1250. Queries regarding jurisdictional problems in regard to interpretation of sub-section (2) and scope of Board’s notification under clause (i) of sub-section (2) answered
Circular No. 269 was issued by the Central Board of Direct Taxes on 29 April 1980. Its subject is 1250. Queries regarding jurisdictional problems in regard to interpretation of sub-section (2) and scope of Board’s notification under clause (i) of sub-section (2) answered.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Answers jurisdictional questions thrown up by the creation of the posts of Commissioner (Appeals) by the Finance (No. 2) Act, 1977 and the consequent split of appellate work under section 246(2). The Board's answer rests on the removal of doubts provision in section 39(2) of that Act, as already explained in paragraph 27.5 of the explanatory notes issued as Circular No. 229, dated 9-8-1977: any action required to be taken after the appointed day in relation to an appeal disposed of by an Appellate Assistant Commissioner before that day is taken as if the amendments had not been made, so the Appellate Assistant Commissioner and not the Commissioner (Appeals) deals with it. He may therefore rectify a mistake in his own earlier order where the rectification application was filed, or his show-cause notice issued, after the appointed day, and may pass fresh orders where the Tribunal set his order aside after that day. Where the rectification application or notice came before the appointed day, the ordinary rule in section 154 applies and the Appellate Assistant Commissioner then having jurisdiction may amend. Where the Tribunal set the order aside for redisposal before the appointed day, the appeal is pending immediately before that day and stands transferred to the Commissioner (Appeals) under section 246(3), and correspondingly under section 246(4) for a company. A Tribunal's order calling for a remand report after enquiry, whenever passed, is complied with by the Appellate Assistant Commissioner whose order was under appeal. The appointed day is 10th July, 1978 for non-company assessees with total income or loss above Rs. 1 lakh and 1st June, 1979 for companies.
Jurisdictional problems on the interpretation of section 246(2) and of the Board's notifications under clause (i) of that sub-section had been referred to the Board, and were answered in question and answer form.
1250. Queries regarding jurisdictional problems in regard to interpretation of sub-section (2) and scope of Board’s notification under clause (i) of sub-section (2) answered
Certain jurisdictional problems in regard to the interpretation of the provisions of section 246(2) and of the corresponding sections of other Direct Tax Acts, and also in regard to the scope of the Board’s Notifications issued under section 246(2)(i) have been referred to the Board for clarification. They are posed in the form of questions and answered hereunder :
QUESTION 1 - (1) Who is to rectify any mistake in an order passed by the AAC before the appointed day, i. e., July 10,1978 in a case of a non-company assessee where the total income/loss exceeded Rs. 1 lakh, or in an order passed by the AAC before June 1, 1979 in the case of a company ?
(2) Who is to comply with the requirements of the Appellate Tribunal for a remand report or to pass a fresh order in pursuance of any remand order restoring the appeal to the file of the AAC for redisposal on a particular point or entirely, if the order of the AAC was passed before July 10, 1978 in the case of a non-company assessee with assessed income or loss exceeding Rs. 1 lakh or before June 1, 1979 in the case of a company ?
ANSWER - A provision for the removal of doubts has been made in this behalf in sub-section (2) of section 39 of the Finance (No.2) Act, 1977 by which the posts of Commissioners (Appeals) were created. Vide para 27.5 of the Explanatory Notes on the provisions relating to Direct Taxes in the Finance (No.2) Acts, 1977 [Circular No. 229, dated 9-8-1977], the Board have clarified that any action required to be taken after the appointed day in relation to any appeal disposed of by an AAC before that day will be taken as if the amendments directed to be made by the Finance Act had not been made. In other words, action in relation to such appeals will be taken by the AAC concerned and not by the Commissioner (Appeals). Thus the AAC may rectify any mistake in an order passed by him before the appointed day or take such action or pass such further orders as may be required in any appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal.
The words "any action required to be taken" connote that the requirement for any action to rectify a mistake in an order passed by the AAC before the appointed day would arise after the said date. Those words in section 39(2) of the Finance Act, 1977 would cover cases where the rectification application had been filed after the appointed day or the AAC had issued the show-cause notice on his own after that date.
As for rectification application filed or show-cause notice for rectification issued before the appointed day, the normal rule in section 154 that the authority may amend any order passed by him would apply and the same AAC or any other AAC presently having jurisdiction in respect of the concerned case of the assessee may amend the previous order.
Likewise section 39(2) of the said Finance Act would cover the cases where the Tribunal’s order setting aside the AAC ’s order wholly or partly was passed after the appointed day, i.e., July 10,1978. Where the order of the Tribunal setting aside the AAC’s order for redisposal on a particular point or entirely was passed before the appointed day, it would be covered under section 246(3), being an appeal pending immediately before the appointed day and would stand transferred on that day to the Commissioner (Appeals).
However, the remand order of the Tribunal requiring a remand report to be submitted after enquiry on some points, whether passed before or after July 10, 1978, would be complied with by the AAC whose order was the subject-matter of appeal before the Tribunal.
The above clarification would equally apply to orders passed by AACs before June 1, 1979 in the case of a company. Thus, the AAC may rectify any mistake in an order passed by him before June 1, 1979. He may pass such further orders as may be required in pursuance of any order of the Tribunal passed after June 1, 1979, setting aside his previous order partly or wholly with some directions. However, an appeal restored to the file of the AAC before June 1, 1979, would be treated as a pending appeal under section 246(4) and would stand transferred to the Commissioner (Appeals).
QUESTION 2 - (1) What exactly is the connotation of the expression "amount of income so assessed" in clause (e) of section 246(2) (before its deletion with effect from June 1, 1979) and in the Board’s Notification, dated July 7, 1978 ? Does it mean total income determined after set off of brought forward losses, unabsorbed depreciation, development rebate, etc.?
(2) Who is to deal with an appeal in the case of a non-company assessee where the business loss of the concerned year is less than Rs. 1 lakh but the amounts of brought forward loss, unabsorbed depreciation, unabsorbed development rebate or deficiency under section 80J(3) of that year, if aggregated with the business, loss, exceed Rs. 1 lakh?
ANSWER - (1) Under sections 143(3) and 144, the Income-tax Officer makes the assessment of the total income or loss. Clause (e) of section 246(2) and item (ii) of the Notification refer to cases where the assessee objects to the amount of income assessed or to the amount of loss computed in such order of assessment. They, therefore, refer to the total income which is determined after set off of brought forward loss, unabsorbed depreciation, etc.
(2) The sole purpose of carry forward of loss or of unabsorbed depreciation, etc., is to set off the loss/allowance against the profits of a subsequent year. According to the Supreme Court in CIT v. Harparsad & Co. (P.) Ltd. [1975] 99 ITR 118, the concept of carried forward loss presupposes the permissibility and possibility of the carried forward loss being set off against the profits and gains, if any, of the subsequent year. Therefore, whatever loss or unabsorbed allowance is to be carried forward, will not form part of the loss of the year under appeal and cannot be aggregated. In a case of such type the appeal will lie to the AAC.
QUESTION 3 - (1) Where in the case of a non-company assessee with assessed total income/loss exceeding Rs. 1 lakh or in the case of a domestic company with assessed total income/loss exceeding Rs. 5 lakhs an appeal against the assessment was disposed of by an AAC before July 10, 1978, who is to deal with the appeal against ancillary order for the same assessment year?
(2) In the case of the type mentioned above, if no appeal had been filed against the assessment, will the appeals against the ancillary orders e.g., rectification, penalty, etc. lie to the Commissioner (Appeals)?
ANSWER - Under the powers vested in the Board under section 264(2)(i ), the Board, having regard to the nature of the cases, the complexities involved and other relevant considerations, notified the cases of foreign companies, domestic companies whose assessed total income or loss exceeding Rs. 5 lakhs and the cases of assessee (other than a company) with assessed total income or loss exceeding Rs. 1 lakh as "such person or classes of persons" who would file appeal to the Commissioner (Appeals) against an order of the ITO specified in items (i), (ii) and (iii ) of the Notification No. 2381, dated 7-7-1978. There is no further stipulation that an appeal against an ancillary order like penalty, rectification, etc., mentioned in clauses (d) to (o) of sub-section (1) of section 246 would lie to the Commissioner (Appeals) only if the assessment for that very assessment year had been challenged in appeal before the Commissioner (Appeals). In other words, an appeal against any ancillary order mentioned in item (i) (before its deletion by the Notification No. 2845, dated 4-6-1979) and in item (iii) [now item (ii) of the Notification, dated 4-6-1979] passed by the ITO for the same year for which the assessed total income/loss exceeds Rs. 5 lakhs or Rs. 1 lakh, as the case may be, will lie to the Commissioner (Appeals) irrespective of whether the assessment was appealed against or not or the appeal was disposed of by the AAC before July 10, 1978.
QUESTION 4 - Whether originally assessed income or income as revised by the order of rectification would determine the jurisdiction of the first appellate authority?
ANSWER - Since clause (e) of sub-section (2) of section 246 and item (ii) of the Notification refer to the amount of income assessed or amount of loss computed in any order of assessment under sections 143(3) and 144, any subsequent revision of such amount will not be relevant. Section 246 treats an order under section 154 separately for the purposes of appeal.
QUESTION 5 - Who is to deal with an appeal against pre-assessment penalty orders, like an order under section 221 for default in payment of advance tax or an order under section 140A(3) in the case of a non-company assessee who is ultimately assessed on a total income/loss exceeding Rs. 1 lakh?
ANSWER - The use of the non obstante clause "notwithstanding anything contained in sub-section (1)" in sub-section (2) of section 246 would show that the appealable orders which would fall within the jurisdiction of the Commissioner (Appeals) have been excluded for that purpose from sub-section (1) thereof. If any order in not appealable within the provisions of sub-section (2) it would still remain appealable under sub-section (1) with the result that appeals against such pre-assessment orders would lie to the AAC.
2. The above would apply mutatis mutandis to other direct taxes, to the extent applicable.
3. The above clarifications may be circulated to all the officers including AACs in your charge.
Circular : No. 269 [F. No. 279/71/80-ITJ], dated 29-4-1980.
In an old file where a rectification or a remand of a first appellate order of the late 1970s is pending before the wrong authority.
Source: the Income Tax Department’s own published text — its page for this instrument.