Andhra HC (Pre-Telangana)
M/S. P.V. Mohana Rao And Others vs Acit, Circle-2, Vizianagaram on 16 September, 2014
Bench: L. Narasimha Reddy, Challa Kodanda Ram
HONBLE SRI JUSTICE L. NARASIMHA REDDY AND HONBLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A Nos.189 OF 2003 and batch 16-09-2014 M/s. P.V. Mohana Rao and others ..... Appellant ACIT, Circle-2, Vizianagaram......Respondent Counsel for the appellant:Sri A.V. Krishna Kaundinya Counsel for respondent :Sri S.R. Ashok <Gist: >Head Note: ?Cases referred: (1998) 231 ITR 50 2. (1996) 217 ITR 746 3. 335 ITR 387 HONBLE SRI JUSTICE L. NARASIMHA REDDY AND HONBLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A Nos.163 OF 2003 & 189 OF 2003 COMMON JUDGMENT:
- (Per Honble Sri Justice L.Narasimha Reddy) These appeals under Section 260A of the Income Tax Act,1961 (for short, the Act) are preferred by the assessee, feeling aggrieved by the order dated 30.09.2002 passed by the Visakhapatnam Bench of the Income Tax Appellate Tribunal (for short, the Tribunal) in I.T.A.Nos.1120/Hyd/97 and 1121/Hyd/97.
The facts that gave rise to the filing these appeals are as under:
The appellant was doing business in arrack, with two partners. In the assessment year 1991-92, there was a change of composition. In the place of one partner by name Sri D. Appala Narasimha Raju, 17 persons have joined the firm and a deed of partnership dated 05.02.1990. was executed, in that behalf. As required under Sections 184 and 185 of the Act, the appellant filed an application for registration of the firm, before the Assessing Officer. Through an order dated 24.03.1994, the Assessing Officer refused to register the firm. As a consequence thereof, the returns filed by the appellant for the assessment years 1991-92 and 1992- 93 in the capacity of a firm were processed by treating them as those filed by association of persons.
The appellant approached the Commissioner (Appeals) feeling aggrieved by the order dated 24.03.1994. The appeal was allowed on 29.03.1996. A direction was issued to the Assessing Officer to register the firm after verifying the relevant facts. Accordingly, the firm was registered and fresh orders of assessment were passed for the two assessment years, by treating the appellant as a firm.
The Jurisdictional Commissioner (for short, the Commissioner (J) issued a notice dated 19.09.1996 to the appellant in exercise of power under Section 263 of the Act, requiring it to show-cause as to why the registration, be not cancelled. It was pointed out that the rules framed under the A.P Excise Act, 1968 prohibited admission of new partners without permission of the concerned authority and because such a permission was not existing, the registration is liable to be cancelled. The appellant submitted its explanation and the same was found not satisfactory. Ultimately an order was passed on 14.03.1997 by the Commissioner (J) cancelling the registration of the firm. The said order was challenged in I.T.A.No.1120/Hyd/1997 before the Tribunal. The Tribunal dismissed the appeal.
Sri A.V. Siva Kartikeya, learned counsel for the appellant submits that the registration of the firm was done only on the basis of the direction issued by the Commissioner (Appeals) and that being the case, it was not competent for the Commissioner (J) to exercise power under Section 263 of the Act, in relation thereto. He contends that Clause (c) of Explanation to sub section (1) of Section 263 of the Act prohibits such an exercise. He has placed reliance upon the judgment of the Supreme Court in Commissioner of Income Tax vs. Shri Arbuda Mills Ltd. Learned counsel further submits that the Tribunal relied upon certain precedents, wherein the excise licence was held initially by an individual and thereafter the firms were sought to be constituted without the permission of the excise authorities, and that in the instant case, there existed a firm, from the beginning and the registration was only in relation to the reconstitution of the firm.
Sri S.R. Ashok, learned Senior Counsel for the Revenue, on the other hand, submits that the subject matter of the appeal before the Commissioner (Appeals) was only about the delay in filing application and there was no occasion for addressing the other aspects such as the permission having not been obtained from the officials of the Excise Department. He further submits that the Clause (c) of Explanation to sub section (1) of Section 263 of the Act does not get attracted since the order passed by the Assessing Authority, registering the firm, was not the subject matter of the appeal before the Commissioner (Appeals). He placed reliance upon the judgment of the Supreme Court in Bihari Lal Jaiswal and Ors. vs. Commissioner of Income Tax and Ors. and a judgment of this Court in Commissioner of Income Tax vs. Swarna Bar and Restaurant .
The subject matter of the appeal before the Tribunal was an order passed by the Commissioner (J) in exercise of power under Section 263 of the Act. It has already been mentioned that the appellant was doing business in arrack and for the assessment years 1991-92 and 1992-93, the registration under Section 185 of the Act became essential, on account of the reconstitution of the firm. The Assessing Officer rejected the application for registration on 24.03.1994. That resulted in the appellant having been treated as association of persons. The matter was carried in appeal and the Commissioner (Appeals) passed an order on 29.03.1996, issuing the following directions to the Assessing Officer.
a) To verify from the original postal receipts if the contention of the appellant is correct;
b) If so, he may refer to the Receipt Register to see if both the documents were received and duly entered in the same;
c) In case there is no entry in the Register for which the appellant normally may not be hold responsible but the circumstantial evidence may be considered to be sufficient cause for condonation of delay.
In compliance with the directions, the Assessing Officer registered the firm and passed orders under Section 185(1) as well as Section 154 of the Act. The Commissioner (J) issued show- cause notice dated 19.09.1996 in exercise of power under Section 263 of the Act, proposing to cancel the registration. The explanation offered by the appellant was not found satisfactory. Ultimately the Commissioner (J) passed an order on 14.03.1997 cancelling the registration. Shorn of details and other introductory facts, the operative portion of the order reads:
4. In the absence of any evidence to show that exclusions of Sri D. Appala Narasimha Raju and inclusion of 17 others was duly authorised by the Excise Authorities, as pointed out in para 2.2 above, the partnership firm of the assessee is against public policy, and, is therefore illegal. It should therefore be assessed in the status of an Association of Persons and should be denied the benefit of registration.
5. The orders granting registration u/s.185 are hereby cancelled for both the assessment years and the Assessing Officer is directed to assess the income of the assessee in the status of A.O.P. for both the years.
That the Commissioner (J) has the power under Section 263 of the Act to call for records of any proceedings under the Act and revise them, if he found them to be erroneous and prejudicial to the interest of Revenue, is beyond any pale of doubt. However, Parliament imposed certain conditions in relation to exercise thereof. The explanation to sub section (1) was added in the year 1988. Together with the explanation, the sub section (1) of Section 263 of the Act reads as under:
(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.
[Explanation.For the removal of doubts, it is hereby declared that, for the purposes of this sub- section,
(a) an order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include
(i) an order of assessment made by the Assistant Commissioner [or Deputy Commissioner] or the Income- tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A;
(ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120;
(b) record [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal (remaining part of the Section is omitted since it is not relevant for the purpose of this case.) The appellant places reliance on Clause (c) of the Explanation and contends that the exercise undertaken by the Commissioner (J) is contrary to law. The purport of the clause is that if the order proposed to be revised by the Commissioner (J) has been the subject matter of any appeal before the Commissioner (Appeals), the same shall stand excluded from the purview of exercise of power under Section 263 of the Act. Had it been a case where the registration of the appellant firm was done by the Assessing Officer on his own accord, there would not have been any occasion to discuss the legality or otherwise of the orders passed by the Commissioner (J).
It is not in dispute that the Assessing Officer refused to register the firm, through his order dated 24.03.1994 and that in turn, was challenged before the Commissioner (Appeals). The appeal was allowed on 29.03.1996 and thereafter consequential orders of registration and rectification were passed. But for the order of the appellate authority, the registration would not have materialised. Once the registration is on the basis of an order passed by an appellate authority, the power of a Commissioner under Section 263 of the Act stands excluded, to that extent.
In Shri Arbuda Mills Ltd (1 supra), the Supreme Court explained the purport of Clause (c). After extracting the Clause, their Lordships observed:
that the consequences of the said amendment made with retrospective effect is that the powers under Section 263 of the Act, Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal (emphasis supplied).
It is axiomatic that if the matter has been considered and decided in an appeal, it stands excluded. Once the question of registration was the subject matter of the appeal, the same becomes stand taken out from the purview of Section 263 of the Act.
On behalf of the Revenue, it is urged that the subject matter of appeal was only the question of limitation in submitting the application for registration, and the Commissioner (Appeals) did not address the other aspects such as whether the registration could have been effected, without the permission of the concerned authorities of the Excise Department. Reliance is placed upon the judgments in Bihari Lal Jaiswal (2 supra) and Swarna Bar and Restaurant (3 supra).
The precedents relied upon by the learned Standing Counsel are in relation to cases where the business in intoxicants was started by individuals and the registration of firm was sought thereafter without there being any specific permission of the authorities of the excise department. The Assessing Officers refused to register the firm and the matters were pursued in hierarchy of appeals. In the instant case, however, the firm was functioning with two partners and the controversy was only about the joining of the other persons in the place of one of them. Therefore, they do not apply to the present case.
The contention that the legality of the constitution or reconstitution of the firm, from the point of view of the permission from the concerned authorities of the excise department was not the subject matter of appeal, cannot be accepted. It needs to be observed that the power conferred under Section 263 of the Act is extraordinary in nature and it brings about an exception to the principle that the matters decided by the concerned authorities under an enactment, must be permitted to become final. Therefore, the provisions of that nature need to be considered strictly. Even if two views are possible as to the purport of a provision of that nature, the one which is in favour of the assessee, must be chosen.
The expression used in Clause (c) viz., subject matter is wide, in its purport. It is not difficult to understand the scope of such expressions, in the context of enforcing an enactment. The subject matter of the order of rejection dated 24.03.1994 passed by the Assessing Officer and the appeal before the Commissioner was, the registration of the firm. That was dealt with by the Commissioner (Appeals), and the orders passed therein resulted in registration of the firm. Therefore, it can safely be held the subject matter of the appeal in the instant case was the registration of the firm. Once it is excluded from the purview of Section 263 of the Act, there was no basis for the Commissioner (J) to reopen that issue in exercise of power under that provision.
Though the proceedings under the Act need a different and special approach, the cardinal principle that things once decided must be permitted to become final unless appealed against by the aggrieved parties, cannot be ignored totally. The business in intoxicants is from year to year. The financial and other matters are arranged in such a way that the income and expenditure for the concerned year is taken care of to the best possible extent. In case additional liability is fastened by reopening the issue after some years by which time the assessee ceases to be in the business, several complications would arise. This is not to suggest that the proceedings under the Act cannot be initiated on that ground. The effort is to only emphasise that the exercise of powers must be in a cautious and careful manner. If things which have assumed finally and orders on the basis of which the state of affairs have been arranged are permitted to be reopened, the result is not difficult to imagine. It is only when law permits in clear terms, that such a far reaching exercise can be undertaken.
Further, the mere existence of power does not provide a justification for exercise thereof. The relevant facts must warrant it. More subjective the power, higher the necessity to justify it. The reasons are required to be cogent and germane to the provision. When decided on the touch stone of these principles, the exercise undertaken by the Commissioner (J) becomes untenable. Further, it is not as if that the Revenue was not without any remedy.
Therefore, both the appeals are allowed and the orders passed by the Tribunal as well as the Commissioner (J), are set aside. Miscellaneous Petitions, if any, pending in these appeals shall stand disposed of. There shall be no order as to costs. ___________________________ L. NARASIMHA REDDY, J Date:16.09.2014