Deval Sales Corporation vs Commissioner of Income Tax and Another

D.A. Mehta, J.—This petition has been preferred challenging order dt. 26th Feb., 1999 made by respondent No. 1, the Designated Authority, under Kar Vivad Samadhan Scheme, 1998 (KVSS), whereunder the declaration made by the petitioner for asst. yr. 1994-95 has been rejected for the reasons stated in the impugned order.

The petitioner filed a return of income and disclosed income of Rs. 22,670 on 2nd Feb., 1996. The assessment order was made by respondent No. 2 on 20th Feb., 1998 assessing the total income at a sum of Rs. 19,44,420. The petitioner preferred an appeal before the CIT(A)-III, Baroda against the assessment order. Hearing of the appeal was fixed on 29th Jan., 1999. However, on the same day i.e., 29th Jan., 1999 the petitioner preferred revision petition u/s 264 of the IT Act, 1961 (the Act) before the CIT, Baroda. This was followed by a declaration filed u/s 89 of KVSS on 30th Jan., 1999. The Designated Authority rejected the said application by observing as under:

With reference to the above, on perusal of column number 5(1) of your declaration pertaining to pendency of appeal/reference/revision/writ on the date of declaration, it is seen that you have mentioned about pendency of revision petition u/s 264 of the IT Act, 1961 filed before the CIT, Baroda on 29th Jan., 1999. In this regard, it has been reported by the AO that you have filed appeal for the abovementioned assessment year before the CIT(A) on 24th April, 1998 which is pending for disposal. As per the provisions of Section 264(4)(c) of the IT Act, 1961, the CIT shall not revise any order u/s 264 in a case where the order has been made the subject of appeal to the CIT(A). It is obvious, therefore, that the revision petition filed before the CIT, Baroda, on 29th Jan., 1999 is infructuous as the order u/s 143(3) of which revision is sought, has been made the subject of an appeal to the CIT(A). Therefore, there is no pendency of a valid revision petition as on the date of filing of declaration for the abovementioned assessment year.

Moreover, it has been reported by the AO that the tax due on the income returned by you has not been paid. Section 249(4) of the IT Act, 1961 provides that the CIT(A) shall not admit an appeal unless the assessee has paid the tax due son the income returned by him. Therefore, in your case the appeal filed for the abovementioned assessment year before the CIT(A) cannot be admitted in view of the provisions of Section 249(4)(a) of the IT Act, 1961. Considering the facts and circumstances discussed hereinabove, there is no pendency of valid appeal/reference/revision/writ petition as on the date of filing of declaration for the abovementioned assessment year, as is required u/s 95(1)(c) of the Finance (No. 2) Act, 1998. Accordingly, for the abovementioned assessment year stands dismissed as infructuous.

On behalf of the petitioner the learned advocate contended that the Designated Authority had wrongly come to the conclusion that there was no pendency of revision application or an appeal as on the date of filing application under KVSS. In support of the submissions made reliance has been placed on decision of the apex Court in case of Commissioner of Income Tax, Rajkot Vs. Shatrusailya Digvijaysingh Jadeja, . It was submitted that as held by the apex Court the Designated Authority is not required to consider the validity of the proceedings viz. the appeal or revision, etc., but the Designated Authority was only required to ascertain whether there was any disputed amount of tax which was outstanding as on 31st March, 1998 and whether any proceedings by way of appeal/reference/revision/writ petition were pending on the date of declaration.

On behalf of the respondent authority the learned standing counsel Mrs. M.M. Bhatt submitted that the impugned order was divided in two parts, the first para related to the revision application filed u/s 264 of the Act and whether the same could be entertained as a revision petition in light of Section 264(4)(c) of the Act; while the second para related to the appeal filed by the petitioner and its validity in light of provisions of Section 249(4)(a) of the Act. Therefore, even if it could be stated that para No. 2 of the impugned order which related to the appeal over which the CIT(A) had jurisdiction could not be considered to be correct in law, at the most the said para could be termed to be obiter, but para No. 1 which related to revision application was correct because the Designated Authority was having dual charge, one as the Designated Authority and the other as CIT, the latter authority being empowered to deal with a revision application u/s 264 of the Act. It was further submitted that in the aforesaid set of circumstances no interference was warranted in the impugned order because, as rightly held by the Designated Authority, revision application was not maintainable by virtue of provisions of Section 264(4)(c) of the Act.

The apex Court in case of CIT v. Shatrusailya Digvijaysingh Jadeja (supra) was called upon to decide almost a similar controversy when it observed that "the basic point which we are required to consider in this case is the meaning of the words ''pending'' in Section 95(i)(c) of the said scheme".

The apex Court has observed "...Under the IT Act, there is a difference between appeals, revisions and references. However, those differences were obliterated and appeals, revisions and references were put on par u/s 95(i)(c) of the scheme. The object behind Section 95(i)(c) in putting on par appeals, references and revisions was to put an end to litigation in various forms and at various stages under the IT Act/WT Act...". Furthermore, after referring to two earlier decisions rendered by the Supreme Court it has been held "...Whether an appeal is valid or competent is a question entirely for the appellate Court before whom the appeal is filed to decide and this determination is possible only after the appeal is heard but there is nothing to prevent a party from filing an appeal which may ultimately be found to be incompetent, e.g., when it is held to be barred by limitation. From the mere fact that such an appeal is held to be unmaintainable on any ground whatsoever, it does not follow that there was no appeal pending before the Court". "To the same effect is the law laid down by the judgment of this Court in the case of Tirupati Balaji Developers Pvt. Ltd. and Others Vs. State of Bihar and Others, , in which it has been held that an appeal does not cease to be an appeal though irregular and incompetent."

Applying the aforesaid ratio to the facts of the present case it is apparent that the Designated Authority could not have rejected the declaration made by the petitioner for the reasons stated in the impugned order. It was not open to the Designated Authority to take recourse to either provisions of Section 264(4)(c) of the Act or Section 249(4)(a) of the Act for holding that the revision application and the appeal respectively were not maintainable. It may be true that the Designated Authority may be empowered and entitled to act as CIT in different capacity, but regardless of the said fact, as a Designated Authority it is not open to exercise jurisdiction and powers vested in the CIT or CIT(A) considering the scope of the proceedings which have been brought before the Designated Authority under a different statute viz., Finance (No. 2) Act, 1998. The scope of all the three proceedings viz. declaration under KVSS, revision application u/s 264 of the Act and appeal u/s 249 of the Act are different and independent of each other.

In the present case while passing the impugned order the Designated Authority has taken it upon himself to discharge the role of all the three authorities under different provisions of different statutes despite the fact that even statutorily the authority is not empowered to do so. In fact, even under the IT Act the powers of the CIT and the CIT(A) are separate and independent of each other and neither of the authorities can exercise the jurisdiction and powers of the other even if both the officers hold the same rank in the hierarchy.

In the aforesaid facts and circumstances of the case it is apparent that the reasons which weighed with the Designated Authority while passing the impugned order are not germane, i.e., not relevant to the proceedings before the Designated Authority. The impugned order, therefore, cannot be sustained in law. The entire order is without jurisdiction and is quashed and set aside.

The Designated Authority is hereby directed to process the declaration made by the petitioner in accordance with law and discharge the function as a Designated Authority only without being influenced by the applicability of either provisions of Section 264(4)(c) or Section 249(4)(a) of the Act. For this limited purpose the Designated Authority shall undertake the exercise as if the proceedings are pending as on 26th Feb., 1999 without being influenced by any subsequent orders that may have been made either by CIT dealing with revision application u/s 264 of the Act or CIT(A) dealing with appeal u/s 249 of the Act.

The petition is allowed accordingly in the aforesaid terms. Rule made absolute. There shall be no order as to costs.