COMMISSIONER OF INCOME TAX vs PEARL WOOLLEN MILLS.

ASHOK BHAN, J. :

Commissioner of Income Tax (Central), Ludhiana, (hereinafter referred to as the Revenue) has filed this petition under s. 256(2) of the IT Act, 1961 (hereinafter referred to as the Act) for issuance of a mandamus directing the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as the Tribunal) to refer the following questions of law to this Court for its opinion on the ground that the same arise from the order of the Tribunal dt. 31st March, 1979 in the case of M/s Pearl Woollen Mills, Ludhiana (hereinafter referred to as the assessee) :

"1. Whether, on the facts and in the circumstances of the case, it was open to the assessee to re-agitate the merits of the addition of Rs. 9,36,000 on account of the value of the extra stock of yarn pledged by the assessee with the banks by way of an application under s. 254(2) of the IT Act, 1961, when limitation for an application under s. 256(1) had expired long before ?

Where an application under s. 254(2) of the IT Act has been rejected after full hearing and consideration of its merits can the Tribunal entertain a second application under s. 254(2) raising the same or similar point dealt with by it in the previous application ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in admitting the second application under s. 254(2) of the Act dt. 17th March, 1978 after rejecting the previous application of the assessee dt. 27th June, 1977 by its order dt. 12th July, 1977 ?

Whether, the order of the Tribunal dt. 31st March, 1979, is vitiated by admission of irrelevant facts and evidence and rejection of relevant and admissible facts and evidence is contrary to the weight of the record and was arrived at without considering the entire evidence and material on the record ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in recalling its previous finding given in its appellate order, dt. 18th March, 1976 restoring the addition of Rs. 9,36,000 by the ITO and affirming the order of the AAC granting relief to the assessee to the tune of Rs. 8,34,730 against the aforesaid addition ?"

Assessee is a registered firm. It derives its income from manufacture and sale of woollen yarn and also manufacture and sale of scooters. It had also income from other different businesses. Previous year for the asst. yr. 1966-67 ended on 25th Oct., 1965. Assessee declared a loss of Rs. 37,854 but the total income was assessed by the ITO vide his assessment order dt. 20th March, 1971 at Rs. 23,43,260. Rs. 9,36,000 were added on account of unaccounted stock found pledged with the bank but not accounted for in the books of account maintained by the assessee. In appeal, assessee was granted relief to the extent of Rs. 17,73,424. Certain other directions in connection with the assessment were also issued by the appellate authority. Before the AAC assessee admitted that excess stock to the extent of 36,543 kgs. of the yarn was pledged with the bank. It was, however, pleaded that this stock related to the business done outside the books of account. Appellate authority after giving due consideration to the assessees pleadings held that against the addition of Rs. 9,36,000 only Rs. 1,01,270 was taxable in the year under assessment. Relief of Rs. 8,34,730 was thus granted to the assessee against this item.

Order of the appellate authority was challenged both by the assessee as well as by the Department by way of filing separate appeals before the Tribunal. Tribunal vide its order dt. 18th March, 1976 restored the addition of Rs. 8,34,730 which had been deleted by the AAC out of the addition of Rs. 9,36,000 made by the ITO. While dealing with the aforesaid item of unaccounted extra stock to the tune of 36,543 Kgs. of yarn of the value of Rs. 9,36,000 pledged by the assessee with the banks, the Tribunal held that it was for the assessee to explain as to how the debits in the so-called "Khazan Chand Goods Account" were connected with the aforesaid goods kept outside the books of account and pledged with the banks. Tribunal observed that there was no ostensible reason why yarn purchased even without vouchers was not debited to the Hosiery Account which was maintained entirely for goods supplied to the army authorities. Tribunal recorded this finding after noticing the evidence present on the record and the arguments advanced before it by the counsel for the parties. No reference under s. 256(1) of the Act was sought by the assessee to question the legality and propriety of the aforesaid additions restored by the Tribunal.

Assessee filed an application under s. 254(2) of the Act before the Tribunal for rectification of the order dt. 18th March, 1976 saying that addition of Rs. 9,36,000 was wrongly confirmed. In the rectification application, assessee raised as many as six grounds in support of its contention. Tribunal disposed of all the grounds raised in the rectification application. It was observed that there was no mistake apparent on the record and that the addition of Rs. 9,36,000 as made by the ITO was duly confirmed. In doing so, Tribunal in its order dt. 12th July, 1977 observed as under :

"We have considered the rival contentions and are of the view that there is no mistake apparent from the record so far as the addition of Rs. 9,36,000 is concerned. No fraud or palpable mistake has also been pointed out on the basis of which the earlier order of the Tribunal can be recalled. The six points made out by the assessee would not either individually or collectively lead to the inference that there is a mistake apparent from the record. In fact, point number 4 was not considered to be relevant by the learned counsel himself when it was pointed out to him that in para 8 of its order, the Tribunal itself had stated that the AACs order for the asst. yr. 1965-66 in relation to Khazan Chands account was not relevant so far as the addition of Rs. 9,36,000 was concerned. Point No. 6 is also of no consequence. The other four points are also of an argumentative nature and would not establish that there is any mistake apparent from the record. These points either mention that some contention of the assessee has not been noted or an appropriate inference has not been drawn. The order of the Tribunal is to be read as a whole. After appreciating the entire evidence on record, the Tribunal restored the entire addition of Rs. 9,36,000. On the facts of this case, we are not satisfied that any mistake apparent from the record exists which requires rectification under s. 254(2)."

On 17th March, 1978 after a lapse of nine months, assessee filed another application on the same subject-matter under s. 254(2) of the Act for the rectification of the original order passed by the Tribunal on 12th July, 1977. Second rectification petition was admitted to hearing by the Tribunal and accepted vide its order dt. 31st March, 1979. Tribunal modified its original order dt. 12th July, 1977 and the deletion made by the AAC to the tune of Rs. 8,34,730 was restored.

Revenue aggrieved against the aforesaid order moved an application under s. 256(1) of the Act for making a reference to this Court of the questions of law reproduced in the earlier part of the judgment to this Court for its opinion arising from its order dt. 21st Dec., 1979. Tribunal refused to refer these questions of law on the ground that it had rightly restored the order of the AAC.

Counsel for the Revenue has been heard. There is no representation on behalf of the assessee.

In our considered opinion Tribunal has erred in declining some of the questions raised by the Revenue which arise from the order of the Tribunal dt. 21st Dec., 1979. Assessee had filed the first rectification application raising certain points on which considered opinion was given by the Tribunal after hearing the counsel for the parties. The question regarding maintainability of the second application raising the same and similar points which had already been dealt with by the Tribunal while disposing of the first rectification application is a question of law on which there is no decision either of this Court or of the Supreme Court of India. Whether it would amount to review of the order passed by the Tribunal while dealing with the first rectification application or the same would fall within the ambit of rectification of the original order passed by the Tribunal needs to be examined.

Accordingly, we direct the Tribunal to refer the following two reframed questions of law along with the statement of the case to this Court for its opinion :

"(i) Whether, on the facts and circumstances of the case, Tribunal was right in law in entertaining a second application under s. 254(2) of the Act raising the same and similar points which had been dealt with by it in the first application filed by the assessee under s. 254(2) of the Act after affording full hearing to the parties ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in recalling its previous finding given in its appellate order, dt. 18th March, 1976 restoring the addition of Rs. 9,36,000 by the ITO and affirming the order of the AAC granting relief to the assessee to the tune of Rs. 8,34,730 against the aforesaid addition ?"

No costs.