M/S. MOIDUS MEDICARE PVT. LTD., V. THE DEPUTY COMMISSIONER OF INCOME TAX,

WA/1418/2020

AI Insights

The case involves M/s. Moidu's Medicare Private Ltd., which appealed against the judgment of the learned Single Judge who had rejected their challenge to the Tribunal's order rejecting an application for rectification under Section 254(2) of the Income Tax Act, 1961. The primary legal issue was whether an appeal under Section 260A of the Income Tax Act lies against the rejection of a rectification application under Section 254(2). The court found that such an appeal does not lie, and thus, the writ petition was maintainable. Additionally, the court addressed whether the ground raised in the rectification application was a mistake apparent from the record, which could be rectified under Section 254(2). The court concluded that the Tribunal had erred in rejecting the admission of the additional ground and directed the Tribunal to admit and consider the ground.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 753197 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 08-12-2020
• Assessment Year: misc
• Other Referred Cases: Chem Amit v. Assistant Commissioner of Income-Tax, Viswas Promoters (P) Ltd. v. Income-Tax Appellate Tribunal and Another, Madhav Marbles and Granites v. Income-Tax Appellate Tribunal and Another, L. Sohanraj v. Deputy Commissioner of Income-Tax and Another, Deeksha Suri and Others v. Income-Tax Appellate Tribunal and Others, National Thermal Power Corporation Ltd. v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P K MENON; JOSE JOSEPH
• Assessee Lawyers: SANTHOSH ABRAHAM; S K DEVI; JOSEPH MARKOSE
• Keywords: Appeal; Income Tax; Rectification; Mistake Apparent from the Face of the Record; Jurisdiction under Article 226
• Section: 254(2); 68; 153C; 260A

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE T.R.RAVI TUESDAY, THE 08TH DAY OF DECEMBER 2020 / 17TH AGRAHAYANA, 1942 WA.No.1418 OF 2020 AGAINST THE JUDGMENT IN WP(C) NO.29322/2019(M) OF THE HIGH COURT OF KERALA DATED 30.09.2020 APPELLANT/PETITIONER: M/S. MOIDU'S MEDICARE PRIVATE LTD., (NATIONAL HOSPITAL), MAVOOR ROAD, KOZHIKODE, REPRESENTED BY ITS MANAGING DIRECTOR DR. K. MOIDU. BY ADVS. SRI.SANTHOSH P.ABRAHAM SMT.S.K.DEVI SRI.JOSEPH MARKOSE (SR.) RESPONDENTS/RESPONDENTS: 1 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, AAYAKAR BHAVAN, NORTH BLOCK, KOZHIKODE-673001. 2 THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BRANCH, KENDRIYA SADAN, KAKKANAD, ERNAKULAM-682030. R1 BY ADV. SRI.P.K.RAVINDRANATHA MENON (SR.) R1 BY JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 08.12.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WA.No.1418 OF 2020 2 .R. K. Vinod Chandran & T.R.Ravi, JJ. ------------------------------------- W.A.No.1418 of 2020 ------------------------------------ Dated, this the 08th day of December, 2020 JUDGMENT Vinod Chandran, J. The appeal is against the judgment of the learned Single Judge, who rejected the challenge on the ground that there is an alternate remedy of appeal as provided under Section 260A of the Income Tax Act, 1961 [for brevity, 'the I.T. Act']. The challenge was against the order of the Tribunal rejecting an application for rectification filed under Section 254(2) of the I.T. Act. Learned Single Judge found the writ petition to be bereft of merits for reason of the Court invoking the jurisdiction under Article 226 of the Constitution of India being prohibited from assuming the role of an Appellate Court. We would have normally declined to interfere with the refusal to exercise WA.No.1418 OF 2020 3 discretion under Article 226; but for the fact that there is a divergence of opinion as to whether an appeal would lie from the rejection of an application for rectification. 2. Sri.Joseph Markose, learned Senior Counsel appearing for the appellant, relies on Chem Amit v. Assistant Commissioner of Income-Tax [(2005) 272 ITR 397], Viswas Promoters (P) Ltd. v. Income-Tax Appellate Tribunal and Another [(2010) 323 ITR 114] and Madhav Marbles and Granites v. Income-Tax Appellate Tribunal and Another [(2014) 362 ITR 647] of different High Courts. The learned Standing Counsel for the Revenue relies on L. Sohanraj v. Deputy Commissioner of Income-Tax and Another [(2003) 260 ITR 147 (Kar)] , a judgment of the High Court of Karnataka, which was approved by a Division Bench of that Court. 3. On the question of rectification, it is pointed out by the learned Senior Counsel that the WA.No.1418 OF 2020 4 Tribunal has refused to admit the additional ground for reason of non-production of evidence by the appellant/assessee. The additional ground raised is only with respect to the satisfaction required to be recorded under Section 153C, which could have been verified on a perusal of the assessment records. There is no evidence, which could have been produced by the assessee and hence the refusal to admit the additional ground is a mistake apparent from the face of the record and had to be rectified. Learned Standing Counsel, on the other hand, relies on the judgment of the Hon'ble Delhi High Court in Deeksha Suri and Others v. Income-Tax Appellate Tribunal and Others [(1998) 232 ITR 395] to remind us of the confined jurisdiction under rectification. 4. Two questions arise in the appeal. One as to whether there could be an appeal filed under Section 260A against the rejection of an WA.No.1418 OF 2020 5 application under Section 254(2) of the I.T. Act. If it is not permissible, then the writ petition would be maintainable, as has been found in the concurring judgment in Deeksha Suri and the next question would be whether the ground raised is a mistake, which could be rectified under Section 254(2) of the I.T. Act; to be answered in these proceedings under Article 226 itself. 5. The first question we are required to answer is as to whether an appeal would lie against an order rejecting a rectification application. We have gone through the judgments of the Karnataka High Court, which only refused jurisdiction under Article 226 on the well entrenched principle of self-restraint exercised in invoking the extraordinary remedy under Article 226, when there is an appeal provided by the statute, which is an equally efficacious remedy. The provision under Section 260A though discussed was not looked at in WA.No.1418 OF 2020 6 the perspective in which their Lordships of the Bombay High Court analyzed it, in Chem Amit [supra]. The other decisions are of Single Judges of the High Court of Madras and Rajasthan, which followed the Bombay High Court decision. 6. Chem Amit held in paragraphs 6 & 7 as follows: “6. In Durga Engineering and Foundry Works [200] 245 ITR 272], the Supreme Court held that the reference under Section 256 of the Income-Tax Act, 1961 could be made from the order of the Appellate Tribunal passed on the application for rectification under Section 254(2). That was so held by the Supreme Court in the light of the language of Section 256 which empowered the assessee and the Revenue to “require the Appellate Tribunal to refer to the High Court any question of law arising out of an order passed under Section 254”. Section 254 comprises two sub-sections. Sub-section (1) of Section 254 provides that the Appellate Tribunal may pass such order on an appeal as it thinks fit after giving both the parties to the appeal an opportunity of being heard. WA.No.1418 OF 2020 7 Sub-section (2) of Section 254 permits the Tribunal to verify any mistake apparent from the record and amend any order passed under sub-section (1) within four years from the date of the order. The expression employed in Section 260A that provides for an appeal to the High Court is materially different from the expression used in Section 256 that empowers the assessee and the Revenue to require the Appellate Tribunal to refer to the High Court any question of law. As already noticed above, in Section 256 the expression used is “require the Appellate Tribunal to refer to the High Court any question of law arising out of an order passed under Section 254”. However, in Section 260A, the Legislature has not provided an appeal to the High Court from every order passed under Section 254 but has confined it to the order passed in appeal by the Appellate Tribunal. This is made clear by the use of the expression, “an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal”. If the Legislature intended to provide an appeal to the High court from the order passed by the Appellate Tribunal on the application for rectification under Section WA.No.1418 OF 2020 8 254(2), the Legislature would not have used the expression in Section 260A that an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, but instead used the expression as is used in Section 256 that an appeal shall lie to the High Court from every order passed under Section 254. The expression “an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal” in Section 260A cannot be equated with the expression “an appeal shall lie to the High Court from every order passed under Section 254”. In Durga Engineering and Foundry Works [200] 245 ITR 272], also the Supreme Court observed that “Section 256 contemplates the reference of the question of law arising out of an order passed under Section 254; that is to say, an order passed both under Section 254(4) and Section 254(2)”. We have already highlighted the departure of the language in Section 260A from the language occurring in Section 256. 7. In a given case where as the consequence of an order passed on the rectification application under Section 254(2), the amendment in the order passed in WA.No.1418 OF 2020 9 appeal under Section 254(1) takes place, such amended order in appeal as a consequence of the order passed in the rectification application, however, shall, be amenable to appeal under Section 260A. In so far as the present case is concerned, the assessee has only challenged the orders of the Appellate Tribunal rejecting the application of rectification, the appeal under Section 260A is not maintainable.” 7. The Bombay High Court on the specific language employed, found that an appeal under Section 260A would lie only from an order in appeal; which an order rejecting an application under Section 254(2), obviously cannot be. However when a rectification application filed under Section 254(2) is allowed, then necessarily there is a modification made to the original order and the order under Section 254(2) would be one made in the appeal itself. We respectfully bow to the above proposition and follow the same. We are of the opinion that a rejection of an application filed WA.No.1418 OF 2020 10 under Section 254(2) will not be an 'order in appeal' and there could be no appeal filed under Section 260A of the IT Act. The party to a statutory appeal cannot be without remedy from an order prejudicial to that party and definitely the writ jurisdiction could be invoked. 8. Deeksha Suri has very distinct and complex facts and relates to an assessment year prior to the introduction of Section 260A. Therein, one Lalit Suri, his wife and two minor children had foreign remittances in their accounts, which were claimed as gifts under a Scheme framed under a Statute. Since the declaration necessitated by the notified scheme was not produced, the Assessing Officer treated the deposits as unexplained cash credit under Section 68 of the I.T. Act. Before the First Appellate Authority an application was filed to accept additional evidence, which was rejected. In second appeal before the Tribunal, again an WA.No.1418 OF 2020 11 application was filed for acceptance of additional evidence under Rule 29. A Bench of the Tribunal recorded its opinion that first the application under Rule 29 would have to be disposed of. Later, another Bench, which heard the matter, rejected the appeals, but the application under Rule 29 was not disposed of. The assessees filed an application without any mention of the provision of law, on the ground that a grievous mistake was occasioned. Later, an application under Section 254(2) was filed alleging an error apparent on the face of the record for reason of the application for acceptance of additional evidence having not been considered. This application was rejected, against which writ petitions were filed by all the appellants, which stood rejected by two concurring judgments of the Bombay High Court. 9. The first of such judgments in Deeksha Suri noticed the Tribunal's finding that when the WA.No.1418 OF 2020 12 appeal was finally heard, the assessees never referred to the application under Rule 29. More importantly, it was found that an application under Section 256(1) was pending before the Tribunal, wherein one of the questions of law raised was with respect to the non-consideration of the application for accepting additional evidence. It was also noticed that one of the assessees had approached the High Court with a writ petition earlier, challenging the order of the Tribunal rejecting her appeal on the very same grounds, which writ petition was rejected for reason of the alternative remedy under Section 256. This order was found to be binding on all the assessees, who were husband, wife and minor children. The assessees were left to agitate their cause under Section 256 and the writ petition stood dismissed. 10. In the concurring judgment, the statutory authorities were faulted for being WA.No.1418 OF 2020 13 obsessed with extraneous and procedural considerations, when even the Department did not dispute the genuineness of the documents produced as additional evidence. The learned Judge agreed that the remedy lies under Section 256(1). However, it was cautiously observed that if the verdict, in the application under Section 256(1), is that there is no question of law involved, then necessarily the assessees would have a remedy under Article 226 or 227 of the Constitution of India, since it would never be the intention of law to leave a party without any remedy. 11. Here we once again emphasise the difference in the language employed in Section 256 and 260A as held in Chem Amit. While Section 256 provided for reference by the Tribunal to the High Court 'any question of law', Section 260A permits an appeal from 'every order passed in appeal by the Tribunal'. The order impugned before us is one in WA.No.1418 OF 2020 14 an application for rectification under section 254(2); that too an order rejecting the prayer for rectification which cannot be an 'order passed in appeal' by the Tribunal. In fact, the concurrent judgment in Deeksha Suri read with the Section 260A; which permits only appeals from an order passed in an appeal by the Tribunal, leans more in favour of the assessee than the Department, on the facts discernible from the present case at least on the maintainability of this writ petition. 12. Now we come to the question whether the ground is one possible of consideration under Section 254(2) as a rectification; an obvious and patent error, the establishment of which would not require a long drawn process of reasoning on points, which could give rise to more than one opinion [T.S. Balram,ITO v. Volkart Bros. (1971) 82 ITR 50 (SC)]. The additional ground raised before the Tribunal is essentially as to whether WA.No.1418 OF 2020 15 the Assessing Officer ought to have noticed that it is mandatory to record the satisfaction in the case of assessment of a connected person under Section 153C of the I.T. Act . The ground has been framed so, as is seen from paragraph 3.2 of the original order of the Tribunal : “3.2 The Assessing Offer should have appreciated that it is mandatory to record the satisfaction in the case of assessment of a connected person u/s.153C. He should have known that, no incriminating documents or any money bullion, jewellery or valuable article or things or books of accounts or documents belonging to the appellant for the assessment year was seized or requisitioned. He should have appreciated that nothing has been brought on record by the AO and no reference has been made to such material relating to the appellant for the assessment year being unearthed. In the absence of any incriminating evidence or any money, bullion, jewellery or valuable article or things etc. the assessment u/s.153A r.w.s. 153C is not valid.” WA.No.1418 OF 2020 16 13. The Tribunal has considered in detail the requirement under Section 153C in the paragraphs numbered as 8 to 8.4. It has been categorically found that Section 153C of the I.T. Act can be invoked only when there is a satisfaction recorded by the Assessing Officer having jurisdiction over the persons searched or requisitioned under Section 132A of the I.T. Act, that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs to a person other than that referred to in Section 153A. Without recording such satisfaction, no proceeding can be initiated under Section 153C in the case of such other person, a third party, who has not been subjected to a search. What remained was only a verification of the assessment records. However the Tribunal has rejected the admission of the ground itself, while the Revenue insists that the question WA.No.1418 OF 2020 17 raised has been elaborately considered and answered in the negative. 14. We see from paragraph 8.6 that the Tribunal in the opening sentence, opined that the additional ground raised by the assessee cannot be admitted for adjudication, for not bringing the facts on record. It was also held that since the question was first raised before the Tribunal, discretionary power to permit the assessee to raise such issue for the first time before the Tribunal is refused. A Division Bench judgment was quoted and then the additional ground is seen to have been rejected. The order passed in the rectification application in its operative portion has again categorically found so: “6.1 ...Since the production of additional evidence required by the assessee as additional ground is directly linked to the examination of the original records by the Tribunal, the Tribunal considered the additional ground and WA.No.1418 OF 2020 18 observed that the additional ground cannot be admitted in the absence of bringing on record the additional evidence pertains to recording satisfaction so as to issue notice u/s 153A of the I.T. Act. The Tribunal considered every material fact, for and against the assessee, with due care and given a finding that the additional ground could not be admitted at that stage.” 15. In the above circumstances, we have to find that the original order of the Tribunal itself is one refusing to permit the assessee to raise the additional ground. We notice that the Tribunal itself has quoted the decision of the Hon'ble Supreme Court in National Thermal Power Corporation Ltd. v. CIT [229 ITR 383] and one of the grounds on which the Tribunal could exercise discretion to admit an additional ground has been extracted, which is as follows: “b) If the Tribunal is required to consider only the question of law arising WA.No.1418 OF 2020 19 from the facts which are on record in the assessment proceedings. Such question should be allowed to be raised.” Having found that the recording of satisfaction by the AO of the searched person is mandatory; which is the question of law, what remained was only to call for the records of the assessment proceedings of the appellant and peruse the same to find out the satisfaction recorded before transmitting the files to the AO of the appellant. We are hence satisfied that the ground necessarily has to be admitted and the Tribunal committed a mistake in refusing the admission of such ground. We hence set aside the impugned order and direct the Tribunal to call for the assessment proceedings from the Department and ensure that the satisfaction is recorded under Section 153C by the AO of the persons searched. 16. Here we have to observe that if at all a question of law is raised from the original order WA.No.1418 OF 2020 20 in appeal, it can only be one against refusal of the Tribunal to admit the additional ground. If the High Court finds it in favour of the assessee then what remains is only the examination of records. The Tribunal has found; which cannot be otherwise, that the satisfaction has to be recorded as per the statutory provision. What remained was only examination of the records; which refusal makes it an error apparent from the face of the record. There can arise no contrary or conflicting opinion on this since the interpretation of the provision, as to the satisfaction being mandatory is crystal clear. We fail to understand what evidence requires to be produced by the assessee to substantiate their ground. The Tribunals should be more pragmatic and the recording of the satisfaction could have been verified with lesser effort than that involved in making copious extracts from the original order; in the order impugned. WA.No.1418 OF 2020 21 17. We allow the appeal setting aside the judgment of the learned Single Judge as also the order of the Tribunal in the rectification application. The rectification application stands allowed and the appeal before the Tribunal stands restored only to the extent of admitting the additional ground. We direct consideration of the additional ground in accordance with the directions herein above; by calling for the records of the Department. No order on costs. Sd/- K.VINOD CHANDRAN, JUDGE. Sd/- T.R. RAVI, JUDGE. sp/09/12/2020 //True Copy// P.A. To Judge "