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TMI Blog2004 (9) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... this case, the facts were that during the course of action under section 132 of the IT Act in the case of M/s. Electrotherm India Ltd., it was found that the assessee's purchases from certain concerns were not genuine. Accordingly, action under section 158BD of the Act r.w.s. 158BC have been initiated in those cases. Against the additions made during the course of proceedings under section 158BD of the Act, the issue came for consideration before the Hon'ble ITAT. Considering the direction of the ITAT mentioned above, the regular assessment were reopened. But during the course of re-opened assessment proceedings, the assessee brought to the notice of the department that in view of the amendment made to section 158B(b) of the Act effective from 1-7-1995, the proceedings initiated are not proper and just. 3. As per the amendment made by the Finance Act, 2002, to section 158B, the definition of "undisclosed income" is reproduced as under: 158B(b): "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectify a mistake apparent from record even though it is found in an order finally disposing of these appeals. He further submitted that 'any order' in section 254(2) of the IT Act includes a final order disposing of an appeal. If there is a mistake apparent from record even though it is found in an order finally disposing of an appeal, the Tribunal would have the power to rectify it under section 254(2). The ld. DR in support of his contention relied upon the decision of Calcutta High Court in the case of CIT v. Kelvin Jute Co. Ltd. [1980] 126 ITR 679. 5. The ld. DR submitted that the amendment which came into operation later must in view of the retrospective operation be deemed to be then extent, and the Tribunal did not take note of the law deemed to be in force must be regarded as defective and such order is subject to rectification under section 254(2). The Tribunal is competent to rectify the mistake under section 254(2). The ld. DR in support of his contention relied upon the decision of Apex Court in the case of S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149. 6. The ld. AR submitted that the Tribunal has decided these appeals after considering all the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to rectifying any mistake apparent from the record, amend any order passed by it under subsection (1), and shall make such amendment if the mistake is brought to its notice by the assessee or Assessing Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard. (Provided further that any application filed by the assessee in this sub-section on or after the first day of October, 1998 shall be accompanies by a fee of fifty rupees.)" On reading of above section, we find that there are two important aspects in the section which are to be examined with the facts of the case under consideration, firstly there is mistake apparent from record and secondly there should be the order of ITAT whether retrospective amendment amount to apparent mistake from the record. The Apex Court in the case of M.K. Venkatachalam, ITO v. Bombay Dyeing Mfg. Co. Ltd [1958] 34 ITR 143 held that the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dl. ITO, Bapatla, the High Court of Andhra has taken the same view." On the basis of the above ruling, we examine of cases under consideration. For this purpose we would like to refer the relevant original provisions and amended provisions, which read as under: "158B(b): "Undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act (or any expense, deduction or allowance claimed under this Act which is found to be, false.)" The underlined portion of the section has been inserted by the Finance Act, 2002 w.e.f. 1-7-1995. The ITAT keeping in view the relevant provisions and passed the order. The relevant portion of the order reads as under: "We have considered the rival submissions and have also gone through the order passed by the Assessing Officer as well as the decision of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from residence of Shri Shailesh B. Bhandari. (b) Pages 84, 85 and 86 of A-47 as seized from the business premises of Shri Pukhraj B. Shah. (c) Pages 14 to 57 of loose paper files A-3 as seized from business premises of Pukhraj B. Shah. The details of transactions as recorded in these sized documents prove that the assessee had made bogus purchases as discussed earlier in paras (a), (b) and (c) on pages 50 to 53 of this order. The scheme of making bogus purchases and utilization of fund siphoned off of the assessee-company through bogus purchases have been shown in following scheme of diagram. The main reason for making the additions were that though the payments to the above parties had been made through cheques whereabouts of some of them were not available even after detailed enquiries and it was found that the bank accounts where the cheques had been deposited had been introduced by associates of the company. In fact, it appeared that Shri Pukhraj B. Shah was the main person behind these transactions. The most important reason for disallowing these bogus purchases was that the consumption of materials out of alleged purchases could not be proved by the assessee. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee from pages 53 to 79 the findings of the Assessing Officer in this issue had been extracted. So also, the ld. DR submitted that it is established legal position that onus lay on the assessee to establish any claim of expenses and hence, whether or not seized papers were written by Shri Bhandari is irrelevant, inasmuch as, in the course of assessment proceedings assessee totally failed to establish that such purchases were genuine purchases and goods were actually received and went into production process for which such deduction had been claimed. Further, it is a settled position of law that the Assessing Officer can make his own enquiries and the only requirement is that result of such enquiries were to be communicated to the assessee before utilizing the same against the assessee and the same had been clearly done as has been discussed in the assessment order. The reliance placed by the assessee on various decisions as noted in written submissions are totally misplaced in the facts and circumstances of the case. The ld. DR referred to the following judicial decision in the matter of burden of proof: (i) In order to claim that an expenditure falls under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed along with the returns. The alleged bogus parties to whom some of the payments were yet to be made were shown as sundry creditors for goods in the balance sheets of the relevant assessment years. In this view of the matter, even if the Assessing Officer do not believe the genuineness of the purchases, the additions could have been made only in the course of regular assessment proceedings and not in the block assessment proceedings in view of the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper Board Ltd." On reading of above order, we find that the Tribunal was of the view that such addition can be made in the course of regular assessment proceedings and not in the block assessment proceedings in view of the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper Board Ltd. Now the provision has been amended, according to which such addition can be made in the block assessment. For this principle, the ld. representatives of the parties have not much contrarily argued in this respect. Under the circumstances, in principle it is admitted fact that after amendment such additions can be made even in the block assessment. If these provisions hap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re such orders followed that decision of ITAT is not subject to verification under section 254(2) of the IT Act. In short the controversy raised by the ld. AR is whether under the circumstances of the case the order of the Tribunal has been merged with the order of the High Court or Supreme Court order? The relevant provisions in IT Act are provided in sections 254(4) and 260(A) which reads as under: "254(4): Save as provided in section 256 (or section 260A), orders passed by the Appellate Tribunal on appeal shall be final." "260A: An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law." Keeping in view the above provisions of IT Act, we would like to discuss some judicial pronouncements in this regard as under: "In Gojer Brothers (P.) Ltd v. Shri Rattan Lai Singh AIR 1974 SC 1380, this court made it clear that so far as merger is concerned on principle there is no distinction between an order of reversal or modification or an order of confirmation passed by the appellate authority; in all the three cases the order passed by the lower authority sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The application of wrong statutory provisions is a mistake apparent on the face of the record. But fortunately for the assessee the ITO discovered the mistake too late. He discovered it after an appeal had been taken from his original assessment order and decided by the AAC. It is the order of the AAC dated 23rd January, 1968, which is the determining factor in the matter of jurisdiction of the ITO. After this order he did not have any jurisdiction to act under section 154." 2. Rajputana Mining Agencies v. ITO [1979] 118 ITR 585 (Raj.) "The question which, therefore, arises in these two writ petitions, is as to whether the ITO was authorized to make a rectification of an error which is said to have been committed by the AAC in directing the grossing up of the dividend income of these two petitioners. In CIT v. Rao Thakur Narayan Singh [1965] 56 ITR 234, it was held by their Lordships of the Supreme Court that it was not the intention of the Legislature to enable the ITO to reopen final decisions made against the revenue in respect of questions that directly arose for decision in earlier proceedings and were finally decided by the Tribunal. Their Lordships of the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) That as the entire order of penalty levied by the ITO was the subject-matter of an appeal before the AAC, the order of the ITO got merged in the order of the AAC. Further, the question as to whether the order of penalty made by the ITO merged with the order of the AAC and the ITO had no power to rectify his earlier order was a pure question of law and hence the Tribunal was right in upholding the order of the AAC on a ground not raised before it. The ITO could not pass an order of rectification and enhance the penalty." With the above legal background, now we will examine the facts of the case under consideration. The revenue has preferred appeals before the Hon'ble High Court against the order of ITAT with following grounds of appeal: "Being aggrieved and dissatisfied by the order dated 20-12-2000 passed by the Income-tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad, the appellant begs to prefer this appeal on the following amongst other grounds (reproduced from Electropack): (A) That the Appellate Tribunal has erred in law and on facts in deleting the addition of Rs. 85,08,522 made as bogus purchases even though the parties from whom the purchases are made were fictit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt from that the said decision will against the disciplinary principles of propriety in the hierarchy of justice delivery system. In the light of the above discussion the Miscellaneous Applications are dismissed. Shri T.K. Sharma, Judicial Member.- I have carefully gone through the order proposed by the learned Accountant Member, Brother, on the issue involved in these misc. applications. I also have the benefit of discussion with my learned Brother in an endeavour to arrive at an agreed order. But I am unable to persuade myself to concur with his conclusion. 2. The Tribunal decided the three appeals and deleted the addition made on account of bogus purchases on the ground that alleged bogus purchases were shown in statement of trading account and profit and loss account filed with the return and if Assessing Officer do not believe the genuineness of the purchases, the addition could be made only during the course of regular proceeding and not in block assessment proceeding in view of decision of Hon'ble Gujarat High Court in the case of N.R. Paper Board Ltd. It is pertinent to note that no excess stock was found in case of all the three assessees unlike it was found in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the three assessees, be restored because the addition for the block assessment period was proper and just, in view of amendment made by Finance Act, 2002 to section 158B w.r.e.f. 1-7-1995. The counsel of the assessee objected to the same on the ground that in respect of M/s. Electropack, revenue filed an appeal under section 260A of I.T. Act, 1961 before Hon'ble Gujarat High Court and same was dismissed vide order dated 9-7-2001 in Tax appeal No. 176 of 2001. The ld. counsel of the assessee further submitted that in case of Megnatherm and M/s. Connection, also the Revenue's appeals were dismissed by Hon'ble Gujarat High Court vide judgment dated 3-9-2001 in Tax appeal Nos. 241 240 of 2001. According to ld. counsel of the assessee, the decision of Tribunal in all the three cases is merged with the order of Hon'ble Gujarat High Court. Therefore, Tribunal has no power to rectify the mistake pointed out by the revenue in these three misc. applications. In reply the ld. DR. submitted that Hon'ble Gujarat High Court in all the three cases, refused to assume jurisdiction to exercise its powers under section 260A of the I.T. Act meaning thereby that High Court was not satisfied that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the appeal to the High Court was at no stage even pending. Therefore, there cannot be any merger. 8. The right of appeal is a statutory right which has to be given in a statute. That being so that appeal and its result are subject to the statute which gives that right. Therefore, the language in section 260A of the IT. Act is the governing factor. As pointed out above, the appeal will lie only if the High Court is satisfied that there is a substantial question of law and since the High Court is not satisfied that there is a substantial question of law it is as if the appeal did not lie at all. Particularly in the last mentioned case of Amritlal Bhogilal Co. decided by the Supreme Court it has been observed by their Lordships at page 140 has inter alia as follows:- "There can be no doubt that even on the theory of merger the pendency of an appeal may put the order under appeal in jeopardy but until the appeal is finally disposed of the said order subsists and is effective in law. It cannot be urged that the mere pendency of an appeal has the effect of suspending the operation of the order under appeal." 9. The counsel of the assessee heavily relied on the judgment of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDER UNDER SECTION 255(4) OF THE I.T. ACT As there is a difference of opinion between the Members of the Bench, who heard these misc. applications, the following point of difference, common for all the misc. applications, is referred to the Hon'ble President, IT AT for the opinion of the Third Member: "Whether on the facts and circumstances of the case, the order of Tribunal is merged with the order of Hon'ble Gujarat High Court dismissing the appeal of the Revenue on the ground that no substantial question of law arises in the appeals of the Revenue?" ORDER THIRD MEMBER Per Shri R.P. Garg, Vice President.- These Misc. Applications are arising out of orders passed in IT(SS) Nos. 24,26,27/Ahd./1998 dated 20-12-2002. One of the questions involved in the main appeal was regarding the contentions of different amounts in three cases on account of alleged bogus purchases. The Tribunal vide paragraph-8 of its order, deleted the addition on merits by following the decision of the Tribunal in the case of M/s. Electrotherm India Ltd., vide order dated 29-12-1998 in ITA No. 38/Ahd./1997, quoting paragraph Nos. 13 to 15 of that order. The paragraph-15 being the concluding portion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income" includes any money, bullion, jewellery or other valuable articles or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable articles, thing, entry in the books of account or other document or transaction represents wholly or partly income or other property which has not been or would not have been disclosed in the purpose of this* [or any expense, deduction or allowance claimed under this Act which is found to be false]." *Inserted by Finance Act, 2002 with retrospective effect from 1-7-1995. 5. Based on this amendment, the Revenue made an application for rectification submitting that the order of the Tribunal stating that the order of the Tribunal holding that addition on account of genuine purchases could have been made in the course of regular proceedings and not in the block proceedings, in view of the decision of Gujarat High Court in the case of N.R. Paper and Board Ltd. suffers from a mistake apparent on the face of the record. 6. In the meantime, the Revenue carried the matter to the High Court under section 260A of the Act and the High Court rejected the appeal by ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court in the case of Kunhayammed decision in the case of S. Shanmugavel Nadar v. State of Tamil Nadu [2003] 263 ITR 658. The gist of the submissions of the learned DR is that the High Court having refused to admit the appeal and assume the jurisdiction to exercise its power under section 260A, cannot mean that it has upheld the order of the Tribunal, whereby it could be said that the order of the Tribunal gets merged in the order of the High Court. 10. The learned counsel for the assessee, Shri S.N. Soparkar, on the other hand, submitted that the Tribunal had decided the appeal on merits in paragraph 8 and alternative findings has been given in paragraph 8 stating that the genuineness of purchases can be agitated only in regular assessment. In paragraph-9 of the order, according to him, therefore, the decision of the case merits remains and this difference of academic exercise and in either of the situations, the Tribunal's order cannot be rectified. As regards merger, he submitted that the issue in the decisions of Kunhayammed's case and S. Shanmugavel Nadar's case are the cases where the doctrine of merger has been discussed with regard to Special Leave Petition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the aforesaid provisions, it is clear that an appeal lies to the High Court only when there is a substantial question of law is involved. In an appeal filed by the party, when the High Court dismiss the same by stating that no substantial question of law arises, it cannot, in our opinion, be said that it was a decision of the High Court on merits. What the High Court can be said to have observed is that they declined to entertain/admit the appeal in the absence of any substantial question of law, which is pre-requisite for assuming the jurisdiction of the High Court. If there is no substantial question of law, in the opinion of the High Court, then by virtue of provision of sub-section (1) of section 260A, there lies no appeal. 13. In the case of Kunhayammed the facts are there was a large family consisting of 71 members who raised a dispute before the Forest Tribunal, with regard to the land to the tune of 1,020 acres. By order dated 11-8-1982, the Tribunal held that the land did not vest in the Government. The appeal before the High Court of Kerala, was dismissed on 17-12-1982 by an elaborate order. There was no statutory remedy of appeal, revision or review against the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P and post-leave stage and opined the legal position as under: (i) While hearing the petition for special leave to appeal, the court is called upon to see whether the petition should be granted such leave or not. While hearing such petition, the court is not exercising its appellate jurisdiction, it is merely exercising its discretionary jurisdiction to grant or not to grant leave to appeal. The petitioner is still outside the gate of entry though aspiring to enter the appellate arena of the Supreme Court. Whether he enters or not would depend on the fate of his petition for special leave; (ii) If the petition seeking grant of leave to appeal is dismissed, it is an expression of opinion by the court that a case for invoking the appellate jurisdiction of the court was not made out; (iii) If leave to appeal is granted the appellate jurisdiction of the court stands invoked; the gate for entry in the appellate arena is opened. The petitioner is in and the respondent may also be called upon to face him, though in an appropriate case, in spite of having granted leave to appeal, the court may dismiss the appeal without noticing the respondent. (iv) In spite of a petition for speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court may apply its mind to the merit worthiness of the petitioner's prayer seeking leave to appeal and having formed an opinion may say "dismissed on the merits". Such an order may be passed even in the absence of the opposite party. The dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the petition for special leave to appeal. Even if the merits have been gone into they are the merits of the special leave petition only. Neither the doctrine of merger nor article 141 is attracted such an order. 19. In spite of a petition for special leave to appeal having been filed, the judgment, decree or order against which leave to appeal has been sought for, continues to be final, effective and binding as between the parties. If at the stage when special leave is granted the respondent/caveator appears and resists the grant of special leave and the ground urged in support of resisting the grant of special leave is rejected on the merits resulting in the grant of special leave, then it would not be open to the respondent to raise the same point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Full Bench to reconsider that decision. On appeal, the Supreme Court held that reversing that decision of the Full Bench of the High Court, that the Supreme Court had dismissed the appeals from the decision of the Madras High Court in Varadaraja Pillai's case [1972] 85 Mad. LW 760 only on a technical ground without any law being laid down by the Supreme Court. Neither the merits of the judgment in Varadaraja Pillai's case nor the reasons recorded therein were gone into by the Supreme Court. The Full Bench of the Madras High Court was fully entitled to go into the merits and decide all controversies and was not to feel inhibited by the fact that the appeals against the decision in Varadaraja Pillai case were dismissed by the Supreme Court. 22. The decision in Gojer Bros. (P.) Ltd.'s case relied upon by the counsel has been considered by the Supreme Court in the case of Kunhayammed. The following observations of the Court were brought to our notice by the learned counsel: 11. The juristic justification of the doctrine of merger may be sought in the principle that there cannot be, at one and the same time, more than one operative order governing the same subject-matter. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect: "When the Munsif passed the decree it was open to the plaintiff or the defendant to accept that decree or to appeal. If an appeal is preferred, the final decree is the decree of the appellate Court of final jurisdiction. When that decree is passed, it is that decree and only that which can be made final in the cause between the parties". Thus, when the decree of the Court of first instance is confirmed by the High Court and the latter decree is confirmed by the Privy Council the decree capable of execution is the decree of the Privy Council (Bhup Indar v. Bijai, [1900] 27 LA 209: ILR 23 All 152: 5 CWN 52). In that case the decree passed by a District Judge in 1887 awarded "future mesne profits" to the plaintiff. That decree was reversed by the High Court but was confirmed by the Privy Council on May 11, 1895. When the matter came back in executive proceedings the Privy Council held that the decree which the courts had to execute was the one passed by it in 1895 and since by that decree the District Judge's decree was confirmed, the decree of 1985 clearly carried the means profit up to its own date. 19. The fundamental reason of the rule that where there has been an appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al decree will be inexecutable." This conclusion is clearly opposed to the view taken by this Court in the decisions referred to above and the learned Judge was in error in making a distinction between an appellate judgment whereby an appeal is dismissed and an appellate judgment modifying or reversing the decree of the lower court. This distinction is unsound and is based on no discernible principle. 33. In the instant case, the subject-matter of the suit and the subject-matter of the appeal are identical. The entire decree of the trial court was taken in appeal to the first appellate court and then to the High Court. The appellate order also shows that the appeal after being heard on merits, was dismissed with the modification that the respondents should vacate the premises by the end of January, 1970. The decree of the High Court dated January 8, 1969, reads thus: It is ordered and decree that the decree of the court of appeal below be and same is hereby affirmed and this appeal dismissed subject to this that the defendant appellate, having duly filed the stipulated undertaking, through his learned Advocate, is allowed time till the end of January, 1970, for vacating the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preceding articles, jurisdiction conferred by article 136 is available to be exercised in an appropriate case. It is an untrammelled reservoir of power incapable of being confined to definitional bounds. The discretion conferred on the Supreme Court being subjected to only one limitation, that is, the wisdom and good sense or sense of justice of the judges. While hearing the petition for special leave to appeal, the Supreme Court is called upon to see whether the petitioner should be granted such leave or not. While hearing such petition, the Supreme Court does not exercise its appellate jurisdiction, it merely exercises its discretionary jurisdiction to grant or not to grant leave to appeal and if the petition seeking grant of special leave is dismissed, it is an expression of opinion by the Supreme Court that a case for invoking the appellate jurisdiction of the court was not made out. Similar is the situation in an appeal under section 260A wherein the High Court before admitting an appeal is to formulate a substantial question of law and prior to that stage if such an appeal is dismissed on account that no substantial question of law is involved in the appeal filed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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