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TMI Blog2009 (5) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for previous assessment years - in this matter honorable SC ordered to reopen the assessment. - 3312 OF 2009 - - - Dated:- 6-5-2009 - JUDGMENT S.B. Sinha, J. - Leave granted. 2. These two appeals, being interconnected, were taken up for hearing together and are being disposed of by this common judgment. They arise out of a common judgment and order dated 2.3.2006 in ITA No. 50 of 2005 and Civil Writ Petition No.800 of 2005 as also out of common judgment and order dated 3.4.2007 in Civil Review No. 15 and 16 of 2006 in ITA No.50 of 2005 and C.W.P. No. 800 of 2005 passed by the High court of Himachal Pradesh, Shimla. 3. M/s Green World Corporation is a partnership concern of Shri R.S. Gupta and his wife Smt. Sushila Gupta. They had set up two units for manufacturing exercise books, writing pads, etc. at Parwanoo in the State of Himachal Pradesh in the year 1995. The said purported units were established after declaration and enforcement of a policy for tax holiday for certain period specified in the Union Budget. They had also set up a third unit for manufacturing computer software. They started filing income tax returns from the Assessment Year 1996-97 showin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Smt. Sushila Gupta. Two units were set up by the assessee for manufacturing of Exercise Books in Unit-I and that of Writing Pads in Unit-II. Separate books of account were maintained for both the units and 11 workers were found working at the time of survey. Certain discrepancies as per cash book to that of day book were found which could not explain by the Accountant at the time of survey which were reconciled by the counsel of the assessee during the course of assessment proceedings. On sale of Rs.88,55,592/- gross profit of Rs.57,28,980/- giving rate of 64.69% for unit - 1 and on sale of Rs.63,16,392/-, gross profit of Rs.19,12,565/- for Unit-II giving 30.29% has been declared by the assessee. Sales were made both on credit as well as cash basis. Confirmed copy of account of the creditors has been produced, which is placed on record. Keeping in view the information supplied by the assessee and facts on file, the income returned by the assessee is hereby accepted." In the said order of assessment, AO recorded a note, which reads as under: "After receiving a call from Shimla on 3.12.2002, I visited the office of Worthy CIT, Shimla on 4.12.2002 along with all the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under review, I estimate the assessee's income from Units at Parwanoo at 5% of the declared turnover. The income shown in excess of 5% amount is treated as undisclosed income from undisclosed sources. As the assessee does not fulfill many of the conditions for being entitled to deduction u/s 80IA/IB, no part of the total income, not even the one estimated @ 5% of the turnover at Parwanoo, would be entitled for deduction u/s 80IA/IB. 16.4 Charge interest u/s 234B/C for non-payment of advance tax. Penalty proceedings u/s 271(1)(c) are initiated separately for furnishing of in-accurate particulars of income assessed. The Assessing Officer is directed to calculate the tax and interest on this income and issue Demand Notice and Challan to the assessee firm. 17. Similar conditions i.e. non fulfillment of the prerequisite conditions for deduction u/s 80IA/IB and excessive declared profits prevailed in the preceding assessment years i.e. A.Y. 1996-97, 1997-98, 1998-99 and 1999-2000; and succeeding assessment years i.e. A.Y. 2001-02, 2002-03 and 2003- 04 also. It is thus obvious that either the whole or substantially the whole of income shown by the assessee in the aforementione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y material to support and substantiate the same and he having virtually reviewed the assessment order passed by the Assessing Officer applying his mind again to the entire material available on record and by making fresh enquiry brushing aside totally the examination made by the Assessing Officer, we hold that his impugned order passed u/s 263 was not sustainable in law. The same is, therefore, set aside restoring back the order of the Assessing Officer passed u/s 143(3). 44. It is worthwhile to note here that the claim of the assessee for deduction u/s 80-IA was allowed by the Assessing Officer in the immediately preceding years involving identical facts and circumstances and this material and relevant aspect again appears to have been ignored by the learned CIT while exercising his powers conferred u/s 263. On the contrary he directed the Assessing Officer by issuing notices u/s 148 and also directed him to examine the returns filed by the assessee for the subsequent years by his impugned order which was beyond the jurisdiction conferred on him u/s 263 since the same was confined only to the year for which the assessment order was sought to be revised. We, therefore, direct th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. Ordered accordingly, Registry to make necessary correction in the memo of parties. Learned Counsel for the appellants undertakes to file amended memo of parties and also the Vakalatnama for appellant No. 2 in the Registry. Arguments heard. Judgment reserved." 11. Assessee filed Special Leave Petition No. 3273 of 2006 before this Court questioning the orders dated 30.11.2005 and 9.1.2006 passed by the High Court. 12. By reason of the impugned order dated 2.3.2006, the High Court while allowing the Appeal filed by CIT (Shimla) dismissed the writ petition filed by the assessee, inter alia, opining: (1) The order of the Assessing Officer, having been based on `uncalled for interference' in the judicial functions of the Commissioner, was bad in law. (2) The issue in regard to the maintainability of the appeal vis-a-vis the locus standi of the CIT (Shimla) was significant as CIT (Delhi) had also been impleaded (3) As the Assessing Officer had acted under the dictates and pressure of CIT (Shimla), the order of assessment was not maintainable. (4) Assesseee not being a new unit, the order of assessment was bad in law. (5) CIT could issue directions for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her an impression (from some of the observations, about which there is no specific reference) that the same are the Court's own observations/findings. As a matter of fact there was no material before this Court suggesting whether what was written in the note was true or untrue. The observations were made because the note appears below the order. The purpose of making the observations in para 16 was to elaborate that the order of the Assessing Officer was bad having been passed on account of interference and under pressure from the Superior authority, according to the Assessing Officer herself. Whether the interference and the pressure mentioned in the said note, were real or imaginary, that was not gone into by this Court nor was it necessary to do so for the purpose of disposing of the appeal, because in their case (that is to say, in the case of the interference and pressure being real or even in the case of it being unreal or imaginary) the order was bad because of its being not based on any reasoning and hence an order passed without application of mind. 5. In view of the above stated position, we allow the present petition (Civil Review Petition No. 22 of 2006) and order th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was considered by this Court while passing the judgment and the contention raised by the counsel for the assessee was dismissed with a clear cut finding that the appeal was maintainable. It is not open to the review petitioner to assail and challenge the said finding by way of review. 9. Coming to the next point, it is true that the appeal was admitted on twelve questions, but while making their submissions the counsel for the parties confined themselves only to a few points, which were covered partly by one and partly by some other questions and so the questions were re- formulated into two questions, confining their scope only to those points about which submissions were made by the learned counsel for the parties. Otherwise also, by the judgment, in question, this Court decided not only the appeal but also a writ petition filed by the review petitioner itself and this also necessitated reformulation of questions. 10. As regards submission [C] above, learned counsel submitted that this court gave the finding that the order of the Assessing Officer, Solan was bad but that such a question did not arise out of the appeal decided by the Income Tax Appellate Tribunal as the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance has been placed by the Revenue is not applicable. vii. Special Leave Petition filed by CIT (Shimla) on the self same reasons is not maintainable. viii. CIT (Shimla) has not raised any question that the order of assessment was passed at the behest of the CIT, the High Court committed a serious error in passing the impugned judgment relying on or on the basis of the said footnote. The said footnote was issued having regard to the circular letter issued by the CBDT itself dated 3.7.2001. ix. In any event, the Tribunal having not entered into the merit of the matter, the only option available to the High Court was to remand the matter back to the Tribunal and not to enter into the merit itself. x. CIT's direction to the Assessing Officer to initiate action under Section 148 of the Act for the earlier and subsequent years was illegal and bad in law, and, thus, the proceedings so initiated were also illegal, bad in law and were liable to be quashed. 18. Mr. I. Venkatanarayana, learned Senior Counsel appearing on behalf of the Revenue, on the other hand, would contend: i. CIT (Shimla) had the locus standi to prefer an appeal before the High Court as he had passed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be placed before each House of Parliament. It must be read before each House of Parliament by the Central Government. Section 120 of the Act provides for the jurisdiction of Income-tax authorities. Sub-section (1) thereof reads as under: "120. (1) Income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or, as the case may be, assigned to such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities." Section 124 of the Act lays down the jurisdiction of Assessing Officers. Power to transfer cases is provided for under Section 127; sub- Sections (1) and (2) whereof read as under: "127. Power to transfer cases - (1) The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132 or books of account, other documents or any assets requisitioned under section 132A, after the 30th day of June, 1995, but before the 1st day of January, 1997; or (ba) an order passed by an Assessing Officer under sub-section (1) of section 115VZC; or (c) an order passed by a Commissioner under section 12AA or under clause (vi) of sub-section (5) of section 80G or under section 263 or under section 271 or under section 272A or an order passed by him under section 154 amending his order under section 263 or an order passed by a Chief Commissioner or a Director General or a Director under section 272A. " An appeal before the High Court would lie on a substantial question of law as provided for under Section 260A of the Act. 22. We may, at this juncture, also notice the CBDT circular issued on 3.7.2001 vesting powers on different Commissioners; Item 27 whereof confers power in the Commissioner of Income-tax, Delhi-VII, Delhi to exercise jurisdiction in respect of offices of the Income Tax Assessing Officer situate at Civil Lines (No. 114). 23. Before, however, adverting to the jurisdictional issue raised by the Assessee herein, we may consider the jurisdiction of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t closure of almost each of the three units in the 4th or 5th year when they were yielding peak profits. The Unit No. 1 and Unit 2 were closed following a surprise survey u/s 133A which revealed that there was little industrial activity in the premises at Parwanoo. It was with a view to avoid the embarrassing situation of defending the indefensible that the assessee deemed it fit to show these units as having been closed before the date of Survey in the accounting period relevant to A.Y. 2000-01." It was held: 16. I have carefully considered the written submission of the assessee and these are not acceptable as being incorrect. In view of the above, I am of the view that the Assessing Officer has acted not only erroneously, but also in a manner prejudicial to the interest of revenue by allowing the deduction u/s 80IB in the assessment order dated 19.12.2002 where he had brought substantial amount of evidence against it on record and proved beyond all reasonable doubts that the assessee had falsely made claim of heavy deductions knowing fully well: that its activities/operations did not amount to manufacturing; that the manufacturing, if any, was not carried with the aid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milarly, the other discrepancies sought to be pointed out by the learned CIT in his impugned order were duly explained on behalf of the assessee firm leaving no error in the order of assessment passed by the Assessing Officer u/s 143(3). For instance, the lower claim of the assessee for depreciation in the year under consideration was based on straight line method followed by the assessee and since the same method followed consistently in the preceding years was accepted by the Department, the order of the Assessing Officer accepting the same even in the year under consideration as per rule of consistency could not be held to be erroneous. In any case, the entire income of the assessee being deductible u/s 80IA, the lower claim of depreciation was not causing any prejudice to the interest of Revenue at least in the year under consideration and the apprehension of the learned CIT about such prejudice which may be caused to the Revenue in the subsequent years was based on assumptions and surmises depending on ultimate eventualities like the one happened in the present case when the units were finally closed down by the assessee after five years. Even the other discrepancies pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove discussion and interpretation is that the bar of limitation contained in Sections 149 and 153 (2) will not be lifted, if the order or the finding or the direction of the appellate or the revisional authority, pertain to an assessment year other than the assessment year, which was the subject matter of the appellate or revisional proceedings, unless the case is covered by Explanations 2 and 3 to Section 153. In other words, the Revenue cannot successfully press into service the provisions of Sections 150(1) and 153(2) lifting the bar of limitation in cases where the order of revisional or appellate authority relates to assessment year (s) other than the assessment year(s) to which the appeal or revision pertained." In regard to the validity of the notices under Section 148 of the Act, it was opined that they were not saved from the limitation under the exclusionary provisions of Sections 150(1) and 153(3)(ii) of the Act. It was directed: "41. Before parting with the judgment, we feel that is desirable and in the public interests that the Chief Vigilance Commissioner is approached by the Appointing Authority of the Commissioner of Income Tax, who interfered in the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the assessing officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue." (emphasis supplied) The principle laid down therein was followed in Commissioner of Income-Tax vs. Max India Ltd. [(2007) 295 ITR 282 (SC)], stating: "In our view at the relevant time two views were possible on the word "profits" in the proviso to Section 80HHC(3). It is true that vide the 2005 amendment the law has been clarified with retrospective effect by insertion of the word "loss" in the new proviso. We express no opinion on the scope of the said amendment of 2005. Suffice it to state that in this particular case when the order of the Commissioner was passed under Section 263 of the Income Tax Act, 1961, two views on the said word "profits" existed." Referring to Malabar Industrial Co. Ltd. (supra), it was observed: "Every loss of revenue as a consequence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken." The aforementioned provision although appears to be of a very wide amplitude, but would not mean that recourse to reopening of the proceedings in terms of Sections 147 and 148 of the Act can be initiated at any point of time whatsoever. Such a proceeding can be initiated only within the period of limitation prescribed therefor as contained in Section 149 of the Act. Section 150 (1) of the Act is an exception to the aforementioned provision. It brings within its ambit only such cases where reopening of the proceedings may be necessary to comply with an order of the higher authority. For the said purpose, the records of the proceedings must be before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may be, and to any direction given by the said authority to effectuate its finding and that the said finding or direction may be in respect of any year or any person. As the phraseology used in the proviso is not clear or unambiguous, the question raised cannot be satisfactorily resolved without having a precise appreciation of a brief history of section 34 of the Act culminating in the enactment of the proviso in the present form." This Court noticed the development of law as also the fact that the decision of the Income-Tax Officer given in a particular year does not operate as res judicata to opine: "The lifting of the ban was only to give effect to the orders that may be made by the appellate, revisional or reviewing tribunal within the scope of its jurisdiction. If the intention was to remove the period of limitation in respect of any assessment against any person, the proviso would not have been added as a proviso to sub-section (3) of section 34, which deals with completion of an assessment, but would have been added to sub- section (1) thereof." In regard to the question that what would be the meaning of the term `finding' or `direction', it was held: "A "finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... look also at that part of the enactment which has been held to be invalid. " To the similar effect are the decisions of this Court in N. KT. Sivalingam Chettiar vs. Commissioner of Income-Tax, Madras [66 ITR 586 (SC)] and Rajinder Nath vs. Commissioner of Income-Tax, Delhi [120 ITR 14 (SC)]. In N.KT. Sivalingam Chettiar (supra), this Court held: "Counsel for the commissioner contends that the principle of Murlidhar Bhagwan Das's case does not govern the present case, because in that case proceedings for assessment were commenced in consequence of or to give effect to an express direction of the Appellate Assistant Commissioner and it was held by this court that a direction not necessary for the disposal of the appeal in respect of the assessment of the year in question before him was inoperative to remove the bar of limitation. Counsel says that, where a mere finding in recorded by the appellate or revisional authority different considerations arise and the bar of limitation prescribed by section 34 would be removed if a proceeding be commenced for assessment in consequence of or to give effect to the finding. This argument has, in our judgment, no force. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority or court. It must also be a direction which the authority or court is empowered to give while deciding the case before it. The expressions "finding" and "direction" in Section 153(3)(ii) of the Act must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or court. It is a provision which merely raises the bar of limitation of making an assessment order under Section 143 or Section 144 or Section 147. Income Tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das 52 I.T.R. 335 and N. Kt. Sivalingam Chettiar v. Commissioner of Income-tax, Madras 66 I.T.R. 586 (S.C.). The question formulated by the Tribunal raises the point whether the Appellate Assistant Commissioner could convert the provisions of Section 147(1) into those of Section 153(3)(ii) of the Act. in view of Section 153(3)(ii) dealing with limitation merely, it is not easy to appreciate the relevance or validity of the point." It is, thus, evident that jurisdiction to issue directions is limited. 31. We may now consider the effect of the `Noting'. The Noting of the Assessing Officer was specific. It was stated so in the proceedings sheet at the insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue or the initiation of proceedings for the imposition of penalties. In our view, the High Court was not justified in reading the circular as not complying with the provisions of Section 119. The circular falls well within the parameters of the powers exercisable by CBDT under Section 119 of the Act.' 27. Lastly, the binding effect of the said circular No. 16/98 needs to be kept in mind. As stated above, the said circular was issued by the Board by exercising statutory powers vested in it under Section 3(1A). As stated above, Section 3(1A) provides for an enabling power of the Board which was recognized as an Authority under the 1963 Act. The said power was to be exercised in special cases. As stated above, granting of administrative reliefs by the Board came within its authority. As stated above, the said circular was issued for just and fair administration of the 1963 Act. As stated above, Section 3(1A) is similar to Section 119(1) of the 1961 Act. The circulars of this nature are issued by the Board consisting of highest senior officers in the Revenue Department. These circulars are to be respected by the officers working under the supervision of the Board. These circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the actings and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself." {See also Pancham Chand Ors. vs. State of Himachal Pradesh Ors.[(2008) 7 SCC 117] Yet again in The Purtabpur Company Ltd. vs. Cane Commissioner of Bihar [AIR 1970 SC 1896], this Court held: "...The power exercisable by the Cane Commissioner under Clause 6(1) is a statutory power. He alone could have exercised that power. While exercising that power he cannot abdicate his responsibility in favour of anyone - not even in favour of the State Government or the Chief Minister. It was not proper for the Chief Minister to have interfered with the functions of the Cane Commissioner. In this case what has happened is that the power of the Cane Commissioner has been exercised by the Chief Minister, an authority not recognised by Clause (6) read with Clause (11) but the responsibility for making those orders was asked to be taken by the Cane Commissioner. 14. The executive officers entrusted with statutory discre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... future in respect of a person whose name is specified in the order or direction passed under Section 127 of the Act and this would apply to any previous year. 13. The order passed under Section 127(2) of the Act clearly relates to the 'case' of the assessed mentioned in the Schedule, and by virtue of the Explanationn, all future proceedings that may be taken under the Act (obviously including an appeal under Section 260A thereof) would now have to be in harmony with the order passed under Section 127(2) of the Act. Consequently, the jurisdiction in respect of the 'case' and the assessed having been shifted from Lucknow to Delhi, the Revenue could file the appeal under Section 260A of the Act only in Delhi and it could not have filed an appeal in the Lucknow Bench of the Allahabad High Court." Yet again in Commissioner of Income-Tax, West Bengal Anr. vs. Anil Kumar Roy Chowdhury Anr. [66 ITR 367 (SC)] this Court opined: "It may be that the Income-tax Officer who completed the original assessment would also be concerned with the appeal to be filed by the Commissioner, but it does not mean that he is exclusively so concerned. If the case had been transferred by the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to this principle are: i) where the Statute prescribing the procedure, also prescribes specifically the consequence of non-compliance; ii) where the procedural defect is not rectified even after it is pointed out and due opportunity is given for rectifying it; iii) where the non-compliance or violation is proved to be deliberate or mischievous; iv) where the rectification of defect would affect the case on merits or will affect the jurisdiction of the court; v) in case of Memorandum of Appeal, there is complete absence of authority and the appeal is presented without the knowledge, consent and authority of the appellant;" It was a case where the Assessing Officer before whom the case was transferred completed the proceedings. It was in the aforementioned context it was opined that new Assessing Officer assumes jurisdiction exclusively in completing the proceedings. Such is not the case here. 34. In this case, CIT (Shimla) had passed an order. His order was set aside by the Tribunal. He, therefore, in ordinary course could have preferred an appeal only by the time when administrative decision could be taken by him to prefer an appeal. The right to prefer an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, ...strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties. " Though in the aforementioned decision these observations were made since the defendants before raising the objection to the territorial jurisdiction had admitted that the court had the jurisdiction, the force of this decision cannot be ignored and it has to be held that such a decree would continue to be a nullity." 19. A distinction, however, must be made between a jurisdiction with regard to subject matter of the suit and that of territorial and pecuniary jurisdiction. Whereas in the case falling within the former category the judgment would be a nullity, in the latter it would not be..." 35. This case poses before us some peculiar questions. Whereas the order under Section 263 of the Act and consequently the notices under Section 148 of the Act have been held to be not maintainable, we are constrained to think that the Assessing Officer had passed an order at the instance of the higher ..... X X X X Extracts X X X X X X X X Extracts X X X X
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