CIT(A): Power to issue directions against third party: Sections 153C and 251(1)(c) of Income-tax Act, 1961: In the matter of lis between the assessee and the Revenue before it, it is not open to the CIT(A) to proceed to determine the rights or liabilities of a third party, who is not before it.

The assessee, a charitable institution transferred development cess to Mandi Parishad and claimed deduction of the said amount. The Assessing Officer disallowed the claim for deduction. The CIT(A) allowed the assessee’s claim and held that the payment treated as expenditure or application by the assessee shall be treated as business receipt by Mandi Parishad and directed the Assessing Officer to make a reference to the Assessing Officer of Mandi Parishad to take remedial measures, if necessary, in the relevant assessment years to tax the relevant receipts in the hands of the Mandi Parishad. The Tribunal held as under:

“The learned CIT(A) while referring to the cases of Mandi Parishads had not afforded any opportunity to the said assessees and it is also noticed that the learned CIT(A) made these observations in spite of the fact that no such material relating to Mandi Parishads was available to him. In our opinion, these observations of the learned CIT(A) are unnecessary, because the facts of the case which is pending for adjudication are only to be considered. However, in the instant case, neither the material relating to other issues was available to the learned CIT(A) nor opportunity of being heard was given to the said assessee whose cases have been referred by the learned CIT(A). We, therefore, modify the order of the learned CIT(A) to this extent that the impugned observations made by him are unwarranted in the case of present assessees.”

On appeal by the Revenue the Allahabad High Court upheld the decision of the Tribunal and held as under:

“(i) It is not open to another quasi-judicial authority of limited jurisdiction, in the matter of lis between the assessee and Revenue before it to proceed to determine the rights or liabilities of the third party, who is not before it, in the assessment of the assessee.

(ii) The CIT(A) had no jurisdiction to direct the Assessing Officer to make a reference to the Assessing Officer of Mandi Parishad, to whom the assessee used to pay cess and claim it as deduction, to take a remedial action and, if necessary, to tax the receipts in the hands of Mandi Parishad.”