1999 (4) TMI 49 - HC - Income Tax

Summary

Issues Involved:
1. Application of Section 61 of the Income-tax Act, 1961.
2. Genuineness of the transactions recorded in the memo of understanding.
3. Violation of principles of natural justice by the Appellate Tribunal.
4. Maintainability of the writ petition against the order of the Appellate Tribunal.

Issue-wise Detailed Analysis:

1. Application of Section 61 of the Income-tax Act, 1961:
The Assistant Commissioner of Income-tax (Assessing Officer) for the assessment year 1988-89 invoked Section 61 of the Income-tax Act, 1961, concluding that the business was neither abandoned nor dissolved, and the arrangement was revocable. This led to the inclusion of income arising from the business run by Karthikeyan in the hands of the petitioner firm. The Commissioner of Income-tax (Appeals) overturned this decision, stating there was no power to revoke the transfer, and directed the exclusion of the income from the petitioner firm's assessable income. The same approach was followed for the assessment year 1990-91, which was contested by the petitioner.

2. Genuineness of the Transactions Recorded in the Memo of Understanding:
The Appellate Tribunal, during the hearing on June 17, 1998, raised a new ground questioning the genuineness of the transactions between the petitioner firm and Karthikeyan, which was not previously disputed by the Assessing Officer or the Commissioner of Income-tax (Appeals). The Tribunal concluded that the transactions appeared to be sham in the absence of evidence, and remitted the matter back to the Assessing Officer to assess the income till the firm was dissolved or transferred to a third party.

3. Violation of Principles of Natural Justice by the Appellate Tribunal:
The petitioner argued that the Appellate Tribunal violated the principles of natural justice by not providing an opportunity to contest the new ground regarding the genuineness of transactions. The Tribunal's decision was made without considering the petitioner's request for an adjournment to produce supporting documents. The court observed that the Tribunal should have granted the petitioner a fair opportunity to meet the new case raised during the first hearing.

4. Maintainability of the Writ Petition Against the Order of the Appellate Tribunal:
The court acknowledged that while there is a procedure for reference under Section 256 of the Act, the issue of whether the Tribunal followed the correct procedure falls outside the scope of such references. The court held that it has the jurisdiction under Article 226 of the Constitution of India to interfere when there is a blatant violation of principles of natural justice. The court cited several precedents, including the Supreme Court's decision in Reckitt and Colman of India Ltd. v. CCE, to support its stance that the Tribunal should not have made a case for the Revenue that was never canvassed and which the petitioner was not required to meet.

Conclusion:
The High Court found that the Appellate Tribunal's order suffered from a serious infirmity due to the violation of principles of natural justice. The Tribunal's failure to provide the petitioner an opportunity to address the new ground regarding the genuineness of the transactions resulted in a miscarriage of justice. Consequently, the High Court quashed the Tribunal's order and remitted the matter back to the Appellate Tribunal for fresh consideration on the merits, ensuring the petitioner is given sufficient opportunity to present its case. The writ petition was allowed, and the rule nisi was made absolute, with no order as to costs.