JUDGMENT R.K. Gulati, J.
1. This is a cross reference under Section 66(1) of the Indian Income-tax Act, 1922. The dispute relates to the assessment year 1961-62. During that year, the assessee, Swadeshi Cotton Mills Co. Ltd., carried on the business of manufacture and sale of yarn and cloth with its head office at Kanpur and branches at Pondicherry, Naini, etc. The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following six questions for the opinion of this court:
"(1) Whether, on the facts and circumstances of the case, the sum of Rs. 4,72,742 received by the assessee for surrender of import entitlements was rightly taxed as its income for the assessment year 1961-62 ?
(2) Whether the finding of the Appellate Tribunal of the addition of Rs. 43,000 to the book results of the Pondicherry Unit stands vitiated because it does not take into account some relevant material and takes into account some irrelevant material and considerations ?
(3) Whether, on the facts and in the circumstances of the case, the loss of Rs. 4,498 suffered by the assessee on the sale of Government securities in its Naini Unit was rightly disallowed as a capital loss ?
(4) Whether, on the facts and in the circumstances, the Tribunal erred in law in refusing to entertain the additional ground for the allowance of Rs. 45,930 on account of differential excise duty ?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the levy of interest under Section 18A(6) could not be considered by it ?
(6) Whether, on the facts and in the circumstances of the case, the claim of the assessee for deduction as a trade liability of Rs. 1,63,609 was rightly allowed by the Tribunal ?"
2. Out of the above, the first five questions are at the instance of the assessee, whereas the last mentioned question is at the instance of the Commissioner of Income-tax, Kanpur.
3. It was fairly conceded by learned counsel appearing for the assessee that because of one or other earlier decisions of this court, all the questions referred to us, except question No. 4, are to be answered against the assessee. In this view of the matter, we are absolved from setting out the material facts in detail in respect of questions Nos. 1, 2, 3, 5 and 6. We may, however, briefly notice the controversy in these questions and the decisions by which they are covered.
4. The subject-matter of the first question is whether the sum of Rs. 4,72,742, which the assessee received during the previous year from the Government in exchange for surrender of import entitlements under a Cotton Textile Export Incentive Scheme was rightly taxed as business income of the assessee. The assessee's case was that the amount in question was a capital receipt in the nature of a windfall or casual income and thus, it was not liable to tax. This very question came up for consideration before this court in the assessee's own case in the decision in CIT v. Swadeshi Cotton Mills Co. Ltd., [1980] 121 ITR 747. That case related to the assessment year 1963-64 where, repelling a similar contention in respect of a similar receipt, it was held that the amount received for surrender of import entitlements by the assessee was a revenue receipt, which was received in the course of its business and it accrued as a direct result of the business carried on in the manufacture of cloth and yarn and export thereof. Further, the payment being directly proportionate to the quality of goods exported, it was an additional payment received for the goods sold by way of export. The amount received on account of surrender of import entitlements was not a receipt of casual nature but a revenue receipt liable to tax as business income of the assessee. In view of the above decision, question No. 1 is answered in the affirmative, in favour of the Revenue and against the assessee.
5. Coming to question No. 2, the Income-tax Appellate Tribunal sustained an addition of Rs. 43,000 in the hands of the assessee as a result of certain discrepancies which were noticed by the Assessing Officer between the value of stock declared to the bank and the value of stock as per the asses-see's stock book. The value of stock declared to the bank was in excess of the value of actual stock held by the assessee. The addition of Rs. 43,000 represented the value of 100 bales of waste cotton which was disclosed to the bank in excess of the value of stock held by the assessee. A similar addition was made in the immediately preceding year and the decision of the Income-tax Appellate Tribunal was upheld by this court on reference. That case is since reported as Swadeshi Cotton Mills Co. Ltd. v. CIT, [1980] 125 ITR 33. In fact, in sustaining the addition in the year in dispute, the Tribunal had relied upon its own decision for the earlier year. The facts and circumstances giving rise to the disputed addition in the year under reference being the same as in the preceding year and in view of the decision of this court in the assessee's own case, we answer question No. 2 in the negative, in favour of the Revenue and against the assessee.
6. As regards question No. 3, the assessee claimed a business loss of Rs. 4,498 on the sale of Government securities in its Naini unit, which was disallowed as a capital loss. During the previous year, the assessee subscribed to the issue of Government securities, namely, 4% U. P. State Development Loan, of the face value of Rs. 1,66,000 through the Allahabad Bank on August 29, 1960. These securities were sold by the bank on behalf of the assessee on December 27, 1960, at a loss of Rs. 4,498 which, as already stated, was claimed by the assessee as a business loss. According to the assessee, it had purchased the said Government securities at the instance of the district authorities, to keep them in good humour, as it was very necessary for its existence. Further, as the assessee did not possess sufficient funds, it had no option but to sell the securities in the open market and to pay the difference. On these facts, according to the assessee, the loss in question ought to have been treated as business loss and the view to the contrary taken by the Income-tax Appellate Tribunal was not correct.
7. Now, admittedly, the assessee was not a dealer in shares and securities. The findings of fact recorded by the Income-tax Appellate Tribunal are that there was no nexus between the loss suffered and the business carried on by the assessee. Further, there was no compelling necessity for selling the Government securities before their maturity. On these findings, the Tribunal held that the loss suffered in the sale of Government securities was not a trading loss and the sum of Rs. 4,498 was not an admissible deduction.
8. The findings of fact recorded by the Income-tax Appellate Tribunal have not been challenged through the question under discussion and referred for the opinion of this court. In identical circumstances, in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT, [1981] 132 ITR 666, a Division Bench of this court has held that the loss suffered by the assessee is not a business loss. Accordingly, following the said decision, we answer question No. 3 in the affirmative against the assessee and in favour of the Revenue.
9. By question No. 5, the controversy raised is whether, the Income-tax Appellate Tribunal was justified in taking the view that no appeal lay against the interest charged under Section 18A(6) of the Indian Income-tax Act, 1922. The Income-tax Appellate Tribunal held that no appeal was maintainable. A Full Bench of this court in CIT v. Geeta Ram Kali Ram, [1980] 121 ITR 708, took the same view. This Full Bench decision was applied in the assessee's own case by this court when a similar question came up for consideration for the assessment year 1963-64, since reported in CIT v. Swadeshi Cotton Mills Co. Ltd., [1980] 121 ITR 747, referred to earlier. Accordingly, question No. 5 is also answered in the affirmative against the assessee and in favour of the Department.
10. Coming to question No. 6, it may be observed that the Income-tax Officer disallowed the assessee's claim as business expenditure of an amount of Rs. 1,80,000 being the provision for damages payable to the Provident Fund Commissioner for delayed payments of provident fund contributions under the Employees' Provident Funds Act, 1952. The disallowance was made on a two-fold ground, namely, that the payment was in the nature of a penalty and that the liability did not relate to the year in dispute.
11. On appeal, the Income-tax Appellate Tribunal allowed the assessee's claim but reduced the amount to Rs. 1,63,609 on the finding that the actual liability was to that extent only. The Tribunal took the view that the liability was incurred by the assessee in its character as a trader and the amount in question was a revenue deduction, irrespective of whether it involved a breach of contract or a breach of certain statutory provision.
12. The correctness of the view taken by the Income-tax Appellate Tribunal is challenged in this reference by the Commissioner of Income-tax through question No. 6, as stated earlier.
13. A Full Bench of this court in Saraya Sugar Mills (P.) Ltd. v. CIT, [1979] 116 ITR 387, has held that the damages paid by the assessee to the Provident Fund Commissioner under Section 14B of the Employees' Provident Funds Act, 1952, for delay in paying the contributions to the provident funds are not admissible deductions under Section 37(1) of the Income-tax Act, 1961 (corresponding to Section 10(2)(xv) of the 1922 Act). The Full Bench decision was followed in the assessee's own case in the reference for the assessment year 1963-64 in CIT v. Swadeshi Cotton Mills Co. Ltd., [1980] 121 ITR 747. As the view taken by the Income-tax Appellate Tribunal is contrary to the view expressed by this court, the same cannot be upheld. Accordingly, we answer question No. 6 in the negative, in favour of the Revenue and against the assessee.
14. This brings us to question No. 4 which only remains to be answered.
15. By means of an additional ground before the Income-tax Appellate Tribunal the assessee made a claim for business expenditure in respect of a sum of Rs. 45,930 on account of a differential excise duty liability which was stated to have finally accrued on October 21, 1960, a date which fell in the previous year relevant to the assessment year in dispute. Initially, this amount was claimed by the assessee as deduction in the proceedings for the subsequent assessment year, i.e., 1962-63, as the amount of differential excise duty was actually paid in that year. The claim was, however, disallowed by the Income-tax Officer. On appeal, the Appellate Assistant Commissioner recorded a categorical finding that the liability having accrued in the assessment year 1961-62, the assessee was not entitled to claim the deduction in the assessment year 1962-63 on payment basis. It is in these circumstances, by means of an additional ground of appeal through an application, that the assessee claimed the allowance of Rs. 45,930 on account of differential excise duty before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal rejected the application and refused to grant its permission to entertain the additional ground of appeal.
16. The question referred to us raises the question as to the power or jurisdiction of the Tribunal to entertain a ground of appeal which had not been taken earlier before the authorities below and which has been taken for the first time before the Tribunal.
17. In order to appreciate the controversy arising for consideration, we may read Sub-section (4) of Section 33 of the Indian Income-tax Act, 1922, which provides for the power of the Tribunal to pass orders on appeal. It says :
"The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner."
18. The important and crucial words are "pass such orders thereon as it thinks fit". This expression has been the subject-matter of judicial scrutiny before the Supreme Court in a number of cases where the scope of the Tribunal's jurisdiction has been discussed. In CIT v. Nelliappan, [1967] 66 ITR 722 (SC), it was observed (headnote) :
"In hearing an appeal, the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal, the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal.
The Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the assessee."
19. Again, while construing the provisions of Section 33(4) and the width and amplitude of the Tribunal's power in CIT v. Mahalakshmi Textile Mills Ltd., [1967] 66 ITR 710, the Supreme Court observed thus (at P. 713) :
"Under Sub-section (4) of Section 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal "as it thinks fit". There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him."
20. At this stage, we may also refer to Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, which provides that the appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under the rule, provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground.
21. From the two decisions of the Supreme Court noticed above and Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, one thing is clear, viz., that the Tribunal has discretion in appropriate cases to allow any party to the appeal to raise a new ground before it and to pronounce upon the validity or otherwise of the claim that may be raised before it by either party and which claim had not been raised earlier. Neither the assessee nor the Department has restricted itself to the pleas put forward at any earlier stage. There is nothing either in Section 33(4) or in Rule 11 referred above, which restricts or precludes the Tribunal from considering a point which may arise in an appeal merely because such point had not been raised or argued by the party seeking leave or for that matter by either party at an earlier stage of the proceedings. It is a different matter that, in a given case, the Tribunal may not feel inclined to grant the leave in exercise of its discretion that it possesses in connection with the raising of a new contention or ground. Rule 11, as already observed, does not debar an assessee from taking up a new ground. In the hierarchy of authorities, the Appellate Tribunal is the final fact-finding authority. It is a court of appeal of fact as well as of law. The powers of the Tribunal referable to the said Rule 11 are judicial in nature and cannot be exercised in an arbitrary manner at the pleasure of the Tribunal. Whether permission should be given or not will depend basically on the facts of each case.
22. In the present case, the Income-tax Appellate Tribunal refused to accord its permission for raising an additional ground of appeal in the view that the assessee had not claimed the disputed deduction in the proceedings for the assessment year 1961-62 before the lower authorities and thus there was no occasion for those authorities to apply their mind. It held that it was not competent to admit the disputed additional ground of appeal since the same did not arise out of the order passed by the Appellate Assistant Commissioner.
23. On facts, it is not disputed that, at the relevant time when the appeal for the assessment year 1961-62 was decided on February 8, 1968, the assessee's claim for deduction of the disputed amount was pending adjudication in the assessment proceedings for the assessment year 1962-63. The assessment order itself, for the year 1962-63, was made on August 21, 1968, i.e., after the decision of the Appellate Assistant Commissioner for the year 1961-62. It is only when the claim was also turned down by the first appellate authority on the ground that the deduction could not be claimed in 1962-63, that the assessee came forward to raise the additional ground of appeal in the year 1961-62 before the Tribunal where the appeal for that year was still pending.
24. The Tribunal has not recorded any finding that the plea sought to be raised in the additional ground was wilfully or intentionally not taken at earlier stages for the year in dispute. It is also nobody's case that necessary facts for deciding the controversy involved in the additional plea were not available on record, though this may not always be a good ground to refuse permission. In our opinion, merely because the plea in the additional ground was not taken by the assessee before the Appellate Assistant Commissioner, it could not be a ground to refuse the application for permission to raise an additional ground of appeal. The Tribunal was in error in refusing to accord its permission to the assessee to raise the additional ground of appeal.
25. Accordingly, question No. 4 is answered in the affirmative, in favour of the assessee and against the Department.
26. In the result, the questions referred to us are answered as under :
Question No. 1 :--In the affirmative, in favour of the Revenue.
Question No. 2 :--In the negative, in favour of the Revenue.
Question No. 3 :--In the affirmative, in favour of the Revenue.
Question No. 4 :--In the affirmative, in favour of the assessee and against the Revenue.
Question No. 5 : --In the affirmative, in favour of the Revenue.
Question No. 6 :--In the negative, in favour of the Revenue.
27. In view of the divided success, the parties are left to bear their own costs.