Kailash Prasad Jain vs Commissioner of Income Tax

Kalyan Jyoti Sengupta, J.—The above appeal was preferred by the Appellant against the judgment and order dt. 10th Feb., 2006 passed by the Tribunal ''D'' Bench, Calcutta in IT(SS)A No. 185/Kol/2004 in the block asst. yrs. 1996-97 to 2001-02 insofar as the same relates to reconsideration of taxability or otherwise of the sum of Rs. 2,54,32,93,100 received by the Appellant on 1st March, 2006. Thus it appears that the appeal is preferred against portion of the judgment and order of the learned Tribunal by which five several appeals were disposed of. One of the appeals being IT(SS)A No. 161/Kol/2004 was preferred against the order of the CIT passed u/s 263 of IT Act, 1961, dt. 27th Nov., 2006. Above appeal was admitted on the following formulated question of law:

Whether the learned Tribunal was justified in law in holding that the twin conditions for exercise of the power u/s 263 of the IT Act, 1961, in respect of the block assessment order dt. 29th Nov., 2002 were satisfied and its purported findings upholding the order of the CIT cancelling the same in reconsideration of taxability or otherwise of the sum of Rs. 2,54,32,93,100 are arbitrary, unreasonable and perverse ?

The short facts relevant for this appeal, are as follows:

The block assessment of the Assessee was completed u/s 158BC r/w Section 144 of the IT Act, 1961 (hereinafter referred to as the said Act) on 29th Nov., 2002 for the period 1995-96 to 2001-02. Thereafter the CIT on perusal of the assessment record found that the AO while completing assessment had not taken into consideration the Assessee''s transaction recorded in a small diary which is one of the seized documents bearing identification mark KP-19. In the said document the Assessee is said to have recorded cash paid and received a sum of Rs. 2,54,32,93,100 relating to asst. yrs. 1995-96 to 2001-02. Accordingly, a notice was issued on 6th Sept., 2004 asking the Assessee to explain receipt of the said amount and also gave chance of personal hearing. Pursuant thereto, the Assessee duly appeared and made submission. The sum and substance of the Assessee''s case before the CIT was that AO had looked into and examined all the books of accounts and documents seized during search period and therefore, there was no occasion to ignore any taxable income. The CIT did not accept such explanation and having invoked his power u/s 263 cancelled the assessment and directed the AO to make fresh assessment after examining the cash transaction recorded in seized document KP-19. The learned Tribunal having considered the submissions of both the parties upheld the action of CIT u/s 263 so far as the same relates to the total amount of Rs. 2,54,32,93,100. The learned Tribunal did not approve of cancellation of the entire order of assessment.

Thereafter the AO made fresh assessment and necessary order was passed in terms of the direction of the learned Tribunal. In the context of the aforesaid factual position the present appeal is being heard by the Court.

Dr. Pal learned senior counsel appearing for the Assessee/Appellant highlighting the facts submits that the order of assessment dt. 29th Nov., 2002 made for the block period had already been merged in the order of CIT(A) passed on 2nd Aug., 2004. Hence, the CIT had no power, jurisdiction and/or authority to revise the assessment for the block period which is not erroneous. He has drawn our attention in support of this submission, to a Supreme Court decision reported in Commissioner of Income Tax, Bombay Vs. Amritlal Bhogilal and Co., .

His further contention is that Expln. (c) of Section 263 of the aforesaid Act cannot be made applicable. The loss so determined for the relevant period only on the basis of the audit report of the chartered accountant. The audit report for the respective period as pointed out specifically in KP-19 which included blank chit paper was not in fact loss.

He contends further that in any event Section 263 can be applied only when twin conditions mentioned therein that the order of assessment is erroneous and also prejudicial to the interest of the Revenue are satisfied. In the present case the loss has been accepted by CIT(A) on the basis of the audit report prepared in trial balance.

The same view has also been accepted by the Tribunal and Tribunal did not raise the question that the audit report which referred to KP-19 which included only the said chit paper, was not acceptable nor reliable. The learned Tribunal affirmed the order of CIT(A) or even in the High Court above question which was raised was not accepted for consideration while dismissing appeal u/s 260A of the Act." In that view of the matter view taken by the CIT(A) as also by the learned Tribunal and ultimately by the High Court by necessary implication regarding allowability of the loss on the basis of the audit report, nothing can be reopened.

At the highest there are two possible views one of them was taken by CIT(A) and affirmed by the Tribunal and ultimately became final on summary dismissal of appeal by the High Court. In that view of the matter the order cannot be erroneous so as to hold the same being prejudicial to the interest of the Revenue. On the above proposition of law Dr. Pal cites decision of Supreme Court reported in MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, .

He further submits all erroneous orders of the AO cannot be treated as prejudicial to the interest of the Revenue. One of such instances is if ITO adopts one of the courses permissible under law and in the process even if it results in loss of revenue. He has cited decision of Supreme Court on this legal point reported in Commissioner of Income Tax Vs. Max India Ltd., .

It would also appear that even the proceeding for imposition of penalty initiated u/s 271(1)(c) of the said Act for same transaction involving KP-19 was also dropped.

His next contention is that simply because the assessment order had been made in terms of the direction of the order u/s 263 and the appeal is pending against the order of the CIT(A), the present appeal cannot be said to be infructuous one.

He submits even after order of assessment is passed pursuant to the direction of CIT u/s 263 such order can be set aside if it is found the original order u/s 263 of the said Act is without jurisdiction. In this context he has strongly relied on the decision of the Supreme Court in case of Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, .

Lastly he concludes that if it is found that order of the CIT u/s 263 is without jurisdiction, consequential order passed on this subject taken in the meantime by the Department was automatically invalid and void and the same can be set aside.

The learned Counsel for the Respondent highlighting the fact, as recorded above submits that the fact of the case would make it clear that the AO in his order although had proposed to treat the aforesaid amount as unexplained cash and added the same to the income of the Assessee, had in fact made no discussion on the issue at all. Therefore, this point could not have been urged before the appellate authority and the appellate authority had no occasion to consider the said point. Section 263(1)(c) debars the revision of an assessment order if the said order had been the subject matter of any appeal, but the powers of the CIT, under the said Sub-section extend to such matter as had not been considered and decided previously in such appeal. In the instant case he emphasizes that the point relating to unexplained cash amounting to Rs. 2,54,32,93,100 was (sic-not) decided in the appeal. Hence Tribunal v/as right in upholding the decision of the CIT to that extent.

The learned Counsel further contends that the Assessee had already preferred a statutory appeal against the said order of the Tribunal and hence this proceeding u/s 260A of the said Act had been rendered infructuous.

After considering the submissions of the respective counsel it seems to us that the first point for consideration is as to whether the order of block assessment passed by the AO and affirmed by the appellate authorities in relation to the amount of Rs. 2,54,32,93,100 has become final and binding; whether the points raised and agitated by the Appellant should be decided in this appeal or not.

Dr. Pal of course submits that since it is a question of jurisdiction this can be examined by this Court, for if it is found ultimately the order of the CIT u/s 263 of the said Act was passed without the twin conditions being satisfied, and further steps taken pursuant thereto by the Department has to be declared being null and void, consequently order passed by the AO will stand set aside and it would become automatically infructuous. His contention is based on the decision of Supreme Court in Calcutta Discount case (supra). We are of the view that Calcutta Discount case (supra) is not applicable on the facts and circumstances of this case as in that case factually the notice u/s 34 of the IT Act, 1922 corresponding to Section 263 of the present Act was challenged filing writ petition under Article 226 of the Constitution of India and thereafter the assessment order was passed pursuant to the notice. In the factual background as aforesaid ultimately the Supreme Court found that order was passed without jurisdiction as preconditions mentioned in the old section were not satisfied. Here factually the situation is different.

Dr. Pal''s client approached the Tribunal challenging the order passed u/s 263 and even did not pray for any interim relief for stay of operation of the said order and allowed the order of assessment to be passed. Ultimately an appeal was also preferred. The legal proposition explained by Dr. Pal would be appropriate when it would be found that the authority concerned lacks inherent jurisdiction in the subject matter. In this case it cannot be held CIT had no Jurisdiction. The question is whether assumption of jurisdiction is done by the said authority on being satisfied with the twin conditions mentioned therein. This question could and can be examined in many ways. When Assessee did not take any step for stay of the order of the AO pursuant to the impugned order of the CIT u/s 263 and after having participated in the hearing of the assessment proceedings and consequently preferring appeal, we think it would not be proper for this Court at this stage to decide issue raised before us.

Accordingly, we accept the submission of the learned Counsel for the Revenue that the appeal factually has become infructuous but not legally. The provision of the appeal is very exhaustive and all points can be taken including the question of jurisdiction as taken here. We feel that considering all the aspects of the matter no decision should be rendered as if we do not accept contention of Dr. Pal, the appeal preferred by his client against subsequent order of assessment will have to be heard on merit and in that case the question of jurisdiction cannot be raised. In the event if we do not decide then all points can be decided obviously by the appellate forum. We therefore, dispose of the present appeal keeping all points open holding that since the regular appeal has already been preferred this appeal has factually become infructuous.

There will be no order as to costs.