Expanse Of Rule 27 Of The ITAT Rules: A Judicial Analysis

Advocate Rano Jain, a former Member of the ITAT, has explained the intricacies of Rule 27 of the ITAT Rules which gives a right to the Respondent before the ITAT to support the order of the CIT(A) on any ground decided against him, notwithstanding the fact that he may not have challenged the order. The learned author has analyzed the important judgements on the point and explained clearly the extent of the right and its limitations, including whether the Appellant can be worse-off as a result of the invocation of the Rule by the Respondent

INTRODUCTION

Assessments, once completed, if enter the arena of litigation, becomes a fight between the assessee and the department. There are various stages of litigation starting from the Comissioner of Income Tax (Appeals) [CIT(A)] till the Supreme Court. The CIT(A) is the first appellate authority, who himself is a part of the Income Tax Department. At this stage only assessee can be the appellant and the department cannot be aggrieved by actions of its own Assessing Officer. The ITAT is the second appellate authority and is a quasi judicial authority, where even the department can be the appellant. The High Courts and the Supreme Court decide the matter under their Appellate jurisdiction.

At the first appellate stage, only assessee can be the appellant, however the department has a right to be represented through the Assessing Officer, which right is assumed very rarely by the department. However, if we see the powers given to the CIT(A), which are of the widest amplitude, even the rights of the department are cushioned very effectively. The CIT(A), apart from being given the co-terminus powers with that of the Assessing Officer, has also been given the power to enhance the income of the assessee. This is a power unique to the CIT(A), which power is not even enjoyed by ITAT, despite being a higher forum. In this manner, while the assessee can argue and put forth his grievance against the action of the Assessing Officer, before the CIT(A), the CIT(A) can correct anything wrong done by the Assessing Officer, which is causing prejudice to the revenue, enjoying his co terminus powers.

At the stage of ITAT, both the assessee as well as the department can be the appellant. Being a quasi judicial authority, the ITAT has its own set of Rules, where both the appellant as well as the respondent are given various rights in order to protect their respective interests. An appellant can raise all his grievances through grounds of appeal raised by him in the appeal memo. The appellant also has a right to raise additional ground of appeal, with the leave of the tribunal.

REMEDIES AVAILABLE WITH THE RESPONDENT:

The ITAT Rules extensively provide for the rights of a respondent at many stages. If one of the parties is aggrieved by any action of the first appellate authority, it can file an appeal despite the other party also filing the appeal. These are called cross appeals and here both the parties are appellant and respondent in two separate appeals and preferably these cross appeals are heard together.

In cases where a party gets a substantial relief by the CIT(A) and prefers not to go in appeal, despite there being certain findings of the CIT(A) held against him. In such a case if the other party goes in appeal, the respondent can file cross objections even after the expiry of limitation period provided for appeals. The cross objections are to be filed in Form 36A within 30 days of receipt of notice of the other party having filed appeal. No fee is charged for filing cross objection.

If at the time of hearing the respondent wishes to take up an issue decided against him by the CIT(A), the opportunity is given under Rule 27 of the Income Tax Appellate Tribunal Rules, which reads as under:

“Respondent may support order on grounds decided against him.

27. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.”

For invoking Rule 27, neither a prescribed format is provided under the ITAT Rules, nor a time limit is set.

RULE 27: RATIONALE:

The powers of the Tribunal, being a quasi judicial authority, under the Act and Rules are the same as those of an appellate court under the Code of Civil Procedure.

 The Civil Procedure Code. Order XLI, rule 22, Civil Procedure Code, states:

“(I) Any respondent, though he may not have appealed from any part of the decree, may not only support the decree on any of the grounds decided against him in the court below, but take any cross-objection to the decree which he could have taken by way of appeal…..

The rationale behind such a provision was very succinctly summarised by Justice Chagla in the case of New India Life Assurance Co. [1957] 31 ITR 844 (Bom) in the following passage as:

“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 wanted to challenge the decision of the trial court, it was 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. It is true that he may 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. In appreciating the question that arises before us, one must clearly bear in mind the fundamental difference in the positions of the appellant and the respondent. The appellant is the party who is dissatisfied with the judgment ; the respondent is the party who is satisfied with the judgment."

Somewhat similar is the Rule 27 of the ITAT rules.

The very logic of this Rule may be understood by a very simple example. Suppose an assessee had raised several grounds to defend his case before the CIT(A). The CIT(A) holds some of the grounds against him, however gives him relief on the basis of one or more other grounds raised by him. Here, in all probability, the assessee having got the desired relief, will not prefer any appeal against the grounds decided against him. Now if the other party comes in appeal against the relief allowed to him, he has all the right as a respondent to argue those issues, which were decided against him also. The situation has been explained by the Madras High Court, in the case of CIT vs. Sundaram & Co. Pvt. Ltd. (1964) 52 ITR 763 (Mad), as follows:

“13. The reason for such a rule is obvious. If the final outcome of a decision is favourable to a person it would not matter to him how and by what reasoning the decision is arrived at so long as it is not challenged by his adversary. But, if it is attacked he must be in a position to support it on every ground he urged before the deciding authority whether or not it found favour. If he were not given that amount of freedom he would be a victim of wrong reasons. This would be unjust in the extreme. If rule 27 had not been enacted there would still have been scope for invoking the principle underlying that rule in the name of natural justice. The true rule is that an appeal is a continuation of the original proceeding and that rights of parties cannot be defeated by the form of the order but by the actual decision.”

It becomes very clear from the reading of the above, that Rule 27 in a way is an extension of the principle of natural justice, which has to be granted to any litigant, irrespective of his status being that of an appellant or respondent. One can visualise a situation where in the absence of such a right given to respondent he may have to lose his case on account of some ground which was raised before the first appellate authority, but could not find favour with him. In all probability a person who gets relief from the CIT(A) would not prefer to go in second appeal if even on winning that second appeal, he will not get any additional benefit, as he has won the appeal on first appellate stage itself, on the basis of some other ground.

NO DISCRETION TO DEPRIVE:

 In the case of Sundaram & Co. (supra), the assessment was reopened under section 147 of the Act and certain rebates were disallowed to it. The assessee preferred an appeal to the CIT(A) challenging, both the validity of reopening, as well as the merits of the case. The CIT(A) came to the conclusion that the assessee was entitled to some relief in respect of the quantum and so he granted relief partially. However the reopening was held to be valid. There was a further appeal not at the instance of the assessee but at the instance of the department. At the hearing of the appeal, the assessee raised the objection before the Tribunal that the proceedings under s. 147 were entirely without jurisdiction. On behalf of the department, it was contended before the Tribunal that the assessee was not competent to raise this objection as to the non-applicability of s. 147 as it had not filed an independent appeal against the adverse finding of the CIT(A), holding that the provision was applicable. It is in this context that the High Court had to go into the scope of the powers of the Tribunal while dealing with an appeal before it. After referring to the powers of the Tribunal to grant leave to the appellant, to raise additional grounds, the court turned to Rule 27 and observed :

“Turning to rule 27 which permits the respondent before the Tribunal to support the order of the Appellate Assistant Commissioner on any of the grounds decided against him, it seems to be clear that this is a right conferred upon him. The Tribunal has no discretion to deprive the respondent of the benefit of this rule. It is an enabling provision which the respondent can avail himself of in order to retain the benefit which has accrued to him from the order appealed against.”

Similar views expressed by the Supreme Court in civil appeals in the context of Order XLI Rule 22, will make the position more clear.

In case of Virdhachalam Pillai v. Chaldean Syrian Bank Ltd. AIR 1964 SC 1425 in context of the said Rule the Supreme Court observed as under:

"32. Learned Counsel for the appellant raised a short preliminary objection that the learned Judges of the High Court having categorically found that there was an antecedent debt which was discharged by the suit mortgage loan only to the extent of ₹ 59,000/- and odd and there being no appeal by the Bank against the finding that the balance of the ₹ 80,000/- had not gone in discharge of an antecedent debt, the respondent was precluded from putting forward a contention that the entire sum of ₹ 80,000/- covered by Exs. A and B went for the discharge of antecedent debts. We do not see any substance in this objection, because the respondent is entitled to canvass the correctness of findings against it in order to support the decree that has been passed against the appellant.

 Likewise, in case of S. Nazeer Ahmed v. State Bank of Mysore AIR 2007 SCW 766 it was held and observed as under:

"7. The High Court, in our view, was clearly in error in holding that the appellant not having filed a memorandum of cross-objections in terms of Order XLI Rule 22 of the Code, could not challenge the finding of the trial court that the suit was not barred by Order II Rule 2 of the Code. The respondent in an appeal is entitled to support the decree of the trial court even by challenging any of the findings that might have been rendered by the trial court against himself. For supporting the decree passed by the trial court, it is not necessary for a respondent in the appeal, to file a memorandum of cross-objections challenging a particular finding that is rendered by the trial court against him when the ultimate decree itself is in his favour. A memorandum of cross-objections is needed only if the respondent claims any relief which had been negatived to him by the trial court and in addition to what he has already been given by the decree under challenge. We have therefore no hesitation in accepting the submission of the learned counsel for the appellant that the High Court was in error in proceeding on the basis that the appellant not having filed a memorandum of cross-objections, was not entitled to canvass the correctness of the finding on the bar of Order II Rule 2 rendered by the trial court."

Very precisely, the law is that the respondent if wants to make a claim which was negative by the lower authority, has to file a cross appeal or cross objection, however he can defend the order of the lower authority, on any issue held against him even without doing so. That is the crux of Rule 27 of the ITAT Rules.

SUBJECT MATTER OF AN APPEAL:

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. The crucial words in section 254(1) of the Income-tax Act are that the Appellate Tribunal shall pass such orders "thereon" (in the appeal) as it thinks fit. The said words occurring in section 254(1) of the Act restrict the jurisdiction of the Tribunal to the subject-matter of the appeal.  But, what is the subject-matter of an appeal before the Appellate Tribunal is largely a question of fact. Section 254(1) of the Act should be read along with rules 11 and 27 of the Income-tax (Appellate Tribunal) Rules. 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.

Sundaram & Co.(supra), the facts of which has already been explained, where the court had also examined as to what constituted ‘subject-matter of an appeal’ and held as follows:

“The subject-matter is that which the Tribunal or the appellate court is called upon to decide and to adjudicate. The subject-matter cannot be identified with the grounds raised either by the appellant or by the respondent. In the present case the subject-matter of the appeal before the Tribunal was the reduction of tax rebate in respect of ₹ 3,54,716. It is impossible to contend that the subject-matter of the appeal lay within a narrower limit and that it was the question whether the Appellate Assistant Commissioner was right in not allowing reduction of rebate on the ground mentioned by him. The assessee had obtained relief before the Appellate Assistant Commissioner to a particular extent. And this was objected to by the department in the appeal before the Tribunal. The applicability of section 34 of the Act was a general question raised by the assessee even before the Appellate Assistant Commissioner. It cannot be said that it became debarred from raising the question over again before the Tribunal because of the fact that it did not choose to file an appeal against other portions of the order of the Assistant Commissioner which was unfavourable to it. The scope of section 34 was a ground which was decided against the assessee before the Appellate Assistant Commissioner and we do not see how the assessee is precluded from relying upon rule 27 and urging that ground before the Tribunal with a view to support only that portion of the Appellate Assistant Commissioner’s order which was favourable to it.”

The principle underlying this decision is that the Tribunal has no power to enlarge the scope of the appeal before it by permitting either the appellant or the respondent to urge grounds which would have the effect of destroying the finality of that portion of the order of the original authority which had not been appealed against by either of the parties. But this does not mean that the respondent should be denied the opportunity of supporting a decision in his favour which has come up on appeal on a ground decided against him by the authority whose decision is challenged.

In CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710, after referring to the corresponding provision in the 1922 Act (section 33 (4) of the Act), the Supreme Court said as follows:

"Under sub-section (4) of section 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal ‘as it thinks fit’. There is nothing in the Income-tax 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."

In J.B. Greaves v. CIT (1963) 49 I.T.R. 107 (Bom), the Bombay High Court held, following two earlier decisions of that court, New India Life Assurance Co. Ltd. v. CIT (1957) 31 I.T.R. 844 (Bom) and CIT v. Hazarimal Nagji & Co. (1962) 46 I.T.R. 1168 (Bom), that the subject-matter of an appeal is confined to grounds specifically raised in the memorandum of appeal, the new grounds raised by the appellant with the previous permission of the Tribunal and the grounds urged by the respondent in support of the decree passed in his favour, even though the decision of the court, against which the appeal is filed, is against him. The learned judges of the Bombay High Court observed that this is a general rule.

In Pokhraj  Hirachand v. Commissioner  of  Income-tax (1963)49 ITR 293 (Bom) the court explained the concept, saying that:

“The grounds are only missiles employed by the combatants to achieve their respective desired ends. It would not be possible to circumscribe the subject of the appeal by taking into account the rival contentions or the reasons or the grounds which are put forward either by the department or by the assessee.”

In Steel Containers Ltd. v. CIT (1978) 112 ITR 995 (Cal), the A.O. disallowed a portion of the remuneration paid to Balmer Lawrie and Co. Ltd. as excessive in terms of section 40(c)(i) of the Act. A portion of the expenditure claimed was disallowed. The ITAT found that section 40(c)(i) of the Act could not apply to the allowance or remuneration paid to Balmer Lawrie and Co. Ltd., a corporate entity. The disallowance could not be made under the said section. The allowable or permissible remuneration paid to B. L. could be evaluated or fixed under section 37 of the Act. One of the questions referred to the High Court was, whether it was open to the Tribunal, after finding that section 40(c)(i) of the Act was not applicable, to sustain the disallowance partially under section 37 of the Act, in the absence of a cross-appeal or cross-objections by the Revenue. Dealing with the rival contentions of the parties, the court observed as under:

"….The Supreme Court observed that under section 33(4) of the Indian Income-tax Act, 1922, which is in similar terms to section 254 of the Income-tax Act, 1961, the Tribunal was competent to pass such orders on appeal as it thinks fit. There was nothing in the Income-tax Act which restricted the Tribunal to the determination of the questions raised before the departmental authority. All questions, whether of law or of fact, which related to the assessment of the assessee might be raised before the Tribunal. If for reasons recorded by the departmental authority in respect of contention raised by the assessee, grant of relief to him on another ground was justified, it would be open to the departmental authority and the Tribunal, and indeed they would be under a duty, to grant that relief. Similarly, if the disallowance of certain expenditure to an assessee was warranted by a certain provision of law where the allowance and disallowance were the subject-matter of the appeal, in our opinion, the Tribunal was competent under section 254 to deal with that question and decide the same in accordance with law…."

Gujarat High Court, in the case of Principal Commission of Income Tax, Vadodara – II v. Sun Pharmaceuticals Industries Ltd. 2017 86 taxmann.com 148 (Gujarat), observed as follows:

“11. To put the controversy beyond doubt, Rule 27 of the Rules makes it clear that the respondent in appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the grounds decided against him. It can be easily appreciated that all prayers in the appeal may be allowed by the Commissioner (Appeals), however, some of the contentions of the appellant may not have appealed to the Commissioner. When such an order of the Commissioner is at large before the Tribunal, the respondent before the Tribunal would be entitled to defend the order of the Commissioner on all grounds including on grounds held against him by the Commissioner without filing an independent appeal or cross-objection.”

Similar issue came-up before Division Bench of this Court in case of Dahod Sahakari Kharid Vechan Sangh Ltd. v. CIT (2006) 282 ITR 321 (Guj) in which the Court observed as under:

“19. In case a party having succeeded before Commissioner (Appeals) opts not to file cross objection even when an appeal has been preferred by the other party, from that it is not possible to infer that the said party has accepted the order or the part thereof which was against the respondent. The Tribunal has, in the present case, unfortunately drawn such an inference which is not supported by the plain language employed by the provision.

20. If the inference drawn by the Tribunal is accepted as a correct proposition, it would render Rule 27 of the Tribunal Rules redundant and nugatory. It is not possible to interpret the provision in such manner. Any interpretation placed on a provision has to be in harmony with the other provisions under the Act or the connected Rules and an interpretation which makes other connected provisions otiose has to be to avoided. Rule 27 of the Tribunal Rules is clear and unambiguous. The right granted to the respondent by the said Rule cannot be taken away by the Tribunal by referring to provisions of Section 253(4) of the Act. The Tribunal was, therefore, in error in holding that the finding recorded by the Commissioner (Appeals) remained unchallenged since the assessee had not filed cross objection.”

In this manner, it is very clear that the pleadings of the respondent under Rule 27 cannot be said to be outside the scope of Tribunal to be heard.

CAUSING ADVERSITY TO THE APPELLANT:

If a party appeals, he is the one who comes before the Appellate Tribunal to redress a grievance alleged by him. If the other side has a grievance, he has a right to file a cross-appeal. But, if no such thing is done, he is deemed to be satisfied with the decision. He is, therefore, entitled to support the judgment of the first appellate authority on any ground but he is not entitled to raise a ground which will work adversely to the appellant. In fact such a ground may be a totally new ground, if it is purely one of law, and does not necessitate the regarding of any evidence, even though the nature of the objection may be such that it is not only a defence to the appeal itself but goes further and may affect the validity of the entire proceedings. But the entertainment of such a ground would be subject to the restriction that even if it is accepted, it should be given effect to only for the purpose of sustaining the order in appeal and dismissing the appeal and cannot be made use of, to disturb or to set aside, the order in favour of the appellant. This proposition was held by the Bombay High Court in the case of  Br. Bamasi v. CIT (1972) 83 ITR 223 (Bom). The liberty to the respondent is reserved by Rule 27 of the Tribunal Rules. It was stated that the assessee could use the argument only to sustain the order of the AAC but not to get further relief and have the assessment itself annulled and thus adversely affect the appellant and place it in a worse position than if it had not appealed at all. This decision illustrates the principle that the subject-matter of the appeal should be understood not in a narrow and unrealistic manner but should be so comprehended as to encompass the entire controversy between the parties which is sought to be got adjudicated upon by the Tribunal.

The Supreme Court in the case of State of Kerala v. Vijaya Stores [1979] 116 ITR 15; [1978] 42 ITR 418 enunciated the law on the point as follows:

" Apart from statute, it is elementary that if a party appeals, he is the party who comes before the Appellate Tribunal to redress grievance, alleged by him. If the other side has any grievance, he has right to file a cross-appeal or cross-objections. But if no such thing is done, the other party, in law, is deemed to be satisfied with the decision. He is, of course, entitled to support the judgment of the first officer on any ground open to him, but he is not entitled to raise a ground so as to work adversely to the appellant and in his favour. "

On the issue, most relevant is the Delhi High Court in the case of CIT, New Delhi (Central) v Edward Keventer (Successors) Pvt. Ltd, (1980) 123 ITR 200 (Del):

“26. Suppose the assessee prefers an appeal to the Appellate Tribunal, against the AAC’s order, contending that the determination of the sale consideration is excessive and the Tribunal is inclined to accept the figure of ₹ 2 lakhs shown by the assessee. We think it would be fair to say that the subject matter of the appeal is not merely the question of what should be the sale consideration but as to what should be the capital gain. If the department was satisfied with the determination of the capital gain at ₹ 1 lakh it could not be expected to file an appeal and it would not be correct to deprive the department of the opportunity to maintain the AAC’s order by construing the subject-matter of the appeal in a narrow manner as restricted to the question of the sale consideration; We think, therefore, that the department would be entitled to support the order of the AAC, under r. 27, on the basis that the market value as on January 1, 1954, was ₹ 1 lakh as determined by the AAC and not ₹ 1½ lakhs as decided by the AAC, rejecting the ITO’s contention. Therefore on the same analogy that in a case where certain grounds concerning the same matter are interlinked, they should be considered together and the scope of the subject matter before the Tribunal should be construed accordingly. The position might be different where different grounds of appeal are dealt with by the AAC, which have no real inter-connection with each other though naturally they all bear upon particular assessment and though they may all broadly relate to the computation of income from the same head of source. But in a case where there are inter-connected grounds of appeal and they have impact on the same subject-matter, the scope of the appeal should be broadly considered in the correct perspective, While the appellant should not be made to suffer and be deprived of the benefit given to him by the lower authority where the other side has not appealed, equally the procedural rules should not be interpreted or applied so as to confer on an appellant a relief to which he cannot be entitled if the points decided in his favour on the same matter by the lower court are also considered as requested by the respondent. It seems to us that the position in the present case is somewhat similar. The ITO had treated certain transactions as sham and collusive, disallowed the losses claimed and consequently disallowed the interest admitted by the assessee to relate to these transactions. On appeal, the AAC treated the transactions as genuine but considered the prices to be inflated. He, therefore, computed a profit and as a logical corollary, allowed the interest substantially (except to the extent of inflation found by him). When, on appeal, the Tribunal decides to restore the ITO’s finding that the transactions were bogus then the logical consequence will be a reversal of the AAC’s allowance of interest also. For the reasons discussed above, we are unable to construe the subject-matter of the appeal as restricted to the ground raised, viz., deletion of ₹ 9,28,000. We think the subject-matter of the appeal was the genuineness or otherwise of the share transactions and the profit assessable in respect thereof. On this, the AAC had given two findings, one against the assessee and the other against the department. In view of the former being substantially beneficial to it, the department could not be aggrieved by the consequential finding on the latter. Unlike in Sundaram’s case, [1964] 52 ITR 763 (Mad), where at least it could be said that the assessee could have filed an appeal in regard to the applicability of s. 34 as that was a separate and independent ground decided against it, here, however, as mentioned earlier, the department could not have filed an appeal on this point as it was consequential, according to it, on the finding of the AAC on the first point which was to its benefit. It could not have assailed the latter in appeal without attacking the finding on the first also. To say, in such circumstances, that the department cannot seek to uphold the AAC’s order on this subject-matter would virtually amount to denial of natural justice to it which, as pointed out in Sundaram’s case, [1964] 52 ITR 763 (Mad), is not the object of the relevant statutory provisions. Moreover, even if the department’s ground ultimately succeeds on merits, the assessee will not be adversely affected and will not be in a worse position than if it had preferred no appeal at all.”

So, the crux of the matter is that the subject-matter of the appeal should be understood not in narrow and unrealistic manner but should be so comprehended as to encompass the entire controversy between the parties which is sought to be got adjudicated upon by the Tribunal. In a case where there are inter-connected grounds of appeal and they have an impact on the same subject-matter, the scope of the appeal should be broadly considered in the correct perspective. While the appellant should not be made to suffer and be deprived of the benefit given to him by the lower authority where the other side has not appealed, equally the procedural rules should not be interpreted or applied so as to confer on the appellant a relief to which he cannot be entitled if the point decided in his favour on the same matter by the lower authority are also considered as requested by the respondent. 

Delhi High Court, in the case of CIT v Divine Infracon Pvt. Ltd, 2015 64 taxman.com 472 (Delhi)

“8. 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.

9. 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.

xxx         xxx        xxx

12. 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.”

Very recently, in the case of Sanjay Sawhney Vs. PCIT, ITA 834/2019, dt. May 18, 2020, hon’ble Delhi High Court had the occasion to discuss Rule 27 of the ITAT Rules. The court, after analyzing a number of judgements of Supreme Court as well as of various High Courts, held as under:

“22. Therefore, the position of law that materialises on a reading of the aforesaid decisions is that the appellant herein, (Respondent before ITAT) could have invoked Rule 27 to assail those grounds that were decided against him if those grounds/issues had a bearing on the final decision of the CIT(A). Revenue was certainly not taken by surprise as the appeal is considered to be continuation of the original proceedings. The ITAT had no discretion to deprive the appellant the benefit of the enabling Rule provision to defend the order of the CIT(A). The question of jurisdiction -which is sought to be urged by the Respondent while supporting the order in appeal, had a bearing on the final order passed by the CIT(A), because if the said issues were to be decided in favour of the appellant herein the assessee, that would have been an additional reason to delete the additions made by the A.O.”

The evident conclusion from the reading of above judgements would be that the Respondent can defend the order of the CIT(A) against any of the issue decided against him under the shelter of Rule 27. However, the relief sought  cannot prejudice to the appellant more then what was coming out of CIT(A)’s order.

DRAFT RULES/ ORAL INVOKATION:

The draft Appellate Tribunal Rules 2017 proposing to insert a proviso to Rule 27, providing for an application to be made in writing, read as under:

Respondent may support the order on any grounds

27. The respondent, though he may not have appealed, may support the conclusion on an issue arrived at in the impugned order on any of the grounds on that issue, including the grounds decided against him.

 Provided that the respondent shall make an application, setting out such precise grounds he wishes to so take up, before the Tribunal at least one day before the scheduled hearing of the appeal, along with evidence of having served a copy of the said application to the other party at least one week in advance.

These Rules, though not notified yet, however insertion of the Proviso asking to file an application in writing, makes it amply clear that the unamended Rule, as it stands as of now does not require any application to be filed in writing. It is also to be borne in mind that no proforma of any such application to be given in writing, is provided under the Rules as of now. Hence denying the respondent the right to raise Rule 27 orally would make the Rule redundant.

In Sanjay Sawhney (Supra), the Delhi High Court observed as under:

 “26. The upshot of the above discussion is that Rule 27 embodies a fundamental principal that a Respondent who may not have been aggrieved by the final order of the Lower Authority or the Court, and therefore, has not filed an appeal against the same, is entitled to defend such an order before the Appellate forum on all grounds, including the ground which has been held against him by the Lower Authority, though the final order is in its favour. In the instant case, the Assessee was not an aggrieved party, as he had succeeded before the CIT (A) in the ultimate analysis. Not having filed a cross objection, even when the appeal was preferred by the Revenue, it does not mean that an inference can be drawn that the Respondent– assessee had accepted the findings in part of the final order, that was decided against him. Therefore, when the Revenue filed an appeal before the ITAT, the Appellant herein (Respondent before the Tribunal) was entitled under law to defend the same and support the order in appeal on any of the grounds decided against it. The Respondent – assessee had taken the ground of maintainability before Commissioner (Appeals) and, therefore, in the appeal filed by the Revenue, it could rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him. The ITAT, therefore, committed a mistake by not permitting the assessee to support the final order of CIT (A), by assailing the findings of the CIT(A) on the issues that had been decided against him. The Appellant – assessee, as a Respondent before the ITAT was entitled to agitate the jurisdictional issue relating to the validity of the reassessment proceedings. We are, therefore, of the considered opinion that the impugned order passed by the ITAT suffers from perversity in so far as it refused to allow the Appellant – assessee (Respondent before the Tribunal) to urge the grounds by way of an oral application under Rule 27. The question of law as framed is answered in favour of the Appellant – assessee and resultantly the impugned order is set aside. The matter is remanded back before the ITAT with a direction to hear the matter afresh by allowing the Appellant- assessee to raise the additional grounds, under Rule 27 of the ITAT Rules, pertaining to issues relating to the assumption of jurisdiction and the validity of the reassessment proceedings under Section 153C of the Act.”

In this manner the Delhi High Court also held in this case that the respondent could invoke before the ITAT the Rule 27, without making a written application also.

CONCLUSION:

The study of various judicial pronouncements made by the Apex court as well as the various High Courts make it very clear that Rule 27 of the ITAT Rules enshrines a right to the respondent before the ITAT, to support the order of the CIT(A) on any ground decided against him, notwithstanding the fact that he has neither filed a cross appeal nor a cross objection. The Rules is a natural corollary of the principle of natural justice and the respondent cannot be denied the same at the whims of ITAT. The Rule can be invoked by the respondent orally also. However there is an embargo placed on the limit of relief allowed on the basis of Rule 27, i.e. the appellant cannot be put in a situation worse then what it was after the first appellate order on account of relief granted to the respondent through Rule 27.

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