JUDGMENT
Sabyasachi Mukharji, J.
1. In this reference, under Section 256(1) of the I.T. Act, 1961, the following questions have been referred to this court :
“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the issue of disallowance under Section 40(a)(v) was not the subject-matter of an order by the Appellate Assistant Commissioner and hence the Commissioner of Income-tax had the jurisdiction under Section 263 on this issue ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that even if the second part of Section 40(a)(v) was not mentioned by the Commissioner of Income-tax in the notice under Section 263 specifically, it was not precluded from considering the whole of the section ?
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the Commissioner of Income-tax was justified in setting aside the order of the Income-tax Officer on the issue of disallowance under Section 40(a)(v) ?”
2. In order to appreciate the questions, it would be necessary to refer to the order of the ITO for the relevant assessment year, being the assessment year 1970-71, which was passed on the 24th March, 1973. In that order, the ITO observed, on the question of depreciation, as follows :
“4. In all the past assessments depreciation on bungalows are being allowed @ 21/2% only while the assessee has been claiming @ WDV for bungalow for the assessment year
Rs.
Year 1969-70
1,93,89,649
Less :
Rs.
Dep. allowed @ 2%
4,78,955
W.D.V. for 1970-71
1,89,10,694
Dep. admissible @ 2% on
above
4,72,766
Amount claimed @ 5% as per details furnished in statement under Section 40(a)(v) is Rs. 7,88,109 ; balance inadmissible is Rs. 3,15,343.”
3. As appearing from the order of the ITO, the assessee had claimed depreciation on the bungalows at 5 per cent. but was allowed depreciation at 21/2 per cent. But the ITO had noticed that the amount claimed was 5 per cent. as per details. Therefore, the amount inadmissible under
Section 40(a)(v) would be Rs. 3,15,343 calculating on the basis of depreciation allowed at 5 per cent.
4. There was an appeal before the AAC. In the appeal before the AAC, the contention was that the allowance of depreciation on bungalows at 21/2 per cent. as against 5 per cent. claimed by the assessee was not proper. The AAC noted the contentions urged on behalf of the assessee and it was observed that the same point had been urged for the assessment year 1964-65, when it was held that the buildings in question were second class buildings and depreciation was to be allowed at 5 per cent. He further noted that the representative of the assessee had contended before the ITO that the ITO had not given the correct details of the written down value in the assessment order and it was not known how the disallowance of Rs. 3,15,343 had been arrived at by the ITO. Therefore, in those circumstances it was contended that the ITO should be directed to work out the correct written down value of those buildings in the light of the previous appellate order and allow depreciation at 5 per cent. on such written down value. Dealing with these contentions and submissions, the AAC observed, inter alia, as follows :
“7. The next contention relates to an alternative ground, ground No. 6, where the rate of depreciation is disputed. Here it is contended that the Income-tax Officer was not justified in disallowing Rs. 9,74,788 by taking the allowance of the depreciation at 5% as claimed by the appellant. It is contended that the Income-tax Officer has allowed depreciation @ 21/2% only and the same rates should be taken for disallowance under Section 40(a)(v) taking the depreciation in that manner.”
5. After the appeal has been preferred before the AAC, which was disposed of on 3rd April, 1974, it appears, the Commissioner issued a notice dated 5th March, 1975, under Section 263 of the I.T. Act, 1961, in respect of the said assessment year. In the said notice, it was stated as follows :
“The records of your case were called for and examined by me with reference to the proceedings for the assessment year 1970-71. It seems that the assessment for the year 1970-71 was completed under Section 143(3) on 24th March, 1973.”
6. In the said notice, in paras. 3 and 4, it was further stated :
“3. In view of what has been stated in the preceding paragraph the order of Income-tax Officer under Section 143(3) dated 24th March, 1973, appears to be erroneous in so far as it is prejudicial to the interest of Revenue.
4. I, therefore, propose to pass an order setting aside the Income-tax Officer’s order dated 24th March, 1973, in so far as it relates to the aforesaid sum of Rs. 1,44,540 and directing him to make a fresh assessment according to law.”
7. The Commissioner thereafter fixed the date for hearing and asked the assessee to show cause. Thereafter the Commissioner, on the 18th March, 1975, passed the order wherein he noted the contentions of the assessee as well as the Revenue. It was contended before him on behalf of the assessee that the allowance and disallowance of depreciation as well as the quantum thereof were the subject-matters of appeal before the AAC. Before the AAC, however, this aspect was not stressed either by the assessee or on behalf of the Revenue, nor did the AAC give any direction in respect of this aspect. But this order of the ITO having been merged in the order of the AAC on the question of allowability of depreciation, the Commissioner had no jurisdiction to pass any order of revision under Section 263 of the I.T. Act, 1961. It was secondly contended that the notice given in this case was vague and misleading because Section 40(a)(v) so far as material for our present purpose provides as follows :
“(v) any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by the assessee in respect of any obligation which but for such payment would have been payable by such employee) or any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit, to the extent such expenditure or allowance exceeds one-fifth of the amount of salary payable to the employee, or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of his employment during the previous year, whichever is less.”
8. Therefore, it appears that there are two limbs, according to the assessee, upon which amounts could not be deducted, that is to say, it might be an expenditure which resulted, directly or indirectly, in the provision of any benefit or amenity or perquisite whether convertible into money or not to an employee or any expenditure or allowance in respect of any assets of the assessee used by the employee either wholly or partly for its own purpose or benefit, to the extent such expenditure or allowance exceeds one-fifth of the amount of salary payable to the employee, or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of his employment during the previous year, whichever was less.
9. These are, according to the assessee, two different basis upon which certain amounts could not be permitted to be deducted. In the notice issued in this case, according to the assessee, only the first part was indicated, but the order that had been passed dealt with the second limb of Section 40(a)(v) of the Act. In that view of the matter it was submitted that the notice was vague or was misleading and as such the assessee did not
have any proper Opportunity and in the order the authority had no jurisdiction to go into that aspect. The Commissioner on the other hand rejected this contention. There was an appeal before the Appellate Tribunal. The Appellate Tribunal was of the view on the first aspect, viz., whether, after the AAC had passed the order, the Commissioner had jurisdiction to issue any notice under Section 263 of the Act. The Tribunal was of the view that this aspect, viz., whether 11 months’ depreciation or 12 months’ depreciation should be allowed or not because of the fact that the employee was in occupation for one month was not the aspect of the appeal before the AAC. Therefore, according to the Tribunal, the Commissioner had jurisdiction to go into this question and the Tribunal found that the Commissioner had properly exercised his jurisdiction. On the second aspect of the matter, viz., that the notice was vague and misleading, the Tribunal was of the view that inasmuch as the notice was given and action was intended to be taken for certain aspects of calculation under Section 40(a)(v) on the second limb, a reference was made in the notice to the first limb of that clause, which did not make the notice imperfect or vague and the Commissioner had jurisdiction and the assessee had been given proper opportunity. In that view of the matter the Tribunal, upholding the order of the Commissioner, and also holding on the merits, proposed that this aspect required investigation by the ITO. The Tribunal referred to a decision of the Delhi High Court which we shall presently note.
10. Upon this the three questions as mentioned hereinbefore have been referred to this court. The first question is directed to the aspect whether after the appellate order was passed by the AAC or an appeal had been preferred, the Commissioner had jurisdiction in the facts and circumstances of this case under Section 263 of the Act. Now, it is well settled that before an appeal before the AAC certain orders are appealable. It is also well settled that in an appeal preferred before the AAC the whole assessment is open for review by the AAC. He is both the appellate as well as the adjudicating authority. But his jurisdiction is limited to the appeal preferred before him. There are certain orders which are not appealable before the AAC but certain types of allegations can be taken up in an appeal by separate appeals. Apart from those two cases if an assessment is the subject-matter of appeal then any ground which was held in favour of the assessee can also be held against him though the appeal was preferred by the assessee. This jurisdiction of the AAC is indisputable. In this case the question is whether the quantum of allowance or disallowance or depreciation was the subject-matter of appeal or not. It is true that whether depreciation should be calculated on the basis of 12 months or it should be calculated on the basis of 11 months was not a specific aspect which was agitated before the AAC nor did
he give any direction on this aspect of the matter but he had this aspect kept open for adjudication by him even though not taken by the assessee. Then, on that, he could have allowed 5% or 21/2% depreciation and should have directed the ITO to compute the same on such basis as he considered fit and proper, namely, 11 months or 12 months on the view that the employee of the assessee was on leave for one month and as such could not be said to be entitled to this accommodation. If that is the position, then, in our opinion, once the appeal has been preferred before the AAC on any aspect of the quantum of depreciation, the Commissioner cannot assume jurisdiction, otherwise an anomalous position would arise. The ITO has been directed by the AAC to fix depreciation at a certain percentage, indicated by the AAC, without any further direction that it should be confined to 11 months or 12 months. But, now, if further consideration is superimposed by the Commissioner by rectification made by the ITO as a result of the order passed by the Commissioner under Section 263 then that would be in conflict with the direction given by the AAC in his appellate order. Therefore, where an appeal is preferred and the subject-matter of appeal, particularly raised, is the subject-matter before the AAC, then that order, in our opinion, cannot be the subject-matter of an order of revision by the Commissioner. This principle, however, comes where the appeal does not lie from the order of the ITO and before the AAC where different kinds of appeal are provided for in the scheme of the I.T. Act. This principle was enunciated by the Supreme Court in the case of CIT v. Amritlal Bhogilal & Co. . This was also reiterated in the decision in the case of Jeewanlal (1929) Ltd. v. Addl. CIT and the decision in the case of Premchand Sitanath Roy v. Addl. CIT . The Allahabad High Court reiterated the same principle in the case of J. K. Synthetics Ltd. v. Addl. CIT . Therefore, it appears to us that as the quantum of depreciation was the subject-matter of appeal the Commissioner had no jurisdiction, in the facts and circumstances of this case, to issue the notice under Section 263 and to pass any order on this aspect of the matter. Question No. 1 therefore, in our opinion, must be answered in the negative and in favour of the assessee.
11. The second question deals with the vagueness of the notice. It is true that the second aspect of the matter is on the question whether the notice was proper in this case. It has to be borne in mind that Section 263 of the I.T. Act, 1961, or Section 33B of the previous Indian I.T. Act, 1922, it does not require that any specific notice is to be given. All that is required is that reasonable opportunity should be given. In this case, it was emphasised on behalf of the assessee that the opportunity to be reasonable must be an effective and real opportunity. In this connection reliance was placed on the observation of the Division Bench of this court in the case of Electro
House v. CIT [1968] 70 ITR 421 (Cal), where, at p. 425, the Division Bench referred to the observation of the Supreme Court in the case of Khem Chand v. Union of India [1958] SCR 1080. In that case, the proposition was, an opportunity must be a reasonable one and the person concerned should be informed of the charge or charges levelled against him. This observation, however, was made in the context of disciplinary proceedings. The Division Bench held that whether it was a disciplinary proceeding or taxing proceeding the measure of opportunity should be the same. In this case, though this decision ;ultimately went to the Supreme Court (CIT v. Electro House ) and the Supreme Court referred to the decision of the Division Bench of this court in the case of Electro House v. CIT [1968] 70 ITR 421, on the ground that unlike Section 34, Section 33B did not require any notice to be issued by the Commissioner, the Division Bench held that a notice was the very foundation of assumption of jurisdiction. But the question whether reasonable opportunity was given or not depended on the facts and circumstances of the case. The Supreme Court remanded the case to the High Court for consideration of that aspect of the matter. Here the learned advocate for the assessee, however, contended that in this case if a general notice had been given invoking Section 40(a)(v) then perhaps it could be said that on all aspects within that section the assessee should have been ready to answer. But, in this case, only the first limb was indicated. Therefore, from one point of view the assessee contended that the notice was not only vague but it was also misleading when the Commissioner gave notice in respect of the first limb of Clause (a)(v) of Section 40 of the Act. Though we are inclined to think that there is a good deal of substance in the contention of the assessee, it appears to us, that in view of the fact that the assessee was heard and in view of the fact that the first aspect of the question, we have already held that the assumption of jurisdiction of the Commissioner in this proceeding was wrong, it is not necessary for us to answer this question. We, therefore, decline to answer this question. This will be of academic interest. If the Commissioner did not have jurisdiction then the order passed by the Commissioner is without jurisdiction and question No. 3 must, therefore, on this ground be answered in the negative and in favour of the assessee.
12. Before we conclude we must note that the learned advocate for the defendant drew our attention to the decision of the Delhi High Court in Gee Vee Enterprises v. Addl. CIT , the decision upon which the Tribunal had also relied. He drew our attention to certain observations at pp. 384 onwards. These observations dealt with the question whether before taking action under Section 263, the Commissioner was required to make any enquiry or investigation as such, and come to a definite finding. We are not concerned with this aspect of the matter. Therefore, we are
of the opinion, that this decision is not of much assistance on the question involved before us.
13. In the premises, question No. I is answered in the negative and in favour of the assessee. We decline to answer question No. 2 in the view we have taken. Question No. 3 is answered in the negative and in favour of the assessee. The parties would pay and bear their own costs.
C.K. Banerji, J.
14. I agree.
