The powers of the Income-Tax Appellate Tribunal in dealing with appeals are expressed in the widest possible terms, and are similar to the power of an appellate court under the Code of Civil Procedure. The relevant Section provides that the Tribunal may, after giving both parties to the appeal an opportunity of being heard, "pass such orders thereon as it thinks fit." The word `thereon' restricts the jurisdiction of the Tribunal to the subject matter of the appeal and such additional grounds as may be raised with its permission.

The power to pass such orders as the Tribunal thinks fit can be exercised only in relation to matters that arise in the appeal. It is not open to the Tribunal to adjudicate or give a finding on a question which is not in dispute and which does not form the subject-matter of the appeal.

Unlimited Access

Rule 29 of the Income-tax (Appellate Tribunal) Rules 1963 provides that the parties to the appeal would not be entitled to produce additional evidence, either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass order or if the Assessing Officer has decided the case, without giving sufficient opportunity to the assessee to adduce evidence either on points specified by him or not specified by him, the Tribunal may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such other evidence to be adduced.

Under Rule 29, the powers of the Tribunal to admit additional evidence are limited, and the Tribunal has the discretion, which must be reasonably exercised, to refuse leave to a party to tender additional evidence, or to raise a new point of fact and adduce evidence to establish it. In that view of the matter, the question of a party claiming a right to adduce additional evidence would not arise.

If the Tribunal wants to rely on new material, or even on material already on record but not relied on by the lower authorities, it should give to the party affected an opportunity of being heard. A party that has not objected before the Tribunal to the admission of additional evidence by it cannot subsequently raise an objection before the High Court. The provision in Rule 29 that the Tribunal should record the reason for admitting additional evidence is not mandatory and non-compliance therewith would not vitiate such admission.

Tribunal not fettered

In Indian Management Advisors and Leasing P. Ltd. v. C.I.T. (289 I.T.R. 179), the Delhi High Court held that Section 254 of the Income-Tax Act, 1961, does not put any fetters on the power of the Tribunal to consider the issue which may arise in an appeal. When an appeal comes before the Tribunal for hearing and the Appellate Tribunal finds that some documents have been relied upon by the assessee, which are on record and the documents are crucial to allow or refuse the claim made by the assessee, even if the Assessing Officer and the Commissioner (Appeals) had not gone into the contents of the document, the Tribunal can examine the documents.

The facts in this case were the assessee filed its income-tax return for the assessment year 1990-91. In this return the assessee claimed 100 per cent depreciation on the cost of soft-drink bottles which the assessee had purchased from GCD and leased out to CB. The purchase of 5,46,000 bottles were made by 30 invoices during the period March 28, 1991, to March 30, 1991. Under the directions of the assessee, these bottles were to be directly supplied by the manufacturer to the lessee. The lease agreement for the soft-drink bottles between the assessee and the lessee was entered into on February 15, 1991.

The Assessing Officer allowed the claim of the assessee for 100 per cent depreciation only on 42,000 soft-drink bottles out of 5,46,000 bottles which were leased out to the lessee on the ground that only 42,000 bottles were received by the lessee and put to use before March 31, 1991.

There was another claim of depreciation made by the assessee in respect of soft-drink bottles leased out to ALL. The assessee had shown purchase of soft-drink bottles from APP for Rs. 30,70,122 and leased them out to ALL, under lease agreement dated March 15, 1991. ALL, according to the assessee, had sub-leased these bottles to UB.

The assessee filed a certificate from UB stating that these bottles were put to use during the financial year ending March 31, 1991. The Assessing Officer considered all the facts and called for the records from the assessee, the lessee and the sub-lessee.

The Assessing Officer found that while the leasing agreement for soft-drink bottles between the assessee and ALL was entered into on March 15, 1991, ALL for these very bottles, entered into a sub-lease agreement seven days before this agreement, that is, on March 8, 1991, with UB.

However, the record of delivery of the bottles showed that these bottles were dispatched to UB between December 10, 1990 and March 16, 1991. He considered that the lease agreement and sub-lease agreement were paper transactions and disallowed the claim of depreciation.

Financial arrangement

The Tribunal analysed the contents of the lease agreement entered into between the assessee and the lessee in respect of both the transactions and came to the conclusion that the lease agreements entered into between the assessee and the two lessees in respect of both the transactions was a financial arrangement and in fact the assessee had made available finance to the so called lessee for purchasing bottles but the parties tried to give it the shape of a lease transaction to claim 100 per cent depreciation on the bottles, besides earning considerable interest.

The High Court held that the assessee had relied upon the lease agreement entered into by the assessee with the lessees to claim the depreciation, claiming that the assessee was a leasing company. To appreciate the claim of the assessee, it was necessary for the Tribunal, or for that matter any adjudicating body, to go into the different clauses of the lease agreement. Hence, this document should be considered by the Tribunal though it was not by the lower authorities. Moreover, the Tribunal has the power to allow any new question to be raised for the first time in appeal before it.

H. P. Ranina
(The author, a Mumbai-based advocate specialising in tax laws)