Paras Rice Mills vs Commissioner of Income Tax and Another

Ajay Tewari, J.—This appeal, filed u/s 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), proposes the following questions of law:

I. Whether in the facts and circumstances of this case, the passing of the appeal effect order u/s 154/254 of the Income Tax Act, 1961 by the assessing officer instead of relevant Section 240 of the Income Tax Act, 1961 is absolutely illegal rendering the appeal effect order Annexure A2 as null and void ?

II. Whether in the facts and circumstances of the case and in the event ofquashing of the whole proceedings against the appellant and cancellingthe assessment order by the Tribunal vide order Annexure Al, the assessing officer gravely erred in relying on adjudication of facts by the Tribunal ?

III. Whether the assessing officer was justified in creating demand against the appellant on the basis of the adjudication on facts by the Tribunal in a situation when the appellant has suffered a net loss of Rs. 36,862.56 after telescoped and set off of loss as per Section 70 of the Act ?

IV. Whether in the facts and circumstances of the case the appellant is entitled to interest as per the provisions of Section 132B of the Act on the seized assets with effect from 1996 when the notice u/s 158BC was issued to the appellant as well as refund of Rs. 23,330 along with upto date interest ?

V. Whether in the facts and circumstances of the case the Tribunal was justified in dismissing the appeal and upholding order of Commissioner (Appeals) that appeal against order of appeal effect is not competent ?

VI. Whether in the facts and circumstances of the case the Tribunal wasjustified in not deciding the ground Nos. 2-6 of the grounds of appeal Annexure A9 ?

VII. Whether in the facts and circumstances of the case appeal iscompetent against the order of appeal effect Annexure A2 ?

Assessment order u/s 158BC(c) of the Act was framed against the assessee for the block period 1-4-1985 to 26-9-1995 in consequence of the search conducted u/s 132 of the Act at the business and residential properties of the assessee and its partners. Ultimately, the assessment was framed after making various additions on an undisclosed income of Rs. 1,41,75,090. The assessee impugned the assessment order before the Tribunal on merits. Subsequently, the assessee moved an application for addition of additional grounds relating to the validity of the search. On the allowing of this application by the Tribunal, the revenue challenged the same by way of ITA No. 129 of 2002, in which no relief was granted to the revenue. Eventually, the Tribunal held that it had jurisdiction to look into the validity of the search in an appeal filed before it against the order passed u/s 158BC(c) of the Act determining the undisclosed income of the assessee and that it could also call for the records of the authority authorizing the search. After noticing that the revenue had not produced the material to justify the search before it, the Tribunal drawing an adverse inference against the revenue, quashed the assessment framed by the assessing officer.

Thereafter, the Tribunal noticed that even though the assessment order had been quashed but since both sides had advanced lengthy arguments on the merits, the same were also being considered. Ultimately on merits too, the Tribunal gave substantive relief to the assessee. The matter then went back to the Assistant Commissioner for giving effect to the appeal order wherein the total undisclosed income was reduced to Rs. 14,12,234 on which tax of Rs. 8,47,340 was computed.

The above order was also challenged in appeal before the Commissioner (Appeals) who dismissed the same holding that the appeal would lie only before the Tribunal. The matter was carried by the assessee again before the Tribunal on the grounds that firstly in law, the appeal would lie only before the Tribunal and not before the Commissioner (Appeals), and secondly the Tribunal was required to adjudicate the matter on merits.

The Tribunal held that the order of the Commissioner (Appeals) dismissing the appeal on the ground of jurisdiction was valid and, thus, dismissed the appeal. It, however, declined to go into the other grounds on merits.

Before us, counsel for the appellant has pressed only grounds 5 and 6 as far as ground No. 5 is concerned, we are of the opinion that the reasoning of the learned Tribunal that since the assessing officer had merely given effect to the order of the Tribunal, an appeal against the said order would lie only before the Tribunal and not before the Commissioner (Appeals) is correct. In our view, however, having found this, the Tribunal should have decided grounds 2 to 6, raised by the assessee, on merits. This assumes even greater significance, since in the appeal preferred by the revenue being IT Appeal No. 93 of 2004, CIT v. Paras Rice Mills decided on 16-9-2008 (2008) 15 DTR (P&H) 262) we have already struck down the finding of the Tribunal in respect of the quashing of search and seizure proceedings. Even otherwise, if the impugned order of the Tribunal is permitted to hold the field it would only result in the assessee having to file another appeal on merits against the appeal effect order. In this view of the matter, we decide question No. 5 against the assessee and question No. 6 against the revenue and consequently remand the case back to the Tribunal for decision of the questions on merits.