Law:

Section:

Section 254 of the Income-tax Act, 1961-Appellate tribunal-Orders of-Whether on appeal tribunal is competent to consider allowability of item (taken into account during assessment) which was not subject-matter of appeal either before AAC or before tribunal itself-Held, on facts, yes-Whether in departmental appeal it was open to tribunal to arrive at a finding adverse to assesses and to pass order which rendered assessee's position worse than what it was under order appealed against-Held, on facts, yes Facts Under an agreement, the assessee-company was required to pay, at half-yearly intervals, to another company A towards charges for services rendered and these payments became due for payment on receipt of company A's debit notes for such costs. Up to and inclusive of the assessment year 1969-70, the practice followed by the ITO for regulating the allowance of this expenditure in the income-tax assessments of the assessee-company was to allow the charges relating to the first half of the immediately preceding year and those for the second half of the year preceding that year. This procedure was accepted by the assessee-company also. Following the same practice for the assessment year 1970-71, the relevant previous year being calendar year 1969, the ITO allowed the charges relating to second half of 1968 and first half of 1969 and disallowed the claim relating to second half of 1969 amounting to Rs. 2,93,623, which, according to him, was to be considered in the assessment year 1971-72 in view of the usual practice. On appeal by the assessee, the AAC,, deleted the disallowance of Rs. 2,93,623 made by the ITO by accepting the assessee's contention that, despite its acquiescence in the practice followed by the ITO, the correct procedure, according to law and accepted commercial principles, would be to allow the deduction in the year in which it was incurred. The AAC, however, pointed out that the correct amount of service charges relatable to the second half of 1969 was Rs. 1,43,224 and not Rs. 2,93,623. On further appeal, the revenue contended (i) that, apart from the impropriety involved in the assessee's shift in stand and the fact that even under the agreement…

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