CIT vs. Divine Infracon Pvt. Ltd (Delhi High Court)

The assessee filed an appeal before the Tribunal to challenge the decision of the CIT(A) to sustain the addition on merits. The Revenue did not appeal against the decision of CIT(A) holding that the addition made was beyond the scope of the assessment under Section 153A of the Act. Yet, the Counsel for the Revenue sought to assail the said finding in the appeal preferred by the Assessee. The Tribunal permitted the Counsel for the Revenue to agitate the issue but finally decided the same against the Revenue. The Revenue filed an appeal to the High Court. Before the High Court, the assessee contended that it was not permissible for the Tribunal to permit the Revenue to challenge the decision of the CIT(A) in an Appeal preferred by the Assessee. The principal controversy that the High Court had to consider was whether the Revenue could assail the finding returned by the CIT(A) in favour of the Assessee in an appeal preferred by the Assessee before the Tribunal, limited to the issue decided by the CIT(A) against the Assessee. HELD by the High Court:

(i) Concededly, the issue whether the additions made by the AO were beyond the scope of Section 153A had been decided by the CIT(A) in favour of the Assessee and the decision on the said issue had attained finality as the Revenue had not preferred any appeal with regard to the CIT(A)’s order. It is also relevant to note that by virtue of Section 253(2) of the Act, the Principal Commissioner or Commissioner may, if he objects to an order passed by the CIT(A) under Section 250 of the Act, direct the AO to prefer an appeal to the Tribunal. It is not disputed that no such directions to file an appeal against the CIT(A)’s order dated 21st January, 2014 were issued by the concerned Income Tax Authority.

(ii) In the circumstances, there could be no dispute that the CIT(A)’s order in so far as it relates to the issue regarding the assessment being beyond the scope of Section 153A of the Act had attained finality, and thus, could not have been disturbed by the Tribunal. Indisputably, the Revenue could also not take recourse to Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. By virtue of the said Rule, a respondent before the Tribunal can support the decision appealed against not only on the grounds decided in favour of the respondent but also on grounds decided against it. However, Rule 27 of the said Rules would not extend to permitting the respondent to expand the scope of an appeal and assail the decision on issues, which are not subject matter of the appeal. In CIT vs. Edward Keventer (Successors) Pvt. Ltd (supra), this court had reiterated that “it would not be open to a respondent to travel outside the scope of the subject matter of the appeal under the guise of invoking r 27” .

(iii) While in National Thermal Power Corporation Ltd. vs. Commissioner of Income Tax: 229 ITR 383 (SC) it was held that it is open for the Tribunal to consider all questions of law where no investigation into facts are necessary, the aforesaid decision is wholly inapplicable to the facts of the present case. It is trite law that the Tribunal may, under Section 254(1) of the Act, pass such orders as it thinks fit; nonetheless, the decision must be in respect of the subject matter of the dispute. Indisputably, the Tribunal can examine all questions which relate to the subject matter of an appeal but, once an issue has attained finality and is not a subject matter of the dispute before the Tribunal, it would not be open for the Tribunal to reopen the issue on the pretext of examining a question of law.