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TMI Blog2012 (4) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... en over the management of the hotel property, viz. Tulip Star Mumbai, situated at Juhu Tara Road, Juhu, Mumbai. The assessee was redeveloping the said property into a multi product hospitability destination and was also developing international standard Service Apartments. The assessee offered the space in the same property to Shri Somendra Khosla of UAE on a 99 years lease basis. After negotiation, Shri Khosla agreed to acquire the space admeasuring 12700 sq. ft. at the rate of Rs. 7,500/- per sq. ft. In pursuance to such booking of the property, Shri Khosla advanced the sum of Rs. 4,78,12,403/- during the accounting year relevant to assessment year 2004- 05 and the sum of Rs. 1,02,91,176/- in the accounting year relevant to assessment year 2005-06. During the assessment proceedings, the assessee produced the copies of correspondence between the assessee and Shri Khosla; confirmation of Shri Khosla with regard to advance given by him; complete details with regard to remittance in USD; the correspondence showing why the property could not be developed as stipulated and the termination of the agreement with the liability on the assessee to refund the money. The assessee also produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with M/s Tulip Star Hotels Pvt. Ltd. (TSHL) for operating the Hotel Tulip Star, Mumbai, by which TSHL is to get 3% of the gross hotel receipt. Thus, whatever the amount assessee is entitled to receive from THSL is to be passed on to TSHL. The assessee also entered into an agreement with M/s Cox & King (India) Pvt. Ltd. (CKIL) for using their network of office and infrastructure for brand awareness and marketing of Tulip Star hotel for which CKIL is entitled to reimbursement of expenses actually incurred by them. CKIL raised monthly debit note upon the assessee for expenditure incurred by them. In turn, the assessee raised debit note of identical amount upon THSL. During the whole year, CKIL raised debit note of Rs. 7,56,16,910/- and in turn, similar debit note is raised by the assessee. The amount received from THSL is paid to CKIL. In its profit and loss account, the assessee has not claimed any deduction in respect of debit note raised by CKIL, because the same was already reimbursed by THSL. With regard to the operating fee of Rs. 61,93,015/- is concerned it entered into an agreement with THSL for operating their hotel namely Tulip Star. Simultaneously, the assessee entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, deleted the disallowance of Rs. 7,56,16,910/- and Rs. 61,93,015/-for the assessment year 2004-05 and for the same reasons he also deleted the disallowance of Rs. 7,95,73,902/- and Rs.37,03,683/- for the assessment year 2005-06. However, the ld. Accountant Member while observing that there is no evidence for services rendered by CKIL and mere agreement or payment by cheque is not enough, the claim has to be disallowed in view of the provisions of section 40(1)(ia) of the Act on the ground of non deduction of tax, confirmed the above disallowances made by the AO. 7. Since there was a difference of opinion between the members constituting the Bench, a Reference was made to the Hon'ble President under section 255(4) of the Income Tax Act, 1961, for referring the points of difference to the ld. Third Member for adjudication of the following points of difference: - "Whether on the facts and circumstances of the case: (i) the additions of Rs.4,78,12,403/- and Rs.1,02,91,176/- made and confirmed by the lower authorities u/s 68 for AYs 2004-05 and 2005-06 respectively are liable to be deleted or to be confirmed? (ii) the addition made and confirmed by the CIT(A) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture. It entered into an agreement with THSL for operating their hotel namely Tulip Star. Simultaneously, the assessee entered into another agreement with THSL for operating the said hotel . The entire operating fee receivable by the assessee for operating the hotel was passed on to TSHL. Therefore, in effect, the assessee has not claimed expenditure of Rs. 61,93,015/-. As I have mentioned earlier that in the profit and loss account, the assessee debited total expenditure of only Rs. 86,97,337/- the details of which is given in the Schedule 'G' to the profit and loss account which is as under : "Schedule Annexed to and Forming Part of the Accounts for the year ended 31st March 2004 Previous Year Schedule "G" Rs. Rs. Rs. Operating and Administrative Expenses Salaries 1,339,850 1,398,033 Gratuity 153,159 175,500 Staff Welfare 796,444 755,280 Travelling & Conveyance 1,101,082 1,775,118 Printing & Stationery 337,992 586,543 Bad Debts Written off 1,545,625 3,758,655 Communication Expenses 838,142 1,328,648 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the members of the bench. There is also difficulty in forming the majority of opinion. The difficulty, it appears has arisen partly because of the question framed being too general without specifying the point of differences in deciding the issue and partly because some of the vital facts have been omitted to be considered in the order of the ld. Third Member. The ld. Accountant Member, after considering the arguments of both the sides observed that it would be appropriate for the Division Bench to refer the matter back to the Hon'ble President, ITAT than to pass perverse order so that the controversy could be resolved properly and accordingly, he framed following new questions: "1. Whether on the facts and in the circumstances of the case, the additional evidence which had not been filed before AO, can be admitted by the tribunal in deciding the issue of cash credit and if so whether the tribunal can decide the issue based on fresh evidence or the issue is required to be restored to the file of the AO for fresh adjudication after examining the detailed evidence and after necessary inquiries and opportunities to the assessee. 2. Whether on the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in page 1 of this order. 12. At the time of hearing, the ld. Counsel for the assessee after referring to the relevant provisions of section 255(4) of the Act submits that in view of the findings recorded by the ld. Judicial Member in paragraphs 14.1, 30, 31, 35, 41 and 42 of the draft order dated February 2009 and paragraphs 23 and 29 of the opinion of the ld. Third Member, there is a majority of opinion in favour of the assessee, therefore, the order passed by the ld. Judicial Member be upheld. He further submits that the ld. Third Member after considering the questions which have been agreed and signed by both the Members has answered the questions in favour of the assessee, therefore, there is clear majority of opinion in favour of assessee. He further submits that the ld. Accountant Member in the order giving effect to the order of the ld. Third Member has observed that the questions framed being too general without specifying point of difference in deciding the issue and particularly because some of the vital facts have been omitted to be considered in the order of the ld. Third Member, therefore, he has framed three new questions which were not there at the time of referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then decide the reframed questions instead of the original questions. He further submits that the ld. Third Member while deciding the issue can take a different route but cannot alter the questions framed and he has to agree either with the opinion of the ld. Judicial Member or with the ld. Accountant Member. 15. The ld. Counsel for the assessee while referring to the decision in Jain Irrigation System Ltd. v. DCIT [2004] 266 ITR (AT) 31 (Pune) submits that the duty of the ld. Third Member is to resolve the dispute and point involved shall be decided according to the opinion of majority. The ld. Third Member is competent to decide only the point on which the members of the bench originally hearing the case differed. He cannot himself formulate a new point on which he could base his decision. 16. The ld. Counsel for the assessee further submits that in view of the decision in ITO v. Vice-President, Income Tax Appellate Tribunal [1985] 155 ITR 310 (Mad) the powers of the ld. Third Member of the Tribunal to whom any case is referred u/s 255(4) of the Act is confined to the giving of a decision on the points on which the members of the Tribunal had differed and which has been formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, the ld. DR, at the outset, submits that there is a technical mistake in the question referred to Special Bench wherein it has been mentioned " the order proposed by the ld. Accountant Members", whereas there is no such order and only an opinion, therefore, the question referred should suitably be amended. The ld. DR while referring to the opinion expressed by the ld. Third Member dated 27.11.2009 submits that even according to the ld. Third Member on the issue of admission of additional evidence it has been observed by him that "In principle I agree with the learned DR that when the Income Tax Appellate Tribunal admits additional evidence, it should allow a reasonable opportunity to the Assessing Officer to examine such additional evidence and to produce any evidence or document in rebuttal of such additional evidence. For this purpose, either the ITAT can call for the Remand Report from the Assessing Officer or may set aside the matter to the Assessing Officer for examination of additional evidence and thereafter re-adjudication. Admittedly, it has not been done by the ITAT in this case". Therefore, the order passed by the ld. Third Member admitting the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional evidence produced by the assessee before the Tribunal has not been admitted by the Tribunal by any specific order, therefore, the order passed by the ld. Third Member after considering the additional evidence is without jurisdiction, non est and void ab initio. 25. The ld. DR further submits that in Khopade Kisanrao Manikrao v. ACIT [2001] 250 ITR 18(Pune); (2000) 74 ITD 25(Pune), it has been observed that power of the ld. Third Member is not limited to the language of the questions framed in the reference but it extents to entire sum and substance of the opinion on the specified point(s); the Third Member has power to consider the entire material, the reasoning and the conclusion recorded by the Members as well as the contentions advanced on behalf of the parties. Relying on the same he submits that in the absence of any specific order of admission of the additional evidence either by the ld. Accountant Member or by the ld. Judicial Member or by the ld. Third Member, the opinion given by the ld. Third Member is bad in law. 26. The ld. DR further submits that in Collector, Central Excise, Bombay v. M/S. S.D. Fine Chemicals Pvt. Ltd. [1995] (3) SCR 84, it has been observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it." 31. A harmonious reading of the aforesaid provision shows that the majority decision of the Bench of the Tribunal has to prevail and in case of difference of opinion among equal number of members of the Tribunal, the matter is further required to be decided by one or more of the other members of the Tribunal and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it. Thus, it is the final conclusion of majority of the members of the Tribunal which is to prevail. 32. In this regard, we may refer with profit to the following decisions relating to the relevant provisions of section 255(4) of the Act. 33. In A.N. Seth (supra), Their Lordship have observed as under (page 860 of 74 ITR) : "Under this provision, if the Members of a Bench of the Appellate Tribunal are equally divided on any point or points, the said point or points have to be referred to one or more of the other Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held (headnote, page 22): "A plain reading of section 255 of the Income-tax Act, 1961, makes it clear that the jurisdiction of the Third Member is in regard to the point of difference and the framing of the question for a reference under section 255(4) need not be equated with a reference to the High Court under section 256. Under section 256, the High Court, till, recently, had advisory jurisdiction in regard to any question of law arising out of the order of the Tribunal and referred to the High Court for its opinion. In the case of the reference under section 255(4) to the Third Member, the object is to resolve the difference in opinion on any point which arises in the course of deciding of an appeal. Therefore, the jurisdiction of the Third Member is not limited to the language of the question(s) framed in the reference but it extends to the entire sum and substance of opinion on the specified points. The questions are framed in accordance with rules for identifying the dispute but it is a well settled principle of law that the rules cannot restrict the scope of the powers conferred under the statute. Therefore, the rules do not have the effect of curbing the scope of po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd after providing reasonable opportunity of being heard to the assessee. 39. From the reading of the above, there is no doubt that the ld. Accountant Member while agreeing with the questions formulated at the time of the original reference to the Hon'ble President of the ITAT has again framed three new questions at the time of giving effect to the opinion of the majority de hors the provisions of section 255(4) of the Act as he had become functus officio after he passed his initial draft order. This view also finds support from the decision in Delhi Press Samachar Patra Ltd. v. CIT [2004] 267 ITR 458 (Del), wherein it has been held (headnote): "Held, that the Accountant Member had become functus officio after he passed his initial order. Secondly, the procedure prescribed by the statute had not been followed. In such a situation, the procedure indicated in sub-section (4) of section 255 of the Income-tax Act, 1961, is required to be followed. It was incumbent upon the members to state the points on which they differed and the case was required to be referred to the President of the Tribunal for appropriate orders." 40. At this juncture, we cannot resist observing that the opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, exercise of jurisdiction in a wrongful manner cannot result in a nullity - it is an illegality. 1 AIR 1954 SC 340 capable of being cured in a duly constituted legal proceedings." Whereas in the case before us, the ld. Third Member has passed the order after hearing the parties and after considering the material including the additional evidence filed by the assessee, which was also considered by the Members who originally heard the appeal, therefore, there is no irregularity in the order of the ld. Third Member and therefore, the decision relied on by the ld. DR is distinguishable and not applicable to the facts of the present case. 44. In Baker Technical Services (P) Ltd. (supra), the Third Member had partly agreed with the Ld. Accountant Member and partly agreed with the ld. Judicial Member, therefore, he while observing that if the Division Bench finds it difficult to form the majority opinion as per the orders in this case, it is suggested that a reference may be made to the Hon'ble President of ITAT for making a further reference to a Member or Members for resolving a difference of opinion in accordance with law. 45. Whereas in the case before us, there is no such situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hence not applicable. 48. In M/S. S.D. Fine Chemicals Pvt. Ltd. (supra), it has been held that if the Third Member of the Tribunal has not dealt with the case in full and proper manner and has disposed of the issue in cryptic manner, the matter has to be remitted back to the Third Member for a fresh opinion after hearing the parties. 49. Whereas in the case before us, the ld. Third Member has passed a detailed and reasoned order and it is not the case of the Revenue that the ld. Third Member has not dealt with the any of the issues or plea taken by the Revenue or the order passed by him is a cryptic order, therefore, the decision relied on by the ld. DR is distinguishable and not applicable to the facts of the present case. 50. In Abhay Kumar Shroff (supra) it has been held that if the additional evidence enables the Tribunal to pass order or for any other substantial cause it could require the parties to do so. There is no gain saying that while this power could be exercised by the Appellate Tribunal suo motu the jurisdiction vested in the Tribunal could be got invoked at the instance of one of the parties before it. 51. Whereas in the case before us the additional evidence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member. Thus, the majority view was in favour of the assessee. We further hold that the proposed order dated 18.2.2010 of the ld. Accountant Member who is in the minority and had become functus officio wherein he has expressed his inability to give effect to the opinion of the majority and proceeded to frame three new questions to be referred to the Hon'ble President, ITAT again for resolving the controversy cannot be said to be a valid or lawful order passed in accordance with the provisions of section 255(4) of the Act and, hence, the said order dated 18.2.2010 proposed by the ld. Accountant Member is not sustainable in law. Accordingly, we answer the question referred to us in negative i.e. in favour of the assessee. 56. At the time of hearing, with the consent of the parties and in the interests of justice, it has been decided by the Hon'ble President to finally dispose of the appeals on the basis of majority view. Therefore, based on the opinion of the majority, the ground wise decision of the appeals for the assessment years 2004-05 and 2005-06 is as under : ORDER GIVING EFFECT Assessment Year : 2004-05 57. Ground Nos.1 and 2 are against the confirmation of action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the Revenue by deleting the same. The grounds taken by the assessee are, therefore, allowed. Assessment year 2005-06. 72. Ground No. 1 is against the sustenance of addition of Rs. 1,02,91,176/- received from Shri Somendra Khosla. 73. As per majority view, the issue is decided in favour of the assessee and against the Revenue by deleting the same. The ground taken by the assessee is, therefore, allowed. 74. Ground No. 2 is against the deletion of addition of Rs. 10,42,027/- towards interest paid to Shri Somendra Khosla. 75. It has been decided by the members who originally heard the appeal in favour of the assessee and against the Revenue by deleting the same. The ground taken by the assessee is, therefore, allowed. 76. Ground No. 3 is against the sustenance of disallowance of bad debts Rs. 15,58,655/-. 77. It has been decided by the members who originally heard the appeal in favour of the assessee and against the Revenue by deleting the same. The ground taken by the assessee is, therefore, allowed. 78. Ground No. 4 and 5 are against the sustenance of disallowance of expenses of Rs. 7,95,73,902/- and Rs. 37,03,683/-. 79. As per majority view, the issue is decided i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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