escapes without paying tax.7 4.1 Power to Give Directions The words as it thinks fit used in section 254(1) are of wide amplitude to give directions to authorities below to afford an opportunity to the assessee and revenue to adduce evidence afresh and consider the same and submit a report.8 The plain implication of the section is that the Tribunals powers are limited to passing such order as it may think fit on the appeal. The expression thereon clearly and undoubtedly points to the conclusion that the powers of the Tribunal are limited to the subject matter of the appeal.9 The power is restricted to the year under appeal, incidental observation relating to other years, if any, made, is not strictly speaking, a finding. The Tribunal has no jurisdiction to give direction with regard to the proceedings of the earlier year or to include deleted amount in another years assessment.10 However, the Assessing Officer may reopn assessment of another year of the same person, or assessment of another person, as the case may be, to include therein such excluded accounts by virtue of Explanations 2 and 3 of section 153 of the Act. 4.2 Power to Remand If the Tribunal feels that in a particular case before it, substantial justice requires that the claim of the assessee though raised before the first appellate authority for the first time should have been investigated by the that authority, the Tribunal is competent to direct it to rehear the parties and give a finding on the contention.11 The power to set aside an assessment and to direct the Assessing Officer to make a fresh assessment is clearly comprehended in the words pass such orders as it thinks fit. The Tribunal can therefore while setting aside the assessees appeal direct the Assessing Officer to make a fresh assessment after giving due notice to the assessee.12 The power of remand is only incidental to its power to hear and dispose of the appeal. But the power of remand cannot exceed the jurisdiction under section 254(1). Hence, the Tribunal cannot exercise the power of remand for the purpose of
7 8

CIT v. Rayala Corporation (P.) Ltd. (1995) 215 ITR 883 (Mad) at 894-5. Thakur v. Hari Prasad v. CIT (1987) 167 ITR 603 (AP). 9 Pathikonda Balasubba Setty v. CIT (1967) 65 ITR 252 (Mys); Hukumchand Mills Ltd. V. CIT (1967) 63 ITR 232 (SC). 10 ITO v. Murlidhar Bhagwan Das (1964) 52 ITR 335 (SC). 11 CIT v. Sayaji Mills (1974) 94 ITR 26 (Guj). 12 Saurashtra Salt Mfg. Col v. CIT (1967) ITR 404 (Guj).

enhancing the tax.13 The power of remand should be used sparingly and only in cases where the Tribunal after an examination of the material already placed on record by way of evidence takes the view that it is not possible for it to make a just order on the appeal without assistance of further evidence or without the assistance of a clearer finding by the authority from whose order appeal has been presented.14 The power of remand is to be exercised judicially and not in an arbitrary or capricious manner. The exact nature of the remand order to be passed in a given case is a matter within the absolute discretion of the Tribunal but the power being judicial must be exercised judiciously according to rule and not humours; must be legal and regular, disciplined as opposed to capricious.15 4.3 Power of Enhancement The Tribunal is not competent to give a finding adverse to the assessee while disposing of appeal under section 254(1) and make the latters position worse than before, thus resulting in an enhancement of assessment.16 It is not open to the Tribunal to give a finding adverse to the assessee which does not arise from any question raised in the appeal nor is it open to it to raise any ground which would work adversely to the appellant and pass an order which makes his position worse than it was under the order appealed against.17 The Tribunal is not empowered to do indirectly what it cannot do directly, e.g., where setting aside of entire order of assessment and a remand order has the effect or the probability of resulting in an enhancement of the assessment under appeal.18 But, where the Tribunal finds that disallowance of a particular expenditure by the authorities below is not proper, the Tribunal is competent to sustain the disallowance, wholly or partially, under a different section under which it may be properly disallowed. 19 However, where penalty was imposed at an amount which was less than legally permissible, The Tribunal was held justified in remanding the matter to make the requisite penalty order, even though it resulted in enhancement of penalty.20 4.4 Power to Call for Documents The Tribunal has power to call for the documents relevant for deciding the appeal in terms of section 256(6) read with section 131.21 4.5 Power to Pronounce upon Validity of the Act

13 14

V. Ramaswamy Iyengar v. CIT (1960) 40 ITR 377 (Mad). Pathikonda Balasubbu Setty v. CIT (1967) 65 ITR 252 (Mys). 15 Jeypore Timber and Veneer Mills (P) Ltd. v. CIT (1982) 137 ITR 415 (Gau). 16 Puranmal Radhan Kishan & Co. v. CIT (1957) 31 ITR 294 (Bom); New India Life Assurance Co. Ltd. v. CIT (1957) 31 ITR 844 (Bom). 17 J. K. Bankers v. CIT (1974) 94 ITR 107 (All). 18 V. Ramaswamy Iyengar v. CIT (1960) 40 ITR 377 (Mad); Pathikonda Balasubba Setty v. CIT (1967) 65 ITR 252 (Mys); Puranmal Radhakishan & Co. v. CIT (1957) 31 ITR 294 (Bom); New India Life Assurance Ltd. V. CIT (1957) 31 ITR 844 (Bom); J. K. Bankers v. CIT (1974) 94 ITR 107 (All); State of Kerala v. Vijaya Stores (1979) 116 ITR 15, 18-19 (SC); Pahulal Ved Prakash v. CIT (1990) 186 ITR 589, 594 (All) and Jeypore Timber and Veneer Mills P. Ltd. V. CIT (1982) 137 ITR 415 (Gau). 19 Steel Containers Ltd. V. CIT (1978) 112 ITR 995 (Cal). 20 CIT v. Assam Travels Shipping Service (1993) 199 ITR 1 (SC). 21 UoI v. Sheo Shankar Sitaram (1974) 95 ITR 523 (All).

The Tribunal and tax authorities are creatures of the Act and cannot pronounce upon the constitutional validity or vires of any provisions of this Act. 22 A question about validity of the Act can be raised only in a writ petition.23 4.6 Power to Award Cost The Tribunal at its discretion may award cost in any appeal before it.24 4.7 Power to Decide an Appeal Ex Parte Rules 24 and 25 of the Rules lay down the procedure for hearing and disposal of an appeal ex parte on account of non-appearance by the parties or their authorised representatives. The scheme of the provisions of the Act relating to the Tribunal apparently is that it has to dispose of an appeal by making such orders as it thinks fit on the merits. It follows from the language of the provision and in particular the use of the word thereon that the Tribunal has to go into the correctness or otherwise of the points decided by the departmental authorities in the light of the submissions made by the appellant. This can only be done by giving a decision on the merits on questions of fact and law and not by merely disposing of the appeal on the ground that the party concerned has failed to appear. The word thereon restricts the jurisdiction of the tribunal to the subject matter of the appeal and the words pass such orders as the Tribunal thinks fit include all the powers (except possibly the power of enhancement) which are conferred upon the first appellate authority.25 Rule 24 is similar to Order 9, rule 13 of the Code of Civil Procedure, 1908. The words was prevented by any sufficient cause from appearing must be liberally construed to enable the court or the Tribunal to exercise power ex debito justitiae. The sufficient cause referred to in rule 24 may be construed as good cause. If the cause is good it would be sufficient. If a party is unaware of the date of hearing and the awareness is not due to any fault of his, then unawareness would be a sufficient cause which would prevent a party from appearing in the court.26 On an application of the party, the Tribunal is empowered under rules 24 and 25 to restore the appeal decided ex parte. 4.8 Power to Rectify Mistake: Miscellaneous Applications Section 254(2) empowers the Tribunal to amend any order passed by it, at any time within four years from the date of the order, to rectify any mistake apparent from the record, either suo motu or on application by the assessee or the Assessing Officer. However, an order rejecting an application for rectification under section 254(2) cannot be rectified.27 An amendment which has the effect of enhancing or reducing the refund or otherwise increasing the liability of the asseessee cannot be made unless the Tribunal has given notice to the assessee of its intention to do so and has heard the assessee.
22 23

CIT v. Straw Products Ltd. (1966) 60 ITR 156 (SC). Venkatraman & Co. Ltd. v. State of Madras (1966) 60 ITR 112 (SC); Dharangadhra Chemical Works LTd. v. CIT (1975) 101 ITR 491 (Bom); L. Chandrakumar v. UoI (1997) 228 ITR 725 (SC). 24 Sub-section 2B of Section 254. 25 CIT v. Cheniappa Mudaliar (1969) 74 ITR 41 (SC). 26 Rainbow Agri Industries Ltd. v. ITAT (2004) 266 ITR 39 (Bom); CIT v. Ansal Housing & Constructions Ltd. (2004) 190 CTR (Del). 27 CIT v. ITAT (1992) 196 ITR 838 (Ori).

Rule 34A of the Rules prescribes the procedure for dealing with Miscellaneous Applications under section 254(2). The Bench which heard the matter giving rise to the application (unless the President, the Senior Vice-President, the Vice-President or the Senior Member present at the station otherwise directs) shall dispose it after giving both the parties to the application a reasonable opportunity of being heard. However, a Miscellaneous Application shall not be posted for hearing if it prima facie appears to be a petition for review.28 The expression to rectify any mistake apparent from the record has a wider connotation than the expression error apparent on the face of the record occurring in Order 47, rule 1 of the Civil Procedure Code, 1908. The restrictions on the power of review under Order 47, rule 1, do not hold good in the case of section 254(2) and section 154 of the Act. An order of assessment based upon an interpretation or application of law which is ultimately found to be wrong in the light of judicial pronouncements rendered subsequently, discloses a mistake apparent from the record. When the court decides a matter, it does not make the law in any sense but all it does is that it interprets the law and states what the law has always been and must be understood to have been. Where an order is made by an authority on the basis of a particular decision, the reversal of such decision in further proceedings will justify a rectification of the order based on that decision. A subsequent binding decision of the Supreme Court or of the High Court has retrospective operation as in the case of subsequent legislation and overruling is always retrospective.29 However, when the Tribunal had not given any decision on the issue of jurisdiction that was sought to be raised in the miscellaneous petition, no question of mistake apparent from the record could be said to arise out of the order of the Tribunal on the said question, merely because, subsequently, the Supreme Court had rendered a decision on such question.30 The expression record in the phrase mistake apparent from the record does not mean only the judgment, but also the record before the Tribunal.31 Section 254(2) does not authorise the Tribunal to review its order or even worse, to sit in appeal over its earlier order. The order of the Tribunal was set aside as it did not amount to an amendment of an earlier order with a view to rectify a mistake apparent from the record, but it was an order passed on reappraisal of the material facts and circumstances and on a fresh application of the legal position.32 A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent on the record.33 Where the Tribunal failed to deal with important contention affecting maintainability or merit of the appeal it would be a
28 29

Sub-rule (3) of rule 34A. Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. ITAT (1988) 174 ITR 579 (Ker); also see Neeta S. Shah and Ors. V. CIT (1991) 191 ITR 77 (Kar) and Himachal Pradesh Financial Corporation v. CIT (1998) 233 ITR 450 (HP) . 30 M. V. Arunachalam v. CIT (1985) 152 ITR 512 (Mad). 31 Laxmi Electronic Corporation Ltd. v. CIT (1991) 188 ITR 398 (All). 32 ITO v. ITAT (1998) 229 ITR 651 (Pat). 33 Deeksha Suri v. ITAT (1998) 232 ITR 395 (Del) also see CIT v. ITAT (1992) 196 ITR 564 (Ori).

mistake or error apparent from the record and the Tribunal would be empowered to reopen the appeal.34 4.9 Power to Stay Recovery of Demand An assessee can make an application to the Tribunal for stay of recovery of demand of tax, interest, penalty, fine, estate duty or any other sum as per the procedure prescribed in rule 35A of the Rules. Separate applications should be made for stay of recovery of demands under different enactments. An application not in the form prescribed by the rule is liable to be summarily rejected. The statutory power under section 254 carries with it duty in proper cases to make such orders for staying recovery proceedings pending an appeal before the Tribunal, as will prevent the appeal, if successful, from being rendered nugatory.35 The Tribunal, after considering the merits of the application, may make an order of stay for a period not exceeding 180 days from the date of such order. The appeal shall be disposed of within the said period of 180 days. If the appeal is not so disposed of within the said period of 180 days and the delay is not attributable to the assessee, then the Tribunal may extend the stay for further period. However, the aggregate period of stay shall not exceed 365 days and the Tribunal shall dispose of the appeal within such extended period. After the said period of 365 days the stay stands vacated whether the appeal has been disposed of or not.36 The Tribunal would look for the following factors relevant to decide the stay applications: (i) a prima facie case, (ii) balance of convenience, (iii) financial status of the petitioner, (iv) hardship and (v) interest of the revenue.37 The Bombay High Court has laid down certain parameters to be followed by the income-tax authorities while passing orders on stay applications filed pending appeals to the first appellate authority, non-compliance of which will invite in addition to other remedy available to the assessee, the writ jurisdiction of the High Court. 38 Normally, the High Court does not interfere in matters passed by the judicial authority in a pending judicial proceeding but when the reasons recorded by the judicial authority are opposed to judicial canons, the High Court has no alternative except to give proper direction to the judicial authority so that it may not only act correctly in the case under judicial review but also in similar other cases with a view to prevent injustice to the litigants.39 The Tribunal cannot decline to consider a stay application where the CIT has granted a conditional stay.40 4.10 Powers of the President

The President enjoys administrative supervision over working of the Tribunal. The President is empowered to constitute Benches consisting of one judicial member and one accountant member, which shall exercise and discharge the powers and
34 35

Laxmi Electronic Corporation Ltd. v. CIT (1991) 188 ITR 398 (All). ITO v. M. K. Mohammed Kunhi (1969) 71 ITR 815 (SC). Also see Shiv Shakti Rubber and Chemicals Works v. ITAT (1995) 213 ITR 299 (All). 36 Sub-section (2A) of section 254. 37 Maharana Shri Bhagwat Singhji of Mewar v. ITAT (1997) 223 ITR 192 (Raj). 38 KEC International Ltd. v. B. R. Balakrishnan and Ors. (2001) 251 ITR 158 (Bom). 39 Shiv Shakti Rubber and Chemicals Works v. ITAT (1995) 213 ITR 299 (All). 40 Ashok Kumar Aggarwal v. ITAT (1997) 226 ITR 490 (Del).

functions of the Tribunal.41 A Bench hears and determines such appeals and applications as the President directs. The President is empowered to transfer an appeal or an application from any one Bench to another.42 The President, for the disposal of any particular case, may constitute a Special Bench consisting of three or more members, one of whom shall necessarily be judicial member and one accountant member.43 In the event, the members are equally divided on any point, then the President may refer such point to be heard by one or more members of the Tribunal. Such point shall be decided according to the majority of the members including those who first heard it.44 Subject to the above provisions (including special power of the Senior VicePresident/ Vice-President and seniormost member present at the station to transfer appeals and applications), all the members of the Tribunal have been invested with identical powers under the Act in discharging their judicial functions. 5. Appealable Orders The Tribunal is the second appellate forum. Section 253(1) of the Act provides that any assessee aggrieved by any of the orders listed in that section may appeal to the Tribunal against such order. An appeal lies to the Tribunal against substantive orders of the first appellate authority, but no appeal lies to the Tribunal against a decision of the appellate authority to make further enquiry himself or to cause further enquiry to be made by the Income-tax Officer.45 However, the Bombay High Court has taken an opposite view that an appeal lies against the order directing further inquiry and calling for a report from the Income-tax Officer.46 An appeal may also lie against order of dismissal by the first appellate authority after refusing to adjourn the hearing of the appeal.47 So also an appeal may lie to the Tribunal against dismissal of the first appeal on the technical ground of some procedural defect.48 Where an appeal to the first appellate authority is not admitted on the ground of non-payment of tax as contemplated by section 294(4) and an order in that behalf is made, such order amounts to an order disposing of the appeal under section 250 and, consequently, an appeal is maintainable against such order.49 When the first appellate authority entertains an appeal against a non-appealable order and disposes the same on merits, a second appeal is maintainable against such order before the Tribunal.50 An appeal would lie to the Tribunal against the order of the first appellate authority holding an appeal to be time-barred.51
41 42

Sub-section (1) & (2) of section 255. Sub-rule (1) of rule 4. 43 Sub-section (3) of section 255. 44 Sub-section (4) of section 255. 45 Lalji Haridas v. CIT (1968) 67 ITR 213 (Guj). 46 CIT v. Smt. Kulsum J. G. Padamsee (1986) 161 ITR 704 (Bom). 47 Jiwan Ram Ram Lakhan v. CST (1984) Tax LR 2801 (All). 48 Bhubaneshwar Flour Mills v. State of Orissa (1983) 52 STC 192 (Ori). 49 CIT v. Kalipada Ghose (1987) 167 ITR 173 (Ori); CIT v. Smt. Nanhibai Jaiswal (1988) 171 ITR 646, 648 (MP). 50 Deputy Commissioner v. N.M. Abdusalam (1994) 206 ITR 522, 523 (Ker). 51 Mela Ram & Sons v. CIT (1956) 29 ITR 607 (SC).

Both the assessee and the revenue can appeal against an order of the first appellate authority under section 253. The Commissioner, if he objects to any order passed by the first appellate authority, may direct the Assessing Officer to appeal to the Tribunal against the order.52 The objections to the order need not necessarily be confined to what the order has stated but may extend to what the order has omitted to say.53 In respect of the same order of the first appellate authority, the assessee may appeal as to one part and the revenue as to the other. Where the assessee or the revenue prefers an appeal to the Tribunal against the order of the first appellate authority or any part thereof, the other party, notwithstanding that he has not already appealed against such order or any part thereof, may file cross-objections against any part of the order of the first appellate authority with which he is dissatisfied.54 No appeal lies to the Tribunal against a dead person.55 The right to appeal to the Tribunal is not confined technically to the party who is a party to the appeal, but is a much wider right which can be exercised by any person who becomes liable to pay tax by any order against which the appeal is preferred.56 6. Whether additional claim, grounds or relief can be claimed and granted by Appellate Tribunal? The Tribunal is competent to pass such orders on the appeal "as it thinks fit." There is nothing in the Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the Departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the Departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him.57 Under section 254 of the Act, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, the assessee would not be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the first appellate authority.
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Section 253(2). M. Ganapathi Asari v. CIT (1970) 75 ITR 296 (Mad). 54 Section 253(4). 55 CIT v. Smt. Santosh Rani (1996) 219 ITR 301 (MP); CWT v. v. V. S. Meenakshi Achi (1994) 205 ITR 260 (Mad). 56 Kikabhai Abdulali v. ITAT (1957) 32 ITR 762 (Bom); Gokuldas v. Kikabhai Abdulali (1958) 33 ITR 94 (Bom). 57 CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 = AIR 1968 SC 101.

Both the assessee as well as the Department has a right to file an appeal/crossobjections before the Tribunal. The Tribunal cannot be prevented from considering questions of law arising in assessment proceedings, although not raised earlier.58 However, if the party concedes on a point before the first appellate authority, he cannot be held to be aggrieved by the said part of the order so as to agitate the same before the Tribunal.59 Similarly, if the assessee did not prefer an appeal against the order passed by the first appellate authority setting aside the assessment and directing the Assessing Officer to make a fresh assessment in accordance with the directions given in his order, it would not be open to the assessee to attack the earlier order of the first appellate authority before the Tribunal in an appeal against final order.60 A party may be aggrieved by an express decision of the first appellate authority or by an implied decision of the first appellate authority. The subject-matter of the appeal before the Tribunal can only be the decision, express or implied, of the first appellate authority and the jurisdiction of the Tribunal is restricted to the subjectmatter of the appeal. Once the subject-matter of the appeal is determined, the Tribunal has very wide powers to deal with all questions of fact and law pertaining to that subject-matter of appeal and it can allow a new question of law to be raised in support of the same claim for relief. On the facts found, if a new aspect of law can be applied, it can allow it to be urged even though that aspect of the law was not urged before the Assessing Officer or the first appellate authority. The Tribunal is not restricted to the very grounds of appeal in which originally the decision of the first appellate authority was sought to be challenged when the appeal was filed. It has wide powers to allow the party to add or alter the grounds of appeal, subject, of course, to the opportunity being given to the other side of being heard on this new ground of appeal. The jurisdiction of the Tribunal which is restricted to the subjectmatter of the appeal must not be confused with the powers of the Tribunal to deal with an appeal within the four corners of its jurisdiction. The Tribunal cannot transgress the limits of that jurisdiction, even though in the exercise of that jurisdiction its powers are plenary and very wide.61 In hearing an appeal the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal.62 The appellant is the party who is dissatisfied with the judgment; the respondent is the party who is satisfied with the judgment. The appellant may challenge the decision of the trial Court even on grounds not contained in the grounds of appeal if the Court of appeal grants him leave to do so. Undoubtedly in granting leave the Court of appeal would consider various factors: whether the question raised would involve questions of fact which may necessitate a remand; whether the conduct of the appellant is such as to disentitle him to raise the new ground; and so on. But if
58 59

National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). Jivatlal Purtapshi v. CIT (1967) 65 ITR 261 (Bom). 60 Orient Trading co. Ltd. v. CIT (1965) 58 ITR 553 (Cal). 61 CIT v. Steel Cast Corporation (1977) 107 ITR 683 (Guj). 62 CIT v. S. Nelliappan (1967) 66 ITR 722 (SC)

leave is granted and if the other side has notice of the new ground which the appellant seeks to urge, the Court of appeal should permit the appellant to challenge the decision of the trial Court on a ground other than those taken in the grounds of appeal. The position with regard to the respondent is different: it is not open to him to urge before the Court of appeal and get a relief which would adversely affect the appellant. If the respondent wants to challenge the decision of the trial Court, it is open to him to file a cross-appeal or cross-objections. But the very fact that he has not done so shows that he is quite content with the decision given by the trial Court. Therefore, under these circumstances, his only right is to support the decision of the trial Court, not only on the grounds contained in the judgment of the trial Court, but on any other ground.63 The Tribunal would allow the party to press a ground taken but not pressed before the first appellate authority.64 Where the additional ground of appeal sought to be urged is a question of law and does not involve any further investigation into facts, the Tribunal would exercise its discretion to grant leave.65 When assessee did not make claim before Assessing Officer nor was there any material on record supporting such claim, it was held that the first appellate authority could not entertain claim raised for first time.66 Thus, the Tribunal may also not allow a claim not made before lower income-tax authorities nor supported by any material on record. 7. Final fact finding authority In the hierarchy of authorities the Appellate Tribunal is the final fact-finding body. Its decisions on questions of fact are not liable to be questioned before the High Court. The nature of the jurisdiction predicates that the Tribunal will approach and decide the case in a judicial spirit and for that purpose it must indicate the disputed questions before it with evidence pro and con and record its reasons in support of the decision. The practice of recording a decision without reasons in support cannot but be severely deprecated.67 The jurisdiction of the Tribunal in an appeal covers questions of fact as well. It is open to the Tribunal while disposing of an appeal against the order of the first appellate authority to see to the factual position as well and to reverse a finding of fact if it is erroneous.68 Thus, the Tribunal can, on a reappraisal of the facts and material on record, record its won findings which may be different from findings recorded by the authorities below.69 However, it no part of the Tribunals function to act as an investigative agency either for the assessee or for the department in cases where ample particulars have not been given by the parties.70 The finding of the Court of fact should not be vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or party upon evidence and party upon inadmissible material. Where the fact finding authority acts without any evidence or upon a view of the
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New India Life Assurance Co. Ltd. v. CIT (1957) 31 ITR 844 = AIR 1958 BOM 143. Vijay Kumar Jain v. CIT (1975) 99 ITR 349 (P&H). 65 Byramji & Co. v. CIT (1943) 11 ITR 286 (Nag). 66 ACIT v. Gurjargravures Pvt. Ltd. (1978) 111 ITR 1 (SC) = AIR 1978 SC 40; Commissioner CIT v. Hardutroy Motilal Chamaria AIR 1968 SC 153; CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891= AIR 1962 SC 1086; Narrondas Manordass v. CIT AIR 1958 Bom 35. 67 CIT v. Walchand & Co. P. Ltd. (1967) 65 ITR 381 (SC). 68 Asharfilal Radhey Shyam v. CIT (1978) Tax LR 508, 511 (All.) 69 Sir Shadila Sugar & General Mills Ltd. (1983) 141 ITR 664 (All). 70 L. H. Sugar Factory & Oil Mills v. CIT (1980) 124 ITR 58 (All).

facts which cannot reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law could have found, the appellate Court is entitled to interfere. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures and surmises and if it does anything of the sort, its findings even though on questions of fact will be liable to be set aside by the appellate Court.71 A reference to the High Court presupposes a pure point of law or a point of substantial importance but if on an appreciation of evidence much is to be decided then there arises a dead lock. In all judicial proceedings it is a well settled principle of law that the quality of the order that is passed must demonstrate a total application of mind by the authority who has passed the order. 72 Recording of reasoning or findings is basic in a judicial order. Since an issue of fact is also intertwined with a legal aspect it is incumbent on the Tribunal to consider the case on merits and pass a well reasoned order.73 The Tribunal being the final fact finding authority is expected to apply its mind to the contentions and issues and give a separate finding on each issue. The fact that the order of the Tribunal is a confirming order would not absolve the Tribunal from independently examining the issues and the discussing the same.74 The Tribunal while passing orders cannot gloss over important matters in a one sentence statement that these judgments are distinguishable. Even assuming that the judgments are either not applicable or distinguishable, it is a well defined procedure that applies to all judicial forums that it is essential to record which the judgments in question are, or a brief summary of the contentions raised and to record the findings thereon. It is not permissible to merely brush aside important legal issues or to disregard them as it will become impossible for the next higher authority to be able to decipher as to what is the ground on which the Tribunal rejected a particular contention.75 Where the Tribunal dislodges the order passed by the appellate authority it is obligatory on the part of the Tribunal to demonstrate as to how the findings recorded by the appellate authority were not consistent with the facts and the provisions of law.76 It is the duty of the Tribunal to consider the law as it exists even though the assessee fails to bring it to its notice.77 8. Binding nature of ITAT orders For an order of the Tribunal to be effective and binding shall be signed and dated by all the members constituting the Bench.78 Consistency and judicial discipline enshrined in the doctrine of stare decisis requires that decisions of the Tribunal are binding on authorities subordinate to it. The order of the Tribunal is binding on
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Lalchand Bhagat Ambica Ram v. CIT (1959) 37 ITR 288 (SC). ACIT v. Gautam Investments (P.) Ltd. (2001) 250 ITR 324 (Kar). 73 J. Bheemananda Gupta v. ACIT (2001) 250 ITR 537 (Kar). 74 Vinjane Centre v. DCIT (2002) 258 ITR 191 (Mad). 75 Munibyrappa v. CIT (2004) 265 ITR 560 (Kar). 76 R. D. Joshi v. CIT (2001) 251 ITR 332 (MP). 77 Kerala Chemicals and Proteins Ltd. v. CIT (1999) 235 ITR 467 (Ker). 78 Sub-rule (1) of rule 34 and rule 35.

the assessing officer and the first appellate authority and the failure to follow the same may constitute contempt of Tribunals order.79 A decision of a Division Bench and Third Member Bench is binding on the Single Member Bench. A Decision of a Special Bench is binding on all the Benches of the Tribunal. A decision of the Special Bench can be distinguished or disregarded if there is any contrary view of the jurisdictional High Court or of the Supreme Court. A co-ordinate Bench should follow the view of another co-ordinate Bench else refer the matter to a larger Bench through the President.80 For the sake of uniformity, one Bench of the Tribunal is bound to follow the view expressed by another Bench of the Tribunal unless the earlier view is per incuriam.81 The Bench should not come to a conclusion totally contradictory to the conclusion reached by the earlier Bench decision; the matter should be referred to a larger Bench on a request made to the President.82 The Tribunal cannot disregard the decision of the High Court of the State in which the Bench is sitting. Its clear duty is to follow all such decisions irrespective of what views it might itself hold and leave it to the other party to bring up the matter on a reference to the High Court, if he is so advised.83 But it is not bound to follow the decision of a non-jurisdictional High Court.84 However, when there is a decision of a different High Court and there is no contrary decision, it will be just and proper for the Tribunal to follow the said decision.85 The Tribunal has been held right in following the order of the Settlement Commission even though special leave petition to the Supreme Court had been filed against the order of the Settlement Commission but there was no stay on or suspension of the order of the Settlement Commission.86 9. Conclusion In the above essay, the authors have attempted to give to the readers an overview of the scope and nature of proceedings conducted before the Tribunal. In other articles contained in this issue of the magazine various authors would be dealing with the same in greater detail.

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Rajendra Mills Ltd. V. Jt. CIT (1971) 28 STC 483 (Mad); Serethil Raja Metal v. CTO (1990) 79 STC 38 (Mad) and UOI v. Kamlakshi Finance Corporation Ltd. AIR 1992 SC 711. 80 Page 69, A Fine Balance: Law and Procedure, Before Income Tax Appellate Tribunal, AIFTP (2004); S.I. Rooplal and Others v. Government through Chief Secretary, Delhi & Others AIR 2000 SC 594; UoI v. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722 (SC); Pradip Chnadra Parija v. Prmod Chandra Patnaik (2002) 254 ITR 99 (SC). 81 CIT v. L. G. Ramamurthi (1977) 110 ITR 453 (Mad); CIT v. S. Devaraj (1969) 73 ITR 1 (Mad); Modu Timblo (Individual) v. CIT (1994) 206 ITR 647 (Bom); UoI v. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722 (SC); Pradip Chnadra Parija v. Prmod Chandra Patnaik (2002) 254 ITR 99 (SC). 82 CIT v. Godlass Nerolac Paints Ltd. (1991) 188 ITR 1 (Bom); UoI v. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722 (SC); Sub. Inspector Rooplal & Another v. Lt. Governor, New Delhi & Others (2000) 1 SCC 644 (SC); DCIT v. Reliance Industries Ltd. (2004) 88 ITD (Mum)(SB). 83 Raja Benoy Kumar Sahas Roy v. CIT (1957) 32 ITR 466 (SC). 84 Taylor Instrument Co. (India) Ltd. v. CIT (1998) 232 ITR 771, 774 (Del). 85 CIT v. Highway Construction Co. (P.) Ltd. (1996) 217 ITR 234, 240 (Gauh); S. Mubarik Shah Naqshbandi v. CIT (1977) 110 ITR 217 (J&K) and ITAT v. V. K. Agrawal (1999) 235 ITR 175, 188 (SC). 86 CWT v. Shervani Charitable Trust (1991) 190 ITR 417, 418 (All).