ORDER

1. The assessee carries on the business inter alia, of construction, generation, operation and maintenance of thermal power stations and associated transmission network.

2. During the Assessment Year 1978-79 the assessee had deposited its funds which were not immediately required, on short-term deposits with banks. Interest received on such deposits during the previous year relevant to the Assessment Year 1978-79 amounted to Rs. 22,84,994. This was offered by the assessee for tax assessment and the assessment was completed on that basis. Before the Commissioner of Income Tax (Appeals) a number of grounds were taken by the assessee challenging the assessment. However, the inclusion of this amount of Rs. 22,84,994 was neither challenged by the assessee nor considered by the Commissioner of Income Tax (Appeals). From the order of the Commissioner of Income Tax (Appeals) the assessee filed an appeal before the Tribunal. The inclusion of the said amount of Rs. 22,84,994 was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, by a forwarding letter dated 16-7-1983 the following additional grounds were sought to be raised by the assessee :

1. The sum of Rs. 22,84,994 deducted from "Statement of Expenditure during construction" cannot be included in the total income.

2. It is contended that on admission (erroneous), no income (the sum of Rs. 22,84,994) can be included in the total income.

3. The authorities below have erred and failed in their duty in not adjudicating the facts and evidence on record and mechanically including Rs. 22,84,994 in the total income.

3. The assessee contended that on account of two orders of special Benches of the Tribunal in the cases of Arasan Aluminium Industries (P) Ltd. and Nagarjuna Steels Ltd. the assessee learnt that the interest earned in this manner before the setting up of business is not taxable as income and it goes to reduce the capital cost of the plant. On learning about this legal position the assessee sought to include the above three grounds in its grounds of appeal. The Tribunal has declined to entertain these additional grounds.

4. The Tribunal has framed as many as five questions while making a reference to us. Since the Tribunal has not examined the additional grounds raised by the assessee on merit, we do not propose to answer the questions relating to the merit of those contentions. We reframe the question which arises for our consideration in order to bring out the point which requires determination more clearly. It is as follows :

"Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same."

Under Section 254 of the Income Tax Act the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with the appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions