Section 255 of the Income-tax Act, 1961

HIGH COURT OF KARNATAKA Commissioner of Income-tax v. Mahakuteshwar Oil Industries K.L. MANJUNATH AND ARALI NAGARAJ, JJ IT APPEAL NO. 129 OF 2002 November 15, 2007 Section 255 of the Income-tax Act, 1961 - Appellate Tribunal - Procedure of - Assessment year 1996-97 - Whether in terms of section 255(3), a Single Member of Tribunal can exercise his power if income computed by Assessing Officer is less than Rs. 5,00,000/- even though same has been enhanced by Commissioner (Appeals) in excess of Rs. 5,00,000/- - Held, yes Section 143, read with section 68, of the Income-tax Act, 1961 - Assessment - General - Assessment year 1996-97 - For relevant year, Assessing Officer completed assessment of assessee - Commissioner (Appeals) enhanced assessee’s income on ground that it had failed to explain certain cash credits - Tribunal found that assessee’s explanation regarding cash credits was accepted by Assessing Officer and that assessee was willing to produce evidence as required under section 68 to show that he had availed loan from various agriculturists and that Commissioner (Appeals) had reversed findings of Assessing Officer without there being any evidence - Accordingly, it deleted impugned additions - In instant appeal, despite said categorical finding being given by Tribunal, for reasons best known to revenue, no records were produced to show that assessee had not made such a statement either before Assessing Officer or before Commissioner (Appeals) - Whether on facts, an adverse inference was to be drawn against revenue and, therefore, Tribunal was justified in reversing findings of Commissioner (Appeals) - Held, yes FACTS For the assessment year 1996-97, the Assessing Officer passed an order computing the total income of assessee at Rs. 2,27,614/-. On appeal, the Commissioner (Appeals) noticed that the assessee had failed to explain certain cash credit and, therefore, he enhanced the assessee’s income to about Rs. 14 lakhs. Accordingly, he called upon the assessee to pay the tax. On second appeal, a single member of the Tribunal found that the assessee's explanation regarding the cash credits was accepted by the Assessing Officer and that the assessee was willing to produce the evidence as required under section 68 to show that he had availed the loan from various agriculturists and the Commissioner (Appeals), without there being any evidence, had reversed the findings of the Assessing Officer. Accordingly, the Tribunal allowed the appeal of the assessee. In appeal, the revenue besides challenging the order of Tribunal on merits, contended that in view of specific provision under section 255(3), since the subject matter of the appeal before the Tribunal was more than Rs. 5,00,000/- a single Member of the Tribunal could not have heard and disposed of the appeal on merits. HELD Jurisdiction of Single Member of Tribunal: In sub-section (3) of section 255, the word used is total income as computed by the Assessing Officer in the case does not exceed five hundred thousand rupees. By considering the word Assessing Officer, it was to be considered whether the order passed by the Commissioner (Appeals) has to be construed as an order passed by Assessing Officer or by an Appellate authority. The word, Assessing Officer is defined under section 2(7A). [Para 11] From the definition of Assessing Officer in section 2(7A), it cannot be concluded that if the income computed by the Assessing Officer is enhanced by the Commissioner (Appeals), the said order has to be treated as an order passed by an Assessing Officer. It has to be treated as an order passed by the appellate authority and not by the original authority. [Para 12] When the word, ‘Assessing Officer’ is used in section 255, the orders of the appellate authority cannot be treated as an order of the Assessing Officer. Therefore, the single member of the Tribunal can exercise his power to decide the appeal, if the income computed by the Assessing Officer is less than Rs. 5,00,000/- even though the same has been enhanced by the Commissioner (Appeals) in excess of Rs. 5,00,000/-. [Para 13] On merits: The Tribunal had given a categorical finding that the assessee was willing to examine the creditors as its witnesses to prove that it had availed loan from them and even though such a categorical finding had been given by the Tribunal, for the reasons best known to the revenue, no records were produced to show that the assessee had not made such a statement either before the Assessing Officer or before the Commissioner (Appeals). Hence, an adverse inference had to be drawn against the revenue. [Para 14] Thus, there was no illegality committed by the Tribunal in reversing the findings of the Commissioner (Appeals). [Para 15] The appeal was accordingly dismissed.