Whether it is open to assessee to raise additional grounds before appellate authority to effect that capital gain should not be included in total income for purposes of taxation, even though it has offered the same to tax in subject AY - YES: HC

THE issue before the Bench is - Whether it is open to the assessee to raise additional grounds before the appellate authority to the effect that a capital gain should not be included in the total income for the purposes of taxation, even if he has offered the same to tax in the subject A.Y. YES is the answer.

Facts of the case

A) The assessee is engaged in finance company. The assessee while filing its return had itself accepted before the AO that the short term capital gain accrued to it, should be taxed in the concerned A.Y. However, before the CIT(A), the assessee claimed to the contrary. The grievance of the Revenue was that the assessee having itself claimed that the sale of property would be chargeable to tax as short term capital gains in the subject A.Y in its return, could not urge to the contrary, on the ground that the transaction of sale had failed.

B) The assessee during the concerned A.Y had also claimed depreciation on leased assets. The AO however disallowed the same on the ground that they were not genuine, and that the transaction of lease was in fact, a finance transaction. On appeal before the CIT(A), the assessee although accepted its lease transaction as a finance transaction, however raised an alternative plea that the lease rental may be reduced by the capital component embedded in it and the balance alone be taxed as income. The CIT(A) accepted such alternate submission of the assessee by holding that the AO, having treated the lease transaction as a finance or a loan transaction in absence of conclusive proof of any genuine purchase or lease of assets, he ought not to have assessed to tax the income offered to tax as lease rent in its entirety. On further appeal, the Tribunal restored the matter back to the file of AO.

Having heard the parties, the High Court held that,

Short term capital gain

++ it is found that this Court in the case of CIT v/s. Pruthvi Brokers and Shareholders Pvt. Ltd. has held that Appellate Authorities have power to consider a claim, not made in the return. Thus, it follows that even where an assessee has offered tax in the subject assessment year, it was open to the assessee before the Appellate Authority to raise additional grounds to the effect that same should not be included in the total income for the purposes of taxation;

Depreciation on leased assets

++ a perusal of the impugned order of the CIT(A) records the fact for the present A.Y, that the CIT(A) has followed his order for A.Y 1995-96 by inter alia observing that the disallowance of depreciation made by the AO is justified, where the assessee has neither raised objection for the same before the AO, not the CIT. It would thus be noticed that CIT(A) while following the order for the A.Y 1995-96 has not followed the same in its entirety. The CIT(A) after holding that the assessee is not entitled to its claim for depreciation as the lease transactions under reference, were not genuine did not consider the alternative submission made with regard to Finance Transaction. Besides, the order passed by the CIT(A) for the A.Y 1995-96, had not dealt with the genuineness of the lease transaction. Nevertheless, for the subject A.Y, he holds, it is not genuine without giving any notice to the assessee. Therefore, by the impugned order, the Tribunal held that CIT(A) has decided on the issue of the lease transaction not being genuine without having given a hearing to the assessee. It is in the above view that the impugned order of the Tribunal has restored the issue to the AO for fresh consideration, after recording the fact that the AO also relied upon the materials without confronting the assessee's with the same. Therefore, the impugned order of the Tribunal cannot be faulted with.