Law: Income Tax Act, 1961

Section: 185

Income-tax---Appeal to A.A.C.---Powers of A.A.C.---I.T.O. making addition to business income of assessee on ground that part of its income had been diverted to a sister concern ---A.A.C. sustaining addition on ground that higher price had been paid to sister concern ---A.A.C. was not considering new source of income ---A.A.C. s action was valid. The Appellate Assistant Commissioner has plenary powers in an appeal filed before him. The entire assessment is thrown open. The Appellate Assistant Commissioner cannot travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income¬tax Officer. The First Appellate Authority need not confine itself only to the materials on record at the time of assessment. It may make such enquiries as it thinks fit. The First Appellate Authority has all the powers, which the original Authority may have. However, there must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. The assessee was a firm. The Income-tax Officer made two additions to its income. The first addition was Rs.25,72,142 representing alleged income of the assessee diverted to a company, T, a sister concern of the assessee, in which the partners of the firm were Directors. According to the Income-tax Officer, part of the business of distribution of gripe-water was transferred by the assessee with effect from January, 1973, only to be retransferred back to the assessee in 1976. This was considered to be an arrangement solely with a view to avoid tax liability as the company, T, was showing loss. The Appellate Assistant Commissioner reviewed the evidence and held that there was no diversion of profits. He also found that the company, T, has sold gripe-water at the rate of Rs.228.09 per gross to a company, H, and Rs.254.09 to the assessee. He found that there was no need for the assessee to pay the heavier price of Rs.254.09 per gross to its sister concern, when it would have got the gripe-water at a lower price of…

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