Karnataka HC rules that the power of ITAT to make an order is not limited to the grounds of appeal

Karnataka High Court: A Division Judge Bench comprising of Vineet Kothari and S. Sujatha, JJ., decided an Income Tax Appeal wherein it was held that the income tax appellate tribunal has the power to give direction for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on the grounds raised by any party.

The appellant-assessee company bought back it’s share from it’s Holding Company at an extremely high price out of the Reserve and Surplus and on the directions of Dispute Resolution Panel, the same was taxed as a dividend under Section 115-O of the IT Act, 1961. Thereafter the appellant went for appeal before the ITAT, it held that as per Section 26-A of IT Act, the buyback of shares should be taxed as Capital Gains and ordered for the re-opening of the matter by Assessing Officer who should also decide the fair market value of shares. Hence, the present appeal.

The appellant-assessee submitted that the Tribunal had exceeded its jurisdiction in opening the enquiry upon questions of market price of the shares’ buy-back. Whereas, the respondent submitted that the Tribunal was completely justified in re-opening the assessment and the same was well within the parameters of the subject of appeal.

The Court kept away from deciding the second issue of taxability in the light of Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613. Thereafter, it held that ITAT has the power to give directions for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on any grounds raised by either party to the appeal which have not been investigated or enquired into by the lower Authorities earlier and which may result in enhancement of tax liability of the assessee. The Court added that payment by the assessee to its holding company could not be taxed as dividend. The powers of the Tribunal are not limited or circumscribed by the grounds raised before it and it has the freedom to pass any order on important matters related to appeal. The appeal was thus dismissed.[ Fidelity Business Services India (P) Ltd v. CIT,  2018 SCC OnLine Kar 756,  dated 23-07-2018]

 

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