Rule 27 of ITAT Rules, 1963: Any ground raised by the assessee if decided against him by the CIT(A) can be pursued by the assessee in his capacity as respondent before the Tribunal even if the CIT(A) has ultimately decided the issue in favour of the assessee.
Facts:
The payments of Rs. 1,05,27,465/- under the head ‘Design and development expenses’ were disallowed by the Assessing Officer by invoking the provisions of section 40(a)(i) by taking a view that they were in the nature of fees for technical services u/s. 9(1)(vii).
Aggrieved, assessee carried the matter in appeal before the learned CIT(A). Before the CIT (A), apart from disputing the disallowance on merits, the assessee also disputed the impugned disallowance on the ground that the provisions of section 40(a) (i) can be invoked only to disallow the expenditure of the nature referred therein which is shown as ‘payable’ as on the date of Balance Sheet and is to be read pari-pasu with section 40(a)(ia). The assessee relied upon the decision of Hon’ble ITAT Special Bench, Vishakapatnam in case of Merilyn Shipping & Transport vs. ACIT [2012] 136 ITD 23. Though this decision was in the context of section 40(a)(ia), the assessee argued that the same principle should even apply in the context of section 40(a)(i) as per the non-discrimination Clause in the Double Taxation Avoidance Agreement (DTAA) between Indian and foreign countries in consideration.
The CIT (A) deleted the impugned disallowance by holding on merits that none of the amounts so paid by the assessee was actually taxable in India. However, the CIT (A) rejected the above alternative plea raised by the assessee on the ground that decision of the Hon’ble ITAT Special Bench, Vishakhapatnam, has been suspended as an interim measure by the Hon’ble Andhra Pradesh High court till final decision and therefore, the CIT (A) did not follow that decision.
The Revenue challenged the correctness of the CIT (A)’s order by filing an appeal. In the course of this appeal, the assessee- respondent raised the same issue by invoking Rule 27 of the Appellate Tribunal Rules, 1963.
Held:
Rule 27 of the Appellate Tribunal Rules, 1963, provides that, “the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him”. This provision is independent of, and quite distinct from, the statutory right to file cross objection u/s. 253(4) of the Income Tax Act, 1961, which allows the respondent, on being put to notice about the fact of an appeal having been filed against an order, to raise his grievances against the said order by filing the cross objections within stipulated time.
The important distinction between the scope of a cross objection u/s. 253(4) and an objection under Rule 27 is that while former calls into question correctness of a part of the operative order, the latter merely challenges a part of the reasoning adopted in the process of arriving at operating order, i.e. conclusion, even as it does not challenge the conclusion itself. U/s. 253(4), one can challenge the conclusions. Under Rule 27, one cannot challenge the conclusions, even though it can challenge the reasons for arriving at those conclusions, to the limited extent of the pleas which have been decided against the respondent, as it provides that the respondent “may support the order on any of the grounds decided against him”. In effect thus, under Rule 27, those grounds which have been decided against the respondent, even when the assessee does not challenge the same, can be agitated again, and to that extent, reasoning of even a favourable order can be called into question. However, cross objection u/s. 253(4) can call into question the conclusions arrived at in the impugned order, and, therefore, cross objections constitute a remedy against unfavourable portion of the order. It is thus clear that the scope and purpose of cross objections are distinct and mutually exclusive. No doubt that it is a common practice that the cross objections are routinely filed to support the orders appealed against by the other party, but a wrong practice, no matter how prevalent, can affect the correct legal position.
Therefore, while the respondent may indeed raise any of the issues, with regard to the grounds decided against the assessee even though the assessee may not be in appeal or cross objection, the respondent can do so only by way of a written intimation to that effect duly served on the other party reasonable in advance.
