CIT V. M/S JYOTI PRAKASH

ITA/129/2011

AI Insights

The case involves multiple appeals related to income tax assessments where the Tribunal had initially allowed a miscellaneous application filed by the assessee, leading to the recall of its earlier order. The Commissioner of Income Tax challenged this decision, arguing that the Tribunal erred in recalling the order without a clear error apparent on the face of the record. The High Court examined the powers of the Tribunal under Section 254(2) of the Income Tax Act, which allows for rectification of mistakes apparent from the record, and found that the Tribunal was justified in recalling the order to correct such mistakes.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 720194 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 26-05-2017
• Assessment Year: misc
• Other Referred Cases: The Income Tax Officer vs. M/s Gehna & Anr, Honda Siel Power Products Ltd. vs. Commissioner of Income Tax, Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd., Commissioner of Income Tax vs. Ramesh Chand Modi, Champa Lal Chopra vs. State of Raj., CIT v. Mithalal Ashok Kumar, CIT v. U. P. Shoe Industries
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: SANJAY JHANWAR
• Assessee Lawyers: K D MATHUR
• Keywords: Income Tax; Miscellaneous Application; Recall of order; Rectification
• Section: 254(2)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 129 / 2011 COMMISSIONER OF INCOME TAX, JAIPUR-II, JAIPUR. ----Appellant Versus M/S JYOTI PRAKASH MEEL & PARTY, 82, PRITHVI RAJ ROAD, C- SCHEME, JAIPUR. ----Respondent Connected With D.B. Income Tax Appeal No. 350 / 2011 Jyoti Prakash Meel & Party 82, Prithviraj Road, C-Scheme, Jaipur Through Its Member, Surjamal Meel S/o Danaram Aged 55 Years. ----Appellant Versus Dy. Assistant Commissioner of Income Tax, Circle, 6, Jaipur. ----Respondent D.B. Income Tax Appeal No. 351 / 2011 Jyoti Prakash Meel & Party 82, Prithviraj Road, C-Scheme, Jaipur Through Its Member, Surjamal Meel S/o Late Sh. Danaram Meel Aged 55 Years. ----Appellant Versus Dy. Assistant Commissioner of Income Tax,, Circle, 6, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur on behalf of Mr. R.B. Mathur respondent in appeal Nos.350/11 & 351/2011 For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana appellant in appeal Nos.350/2011 & 351/2011 _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE DR. JUSTICE VIRENDRA KUMAR MATHUR (2 of 12) [ITA-129/2011] Judgment Per Hon’ble Jhaveri, J. 26/05/2017 1. By way of these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the misc. application filed by the assessee. 2. This Court while admitting the appeal No.129/2011 on 30.04.2012 has framed the following substantial question of law: “Whether in the facts and circumstances of the case the ITAT has not acted perversely in allowing the Misc. application for rectification u/ 254(2) and recalling the order which was passed in detail and on merits?” 2.1 This Court while admitting the appeal No.350/2011 on 30.04.2012 has framed the following substantial question of law: “(i) in view of the settled principle that comparison can be only between equals and should not be with un-equals, whether learned tribunal was justified in estimating the profits of the appellant on the basis of the cases which were not similarly situated in terms as assessment years as well as excise policy? (ii) where the contracts are awarded on the basis of open tenders and the contract is awarded to the person keeping lowest profit margin whether the comparison of profits should be made on the basis of net profit earned by them or gross profit earned by the appellant?” 2.2 This Court while admitting the appeal No.351/2011 on 30.04.2012 has framed the following substantial question of law: (3 of 12) [ITA-129/2011] “(i) in view of the settled principle that comparison can be only between equals and should not be with un-equals, whether learned tribunal was justified in estimating the profits of the appellant on the basis of the cases which were not similarly situated in terms as assessment years as well as excise policy? (ii) where the contracts are awarded on the basis of open tenders and the contract is awarded to the person keeping lowest profit margin whether the comparison of profits should be made on the basis of net profit earned by them or gross profit earned by the appellant?” Income Tax Appeal No.129/2011 3. Counsel for the department has contended that the issue is squarely covered by the decision of this Court in the case of The Income Tax Officer vs. M/s Gehna & Anr in DB Civil Writ Petition No.26/2011 and other connected matter decided on 10.05.2017 which reads as under: “1. In all these cases, common question of law and facts are involved and they are decided by the common judgment of the tribunal, therefore they are decided by this common judgment. 2. By way of writ petitions, the department has challenged the judgment and order of the Tribunal whereby MA preferred by the assessee was allowed and judgment delivered by the tribunal was recalled. 3. Counsel for the petitioner has contended that tribunal has committed serious error in allowing MA and recalling the judgment to decide the matter afresh. Therefore, he contended that provisions of section 254 are required to be interpreted and only in case an error is apparent on the face of record the same should be considered. (4 of 12) [ITA-129/2011] 4. In that view of the matter, Mr. Mehta contended that view taken by the tribunal is required to be reversed and MA is liable to be dismissed as there is no error apparent on the face of record. 5. Counsel for the respondent Mr. Jhanwar contended that tribunal in para no.25, 26, 27 & 29 has observed as under:- “25. After going through all the records of the appeal files and records of Miscellaneous Application files, it is seen that during the appellate proceedings before the Tribunal at the time of hearing of appeals of the department and assessee, a detailed written submissions were filed before the Tribunal in support of the order of ld. CIT(A). Copy of the same is available in the record. Though the submissions of the ld. Counsel of the assessee have been stated in the order of the Tribunal dated 31.05.2007. however it is seen that while taking a view against the finding of ld. CIT (A), the finding of ld. CIT(A) has not been taken into consideration by the Tribunal as Tribunal in operative paras of its order has mentioned about the order of AO only. The assessment in this case was completed by the AO by rejecting the books of account in view of provisions of section 145(3) and thereafter the profit has been estimated on the basis of past history of the case. The ld. CIT(A) decided the appeal of the assessee and the ground against rejection of books of account and applying the g.p. rate on the basis of past history were allowed in favour of the assessee. While allowing the ground of the assessee, the ld. CIT(A) has given his findings in paras 5 to para 5.19 at pages 15 to 22. The brief facts of the case and submissions of the assessee and objection of AO have been considered by ld. CIT(A) at pages 2 to 15 of his order. The ld. CIT(A) has discussed the issue in detail that AO issued only notice under section 143(2) and no notice was issued under section 142(1) for calling upon the books of account. Provisions of section 142 and 143(2) have been discussed in detail by ld. CIT(A) and then by placing reliance on various case laws i.e. in case of P.S. Subramaniam Chettiar vs. JCTO 18 STC 357, in case of (5 of 12) [ITA-129/2011] Abdul Kayum and Co. vs. CIT 1 ITR 375, in case of Jyotram Shersing vs. CIT 2 ITR 129 (All.) and in case of Gunda Subbayya vs. CIT. 7 ITR 21 (Mad.) (Full Bench) held that AO has not followedb the proper procedure before invoking provisions of section 145(3) for the purpose of rejection of books of account. Therefore, it was held that the AO was not justified in rejecting the books of account and making the assessment on the basis of past history. Thereafter the Board’s circular no. 387 dated 6.7.1984 was also taken into consideration whereby it has been guided that in wake of the fact that the books of account were not in existence on the date of framing the assessment, the TAR (Tax Audit Report) assumes greater importance and rather becomes pivotal document and therefore, the tax audit report as guided by the CBDT Circular has to be taken into consideration. 26. Thereafter reliance has been placed on the decision of Hon’ble Delhi High Court in the case of Addl. CIT vs. Jay Engineering Works Ltd. 113 ITR 389 wherein it has been held that- “Where the books of account are examined and audited under statutory provisions and audit report is submitted thereabouts, reliance could be placed by the Income-tax Authorities on such a report treating the same as a material in case the books of account of the assessee were destroyed by fire, etc.” The ld. CIT(A) has also taken into consideration that the auditors have taken a note that there was no manufacturing during the yeard under consideration and no expenses have been claimed in the profit & Loss account on account of manufacturing of the jewellery Remand report was also sought from the AO and thereafter only the ld. CIT(A) had given a finding that rejection of books of account was not justified. Tribunal while rejecting the appeal of the assessee has not considered the detailed reasoning and submissions of the assessee. The Tribunal has mentioned in its order that the AO was right, correct etc. and thereafter the observations/view of the AO in rejecting the books of account have been (6 of 12) [ITA-129/2011] upheld. Neither the finding given by ld. CIT(A) that where books of accounts are rejected then for making assessment procedures laid down under provisions of section 144 has to be followed. The detailed written submissions were filed before Tribunal in support of the findings of the ld. CIT(A). Reliance was placed on various case laws i.e. ion case of EMC(Works) Pvt. Ltd. 49 ITR 650 in the case of Addl. CIT vs. Jay Engineering Works Ltd., 113 IR 389 and in the case of Godavari Devi Sarraf, 113 ITR 589 (Bombay). The binding circular of CBDT and the decision of the Tribunal on identical facts i.e. in case of ITO vs. Girish & Mehta. 99 TTJ 394 and the decision in the case of Pushpanjali Dying and Printing Mills (P) Ltd. vs. JCTT, 72 TTJ(Ahd.) 886 were relied upon. 27. After going through the order of Tribunal, we noticed that there is even no whisper in respect to these decisions relied upon by ld. Counsel of the assessee during the hearing of the appeal before the Tribunal. The statement of Shri A.K. Khandelwal, the auditor of the assessee was recorded by ld. CIT (A) under section 131. The AO was allowed cross examination. However, there is no whisper in the order of the Tribunal about these facts. The most vital facts which in our considered view remained to be unconsidered is that it was specifically mentioned before Tribunal in para 5 at page 9 of the written submission that the later development has to be considered by the Bench. Which is that on identical facts the assessment for assessment year 1999-2000 was completed by the AO under section 143(3). For this year also no books of account were produced as they were also destroyed in fire and the declared profit at 0.894% on the turnover of Rs. 15.70 crores or so was accepted. No comments have been given by the Tribunal in this respect. It is also a vital fact that during the year under consideration various parties sold their jewellery declared under VDIS Scheme 1997 and the same was seldom traded, therefore, there was no comparison of the cases for earlier year as no such purchases were made in earlier year. In earlier year (7 of 12) [ITA-129/2011] there was only small turnover whereas in the year under consideration turnover of the assessee was increased by many folds. This aspect is also not taken into consideration by the Tribunal while accepting the grounds of the department. It is further seen that for comparable cases and for applying g.p. rate the reliance was placed on the decisions i.e. in case of CIT vs. Eastern Enterprises, 210 ITR 103 (Cal.) and in case of UOI vs. Chiranji Estate Pvt. Ltd. 251 ITR 7(SC) and also in the case of R.B. Jassa Ram Fateh Sugar Department vs. CIT 75 ITR 33(Bom.) and in the case of C.M. Franss & Co. vs. CIT 77 ITR 449 (Ker.). However, there is no discussion about these cases in the order of Tribunal. 29. It means the order before the Tribunal was order of ld. CIT(A) and not the order of AO. As mentioned above, the Tribunal has not given any finding in respect to the finding of ld. CIT(A) which was given after taking into consideration various case laws. The order of ld. CIT(A) may be correct and order of the AO may be correct but while reversing the order of ld. CIT(A), in our considered view it is the duty of the Tribunal to controvert the finding of the authorities against which the appeal has been filed before it. We have gone through the order of Tribunal minutely and found no where the comments in respect to detailed finding given by ld. CIT(A). At one or two points the Tribunal has observed that ld. CIT(A) was not correct in holding that provisions of section 145(3) are not applicable. How the ld. CIT(A) is not correct, no finding has been given by the Tribunal. Regarding the g.p. rate also, the Tribunal has observed that order of the AO seems to be correct. However, regarding the finding of ld. CIT(A), the only observation that “the ld. CIT(A), in our considered view, was not justified in accepting the trading result declared by the assessee” How the trading result accepted by the ld. CIT(A) are not correct, no finding or discussion has been made by the Tribunal.” 6. In view of the above, he has specifically contended that on this ground (8 of 12) [ITA-129/2011] the order of the tribunal is not required to be recalled. 7. Counsel for the respondent Mr. Jhanwar has relied upon the decision of Supreme Court in Honda Siel Power Products Ltd. vs. Commissioner of Income Tax (2007) 295 ITR 466 (SC) and Assistant Commissioner, Income Tax, Rajkot Vs. :Saurashtra Kutch Stock Exchange Ltd. reported in 2008 (14) SCC 171 wherein Supreme Court held as under:- “13. \"Rule of precedent\" is an important aspect of legal certainty in rule of law. That principle is not obliterated by Section 254(2) of the Income Tax Act, 1961. When prejudice results from an order attributable to the Tribunals mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under Section 254(2) when it was pointed out to the Tribunal that the judgment of the co- ordinate Bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material, which was already on record. The Tribunal has acknowledged its mistake; it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order. We are not going by the doctrine or concept of inherent power. We are Simply proceeding on the basis that if prejudice had resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal would be justified in rectifying its mistake, which had been done in the present case.” 8. He has relied upon the judgment of Principal Set at Jodhpur in Commissioner of Income Tax vs. Ramesh Chand Modi (2001) 249 ITR 323 (Raj.) and other decision of this court in Champa Lal Chopra vs. State of Raj. (2002) 257 ITR 74 (Raj.) wherein it has been held as under:- (9 of 12) [ITA-129/2011] A reading of Sub-section (2) of Section 254 of the Act makes it clear that its scope and ambit is limited. It restricts to rectify the mistakes apparent from the record. Thus, in the normal course, the power of rectification cannot be extended for recalling the entire order, obviously it would mean passing of a fresh order. That does not appear to be the legislative intent. However, in agiven case where the factual mistake is so apparent that it becomes necessaryto correct the same, the Tribunal would be justified in not only correcting thesaid mistake by way of rectification but if the judgment has proceeded on thebasis of that fact, it would be justified in recalling such order and posting forhearing. 8. A Division Bench of the Madhya Pradesh High Court in CIT v. Mithalal Ashok Kumar MANU/MP/0063/1984 : [1986]158ITR755(MP) , the Tribunal found apparent mistake from the record in its order while deciding the question as to whether the firm was genuine or not, accordingly the rectification was granted. On a challenge by the Revenue, the Division Bench held that while considering the application for rectification, the provisions of Order 47, Rule 1 of the Civil Procedure Code, can be strictly applied. The judgment of the Madhya Pradesh High Court is based on the decisions of the apex court in K.M. Shanmugam v. S. R. V. S. (P.) Ltd. MANU/SC/0182/1963 : [1964]1SCR809 and Nagendra Nath Bora v. Commissioner of Hills Division MANU/SC/0101/1958 : [1958]1SCR1240 . The Division Bench confirmed the order of the Tribunal granting rectification, there being manifest error on the face of the proceedings. In a recent decision the Allahabad High Court in CIT v. U. P. Shoe Industries MANU/UP/0517/1997 : [1999]235ITR663(All) has taken the view that where there is apparent mistake from the record, the Tribunal has jurisdiction to rectify the mistake by recalling the entire order and posting for rehearing. Once the conclusion is reached that the Tribunal had power to rectify mistakes on the face of the record and that there (10 of 12) [ITA-129/2011] existed mistakes on the face of the record that the Tribunal has not dealt with the important issue arising in the case which goes to the root of the matter, the only consequential order of rectification that could be passed was to recall the earlier order and make a fresh order deciding the issue which was left undecided after hearing the parties on that issue. That undecided issue could not have been decided in favour or against any party without hearing them in that regard. The contention of learned counsel that there is no power to recall and substitute another order as a result of rectification because it amounts to review is not well founded. Once a mistake on the face of the record is established what order should follow to correct that mistake shall always depend on the facts and circumstances requiring to rectify the mistake. If the mistake is one which requires determination of some undecided issue because it has not been decided though raised, the procedure that would follow the discovery of such mistakes is to recall the order, and decide the case afresh or to decide that issue after affording an opportunity of hearing the parties concerned and pass a fresh order in the light of finding on such issue. The order under Section 254(2) is not confined to arithmetical or clerical mistake, nor only to correct substantive mistakes but also procedural mistakes. 8. The whole contention of learned counsel for the appellant is founded on the premise that recalling of the order for making a fresh order amounts to review and not rectification. While it is true that the power of rectification of an order is far narrower than the power to review gene-Tally, the methodology of rectifying the order when mistake apparent from the record is found, may to correct a mistake in the substantive aspect of the order as well as mistake in the procedural aspect of making order. Recalling of an order for correcting an apparent mistake in the procedural aspect cannot be equated with review. For illustration purposes, if from the record it appears that one of the parties has not at all been heard and the order has been made in breach of (11 of 12) [ITA-129/2011] the principles of natural justice going to root of the matter. The only appropriate method of correcting such mistake is to recall the order and make a fresh order after affording an opportunity of hearing to such party. So also when an order is made ex parte when a party absents himself on any date of hearing, if the party shows sufficient cause for his absence the court has power to make a fresh order after recalling the earlier order by affording a hearing to such party. Similarly, in the present case, where the Tribunal fails to decide some of the questions raised before it inadvertently or by oversight, adopting a similar course is the requirement of correcting such mistake. In all such cases, ordinarily the court or the Tribunal acts ex debito justitiae to prevent abuse of process, even in the absence of specific provision. 9. Taking into consideration, in our considered opinion, the grounds which are taken by the tribunal as reproduced herein above, the view taken by the tribunal is just and proper. 10. The writ petitions deserve to be dismissed and the same are dismissed. 11. In view of the decision of two writ petitions, the three appeals 27/2008, 26/2008 & 232/2011 have become academic. 12. The appeals stands disposed of.” 4. In that view of the matter, the issue is answered in favour of the assessee and against the department. The Tribunal will hear the matter afresh on merits in accordance with law. Income Tax Appeal Nos.350/2011 & 351/2011 5. In view of the order passed above in appeal No.129/2011, both these appeals have become of academic nature. (12 of 12) [ITA-129/2011] 6. The appeals stand disposed of with liberty to the parties to revive in case of difficulty. 7. A copy of this judgment be placed in each file. (VIRENDRA KUMAR MATHUR),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/82-84 "