CASE NO.: Appeal (civil) 4089 of 1998 PETITIONER: COMMISSIONER OF INCOME TAX, JABALPUR RESPONDENT: DURGA ENGINEERING AND FOUNDRY WORKS DATE OF JUDGMENT: 03/08/2000 BENCH: SP BHARUCHA & U.C. BANERJEE & N. SANTOSH HEGDE JUDGMENT:
JUDGMENT
2000 Supp(2) SCR 135
The following order of the Court was delivered :
The assessment years in question are 1987-88 and 1988-89, For these
assessment years, the Income Tax Officer made additions to the income of
the assessee, which is a partnership firm of sums which, in his view,
represented the unexplained cash credits in the name of partners of the
firm. The assessments were upheld by the Commissioner in appeal. The Income
Tax Appellate Tribunal, on 7th November, 1994, allowed the assessee’s
appeal and, setting aside the assessment orders, restored the matters to
the file of the Assessing Officer, directing him to pass a fresh order
after allowing the assessee the opportunity to support the documents Chat
it had earlier filed before him. Neither party sought to file any reference
application there against but the assessee filed an application before the
Tribunal under Section 254(2) of the Income Tax Act, 1961 seeking to
rectify it on the basis that a contention mat it had raised, had not been
decided. On 4th January, 1995, the Tribunal allowed the rectification
application. It noted that the assessee’s objection was that the assessment
on account of the credits should be made in the hands of the partners of
the assessee as they had made payments by cheque. The Tribunal observed
that this issue had not been decided by it and mat there was sufficient
force in it Accordingly, it rectified “the error by disposing of the
preliminary issues raised by the assessee. We accordingly amend our order
and direct that the additions made by the Assessing Officer amounting to
Rs, 5,00,851 and Rs. 85,700 be deleted from their income for assessment
years 1987-88 and 1988-89. As observed, the Department may investigate the
matter in the hands of the partners”.
The Revenue filed an application before the Tribunal seeking reference of
two questions that arose out of the order on the rectification application.
The questions read thus :
“1. Whether on the facts and in the circumstances of the case, the
Tribunal’ was justified in holding that the provisions of section 68 of the
Income Tax Act, 1961 are not applicable to the facts of the present case?
2. Whether on the facts and in the circumstances of the case, the Tribunal
was justified in law in deleting the additions of Rs, 5,00,851 and Rs.
85,700 made by the A.O. u/s. 68 of the Income-tax Act, 1961, representing
the unexplained cash credits in the accounts of the partners? The Tribunal
declined to make the reference on the basis that these were questions of
fact. The Revenue then made an application to the High Court under Section
256(2) of the Income Tax Act and, by the order under challenge, the same
was dismissed. The order under challenge followed an earlier decision of
the High Court, in the case of Popular Engineering Co. v. Commissioner of
Income Tax, M.P., (140 I.T.R. 398), in which it had been held that a
reference against an order of rectification under Section 254(2) was not
maintainable.
In the earlier Judgment, the High Court said :
“The language used in s.256(l) shows that the order contemplated under
s.256(T) is the order passed under s.254 of the Act. Under s.254(1) the
Appellate Tribunal passes an order on the appeal filed by the assessee or
the Revenue. This order may be amended under s. 254 (2) of the Act with a
view to rectifying any mistake apparent from the record. If, however, the
application for rectification is dismissed, there is no amendment of the
order passed under s.254(l) of the Act. Since no reference in the instant
case was sought in respect of the appellate order passed under s.254(1), we
are of the view that no reference from the order rejecting an application
for rectification of any mistake is tenable under s.256(1) of the Act. The
position obviously would have been different had the Appellate Tribunal
amended its appellate order with a view to rectifying any mistake from the
record. In that case the amended order could be a subject-matter of
reference under s.256(l) of the Act. But if the order is not amended and
the application for rectification is dismissed, the only order which stands
is the order passed in appeal under s.254(l) of the Act and if no reference
has been sought in respect of such order, the same becomes final in view of
the language used in s.254(4) of the Act.
Section 256 read thus :
“256. (1) The assessee or the Commissioner may, within sixty days of the
date upon which he is served with notice of an order passed before the 1 st
day of October, 1998, under section 254, by application in the prescribed
form, accompanied where the application is made by the assessee by a fee of
two hundred rupees, require the Appellate Tribunal to refer to the High
Court any question of law arising out of such order and, subject to the
other provisions contained in this section, the Appellate Tribunal shall,
within one hundred and twenty days of the receipt of such application, draw
up a statement of the case and refer it to the High Court :
Provided that the Appellate Tribunal may, if it is satisfied that the
applicant was prevented by sufficient cause from presenting the application
within the period hereinbefore specified, allow it to be presented within a
further period not exceeding thirty days.
(2) If, on an application made under sub-section (1), the Appellate
Tribunal refuses to state the erase on the ground that no question of law
arises, the assesses or the Commissioner, as the case may be, may, within
six months from the date on which he is served with notice of such refusal,
apply to the High Court, and the High Court, may, if it is not satisfied
with the correctness of the decision of the Appellate Tribunal, require the
Appellate Tribunal to state the case and to refer it, and on receipt of any
such requisition, the Appellate Tribunal shall state the case and refer it
accordingly.
(3) Where in the exercise of its powers under sub-section (2), the
Appellate Tribunal refuses to state a case which it has been required by
the assessee to state, the assessee may, within thirty days from the date
on which he receives notice of such refusal, withdraw his application, and,
if he does so, the fee paid shall be refunded.
Section 254, so far as it relevant, reads thus :
254. (1) The Appellate Tribunal may, after giving both the parties to the
appeal an opportunity of being heard, pass such orders thereon as it thinks
fit
(2) The Appellate Tribunal may, at any time within four years from the date
of the order, with a view to rectifying any mistake apparent from the
record, amend any order passed by it under sub-section (1), and shall make
such amendment if the mistake is brought to its notice by the assessee or
the Assessing Officer :
Provided that an amendment which has the effect of enhancing an assessment
ot reducing a refund or otherwise increasing the liability of the assessee,
shall not be made under this sub-section unless the Appellate Tribunal has
given notice to the assessee of its intention to do so and has allowed the
assessee a reasonable opportunity of being heard :
Provided further that any application filed by the assessee in this
subsection on or after the 1st day of October, 1998, shall be accompanied
by a fee of fifty rupees.
Section 256 empowers 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( 1) stales that the Appellate
Tribunal may, after giving both parties lo the appeal an opportunity of
being heard, pass such orders thereon as it thinks fit. It would appear
that the High Court read Section 254(1) as referring only to orders passed
by the Tribunal on an appeal. We do not think that that would be a correct
way of reading Section 254( 1). Section 254( 1) empowers the Tribunal to
pass .orders not only on an appeal before it but also upon such
applicaiions as arc made in the appeal and it specifies that, before doing
so, it shall hear both panics to the appeal. Section 254(2) permits the
Tribunal to rectify any mistake apparent from the record and amend any
order passed by it under sub-section (1) within four years from the date of
that order. The proviso requires it to give notice to the assessee before
enhancing an assessment and allow him a reasonable opportunity of being
heard. It will be seen, therefore, that the consequence of an order passed
in rectification under Section 254(2) could have serious financial
implications for the assessee and it is unthinkable that the assessee
should be left without a remedy, by way of a reference to the High Court,
if his assessment is erroneously increased in rectification proceedings.
It is also to be noted that Section 256 contemplates the reference of a
question of law arising out of an order passed “under Section 254”: that is
to say, an order both under Section 254(I) and Section 254(2),
In our view, therefore, under the provisions of Section 256, a reference
may be made to the High Court of a question of law that arises upon any
order of the Tribunal. The view taken by the High Court in the earlier
judgment in Popular Engineering Co. and followed by it in She order under
challenge is erroneous.
There is no doubt in our mind, particularly having regard to the fact that
the deletions of the additions that had been made by the assessing officer
were made in rectification proceedings, that [he questions that were sought
to be referred were questions of law and that the High Court ought to have
called upon the Tribunal to refer the same to it for its consideration.
Learned counsel for the assessee submitted that pursuant to the order of
‘the Tribunal in the rectification proceedings, the amounts of the
additions had been assessed in the. hands of the partners of the assessee
and that, therefore, nothing survived for consideration insofar as the
assessee was concerned. It is unclear whether the assessments in the hands
of the partners were on a protective basis or otherwise. In any event, this
is something that the High Court can go into in greater detail when it
hears the reference.
The civil appeal is allowed The order under appeal is set aside. The
Tribunal shall refer to the High Court (or its consideration the questions
set out above, having framed a statement of Case.
No order as to costs.
