M/S. DECIBELL COMPUTERS P. LTD, V. THE ITO WD 9(1)-3,

ITA 1704/MUM/2005

• Counselvise Citation: 170419914 RSA 2005
• Duration Of Justice: 7 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 03-03-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR SR
• Assessee Lawyers: HIRO RAI
• Keywords: Unexplained investment; Business income; Income from undisclosed sources; Opportunity of cross examination; Reasonable cause; Reassessment proceedings
• Section: 147; 148; 132; 10; 11; 15; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 1704/MUM/2005 ASSESSMENT YEAR 2001-02 M/S. DECIBELLS COMPUTERS PVT. LTD., 221/222, SOLARIS NO.1, B-WING, OPP: L&T GATE NO.6, SAKI VIHAR ROAD, POWAI, ANDHERI (E) MUMBAI 400 072 PAN: AAACD 3418L VS. THE INCOME TAX OFFICER, WARD 9(1)-3, AAYAKAR BHAVAN, 2 ND FLOOR, M.K. ROAD, MUMBAI 400 020 (APPELLANT) (RESPONDENT) ITA NO. 5980/MUM/2007 ASSESSMENT YEAR 1998-99 DECIBELLS COMPUTERS PVT. LTD., 221/222, SOLARIS NO.1, B WING, OPP: L&T GATE NO.6, SAKI VIHAR ROAD, POWAI, MUMBAI 400 072 PAN: AAACD 3418L VS. THE INCOME TAX OFFICER, CIR 8(1)(3), AAYKAR BHAVAN, 2 ND FLOOR, M.K. ROAD, MUMBAI 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HIRO RAI RESPONDENT BY : SHRI C.G.K. NAIR (SR.AR) DATE OF HEARING : 11-04-2012 DATE OF PRONOUNCEMENT : 02-05-2012 ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 2 ORDER PER RAJENDRA, A.M. APPELLANT HAS FILED 03 (THREE) GROUNDS OF APPEAL AG AINST THE ORDER DT. 14-12-2004 OF THE CIT(A). THE FOLLOWING ARE THE GROUNDS OF APPEAL: WHILE DECIDING THE APPEAL FOR THE A.Y. 2001-02, TH E LD. CIT(APPEALS) WAS NOT JUSTIFIED IN DIRECTING THE ASS ESSING OFFICER TO TAKE REMEDIAL ACTION FOR THE A.Y. 1998-99 BY INITIATING NECESSARY PROCEEDINGS U/S. 147 R.W.S. 148, R.W.S. 150(1) OF THE ACT. THE SAID ACTION OF THE LEARNED CIT (APPEALS) IS ILLEGAL, UNWARRANTED AND B EYOND HIS JURISDICTION. THE LEARNED CIT (APPEALS) WAS NOT JUSTIFIED IN HOL DING THAT AMOUNT OF ` 48,71,600/- WAS CHARGEABLE TO TAX U/S. 41(1) FOR T HE A.Y. 1998-99. THE REASONS GIVEN BY HIM FOR SOL HOLDING ARE INCORRECT. THE LEARNED CIT (APPEALS) HAS ERRED IN NOT PROPERL Y APPRECIATING THE WRITTEN SUBMISSIONS FILED BEFORE HIM VIDE LETTE R DT. 08-12-2004. WHAT HAS BEEN STATED THEREIN IS NOT WHAT HAS BEEN S AID TO BE STATED THEREIN BY THE LEARNED CIT (APPEALS). 2. FROM THE ABOVE GROUNDS OF APPEAL, IT TRANSPIRES THAT MAIN ISSUE IS DIRECTION GIVEN BY THE CIT(A) FOR INITIATING PRO CEEDINGS U/S.147R.W.S. 148,150 OF THE INCOME TAX ACT,1961(ACT) WITH REGARD TO ADDITION MADE BY THE ASSESSING OFFICER (AO) U/S. 41 OF THE ACT. BOTH THESE ISSUE ARE INTERLINKED. 3. THERE WAS DELAY OF 17 DAYS IN FILING THE APPEAL. AR OF THE APPELLANT SUBMITTED THAT BECAUSE OF UNAVOIDABLE CIR CUMSTANCES, FILE COULD NOT BE FILED IN TIME. WE HAVE PERUSED THE ME DICAL CERTIFICATE AND AFFIDAVIT FILED BY THE APPELLANT. WE ARE OF TH E OPINION THAT THE APPELLANT WAS PREVENTED BY A REASONABLE CAUSE. SO, DELAY IN FILING THE APPEAL IS CONDONED. 4. FACTS OF THE CASE ARE FOUND IN PARAGRAPH 3 OF TH E ORDER OF THE CIT(A ).- IN GROUND NOS.2 TO 5,THE APPELLANT HAD CONTESTED T HE ACTION OF THE AO HOLDING THAT AN AMOUNT OF ` 48,71,600/- APPEARING AS CREDIT IN THE ACCOUNTS OF THE APPELLANT COMPANY IN THE NAME OF M/ S. EVERBRIGHT TRADING & AGENCIES PVT. LTD., WAS NOT A GENUINE CRE DIT ENTRY IN AS MUCH AS NO LIABILITY OF THE APPELLANT COMPANY SUBSISTED AGAINST THE SAID CREDITOR AND, THEREFORE, THE IMPUGNED SUM WAS CHARG EABLE TO TAX AS INCOME OF THE APPELLANT COMPANY UNDER SECTION 41(1) OF THE ACT.A PERUSAL OF THE ASSESSMENT ORDER IN THIS RESPECT REV EALED THAT THE ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 3 ASSESSING OFFICER HAD ARRIVED AT THE SAID CONCLUSIO N ON THE BASIS OF INFORMATION GATHERED BY HIM UNDER SECTION 133(6) OF THE ACT. IN COMPLIANCE TO THE SAID NOTICE ISSUED BY THE ASSESSI NG OFFICER,THE ALLEGED CREDITOR EVERBRIGHT TRADING & AGENCIES PVT. LTD.,HAD INTIMATED THAT THERE WAS NO AMOUNT RECEIVABLE BY THE SAID CON CERN FROM THE APPELLANT COMPANY. FURTHER THAT IN THE FINANCIAL Y EARS 2001-02, AND 2002-03, THE APPELLANT COMPANY HAD SHOWN PAYMENTS O F AMOUNTS TOTALING TO ` 27,29,600/- FOR SETTLING THE SAID ACCOUNT. THE ASS ESSING OFFICER ON FURTHER VERIFICATION IN RESPECT OF THE S AID PAYMENTS, NOTICED THAT THE CHEQUES WHICH WERE CLAIMED TO HAVE BEEN IS SUED FOR SETTLING THE CREDITORS ACCOUNT WERE IN EFFECT ISSUED TO OTH ER PARTIES REFERRED TO IN PARA 2.2 OF THE ASSESSMENT ORDER AND NOT TO THE ALL EGED CREDITOR. 4.1.ON THAT BASIS, THE AO PROCEEDED TO HOLD THAT TH E CREDIT SHOWN BY THE APPELLANT COMPANY IN ITS BOOKS OF ACCOUNTS IN T HE NAME OF EVERBRIGHT TRADING & AGENCIES PVT. LTD.,WAS NOT A G ENUINE CREDIT AND THEREFORE, THE IMPUGNED SUM WAS CHARGEABLE TO TAX A S INCOME OF THE APPELLANT IN TERMS OF SECTION 41(1) OF THE ACT IN T HE YEAR UNDER CONSIDERATION. 5. APPELLANT PREFERRED APPEAL BEFORE THE CIT(A) AGA INST THE SAID ADDITIONS MADE BY THE A.O. AFTER CONSIDERING THE S UBMISSION MADE BY THE APPELLANT, CIT(A) DECIDED THE ISSUE IN THE FOLL OWING WORDS: IN THE CIRCUMSTANCES, THERE IS NO DISPUTE THAT WHAT EVER MAY BE THE REASON, M/S. EVERBRIGHT TRADING & AGENCIES P VT. LTD., HAD FOREGONE ITS CLAIM IN RESPECT OF THE LIABILITY OF T HE AMOUNT THAT IT WAS TO RECEIVE FROM THE APPELLANT COMPANY ON ACCOUNT OF SA LES MADE BY IT IN THE FINANCIAL YEAR 1997-98 RELEVANT TO THE ASSESSME NT YEAR 1998-99. THE MANNER OF FOREGOING THE CLAIM IN THE CIRCUMSTAN CE IS RATHER IMMATERIAL MORE SO, WHEN IT IN TURN DID NOT CREATE ANY LIABILITY OF THE APPELLANT TOWARDS M/S. VIDHI INDUSTRIES LTD., AGAIN ST WHICH THE AMOUNT WAS SETTLED. THEREFORE, IF AT ALL THERE IS A REMIS SION OF THE LIABILITY OF THE APPELLANT COMPANY THAT IS CHARGEABLE TO TAX IN TERM S OF SECTION 41(1) OF THE ACT, IT HAS TO BE IN THE ASSESSMENT YEAR 1998-9 9 TO WHICH THE FINANCIAL YEAR 1997-98 RELATES TO WHERE THE SUPPLIE R M/S. EVERBRIGHT TRADING & AGENCIES PVT. LTD., HAD MADE ADJUSTMENT I N ITS ACCOUNTS. THE EXISTENCE OF LIABILITY OR CESSATION THEREOF C AN BE ASCERTAINED ONLY BY EXAMINING THE CONDUCT OF THE CREDITOR AND N OT IN THE MANNER OF THE LIABILITY REFLECTED IN THE ACCOUNT OF THE DEBTO R, WHO GETS THE BENEFIT ON ACCOUNT OF THE REMISSION. IN THIS REGARD ALSO T HE DECISION OF THE APEX COURT IN THE CASE OF SUNGAULI SUGAR WORKS(P) LTD., RELIED UPON BY THE APPELLANTS REPRESENTATIVE IS RELEVANT.FURTHER, THE FACT OF THE APPELLANTS CLAIM OF HAVING INCURRED THE EXPENDITURE IN THE SUB SEQUENT ACCOUNT YEARS IS ALSO NOT MATERIAL TO THE ISSUE CONSIDERING THAT THE EXPENDITURE EVEN IF ESTABLISHED AS GENUINE IS ONLY AN INDICATOR OF THE APPELLANT HAVING DISCHARGED ITS OBLIGATION TOWARDS THE END US ER OF THE MACHINES BY RECTIFYING IT. IN THE ABSENCE OF ANY INDICATION OF THE APPELLANT HAVING ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 4 GOT THE WORK DONE AT THE INSTANCE OF THE CREDITOR, THE INCURRING OF THE EXPENDITURE AT A LATTER DATE DOES NOT IN ANY MANNER IS AN INDICATOR OF THE EXISTENCE OF THE LIABILITY OF PAYMENT TOWARDS M /S. EVERBRIGHT TRADING & AGENCIES (P) LTD., HOWEVER, SINCE THE PROVISIONS OF SECTION 41(1) MA KES IT ABSOLUTELY CLEAR THAT THE AMOUNT IS SUBJECTED TO TA X IN THE PREVIOUS YEAR WHERE THERE IS REMISSION, THE AMOUNT IN DISPUTE CAN BE SUBJECTED TO TAX IN THE ASSESSMENT YEAR 1998-99 ONLY AND NOT IN THE ASSESSMENT YEAR 2001-02 AS HAS BEEN DONE BY THE ASSESSING OFFICER. THEREFORE, THERE IS NO CASE FOR MAKING ADDITION OF THE IMPUGNED SUM OF ` 48,71,600/- TO TAX UNDER SECTION 41(1) OF THE ACT IN THE YEAR UNDE R CONSIDERATION CONSIDERING THE FACT THAT THIS AMOUNT IS LIABLE TO TAX IN THE ASSESSMENT YEAR 1998-99. THE ADDITION SO MADE IN THE ASSESSME NT ORDER UNDER APPEAL IS, THEREFORE, DELETED. THE ASSESSING OFFICER IS, HOWEVER, DIRECTED TO TAK E REMEDIAL ACTION IN THAT ASSESSMENT YEAR 1998-99 BY INITIATING NECESSARY PROCEEDINGS UNDER SECTION 147 READ WITH SECTION 148 READ WITH SECTION 150(1) OF THE ACT. THE APPEAL IN RESPECT OF GROUND NOS. 2 TO 5 IS THUS, DISPOSED OFF AS PARTLY ALLOWED. 6. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) SUB MITTED THAT THE CIT(A)WHILE DECIDING THE APPEAL FOR THE A.Y.2001-02 HAD NO JURISDICTION TO DIRECT THE AO TO REOPEN THE ASSESSM ENT FOR THE A.Y. 1998-99,THAT APPEALS WERE FILED FOR A PARTICULAR A. Y. AND AS PER PROVISIONS OF SECTION 150(1) OF THE ACT DIRECTION/F INDINGS BY HIGHER AUTHORITIES COULD BE GIVEN FOR THAT PARTICULAR YEAR ONLY,THAT THE ORDER OF THE CIT(A) WAS NOT VALID ON MERITS ALSO. HE RELI ED UPON 52 ITR 335(SC) AND 228 ITR 459(BOM). 7. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT CIT(A) HAD RIGHTLY SUGGESTED A REMEDIAL ACTION AND HE HAD THE JURISDICTION TO DO SO. HE ALSO REFERRED TO THE VARIOUS FACTS FOUND IN THE ORDERS OF AO AND THE CIT(A). 8. HERE WE WILL LIKE TO DISCUSS THE PROVISIONS OF S EC.150(1) R.W.S. 253(3)OF THE ACT, IN LIGHT OF THE MATTER OF MURALI DHAR BHAGWANDAS (52 ITR335).AS PER THE AR ABOVE REFERRED TWO JUDGEMENTS HAVE LAID GUIDELINE ABOUT POWERS AND LIMITATIONS OF THE APPEL LATE AUTHORITIES. HE SUBMITTED THAT APPELLATE AUTHORITIES CANNOT TRAVEL BEYOND A PARTICULAR ASSESSMENT YEAR WHILE DECIDING APPEALS I.E. THEY AR E BARRED TO PASS AN INSTRUCTION WITH REGARD TO EARLIER A SUBSEQUENT ASS ESSMENT YEARS WHILE DECIDING AN APPEAL OF A PARTICULAR YEAR. ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 5 8.1. WE HAVE PERUSED CITED BY THE AR. THERE IS NO DOUBT THAT IN THE CASE OF LOTUS INVESTMENTS HONBLE HIGH COURT IS REF ERRED TO THE DECISION OF MURALIDHAR BHAGAWANDAS, BUT IN THIS MAT TER ISSUE OF THE POWERS OF THE APPELLATE AUTHORITIES/THE JURISDICTIO N TO ISSUE INSTRUCTION FOR THE ASSESSMENT YEAR OTHER THAN THE ASSESSMENT YEAR IN QUESTION WAS NOT RAISED OR DECIDED. THE ISSUE DECID ED BY THE HONBLE HIGH COURT WAS WHETHER REMARKS THAT REASSESSMENT PROCEEDINGS COULD BE TAKEN WAS A FINDING OR DIRECTION WITHIN MEANING OF SECTI ON 150 OF THE ACT OR NOT? HONBLE COURT WAS OF THE OPINION TH AT SUCH GENERAL REMARKS CANNOT BE TERMED FINDING OR DIRECTION. IT WAS ALSO FOUND THAT REASSESSMENT NOTICES IN THAT CASE WERE ISSUED WITHO UT THE APPROVAL OF THE CCIT AS REQUIRED BY THE ACT. HONBLE HIGH COUR T QUASHED THE PROCEEDINGS INITIATED U/S. 148 OF THE ACT. THEREFO RE, THE DECISION RELIED ON BY THE AR IS DISTINGUISHABLE AND NOT APPL ICABLE TO THE FACTS OF THE PRESENT CASE. NOW, WE WILL LIKE TO REFER TO THE CASE OF MURALIDH AR BHAGAWANDAS. IN THAT CASE THE HONBLE SUPREME COUR T DECIDED THE ISSUE OF JURISDICTION OF THE APPELLATE AUTHORITIES AS UNDER ' I)..THAT UNDER THE INCOME-TAX ACT THE YEAR WAS THE UNIT OF ASSESSMENT. THE DECISION OF AN AO GIVEN IN A PARTIC ULAR YEAR DID NOT OPERATE AS RESJUDICATA IN THE MATTER OF ASSESSMENT OF THE SUBSEQUENT YEARS. THE JURISDICTION OF THE TRIBUNALS IN THE HIE RARCHY CREATED BY THE ACT WAS NO HIGHER THAN THAT OF THE INCOME-TAX OFFIC ER: IT WAS ALSO CONFINED TO THE YEAR OF ASSESSMENT. (II) THAT THE JURISDICTION OF THE APPELLATE ASSISTA NT COMMISSIONER UNDER SECTION 31 WAS STRICTLY CONFINED TO THE ASSESSMENT ORDER OF THE PARTICULAR YEAR UNDER APPEAL. THAT THE EXPRESSIONS 'FINDING' AND 'DIRECTION', IN THE SECOND PROVISO TO SECTION 34(3) ,MEANT RESPECTIVELY, A FINDING NECESSARY FOR GIVING RELIEF IN RESPECT OF T HE ASSESSMENT FOR THE YEAR IN QUESTION, AND A DIRECTION WHICH THE APPELLA TE OR REVISIONAL AUTHORITY, AS THE CASE MAY BE, WAS EMPOWERED TO GIV E UNDER THE SECTIONS MENTIONED IN THAT PROVISO. A 'FINDING ', THEREFORE, CAN BE ONLY THAT WHICH IS NECESSARY FOR THE DISPOSAL OF AN APPEAL IN RESPECT OF AN ASSESSMENT O F A PARTICULAR YEAR. THE APPELLATE ASSISTANT COMMISSIONER MAY HOLD, ON T HE EVIDENCE, THAT THE INCOME SHOWN BY THE ASSESSEE IS NOT THE INCOME FOR THE RELEVANT YEAR AND THEREBY EXCLUDE THAT INCOME FROM THE ASSES SMENT OF THE YEAR UNDER APPEAL. THE FINDING IN THAT CONTEXT IS THAT T HAT INCOME DOES NOT BELONG TO THE RELEVANT YEAR. HE MAY INCIDENTALLY FI ND THAT THE INCOME BELONGS TO ANOTHER YEAR, BUT THAT IS NOT A FINDING NECESSARY FOR THE DISPOSAL OF AN APPEAL IN RESPECT OF THE YEAR OF ASS ESSMENT IN QUESTION. THE EXPRESSION ' DIRECTION ' CANNOT BE CONSTRUED IN VACUUM, BUT MUST BE COLLATED TO THE DIRECTIONS WHICH THE APPELLATE ASSI STANT COM-MISSIONER ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 6 CAN GIVE UNDER SECTION 31.UNDER THAT SECTION HE CAN GIVE DIRECTIONS, INTER ALIA, UNDER SECTION 31(3)(B), (C) OR (E) OR S ECTION 31(4).THE EXPRESSION DIRECTION IN THE PROVISO COULD ONLY REFER TO THE DIRECTIONS WHICH THE APPELLATE ASSISTANT COMMISSIONER OR OTHER TRIBUNALS CAN ISSUE UNDER THE POWERS CONFERRED ON HIM OR THEM UNDER THE RESPE CTIVE SECTIONS. THEREFORE, THE EXPRESSION ' FINDING ' AS WELL AS TH E EXPRESSION ' DIRECTION 'CAN BE GIVEN FULL MEANING, NAMELY, THAT THE FINDIN G IS A FINDING NECESSARY FOR GIVING RELIEF IN RESPECT OF THE ASSES SMENT OF THE YEAR IN QUESTION AND THE DIRECTION IS A DIRECTION WHICH THE APPELLATE OR REVISIONAL AUTHORITY, AS THE CASE MAY BE, IS EMPOWE RED TO GIVE UNDER THE SECTIONS MENTIONED THEREIN. THE WORDS ' IN CONS EQUENCE OF OR TO GIVE EFFECT TO ' DO NOT CREATE ANY DIFFICULTY, FOR THEY HAVE TO BE COLLATED WITH, AND CANNOT ENLARGE, THE SCOPE OF THE FINDING OR DIR ECTION UNDER THE PROVISO. IF THE SCOPE IS LIMITED AS AFORESAID, THE SAID WORDS ALSO MUST BE RELATED TO THE SCOPE OF THE FINDINGS AND DIRECTIONS ..' CLEARLY, IN THIS CASE SECTION 33 & 34 OF THE INDIA N INCOME TAX ACT,1922, HAVE BEEN DISCUSSED AND DECIDED. THERE IS NO DOUBT THAT SECTION 150 R.W.S.147, 148, 149 AND 153 OF ACT ARE MORE OR LESS SAME AS SECTIONS OF THE EARLIER ACT.BUT, EXPLANATION 2 T O THE SECTION 153(3) OF THE PRESENT ACT IS A MAJOR CHANGE AS REGARD TO P OWERS OF THE APPELLATE AUTHORITIES. IN OUR HUMBLE OPINION THE L EGISLATURE HAS WIDENED THE POWERS OF THE APPELLATE AUTHORITIES BY INSERTING EXPLANATION TO SEC.153(3).IT IS POSSIBLE THAT THE I NCOME UPON WHICH AN ASSESSEE HAS BEEN ASSESSED MAY NOT HAVE BEEN EARNED IN THE ACCOUNTING PERIOD OF THE YEAR TO WHICH THE ASSESSME NT PERTAINSIT MAY BE IN RESPECT OF A SPECIFIED EARLIER OR LATER YEAR. THE APPELLATE AUTHORITY IS ENTITLED TO GO INTO THE WHOLE QUESTION AND TO CO ME TO A FINDING ONE WAY OR THE OTHER, THAT THE INCOME WAS EARNED IN THE YEAR IN WHICH IT WAS ALLEGED BY THE ASSESSEE TO HAVE BEEN EARNED, OR IN THE YEAR WITH REFERENCE TO WHICH HE HAS BEEN ASSESSED BY THE AO. TO GIVE A FINDING ON THIS QUESTION IS OBLIGATORY UPON THE APPELLATE A UTHORITY. THE WORD FINDING USED IN THE SECTION HAS TO BE GIVEN A WID E SIGNIFICANCE, SO AS TO INCLUDE NOT ONLY FINDINGS NECESSARY FOR THE DISP OSAL OF THE APPEAL BUT ALSO FINDINGS WHICH ARE INCIDENTAL TO IT, AND W OULD INCLUDE THE APPELLATE AUTHORITIES CONCLUSION AS TO WHETHER THE INCOME IN QUESTION IN THE APPEAL WAS NOT RECEIVED DURING THE YEAR TO W HICH THE APPEAL RELATES. IF, IN PURSUANCE OF SUCH A FINDING THE AO PROCEEDS TO INVESTIGATE AFRESH AS TO IN WHICH YEAR THE INCOME W AS RECEIVED, THE ACTION OF THE AO WOULD BE THE RESULT OF OR THE LOGI CAL CONSEQUENCE OF THE FINDING ARRIVED AT FOR THE PURPOSE OF THE DISPO SAL OF THE APPEAL. IN SHORT, WHILE DECIDING AN APPEAL FOR A PARTICULAR ASSESSMENT YEA R APPELLATE AUTHORITIES CAN PASS INSTRUCTIONS TO THE LOWER AUTHORITIES TO INCLUDE A PARTICULAR ITEM OF INCOME IN A SUBSEQUENT OR EARLIER ASSESSMENT YEAR. THEIR SUCH INSTRUCTIONS CAN BE TE RMED A FINDING OR A DIRECTION. ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 7 OUR OPINION IS BASED ON THE JUDGMENTS DELIVERED BY VARIOUS COURTS. IN THE MATTER OF KAMLAPAT MOTI LAL 110 IT R 769 HONBLE ALLAHABAD HC(AFFIRMED BY THE HONBLE SC IN 193 ITR3 38) ISSUE OF JURISDICTION OF FIRST APPELLATE AUTHORITY (FAA) AND CONSEQUENT ACTION BY THE AO WITH REGARD TO FINDING OR DIRECTION SQUAR ELY APPLIES TO CASE UNDER CONSIDERATION. IN THAT CASE ORIGINAL ORDERS OF ASSESSMENT OF THE INCOME OF THE ASSESSEE-FIRM FOR THE ASSESSMENT YEARS 1960-61 AND 1961-62 WERE MADE ON MARCH 31, 1964. FOR THE ASSESSMENT YEAR 196 0-61, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 4,49,704 AND RS. 4,18,291, AS EXPENDITURE ON EXCISE DUTY ON STOCKS OF SUGAR HELD AT ITS FACTORIES ON THE LAST DAY OF THE RELEVANT PREVIOUS YEAR. THE ASS ESSEE, WHO HAD ADOPTED THE MERCANTILE SYSTEM OF ACCOUNTING, HAD MA DE PROVISION IN ITS ACCOUNTS FOR PAYMENT OF SUCH EXCISE DUTY. THE A O DISALLOWED THE CLAIM FOR 1960-61, BUT ALLOWED THE TWO SUMS AS EXPE NDITURE FOR THE YEAR 1961-62. IN APPEAL, THE APPELLATE ASSISTANT CO MMISSIONER HELD THAT THE TWO SUMS SHOULD BE ALLOWED AS EXPENDITURE FOR 1960-61. CONSEQUENTLY, THE AO MODIFIED THE ASSESSMENT FOR 19 60-61.SINCE THE VERY SAME TWO AMOUNTS HAD BEEN ALLOWED AS EXPENDITU RE IN THE ASSESSMENT FOR 1961-62 ALSO, THE AO INITIATED PROCE EDINGS UNDER SECTION 147 OF THE ACT IN RESPECT OF THAT YEAR AND ISSUED TO THE ASSESSEE A NOTICE UNDER SECTION 148 AND FINALLY HE REASSESSED THE INCOME FOR 1961-62. IN SECOND APPEAL, THE APPELLATE TRIBUNAL HELD THAT THE REASSESSMENT PROCEEDINGS FOR THE REASSESSM ENT WAS INVALID. ON A REFERENCE, IT WAS CONTENDED FOR THE DEPARTMENT THAT AS THE REASSESSMENT WAS MADE IN CONSEQUENCE OF THE FINDING OF THE APPELLATE ASSISTANT COMMISSIONER THAT THE SAID SUMS WERE ALLO WABLE TOWARDS EXCISE DUTY IN THE ASSESSMENT YEAR 1960-61 ITSELF, THERE WAS NO TIME- LIMIT FOR MAKING SUCH REASSESSMENT. FOR THE ASSESSE E IT WAS CONTENDED: (I) THAT THERE WAS NO ESCAPEMENT OF INCO ME FOR THE ASSESSMENT YEAR 1961-62 BY REASON OF THESE TWO SUMS HAVING BEEN WRONGLY ALLOWED AS EXPENDITURE TOWARDS EXCISE DUTY FOR THAT YEAR; (II) THAT WHILE HOLDING THAT THE SAID TWO SUMS SHOULD BE ALLOWED AS EXPENDITURE IN 1960-61, THE APPELLATE ASSISTANT COM MISSIONER HAD NO JURISDICTION TO GIVE A FINDING OR DIRECTION THAT THE TWO AMOUNTS SHOULD NOT HAVE BEEN ALLOWED AS EXPENDITURE IN 1961-62 AND , THEREFORE, THE REASSESSMENT FOR 1961-62 COULD NOT BE SAID TO BE IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY FINDING OR DIRECTION OF THE A PPELLATE ASSISTANT COMMISSIONER. THE HONBLE HC DECIDED THE MATTER I N FAVOUR OF REVENUE AND WITH REGARD TO THE SECOND ARGUMENT ( IN ITALICS ) OF THE ASSESEE HELD AS UNDER - WE SHALL NEXT DEAL WITH THE CONTENTION OF SHRI GUP TA THAT THE REASSESSMENT FOR THE YEAR 1961-62 COULD NOT BE SAID TO BE IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY DIRECTION O R FINDING OF THE APPELLATE ASSISTANT COMMISSIONER. NO DOUBT, IN INC OME TAX OFFICER V. MURLIDHAR BHAGWAN DAS [1964]52 ITR 335 (SC) THE SUP REME COURT HELD ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 8 THAT IN DECIDING AN APPEAL RELATING TO ONE ASSESSME NT YEAR THE APPELLATE AUTHORITY CANNOT GIVE A DIRECTION OR A FI NDING THAT A PARTICULAR INCOME WHICH WAS NOT CHARGEABLE TO TAX IN THAT ASSE SSMENT YEAR, WAS CHARGEABLE TO TAX IN ANOTHER ASSESSMENT YEAR. BUT THE EFFECT OF THIS DECISION OF THE SUPREME COURT HAS BEEN PARTLY NULLI FIED BY THE AMENDMENT OF SECTION 153 OF THE ACT BY ADDING EXPLA NATION 2TO SUB-SECTION (3) OF THAT SECTION. FINALLY, IT WAS HELD THAT THE REASSESSMENT PROCEED INGS FOR THE ASSESSMENT YEAR 1961-62 WERE NOT BARRED BY LIMITATI ON IN VIEW OF THE PROVISIONS OF SECTION 150(1) READ WITH EXPLANATION2 TO SECTION 153(3) OF THE ACT. IT WILL BE USEFUL TO PERUSE THE RELEVAN T PORTION OF SUB- SECTION (3) OF AMENDMENT SECTION 153 - '(3) THE PROVISIONS OF SUB-SECTIONS (1) AND (2) SHA LL NOT APPLY TO THE FOLLOWING CLASSES OF ASSESSMENTS, REASSESSMENTS AND RECOMPUTATIONS WHICH MAY BE COMPLETED AT ANY TIME- (I)WHERE A FRESH ASSESSMENT IS, MADE UNDER SECTION 146; (II) WHERE THE ASSESSMENT, REASSESSMENT OR RECOMPUT ATION IS MADE ON THE ASSESSEE OR ANY PERSON IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY FINDING OR DIRECTION CONTAINED IN AN ORDER UNDER SE CTION 250, 254, 260, 262, 263 OR 264 OR IN AN ORDER OF ANY COURT IN A PROCEEDING OTHERWISE THAN BY WAY OF APPEAL OR REFERENCE UNDER THIS ACT ; (III) WHERE IN THE CASE OF A FIRM, AN ASSESSMENT IS MADE ON A PARTNER OF THE FIRM IN CONSEQUENCE OF AN ASSESSMENT MADE ON TH E FIRM UNDER SECTION 147...... EXPLANATION 2.--WHERE, BY AN ORDER REFERRED TO IN C LAUSE (II) OF SUB- SECTION (3), ANY INCOME IS EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE FOR AN ASSESSMENT YEAR, THEN, AN ASSESSMENT OF SUCH INCOME FOR ANOTHER ASSESSMENT YEAR SHALL, FOR THE PURPOSES OF SECTION 150 AND THIS SECTION, BE DEEMED TO BE ONE M ADE IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY FINDING OR DIRECTION CONTAINED IN THE SAID ORDER ........' CLEARLY, EXPLANATION 2 SPECIFICALLY PROVIDES THAT W HERE BY AN ORDER IN AN APPEAL, ANY INCOME IS EXCLUDED FROM THE TOTAL IN COME OF AN ASSESSEE FOR AN ASSESSMENT YEAR, THEN AN ASSESSMENT OF SUCH INCOME FOR ANOTHER ASSESSMENT YEAR SHALL BE DEEMED TO BE O NE MADE IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING O R DIRECTION CONTAINED IN THAT ORDER (IN APPEAL).NOT ONLY THE HONBLE COUR T DECIDED THE ISSUE AGAINST THE ASSESSEE, HE WAS ALSO DIRECTED TO PAY C OST. II). IN THE MATTER OF MYSORE TOBACCO CO. LTD (157 ITR 60 6) HONBLE KARNATAKA HC, WHILE DISCUSSING THE PRE AND POST AME NDED SECTION 153 OF THE ACT, HELD AS UNDER ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 9 EXPLANATION 2 IS A DEEMING PROVISION WHICH WAS NEC ESSITATED IN VIEW OF THE LIMITED POWERS OF THE TRIBUNAL OR ANY AUTHOR ITY UNDER THE ACT. THE AUTHORITIES UNDER THE ACT HAVE NO JURISDICTION TO I SSUE A DIRECTION RELATING TO THE SUBSEQUENT YEAR OF ASSESSMENT OTHER THAN THE ASSESSMENT UNDER APPEAL OR REVISION. IT WAS, PERHAP S, TO OBVIATE THIS DIFFICULTY IN GIVING EFFECT TO THE FINDING OR DIREC TION OF ANY AUTHORITY RELATING TO AN EXCLUDED INCOME FROM ANY ASSESSMENT, EXPLANATION 2 TO SECTION 153(3) WAS ENACTED. IN THIS CASE ASSESSMENT FOR THE ASSESSMENT YEAR 196 6-67 WAS COMPLETED BY ASSESSING A SUM OF RS. 2 LAKHS, THE CR EDIT FOR WHICH WAS RECEIVED BY THE ASSESSEE ON APRIL 16, 1966, FROM I. T.CO. IN APPELLATE PROCEEDINGS TRIBUNAL HELD THAT THE SUM OF RS. 2 LAK HS COULD NOT BE TAKEN AS THE INCOME OF THE ACCOUNTING YEAR ENDING M ARCH 31, 1966, SINCE THERE WAS NO APPROVAL OF THE SUM TILL APRIL , 966. PURSUANT TO THE ORDER OF THE TRIBUNAL, THE AO REOPENED THE ASSESSME NT FOR THE ASSESSMENT YEAR 1967-68. THE ASSESSEE CONTENDED THAT THE AO HAD NO JURISDICTION TO REOPEN THE ASSESSMENT. THE AO REJECTED THE CONTENTION OF THE ASSESSEE HOLDING THAT THAT THE TRIBUNAL HAD HELD IN THE APPEAL THAT THE SUM OF RS. 2 LAKHS WAS A REVENUE RECEIPT F OR THE ASSESSMENT YEAR 1966-67 AND HENCE, THE AMOUNT HAD TO BE TREATE D AS THE BUSINESS INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1967-68. THE TRIBUNAL ALSO OBSERVED THAT SECTION 150 AND EXP LN. 2 TO SECTION 153(3) COULD BE RESORTED TO FOR MAKING THE ASSESSME NT, WHERE UNDER THE AO WOULD BE ENTITLED TO GIVE EFFECT TO ANY FIND ING OR DIRECTION CONTAINED IN THE ORDER OF THE TRIBUNAL RELATING TO THE ASSESSMENT YEAR 1966-67.THE TRIBUNAL ACCORDINGLY ALLOWED THE APPEAL OF THE DEPARTMENT SUSTAINING THE REASSESSMENT UNDER SECTIO N 147 READ WITH SECTION 150 AND EXPLN. 2 TO SECTION 153(3) OF THE A CT. WHEN THE MATTER WAS AGITATED IN THE HONBLE HIGH COURT IT WAS HEL D THAT THE TRIBUNAL WAS RIGHT IN UPHOLDING THE REASSESSMENT UNDER SECTI ON 147READ WITH SECTION 150 AND EXPLN. 2 TO SECTION 153(3). HONBLE COURT WAS ALSO OF THE OPINION THIS PROVISION WOULD CERTAINLY COME TO THE AID OF THE DEPARTMENT IN THE INSTANT CASE, SINCE THE TRIBUNAL HAS FOUND THAT RS. 2,00,000 ADDED IN THE ASSESSMENT YEAR 1966-67 WAS A REVENUE RECEIPT. THE DELETION OF THAT INCOME BY THE TRIBUNAL FOR THA T ASSESSMENT YEAR SHALL BE DEEMED TO BE A DIRECTION, AND TO GIVE EFFECT TO THE DIRECTION, REASSESSMENT COULD BE MADE UNDER SECTION 147 (B) READ WITH SECTIONS 150 AND 153(3). III). WHILE DECIDING THE MATTER OF AMBAJI TRADERS P. LTD. (105ITR273) HONBLE HIGH COURT OF BOMBAY HAS ANALYSED THE EFF ECT OF THE AMENDED SECTION 153 OF THE ACT IN FOLLOWING WORDS - THE SUBSTANTIVE PROVISIONS OF CLAUSE (II) OF SUB-S ECTION (3) OF SECTION 153 HAVE REMOVED THE BAR OF LIMITATION PRESCRIBED IN SU B-SECTION (2) IN THE CASES CONTEMPLATED BY THAT CLAUSE. THE EFFECT OF TH E SECOND EXPLANATION ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 10 TO SECTION 153(3) IS THAT WHERE THE INCOME OF AN AS SESSEE HAS BEEN EXCLUDED FROM THE ASSESSMENT OF ONE ASSESSMENT YEAR , ITS INCLUSION IN ANOTHER ASSESSMENT YEAR HAS BEEN TREATED AS HAVING BEEN MADE IN CONSEQUENCE OF OR TO GIVE EFFECT TO A FINDING OR DI RECTION COVERED BY CLAUSE (II) OF SECTION 153(3). WHERE SUCH INCOME EX CLUDED FROM ONE YEAR HAS TO BE INCLUDED IN ANOTHER YEAR- THE BAR OF LIMI TATION CONTAINED IN SECTION 153(2) WILL NOT APPLY IN VIEW OF THE EXPRES S PROVISIONS OF SECTION 153(3)(II). FACTS OF THE CASE ARE UNDER FOR THE ASSESSMENT YEAR 1959-60, THE ASSESSEE'S ACC OUNTS SHOWED CASH CREDITS OF OVER RS. 3 LAKHS.THE AAC HELD THAT OUT OF THIS, CASH CREDITS AMOUNTING TO RS. 2 LAKHS HAD TO BE EXCLUDED FROM THE ASSESSMENT YEAR 1959-60 AND HAD TO BE BROUGHT TO TA X IN THE ASSESSMENT YEAR 1958-59 . AS A RESULT AO INITIATED PROCEEDINGS UNDER SECTION 147 IN RESPECT OF THE ASSESSMENT YEAR 1958- 59.WHEN THE MATTER REACHED TO THE HONBLE HIGH COURT IT WAS OBS ERVED THAT HAVING REGARD TO THE ORDER OF THE APPELLATE ASSISTANT COMM ISSIONER THERE WAS NO BAR OF LIMITATION FOR INCLUDING THE AMOUNT IN TH E ASSESSMENT YEAR 1959-60 AND THE REASSESSMENT PROCEEDINGS HAD BEEN VALIDLY INITIATED. IV). HONBLE HIGH COURT CALCUTTA IN THE CASE OF EASTER N COAL CO. LTD. (101ITR477) HAS ALSO HELD SIMILAR VIEWS.IN THAT CAS E, THE INFORMATION THAT THE INCOME FOR THE ASSESSMENT YEAR 1958-59 HAD ESCAPED ASSESSMENT CAME AS A RESULT OF THE APPELLATE ORDER OF THE TRIBUNAL WHICH WAS PASSED SUBSEQUENT TO THE ORIGINAL ASSESSM ENT FOR THE ASSESSMENT YEAR 1958-59. HONBLE HIGH COURT WAS O F THE OPINION THAT THERE WAS ESCAPEMENT, THAT INFORMATION CAME SUBSEQU ENT TO THE ORIGINAL ASSESSMENT AND THERE WAS INFORMATION TO TH AT EFFECT THAT IN SUCH A CASE, THERE WAS NO IMPEDIMENT IN TREATING TH E NOTICE ISSUED UNDER CLAUSE (A) OF SECTION 147 AS ONE ISSUED UNDER CLAUSE (B) OF THAT SECTION. REFERRING TO THE EXPL. 2 TO THE SECTION 15 3(3) THE HONBLE HIGH COURT HELD THE NOTICE UNDER SECTION 148 OF THE 1961 ACT ISSUED IN THIS CASE WAS NOT BARRED BY LIMITATION BY THE TIME LIMIT FIXED IN SECTION 149 BECAUSE OF THE EXEMPTION PROVIDED IN SECTION 15 0(1) READ WITH EXPLANATION 2 TO SECTION 153(3). V). IN THE CASE OF MAHADEO PRASAD RAIS DECIDED BY THE H ONBLE ALLAHABAD HIGH COURT (125 ITR 49) AND CONFIRMED BY THE HONBLE SUPREME COURT IN 192 ITR 402, THE SAME ISSUE HAD AR ISEN AND THE HONBLE ALLAHABAD HIGH COURT HELD THAT THE APPELLAT E AUTHORITIES COULD INSTRUCT THE LOWER AUTHORITIES TO INCLUDE AN ITEM OF INCOME IN SUBSEQUENT YEARS. HERE, WE WOULD LIKE TO REPRODUCE THE FACTS AND THE CONCLUSION DRAWN BY THE HONBLE HIGH COURT IN THIS REGARD. FOR THE ASSESSMENT YEAR 1949-50, THE ASSESSEE FILE D A RETURN IN HIS INDIVIDUAL CAPACITY ON THE FOOTING THAT THERE HAD B EEN A TOTAL PARTITION ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 11 U/S. 25A OF THE INDIAN INCOME TAX ACT,1922. IN THE ALTERNATIVE, HE CLAIMED PARTIAL PARTITION OF SOME OF THE JOINT FAMI LY PROPERTIES. THE AO REJECTED THE CLAIM AND THE ENTIRE INCOME WAS ASSESS ED IN THE HANDS OF THE HUF. THE RETURN FILED BY THE ASSESSEE IN HIS I NDIVIDUAL CAPACITY WAS FINALISED BY HOLDING THAT THERE WAS NO INCOME A SSESSABLE. ON APPEAL BY THE HUF, THE APPELLATE TRIBUNAL ACCEPTED THAT THERE HAD BEEN A PARTIAL PARTITION OF SOME PROPERTIES. ON A R EFERENCE TO THE HIGH COURT, THE COURT HELD THAT THE OTHER SOURCES OF INC OME OF THE FAMILY HAD ALSO BEEN PARTITIONED. IN MARCH,1977 THE ASSESS EE WAS SERVED WITH NOTICES U/S. 148 OF THE ACT IN RESPECT OF TH E ASSESSMENT YEARS 1953-54 TO 1963-64.THE ASSESSEE FILED A WRIT PETIT ION TO QUASH THE NOTICES. DISMISSING THE PETITION THE HONBLE HIGH COURT HE LD THAT SECTION150(1) OF THE ACT WAS APPLICABLE AND THE AO WAS COMPETENT TO ISSUE NOTICES UNDER SECTION 148 WITHOUT ANY LIMITAT ION OF TIME FOR THE ASSESSMENT YEARS 1953-54 TO 1961-62 AS WELL AS FOR THE YEARS 1962-63 AND 1963-64. VI). HONBLE HIGH COURT OF AP HAD ALSO DEALT THE SAME ISSUE IN THE CASE OF MODURI RAJAIAH GARI KISHTAIAH 123 ITR494).FACTS OF THE CASE ARE AS UNDER - IN AN APPEAL FROM THE ASSESSMENT FOR THE ASSESSMENT YEAR 1960-61, WHERE UNDER THE INCOME FROM UNDISCLOSED SOURCES WAS DETERMINED AT RS. 1,41,729, THE AAC HELD THAT OUT OF THAT SUM AN AMOUNT OF RS. 90,721, DID NOT RELATE TO THE ASSESSMENT YEAR BUT R ELATED TO THE PRECEDING ASSESSMENT YEAR, I.E., 1959-60, AND ACCOR DINGLY DIRECTED EXCLUSION OF THE SUM OF RS. 90,721 IN THE ASSESSMEN T YEAR 1960- 61.THE AO,AFTER OBTAINING THE PERMISSION OF THE CIT , REOPENED THE ASSESSMENT FOR THE ASSESSMENT YEAR 1959-60, BY ISSU ING A NOTICE U/S. 148 OF THE ACT, IN WHICH THE AO ADDED NOT ONLY A SU M OF RS. 88,173,AS INCOME FROM UNDISCLOSED SOURCES, BUT ALSO ANOTHER S UM OF RS. 78,793, AS DEFICIENCY IN GROSS PROFIT. ON APPEAL, THE AAC H ELD THAT THE REASSESSMENT WAS MADE ONLY TO BRING THE AMOUNT DELE TED IN THE YEAR 1960-61, TO TAX AND, THEREFORE, NO ADDITION OTHER T HAN THAT PARTICULAR ITEM COULD BE MADE AND ACCORDINGLY, DELETED THE ADD ITION OF RS. 78,793.WHEN THE MATTER REACHED THE HONBLE HIGH COU RT IT WAS HELD THAT THE AO COULD IN THE REASSESSMENT U/S.150 ADD ONLY THE SUM OF RS. 88,173 AS INCOME FROM UNDISCLOSED SOURCES IN RE GARD TO WHICH THE AAC HAD GIVEN A FINDING AND COULD NOT ADD INCOME ON ACCOUNT OF GP. VII) .FINALLY WE WOULD LIKE TO REFER TO THE MATTER OF B. A.R.ABDUL RAHMAN SAHEB(100 ITR 541) OF HONBLE HIGH COURT AP . IN THAT MATTER ON THE BASIS OF INFORMATION IN HIS POSSESSION THAT THE ASSESSEE HAD ACTUALLY PAID RS. 38,000 FOR THE PURCHASE OF TWO VE HICLES AS AGAINST RS. 25,000 SHOWN BY HIM, THE AO REOPENED HIS ASSESS MENT FOR THE YEAR 1959-60, U/S.147 OF THE ACT AND REVISED THE AS SESSMENT BY ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 12 ADDING RS.13,000.THE LEGALITY OF THE ADDITION WAS C HALLENGED BY THE ASSESSEE IN APPEAL AND THE AAC ALLOWED THE APPEAL H OLDING THAT, AS THE UNEXPLAINED INVESTMENT WAS DURING THE ACCOUNTIN G YEARS 1956-57 AND 1957-58, THE SUM SHOULD BE BROUGHT TO TAX FOR T HE RELEVANT ASSESSMENT YEARS,VIZ.,1957-58 AND 1958-59, AND THAT THE ADDITION MADE IN THE ASSESSMENT YEAR 1959-60 COULD NOT BE SU STAINED. PURSUANT TO THE ORDER OF THE AAC, THE AO ISSUED NOT ICES TO THE ASSESSEE TO SHOW CAUSE WHY THE ASSESSMENTS FOR THE YEARS 1957-58 AND 1958-59 SHOULD NOT BE REOPENED AND UNEXPLAINED INVESTMENT IN THE RESPECTIVE ACCOUNTING YEARS ADDED. THE ASSESSEE CHALLENGED THE ACTION ON THE GROUND THAT THE NOTICES ISSUED FOR RE OPENING THE ASSESSMENTS FOR 1957-58 AND 1958-59 WERE TIME BARRE D AND BAD IN LAW. THE HONBLE HIGH COURT HELD THAT THE EFFECT OF SECTION 150 AND SUB-SECTION (3) OF SECTION 153, READ WITH EXPLANATI ON (2) IS THAT, IF ANY INCOME IS DELETED FROM ASSESSMENT BY THE ORDER OF A HIGHER AUTHORITY, ON THE GROUND THAT IT IS NOT INCOME OF THAT YEAR, S TEPS MAY BE TAKEN UNDER SECTION 147 TO ASSESS IT AS INCOME OF ANOTHER YEAR, WITHOUT ANY LIMITATION PRESCRIBED BY SECTION 149 AS REGARDS THE ISSUE OF THE NOTICE UNDER SECTION 148 OR AS TO THE COMPLETION OF THE AS SESSMENT OR REASSESSMENT PRESCRIBED BY SECTION 153. THE REASSESSMENT PROCEEDINGS IN RESPECT OF THE YEARS 1957-58 AND 195 8-59 WERE LEGAL AND VALID. IN THIS MATTER INCOME WAS ADDED TO A PRECEDING ASSE SSMENT YEAR WHERE IN OTHER CASES ADDITIONS WERE MADE IN THE SUC CEEDING ASSESSMENT YEARS ALSO. CLEARLY, IN PURSUANCE OF TH E DIRECTION OR FINDING GIVEN BY THE APPELLATE AUTHORITIES AO CAN A SSESS A PARTICULAR ITEM OF THE INCOME IN AN ASSESSMENT YEAR OTHER THAN THE A.Y. IN WHICH IT WAS ORIGINALLY ASSESSED. 9. WE HAVE ALREADY HELD THAT THE CIT(A) HAD JURISDI CTION TO GIVE A FINDING THAT PARTICULAR INCOME SHOULD BE TAXED IN T HE SUBSEQUENT /PRECEDING ASSESSMENT YEAR, OTHER THAN THE ASSESSME NT YEAR IN WHICH IT HAS BEEN ORIGINALLY ASSESSED. SO, IT WILL BE PROPER TO DECIDE THE ISSUE REGARDING REMISSION/CESSATION OF LIABILIT Y U/S. 41(1) OF THE ACT IN THE ASSESSMENT YEAR 1998-99. IN LIGHT OF THE ABOVE DISCUSSION WE ARE OF THE OPIN ION THAT THE FINDING ARRIVED AT OR DIRECTION GIVEN BY THE FAA TO CONSIDER THE INCOME IN SUBSEQUENT ASSESSMENT YEAR I.E. IN THE A.Y. 1998 -99 AND REOPENING OF THE ASSESSMENT OF THAT A.Y. BY THE AO WAS AS PER LAW. INSTRUCTION GIVEN BY THE FAA WAS NOT BEYOND HIS JURISDICTION AS ARGUED BY THE AR. UPHOLDING THE ORDER OF THE FAA WE REJECT THE EFFECT IVE GROUND OF APPEAL NO.1 OF THE ASSESSEE AND ACCORDING LY DISMISSED THE APPEAL FILED BY THE ASSESSEE. ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 13 ITA NO. 5980/M/2007 IN THE APPEAL FILED FOR THE ASSESSMENT YEAR 1998-99 , ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONF IRMING THE VALIDITY OF THE ACTION OF THE LEARNED AO IN REOPENING THE ASSES SMENT U/S. 147 AND IN PASSING THE ORDER CONSEQUENT THERETO. THE RESOR T TO THE PROVISIONS OF SECTION 147 AND ALSO THE ORDER PASSED CONSEQUENT TH ERETO ARE ILLEGAL AND INVALID THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONF IRMING THE ACTION OF THE LEARNED AO IN TAXING AN AMOUNT OF ` 64,86,000/- AS INCOME U/S. 41(1) ON THE GROUND THAT THE APPELLANTS LIABILITY TO PAY TO EVERBRIGHT TRADING AND AGENCIES P. LTD., HAD CEASED. THE REAS ONS GIVEN BY BOTH THE LEARNED CIT(APPEALS) AND THE LEARNED AO IN THIS REGARD ARE INCORRECT AND UNJUSTIFIED. 2. AR SUBMITTED THAT RE-ASSESSMENT ORDER DT.24.03.2 006 WITHOUT JURISDICTION, AS IT WAS RE-OPENED ON THE BASIS OF T HE INSTRUCTIONS OF THE CIT(A), THAT CIT(A) HAD NO AUTHORITY TO INSTRUCT TH E AO TO INCLUDE THE SAID AMOUNT IN THE INCOME OF ASSESSMENT YEAR 1998-9 9,THAT ZENITH TUBE, A FLAGSHIP CO. OF THE GROUP OF COMPANIES,INCL UDING EVERBRIGHT TRADING AND AGENCIES P. LTD . (EVERBRIGHT)HAD APPROACHED THE SETTLEMENT COMMISSION ABOUT THE SAID AMOUNT WHEREAS EARLIER EVERBRIGHT HAD CLAIMED THAT MONEY WAS DEPOSITED IN THE ACCOUNTS OF VIDHI ENTERPRISES.AR REFERRED TO A LETTER OF 03-04- 2004 (PAPER BOOK PG.2) AND SUBMITTED THAT LIABILITY OF THE ASSESSEE PERSISTED AT THE TIME OF WRITING THE LETTER. DR ON THE OTHER HAND JUSTIF IED THE INSTRUCTIONS OF THE FAA AND CONSEQUENT RE-OPENING. HE SUBMITTED TH AT CITS INSTRUCTIONS WERE SUFFICIENT FOR RE-OPENING BY THE AO, THAT TRANSACTION ENTERED INTO BY EVERBRIGHT WITH M/S. VIDHI IND. WER E GENUINE. 3. WHILE DECIDING THE APPEAL FOR THE A.Y.2001-02 (I TA/ 1704/M/05) WE HAVE ALREADY HELD THAT CIT(A) HAS POW ER TO INSTRUCT THE AO TO INCLUDE AN ITEM OR INCOME IN A PARTICULAR YEAR. WE DO NOT AGREE WITH THE AR THAT SUCH INSTRUCTIONS WERE WITHO UT JURISDICTION. AS THE FINDING/ DIRECTION OF THE HIGHER AUTHORITY WAS THE BASIS FOR REOPENING ASSESSMENT FOR THE A.Y. 1998-99, WE ARE O F THE OPINION THAT HIS ACTION WAS AS PER LAW. 4. GROUND OF APPEAL NO.1 IS DECIDED AGAINST THE ASS ESSEE. 5. FACTS FOR THE GROUND OF APPEAL NO.2 ARE FOUND AT PARA 6 OF THE ORDER OF THE AO UNDER THE HEAD CESSATION OF LIABIL ITY U/S. 41(1). AO HAS DISCUSSED THE FACTS AND CIRCUMSTANCES OF THE IS SUE UNDER CONSIDERATION IN THE FOLLOWING WORDS:- ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 14 THE ASSESSEE COMPANY IN THE BALANCE SHEET AS AT 31. 3.1998 HAS SHOWN AN AMOUNT OF RS.64,86,000/- AS PAYABLE TO M/S EVERBRIGHT TRADING & AGENCIES P. LTD. WHICH IS STATED TO HAVE BEEN PAID BETWEEN PERIOD FROM AUGUST, 2001 TO MARCH, 2002. M/S EVERBR IGHT TRADING & AGENCIES P. LTD. WAS ISSUED NOTICE U/S 133(6) ON 29 .12.2005. IN RESPONSE TO THIS NOTICE, THE COMPANY VIDE ITS LETTE R DATED 09.1.2006 SUBMITTED THAT IT IS BEFORE THE SETTLEMENT COMMISSI ON AND THIS TRANSACTION IS ALSO A PART OF THE SETTLEMENT COMMIS SION AND PROCEEDINGS BEFORE SETTLEMENT COMMISSION BEING CONFIDENTIAL CAN NOT BE DIVULGED TILL THE FINAL SETTLEMENT IN THE MATTER TOOK PLACE. THE ASSESSEE VIDE ORDER SHEET NOTING DATED 07.2.2006 WAS SHOW CAUSED AS TO WHY AN AMOUNT OUTSTANDING AGAINST M/S EVERBRIGHT TRADING & AGENCI ES P. LTD. SHOULD NOT BE ADDED U/S 41(1) OF THE I T ACT, 1961. THE RE PLY RECEIVED FROM M/S. EVERBRIGHT TRADING & AGENCIES P. LTD. WAS COMM UNICATED TO ASSESSEES AUTHORISED REPRESENTATIVE VIDE ORDER SHE ET NOTING DATED 24.2.2006. 6. IN THIS REGARD, THE ASSESSEE VIDE LETTER DATED 1 4.2.2006 HAS FLIED PHOTO COPIES OF LETTERS DATED 12.1.2004, 03.3.2004 AND 24.3.2004 WHICH WERE FILED DURING THE COURSE OF ASSESSMENT PR OCEEDINGS FOR A Y 2001-02 IN ASSESSEES OWN CASE. THESE LETTERS ARE A NALYSED AS UNDER: (I) LETTER DATED 12.1.2004 ENCLOSED A COPY OF TRANS ACTION BETWEEN ASSESSEE & M/S EVERBRIGHT TRADING & AGENCIES P. LTD . DURING THE PERIOD 18.7.1994 TO 21.2.1996 AND BALANCE AS ON 31. 3.1997, 31.3.1999 AND 31.3.2001. THIS LETTER GIVES EXPLANAT ION FOR DIFFERENCE BETWEEN BALANCE AS ON 31.3.1996 AND 31.3 .2001. (II) LETTER DATED 03.3.2004: IN THIS LETTER ASSESSE E STATED THAT TWO INVOICES AMOUNTING TO RS.20,92,000/- WERE RAISED IN AUGUST, 2001 BY ASSESSEE M/S EVERBIIGHT TRADING & AGENCIES P. LTD. AN AMOUNT OF RS.15,00,000F- WAS PAID BY ASSESSEE TO 4 PATIES ON BEHALF OF M/S EVERBRIGHT TRADING & AGENCIES P. LTD. FURTHER SERVICES OF RS.13,10000/- WERE AVAILED BY ASSESSEE FROM THREE PARTIES FOR REPAIRS BUT PAYMENT WAS NOT MADE BY ASS ESSEE DUE TO POOR FINANCIAL CONDITION. COPIES OF PURCHASE ORDER PLACED BY ASSESSEE WITH M/S EVERBNGHT TRADING & AGENCIES P. L TD. HAVE ALSO BEEN FILED WITH THIS LETTER. (III) LETTER DATED 24.3.2004, ASSESSEE STATED M/S V IDHI INDUTRIES LTD. IS NOT ITS DEBTOR. IT WAS FURTHER JUSTIFIED THAT WH Y ONLY COPIES OF PURCHASE ORDER OF NILE SYSTEMS WERE FILED WITH EA RLIER LETTER. ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 15 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A Y 2001-02, IN RESPONSE TO NOTICE U/S 133(6), M/S EVERBRIGHT TRADI NG & AGENCIES P. LTD. VIDE ITS LETTER DATED 22.3.2004 HAD INFORMED T HAT BALANCE OUTSTANDING AS OI 31.3.1997 AS PER ITS BOOKS WAS RS .65,20,485/- AND BALANCE AS ON 31.3.1998 WAS NIL) A COPY OF LEDGER A CCOUNT OF ASSESSEE COMPANY IN THE BOOKS OF M/S EVERBRIGHT TRADING & AG ENCIES P. LTD. WAS ALSO FILED ALONG WITH THIS LETTER. FROM THE LEDGER ACCOUNT IT IS SEEN THAT M/S EVERBRIGHT TRADING & AGENCIES P. LTD. HAS WRITT EN OF THE AMOUNT OUTSTANDING BY PASSING A JOURNAL ENTRY ON 30.3.1998 WHILE DEBITING ACCOUNT OF M/S VIDHI INDS. & CREDITING ASSESSEE COM PANYS ACCOUNT. THE ASSESSEE COMPANY DURING THE COURSE OF ASSESSMEN T PROCEEDINGS VIDE ITS LETTER DATED 24.3.2004 CATEGORICALLY STATE D THAT, M/S VIDHI INDS. IS NOT ITS DEBTOR. IN VIEW OF THE ABOVE FACTS, ASS ESSEES LIABILITY WHICH HAS BEEN ALLOWED IN, THE PAST ON ACCOUNT OF PURCHAS ES HAS CEASED TO EXIST ON 30.3.1998 FALLING IN THE F Y RELEVANT TO A Y 1998-99. THIS CEASATION OF LIABILITY HAS TO BE TAXED U/S 41(1) OF THE I T ACT, 1961 NOTHING WAS DUE BY IT FROM ASSESSEE COMPANY I.E. M/ S DECIBELLS COMPUTERS P. LTD. IT MAY FURTHER BE MENTIONED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ENQUIRY WAS MADE FROM BANKIN G CHANNELS REGARDING PAYMENT OF RS.27,79,600/- PURPORTED TO HA VE BEEN MADE BY ASSESSEE COMPANY TO OTHER PARTIES VIZ. M T CORPORAT ION, SAGAR TRADING CO., VELTRON SEMICONDUCTOR AND VELTRON ELECTRONIC S ERVICES PVT. LTD. THE BANKERS INFORMED THAT NONE OF THE CHEQUES WERE CRED ITED IN THE NAME OF M/S EVERBRIGHT TRADING & AGENCIES P. LTD. AND THREE CHEQUES WERE NOT AT ALL PRESENTED FOR ENCASHMENT. IT IS SURPRISING THAT M/S EVERBRIGHT TRADING & AGE NCIES P. LTD. CHOSE TO REPLY TO NOTICE U/S 133(6) EVEN THOUGH ITS APPLICATION WAS ADMITTED BY SETTLEMENT COMMISSION VIDE ORDER U/S 24 5 D(1) DATED 14.2.2002. FROM THIS ORDER, IT IS SEEN THAT THERE W AS A SEARCH & SEIZURE ACTION U/S 132(1) ON 08.2.2000 IN THE CASE OF M/S Z ENITH STEEL TUBES & INDS. LTD. THIS COMPANY WAS FLAGSHIP OF THE GROUP. THIS FLAGSHIP CO. HAD 3 OTHER MANUFACTURING COMPANIES AND 15 OTHER SA TELLITE COMPANIES WHICH WERE ENGAGED IN TRADING ACTIVITIES. M/S EVERB RLGHT TRADING & AGENCIES P. LTD. IS ONE OF THE SATELLITE COMPANIES OF M/S ZENITHSTEEL TUBES & INDS. LTD. IT HAS BEEN ADMITTED BEFORE THE SETTLEMENT COMMISSION THAT FLAGSHIP COMPANY INVOLVED IN OTHER COMPANIES TO GET THE PRICE OF MACHINERY INFLATED AND TRANSFERRED TO A BANK WHICH IN TURN WERE LEASED BACK TO FLAGSHIP COMPANY. THEREFORE, GE NUINENESS OF TRANSACTION IS NOT BEYOND DOUBT. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT A SSESSEE COMPANYS LIABILITY TOWARDS M/S EVERBRIGHT TRADING & AGENCLES P. LTD. HAS -CEASED TO EXIST AND THEREFORE, AN AMOUNT OF RS .64,86,000/- SHOWN AS OUTSTANDING BY ASSESSEE ON 31.3.1998 IS ADDED U/ S 41(1) OF THE I T ACT, 1961. ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 16 7. CIT(A) IN HIS ORDER, AFTER REFERRING TO THE ORDE R OF HIS PREDECESSOR DT. 14-12-2004, FOR THE A.Y. 2001-02 ARRIVED AT FOL LOWING CONCLUSION: IN VIEW OF THE ABOVE ORDER, I DO NOT SEE ANY REASO N TO DIFFER FROM THE CONCLUSION ARRIVED THAT THE LIABILITY OF THE AP PELLANT TO PAY TO M/S. EVERBRIGHT TRADING & AGENCIES PVT. LTD., HAD I NDEED CEASED TO EXIST AND THE AMOUNT WAS THEREFORE TAXABLE U/S. 41(1) OF THE I.T. ACT. I ALSO DO NOT SEE ANY REASON TO ALTER TH E AMOUNTS SO ADDED AS URGED BY THE APPELLANT FOR THE REASON THAT THERE WAS NO EVIDENCE TO CATEGORICALLY SHOW THAT THE CHEQUES ISS UED TO VARIOUS DIFFERENT PARTIES WERE ACTUALLY TO SETTLE THE CREDI TORS AMOUNT. UNDER THE CIRCUMSTANCES, THE AO WAS CORRECT IN MAKI NG THE ADDITION U/S.41(1) TO THE EXTENT OF ` 64,86,000/-. FURTHER, THE PLEA THAT THE CREDITOR WAS BEFORE THE SETTLEMENT CO MMISSION COULD NOT BE HELD AGAINST THE APPELLANT ALSO CANNOT BE ACCEPTED. THIS ISSUE HAS BEEN DEALT IN DETAIL BY THE AO IN TH E ASSESSMENT ORDER. NOTWITHSTANDING, THE FACT THAT THE CREDITOR WAS BEFORE THE SETTLEMENT COMMISSION, THE AO WAS FULLY JUSTIFIED I N ARRIVING AT THIS CONCLUSION THAT THE LIABILITY HAD CEASED TO EX IST. THE FACT THAT THE CREDITOR WAS BEFORE THE SETTLEMENT COMMISSION A LSO POINTED OUT TO THE CORRECTNESS OF THE CONCLUSION ARRIVED AT BY THE AO. 8. FOLLOWING FACTS EMERGE FROM THE ABOVE DISCUSSION : I) AS ON 31-03-1998, ASSESSEE HAD SHOWN AN AMOUNT OF ` 64.86 LAKHS TO AS PAYABLE TO EVERBRIGHT II) ASSESSEE CLAIMED TO HAVE PAID THE SAID AMOUNT BETWE EN AUGUST 2001 TO MARCH 2002. III) EVERBRIGHT HAD WRITTEN OFF THE AMOUNT OUTSTANDING I N THE NAME OF THE ASSESSEE BY PASSING A JOURNAL ENTRY ON 30-03- 1998 WHILE DEBITING THE A/C OF M/S. VIDHI IND. AND CREDITING ASSESSEE COMPANYS A/C. IV) AN ACTION U/S. 132 OF THE ACT WAS CARRIED OUT IN TH E GROUP FLAGSHIP COMPANY AND THE GROUP APPROACHED THE SETTLEMENT COMMISISON U/S. 245 OF THE ACT. V) ASSESSEE ISSUED CHEQUES TO FOUR COMPANIES-M T CORPORATION, SAGAR TRADING CO.,VELTRON SEMICONDUCTO R AND VELTRON ELECTRONIC SERVICES PVT. LTD. ON BEHALF OF EVERBRIGHT. VI) ASSESSEE DID NOT ASK FOR CROSS-EXAMINATION OF VIDHI IND/EVERBRIGHT DURING ORIGINAL/REASSESSMENT PROCEED INGS. VII) NO COMPLAINT UNDER THE PROVISION OF IPC WERE FILED AGAINST EVERBRIGHT OR VIDHI IND. TO WHOM MONEY HAS BEEN CLA IMED TO HAVE BEEN PAID ON BEHALF OF THE ASSESSEE OR VIII) NO INVESTIGATION WAS CARRIED OUT ABOUT THE A/CS. OF VIDHI IND.OR THE A/CS. OF M T CORPORATION, SAGAR TRADING ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 17 CO.,VELTRON SEMICONDUCTOR AND VELTRON ELECTRONIC SERVICES PVT. LTD. IX) THREE CHEQUES ISSUED BY THE ASSESSEE TO THE ABOVE REFERRED FOUR COMPANIES WERE NOT PRESENTED TO THE B ANK FOR PAYMENT (LINE NO.7 PG.2 OF THE AO DT. 29-03-200 4). 9. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE MENTIONED ABOVE WE ARE OF THE OPINION THAT MATTER S HOULD GO BACK TO THE FILE OF THE AO. HE IS DIRECTED TO DECIDE THE IS SUE KEEPING IN MIND THE FOLLOWING IN THE INTERESTS OF JUSTICE: I) RECORD THE STATEMENT OF MAIN PERSON OF VIDHI IND.A ND AFFORD OPPORTUNITY OF CROSS EXAMINATION TO THE ASSE SS IF ANY ADVERSE INFERENCE HAS TO BE DRAWN AGAINST THE ASSESSEE. II) RECONCILE THE FIGURES OF PAYMENT MADE BY THE ASSESS EE TO M T CORPORATION, SAGAR TRADING CO.,VELTRON SEMICONDUCTOR AND VELTRON ELECTRONIC SERVICES PVT. LTD., IN LIGHT OF THE UN-ENCASHED CHEQUES. III) PERUSE THE ORDER PASSED BY THE SETTLEMENT COMMISISO N IN ZENITH GROUP OF CASES(INCLUDING EVERBRIGHT) TO FIND AS WHAT TREATMENT HAS BEEN GIVEN TO THE AMOUNT UNDER CONSIDERATION BY THE COMMISSION. IV) TO VERIFY THE ALLEGED PAYMENTS MADE BY THE ASSESSEE TO M T CORPORATION, SAGAR TRADING CO.,VELTRON SEMICONDUC TOR AND VELTRON ELECTRONIC SERVICES PVT. LTD. V) PASS A SPEAKING ORDER RESTRICTING HIMSELF TO THE IS SUE OF CESSATION OF LIABILITY. 10. WITH THESE OBSERVATIONS, APPEAL UNDER CONSIDERA TION I.E., IN ITA NO. 5980/M/2007 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MAY, 2012. SD/- SD/- (D.K. AGARWAL) (RAJENDRA ) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATE 2 ND MAY 2012 TNMM ITA NO. 1704/MUM/0 5 ITA NO. 5980/MUM/2007 18 COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR D BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI