Income Tax Appellate Tribunal - Chennai
Hemal Knitting Industries, Tiruppur vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'C'
BEFORE SHRI PRADEEP PARIKH, VICE-PRESIDENT
AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER
I.T.A. No.2089/Mds/2008
Assessment Year: 2001-02
M/s.Hemal Knitting Industries, The Asst. CIT.,
659, Angeripalayam Road, Vs. Circle-I,
Tirupur. Tirupur.
PAN - AABFH 5813 P
(Appellant) (Respondent)
Appellant by : Shri T. Banusekar
Respondent by : Shri B. Srinivas
ORDER
PER PRADEEP PARIKH, V.P.
The assessee is in appeal before us against the order of the ld.
CIT (A), dated 18.8.2008 for assessment year 2001-02. The assessee
has challenged the jurisdiction of the Assessing Officer to invoke his
powers under sec.147 of the Income-tax Act, 1961 (the Act) which the
CIT (A) has rejected on the ground that the same cannot be raised in
the second round of litigation.
2. The assessee firm is a manufacturer and exporter of garments.
The original assessment was completed on 31.3.2004 determining the
total income at Rs.9,16,870/- after allowing deduction under
sec.80HHC at Rs.4,25,650/-. Gross bank interest of Rs.8,10,462/-
was treated as income from other sources by the Assessing Officer
against which the assessee had preferred an appeal before the
CIT(A). The latter dismissed the assessee's appeal by his order dated
3.12.2004. On a second appeal, the Tribunal, by its order dated
2
17.11.2006 in ITA No.334/Mds/2005 restored the matter to the file of
the Assessing Officer to decide the issue in accordance with law.
Pursuant to the directions of the Tribunal, the present assessment
order has been framed. In the course of the second round of the
assessment proceedings, it was contended by the assessee that in the
first round the time limit to issue notice under sec.143(2) was still
available and hence the Assessing Officer could not have had any
reason to believe that income had escaped assessment warranting
action under sec.147 of the Act. It was, therefore, contended that the
notice issued under sec.148 in the first round was bad in law. The
Assessing Officer observed that this issue was raised before the
CIT(A) in the first round itself and the CIT(A) rejected the ground by
his order dated 3.12.2004 by observing that no material was brought
on record questioning the validity of action under sec.147. It was
further observed that the present assessment was only to give effect
to the directions of the Tribunal and accordingly the question relating
to the validity of notice under sec.148 was out of its purview.
Accordingly, the plea of the assessee regarding the validity of notice
under sec.148 was rejected and the total income was determined at
Rs.9,16,870/-.
3. The assessee preferred an appeal before the CIT (A) not on the
merits of the addition but only on the validity of the issue of notice
under sec.148. The assessee relied on the judgment of the Gujarat
High Court in the case of P.V. Doshi vs. CIT in 113 ITR 22. However,
the CIT (A) rejected the claim of the assessee by observing that the
Tribunal had directed the Assessing Officer only to enquire and
examine the purpose for which deposit was made with the bank and to
find out the nexus of deposits with export business. He placed reliance
on two judgments of the Calcutta High Court in the case of Katihar
3
Jute Mills Pvt. Ltd. vs. CIT (120 ITR 861) and in the case of Surrendra
Overseas Ltd. vs. CIT (120 ITR 872).
4. The ld. counsel relied on the following judgments in support of
his contentions:
1. P.V.Doshi vs. CIT - (113 ITR 22) (Guj.)
2. Inventors Industrial Corporation Ltd. vs. CIT - (194 ITR 548) (Bom.)
3. Ramilaben Ratilal Shah vs. CIT - (282 ITR 176) (Guj.)
4. Peerless General Finance & Investment Co. Ltd. vs. ACIT - (21 SOT
440) (Kol.)
5. The ld. D.R. while supporting the orders of the lower authorities
relied on the following judgments:
1. Murlidhar Bhagwandas vs. CIT - (234 ITR 548) (Bom.)
2. M.S.P. Senthil Kumar vs. CIT - (241 ITR 502) (Madras)
6. We have duly considered the rival contentions and the material
on record. In the case of P.V.Doshi (supra), the original assessment
order was passed on 2.12.1961. Thereafter it was noticed that the
fund for acquisition of gold represented the income of the assessee.
The proceedings for re-assessment under sec.147 were initiated in
response to which the assessee filed his return. The assessee raised
objections about the validity of the notice and also the addition on
merits. The assessee's objections were rejected and the addition was
made. Before the first appellate authority, the contention about the
validity of notice was given up and on merits, the assessee's appeal
was dismissed. In the second appeal, the Tribunal restored the matter
to the file of the Assessing Officer to enable the department to cross
examine a witness. In the set aside proceedings before the Assessing
Officer, the assessee raised the question of validity of the proceedings
4
on the ground of change of opinion. The Assessing Officer rejected the
contention about the validity of the proceedings and repeated the
addition. In the first appeal in the second round, the assessee again
took up the point about the validity of re-assessment as well as the
ground on merits. The AAC held the reopening of the assessment to
be bad in law on the ground that it was based merely on change of
opinion. Accordingly, the order of re-assessment was annulled. The
department preferred an appeal before the Tribunal specifically raising
the question that the assessee having given up the contention
regarding validity of notice under sec.148 before the AAC in the earlier
proceedings and the matter having become final by the remand order
of the Tribunal, the said question could not be reopened before the
AAC. The Tribunal allowed the appeal of the department. The
assessee approached the High Court against the order of the Tribunal.
The High Court accepted the plea of the assessee in the following
words (at page 36 of 113 ITR):
"In the present case also the remand order did not
terminate the proceedings at the earlier stage. In fact, no
question of any bar of res judicata even at the subsequent
stage of the same proceeding could arise in the present
case for the simple reason that the original order is said to
be without jurisdiction. The first condition in invoking any
bar of res judicata is the condition about the competence of
the Court. Similarly, the provision of finality in this
relevant provision in s.254(4) could also not be attracted in
such a case, where the question admittedly, went to the
root of the jurisdiction and if that contention was upheld, it
would have made all the proceedings of reassessment
totally void and without jurisdiction. As per the aforesaid
5
settled legal position such a point could not be waived and
there can be no question of the earlier remand order
operating as a final order, because if such a jurisdictional
point could not be waived, even the fact of passing of the
remand order by the Tribunal could not confer jurisdiction
on the ITO, if the conditions to found his jurisdiction were
absent."
7. The above judgment clearly establishes two things, (a) that the
issue relating to jurisdiction which goes to the very root of the matter,
can be raised at any point of time including in the second round of the
litigation, and (b) that there cannot be a waiver so far as jurisdiction
aspect is concerned. The following decisions are also to the same
effect:
1. Inventors Industrial Corporation Ltd. vs. CIT - 194 ITR 548 (Bom.)
2. Ramilaben Ratilal Shah vs. CIT - 282 ITR 176 (Guj.)
3. Peerless General Finance & Investment Co. Ltd. vs. ACIT - 21 SOT
440 (Kol.).
Thus, so far as the present appeal is concerned, the issue whether
jurisdiction can be challenged in the second round of litigation or not,
is well settled by the above decisions. However, the ld. D.R. has
pointed out that in the first round before the CIT (A), the assessee had
raised the ground challenging the validity of reopening and that the
same was disposed of by the CIT (A) by dismissing the ground. This
issue needs to be examined in the light of the facts on record. The
CIT (A) by his order dated 3.12.2004 disposed of the ground in the
following manner:
6
"There are seven grounds of appeal in this case. In ground
No.1, the appellant objects to the initiation of proceedings
under sec.147 of the Act. However, the appellant has not
pointed out the basis for raising such objection and, at the
stage of hearing of the appeal, no material is brought on
record questioning the validity of the action under sec.147
of the Act. Accordingly, ground No.1 of the appellant is
rejected." (Underline by us).
From the above, two things are very evident. Firstly, though the
assessee raised the ground relating to the initiation of proceedings
under sec.147, it did not point out as to on what basis the objection is
being raised. Secondly, and more importantly, even at the time of
hearing, the assessee did not raise the issue as to why it is questioning
the validity of action under sec.147 of the Act. The only inference that
can be drawn from the conduct of the assessee is that it did not press
the ground pertaining to the action under sec.147 of the Act. Had the
assessee placed some material or mentioned some basis on which
action under sec.147 is being challenged, the CIT (A) would have dealt
with the issue on merits. Not having done so, the CIT (A) had no
occasion to deal with the issue on merits and rejected the ground as
not pressed. Though it is not mentioned in so many words, the
inference is that the assessee did not press the ground before the CIT
(A). This being the case, and in view of the decisions cited earlier, as
there cannot be any waiver in respect of the jurisdictional aspect of
the matter, we hold that the present case clearly falls within the ambit
of the judgment in the case of P.V.Doshi (supra). Therefore,
respectfully following the judgment of the Gujarat High Court as well
as other decisions cited before us, we are of the considered view that
it was within the right of the assessee to raise the ground challenging
7
the validity of reopening of the assessment before the Tribunal in the
second round of litigation.
8. The only issue which now remains to be dealt with is whether
the reopening of the assessment was in fact bad in law in view of the
fact that the same had been initiated when the time limit for issuing
notice under sec.143(2) was still available. In this connection, besides
several decisions relied upon by the learned counsel, a recent Third
Member decision is also there in the case of Super Spinning Mills Ltd.
in I.T.A.No.977/Mds/2008 dated 12.3.2010. In this decision it has
been held that an assessment cannot be reopened under sec.147 of
the Act if a valid return is pending and in respect of which the time
available to issue notice under sec.143(2) has not expired. Therefore,
respectfully following the various decisions including the decision by
the Third Member in the above case, we hold that the reopening in the
present case is invalid as the time was still available for issue of notice
under sec.143(2) of the Act. Accordingly, the reassessment order
dated 31.12.2007 is quashed.
9. In the result, the appeal of the assessee is allowed.
The order was pronounced in the court on
Sd/-
(VIJAY PAL RAO) (PRADEEP PARIKH)
JUDICIAL MEMBER VICE-PRESIDENT
Chennai,
Dated the March, 2010
mpo*
Copy to: Appellant/Respondent/CIT/CIT(A)/DR
Vide separate order
8
ORDER
PER VIJAY PAL RAO, JUDICIAL MEMBER
10. I have perused the proposed order of Hon'ble Vice President and given my deep thought on the issue involved as well as reasoning and conclusion of the Hon'ble Vice President. I find myself unable to concur and agree with the reasoning, view and conclusion of Hon'ble Vice President in the proposed order.
11. The relevant brief facts have already been narrated in the proposed order.
Therefore, the same need not be repeated herein for the sake of brevity.
However, I would refer to the relevant facts whenever necessary at the appropriate stage / place in my order.
12. In the present appeal, the assessee has raised the following grounds as under:-
1. The order of the Commissioner of Income Tax (Appeals)-II, Coimbatore is erroneous in law and unsustainable on the facts and circumstances of the case.9
2. The Commissioner of Income Tax (Appeals)-II erred in holding that the validity of re-assessment proceedings cannot be challenged in the second round of litigation.
3. Since the issue of jurisdiction goes to the root of the matter, the same can be challenged at any time of the assessment proceedings including an assessment made pursuant to direction of appellate authorities.
4. When a valid return was available on record and time limit for taking up the case for scrutiny under section 143(3) was also available, the Assessing Officer could not be said to have any reason to believe that income has escaped assessment warranting action under section 148.
5. On the above grounds and such other grounds as may be permitted to be raised, the notice issued under section 148 is bad in law and therefore the orders made based on the said is non est. The order of assessment may therefore be cancelled and justice rendered.
13. From the grounds raised by the assessee, it is clear that two issues arise for consideration and adjudication:-
1. Whether the assessee can challenge the validity of the re-assessment proceedings in the second round of litigation in consequence of remand order of this Tribunal, whereby the matter was remitted to the Assessing Officer for a limited purpose to find out the nexus of deposit 10 made in the bank with the export business of the assessee, and to decide the issue in accordance with law.
2. If the answer to the first question is "Yes" then the second question arises as to whether the assessment could be re-opened when the time limit for taking up the case for scrutiny u/s 143(3) was available.
Thus, the assessee has not challenged the treatment of interest as 'Income from Other Sources'.
14. In the first round of litigation, the assessee challenged the order of the Assessing Officer passed u/s 143(3) r.w.s. 147 on merits as well as the validity of initiation of proceedings u/s 147 of the Income Tax Act. The Commissioner of Income Tax (Appeals), in his order dated 3.12.2004 dismissed the appeal of the assessee both on validity of the action u/s 147 of the Act and on merits. The assessee filed an appeal before this Tribunal in I.T.A. No. 334/Mds/2005 and raised only one issue, which is recorded in para No. 1 of the order dated 17.11.2006 of this Tribunal as under:-
"The only ground raised by the assessee is that the ld. CIT(A) erred in holding that interest income derived from the Bank deposits is income from other sources and not from the income 11 from business and not entitled for deduction under section 80HHC and also netting of interest is not permitted."
15. Thus, it is clear and undisputed that the assessee did not challenge the finding of the Commissioner of Income Tax (Appeals) or the issue of validity of proceedings initiated u/s 147 of the Act before this Tribunal in the earlier round of litigation. This Tribunal considered and adjudicated the issue of interest income on bank deposits for deduction u/s 80HHC in para Nos. 3 to 5 as under:-
"3. After hearing both the parties, we are of the opinion that there is no discussion on the order of lower authorities, the purpose for which the deposit was made. If the deposits were made at the insistence or compulsion of the Bank to grant credit facilities, the interest income has to be treated as income from the business and then 90% of the gross interest has to be excluded by applying the Explanation (baa) to section 80HHC in view of the judgement of the Hon'ble Jurisdictional High Court in the case of CIT Vs. V. Chinnapandi 282 ITR 389, wherein it was held that the receipt of interest was alone relevant and the same was taken into consideration for the purpose of claim under section 80HHC.12
4. If the deposits were made without any insistence or compulsion of the Bank i.e. sanctioning authority and there is no condition in the sanction letter of the Bank to make such deposit, then the deposit cannot be considered as made for the purpose of availing credit facilities. In that circumstances, the ratio laid down in the judgment of the Hon'ble Madras High Court in the case of CIT Vs. A.S. Nizar Ahmed and Co. 259 ITR 244 is squarely applicable, wherein it was held that, "The interest paid by the assessee to the bank was, no doubt, an item of expenditure in the computation of its business income. That, however would not justify taking the income that the assessee received by way of interest on the deposits that it had with the bank, as part of its business income when in reality it was not. The deposit made with the bank was for the convenience and benefit of the assessee with a view to derive higher interest income. It was not a deposit made pursuant to any requirement imposed by the bank at the time of sanctioning of the facilities. The bank's decision to extend the facilities was linked more to the business prospects of the assessee and the confidence the bank had in the integrity and entrepreneurial capacity of the partners of the firm who ran the business. In cases where security deposit is 13 required to be given before enjoying a facility as in the case of supply of electricity or, in a case where the deposit is a pre condition for enjoying a facility essential for running the business, the making of the deposit would be regarded as being inextricably linked to the running of the business of the assessee, so as to enable the assessee to regard the interest derived on the deposit as being the part of its business income."
5. In view of the above decision, we set aside the orders of the lower authorities and remit back to the file of the Assessing Officer to examine the purpose of which the deposit was made with the bank, find out the nexus of deposit with export business of the assessee and decide the issue in accordance with the law.
The Assessing Officer should afford sufficient opportunity of being heard to the assessee."
16. Thus, it is apparent from the order of this Tribunal that the issue raised by the assessee before this Tribunal was remitted to the Assessing Officer to examine the purpose of the deposit made with the bank and to find out the nexus of deposit with the export business of the assessee and, accordingly, to decide the issue as per law. It is manifest from the order of this Tribunal that the Assessing Officer had to decide the issue as per the directions of this 14 Tribunal and not to re-frame the assessment as a whole. The jurisdiction of the Assessing Officer for passing the order in the remand proceedings was restricted to decide the issue in accordance with the directions of this Tribunal. Therefore, the Assessing Officer was precluded from touching any other issue or aspect in the giving effect order as per the directions of this Tribunal. The issue raised by the assessee challenging the validity of the proceedings initiated u/s 147 of the Income Tax Act was decided by the Commissioner of Income Tax (Appeals) in the first round of litigation. It is immaterial as how the issue was adjudicated by the Commissioner of Income Tax (Appeals), whether by a detailed order on merits or in summary because the assessee did not point out any basis for raising such objections. Once the issue was adjudicated by CIT(A) and the assessee did not challenge the order of the Commissioner of Income Tax (Appeals) on the said issue before this Tribunal, then the issue attained finality and the assessee cannot be permitted to re-agitate the issue to challenge the legality of the proceedings initiated u/s 147 of the Act in the remand proceedings for limited purpose, pursuant to the order of this Tribunal.
17. In the case of M.S.P. Senthil Kumar Vs. CIT 241 ITR 502 (Mad) relied upon by the learned Departmental Representative, the issue before the Hon'ble Jurisdictional High Court was as under:-
15"Whether, on the facts and in the circumstances of the case, the assessee was entitled to raise the question of the validity of the jurisdiction assumed by the Income Tax Officer under section 147(b) in the course of proceedings taken pursuant to the restoration of the appeals to the first appellate authority by the Tribunal by its earlier order dated July 31, 1978, for the two assessment years 1972-73 and 1973-74?"
18. The above said issue was considered and adjudicated as under:-
"The question of law involved in this tax case relates to the assessment years 1972-73 and 1973-74. The assessee is a co- owner of the agricultural estate "Stanmore Estate". Though the agricultural operations resulted in surplus, the borrowings were not returned by the agricultural estate, but were lent to sister concerns at interest. The original assessment was made by the Income-tax Officer. The assessment was reopened on the basis of audit objection raised by the internal audit party of the Income- tax Department and the assessment was made by not allowing the interest payment made by the agricultural estate against the interest earned by the agricultural estate on the monies lent by it. The assessee filed appeals against these orders raising two contentions. The first contention was that reopening the 16 assessment for the years 1972-73 and 1973-74 were not valid and the second contention was that the interest payment by the agricultural estate has been validly claimed as a deduction against the interest receipts of the agricultural estate. These contentions were negatived by the first appellate authority and the assessee appealed before the Tribunal. The Tribunal by its order dated October 31, 1985 (sic) upheld the orders of reassessments, and the Tribunal restored the matter to the first appellate authority. With regard to the other contention for considering whether there is any excess payment of interest by the agricultural estate, consequent to this order of the Tribunal, the Assistant Commissioner passed orders which again came up on appeal the Appellate Assistant Commissioner set aside the assessments for being done afresh according to law, in accordance with the observations of the Tribunal in order dated July 31, 1978. Against these orders, the assessee came in appeal before the Tribunal. The Tribunal rejected the contention of the assessee by pointing out that the earlier orders dated July 31, 1978, had become final as the assessee did not take up the matter on a reference to the High Court and so, that question cannot be 17 considered afresh. Against these orders of the Tribunal, the reference has arisen.
Counsel for the assessee submitted that the finding of the Tribunal that the earlier order of the Tribunal dated July 31, 1978, has become final and the question cannot be considered afresh is not correct and that question can be considered. Learned counsel, Mr. C. V. Rajan, appearing for the Revenue, submitted that the Tribunal upheld the jurisdiction and the order of the Tribunal had become final and without challenging the earlier order, the subsequent order cannot be challenged. In the decision in Seshasayee Paper and Boards Ltd. v. IAC of I.T. [1986] 157 ITR 342 (Mad), it has been held that:
"Even a wrong order has a finality and unless that finality is disturbed by a process known to law or by a process authorised by law, the rights of the assessee and the Revenue will continue to be governed by the order. A decision of the Supreme Court will not automatically have the effect of vacating the order of the Tribunal which has been statutorily made final under section 254(4) of the Income-tax Act, 1961, and which has already been given effect to." 18
In the decision in M. K. Mohammad Kunhi v. CIT [1973] 92 ITR 341 (Ker), it has been held that:
"Where the Appellate Tribunal remands a case the finality of views expressed by it while doing so depends on the nature of the order of remand. If the remand is in the nature of calling for a finding and the Tribunal keeps seisin of the case it may be permissible for the Tribunal to reconsider its views. On the other hand, if the Tribunal disposes of the appeal while passing the order of remand and another appeal comes before the Tribunal, against the order passed after the remand, it has no power to reconsider the finding or opinion. Questions which have become final and concluded by the remand order cannot be reopened."
It has been held in the decision in S. P. Gramophone Co. v. ITAT [1986] 160 ITR 417 (P & H) that:
"...if the correctness of the remand order was not challenged through appropriate proceedings, it would not be open to review it when the matter comes again before that authority in appeal or revision against the order passed by the authorities below in accordance with the remand order."19
Following the above decisions we uphold the view taken by the Tribunal that the earlier orders of the Tribunal dated July 31, 1978, had become final.
We answer this question of law in the negative and against the assessee."
19. From the decision of the Hon'ble Jurisdictional High Court cited supra, it is clear that even a wrong order has finality unless the finality is disturbed by the process of law. The facts in the said case were identical to the facts of the case in hand. Therefore, the decision of the Hon'ble Jurisdictional High Court is squarely applicable on the facts of the present case. Even otherwise, this Tribunal is bound by the decision of the Hon'ble Jurisdictional High Court and cannot substitute its own views.
20. Similarly, in the case of Murlidhar Bhagwandas Vs. CIT 234 ITR 548 (Bom) relied upon by the learned Departmental Representative, the Hon'ble Bombay High Court has adjudicated an identical issue in p. 553 to 557 as under:-
"It is clear from the above extracts that the Appellate Assistant Commissioner decided one of the issues raised by the assessee, i.e., the issue regarding the validity of proceedings under section 147(a) against the assessee and held that the Income-tax Officer was justified in initiating the proceedings for reassessment under 20 section 147(a) of the Act and set aside the order and remitted the same to the Income-tax Officer only for the limited purpose of giving an opportunity to the assessee for satisfying him about the genuineness of the loans. In the course of the fresh proceedings before the Income-tax Officer, the assessee failed to produce any evidence. On the other hand, he tried to raise once again the issue of validity of the reassessment which had attained finality by the earlier order of the Appellate Assistant Commissioner. Neither the Income-tax Officer had any power to decide the said issue nor the Appellate Assistant Commissioner in an appeal against the order of the Income-tax Officer, had any power or authority to examine and decide the very same issue once again. In this case, both of them fell in error and examined the same without having any regard to the earlier binding order on this issue. Law is well- settled that in proceedings before the Income-tax Officer for making a fresh assessment pursuant to the directions contained in an appellate order, only such issues can be agitated which have not attained finality. Similarly, in an appeal against the fresh order, only such issues which have not become final by the earlier orders of the appellate authority can be agitated. The assessee cannot be allowed to challenge the findings of the appellate authority collaterally before the Income-tax Officer in the 21 proceedings for the fresh assessment. In the present case, the Income-tax Officer disregarded the direction of the Appellate Assistant Commissioner when he examined the legality of the reassessment proceedings. He went wrong in examining the legality of the reassessment proceedings while making a fresh assessment pursuant to the directions of the Appellate Assistant Commissioner. Similarly, the Appellate Assistant Commissioner also erred in examining the question of legality of reassessment in appeal against the fresh order of the Income-tax Officer. The Tribunal was correct in reversing the same.
We are supported in our above opinion by the decision of this court in Hardillia Chemicals Ltd. v. CIT [1996] 221 ITR 194. In that case, the assessment was remitted by the Commissioner of Income-tax to the Income-tax Officer in proceedings under section 263 of the Act. In his order, the Commissioner set aside the order of the Income-tax Officer with a direction to redetermine the relief under section 80J of the Act in accordance with the law after giving opportunity to the assessee of being heard in the matter. In the appeal against the said order, the assessee contended that the value of work-in-progress was includible in the value of assets for the purpose of computation of capital employed. The appeal was dismissed by the Commissioner 22 (Appeals) on the ground that controversy had been decided by the Commissioner in his revisional order itself and it was not open to the Income-tax Officer or the appellate authority in the appeal to agitate the point which had already been decided earlier by the appellate authority. The contention of the assessee that once the assessment is set aside, the Assessing Officer can proceed de novo was rejected by this court. It was observed :
"The order of the Commissioner read as a whole makes it abundantly clear that the Commissioner arrived at categorical and definite findings in regard to the contentions of the assessee about inclusion of work-in-progress in the capital employed for the purpose of claiming relief under section 80J of the Act and in regard to deductibility of extra shift allowance allowed in the past from the value of fixed assets for the very same purpose and remitted the matter to the Income-tax Officer merely to perform the ministerial function of recalculating the amount of relief under section 80J."
It was held :
"The Tribunal, in this case, in our opinion, was right in holding that the revisional order, wherein a definite finding is recorded on both the points at issue, having become final on account of the failure of 23 the assessee to pursue the statutory remedies provided in the Act against that order, the assessee cannot be allowed to challenge such concluded findings collaterally in an appeal filed against the fresh order passed by the Income-tax Officer with a view to giving effect to the same."
Reference may also be made to the decision of the Andhra Pradesh High Court in Pulipati Subbarao and Co. v. Appellate Assistant Commissioner [1959] 35 ITR 673. In that case, the assessee a partnership firm which was previously assessed in the status of a registered firm, was assessed for the year 1952-53 as unregistered firm on the ground that it did not file an application for registration. The petitioner appealed to the Appellate Assistant Commissioner not on the actual assessment but only with regard to the refusal of the Income-tax Officer to treat the firm as a registered firm. The Appellate Assistant Commissioner was satisfied that there was an application for registration. He, therefore, set aside the assessment and directed the Income-tax Officer to receive a duplicate application and to deal with it according to law. The Income-tax Officer called upon the petitioner to produce its account books to make a fresh assessment. The petitioner applied to the High Court for the 24 issue of a writ of prohibition restraining the Income-tax Officer from making a de novo assessment. The High Court held :
"The order of the Appellate Assistant Commissioner being specific, it is not open to the Income-tax Officer to conduct a fresh enquiry and proceed to make a fresh assessment without reference to the previous assessment inasmuch as he was not directed to do so and there being no other provision in the Act empowering him to do so, I am satisfied that the notice issued by the second respondent, calling upon the petitioner to submit himself to a fresh assessment, is without jurisdiction."
The High Court also observed :
"Pursuant to the order passed by the Appellate Assistant Commissioner it is open to the Income-tax Officer to consider the one and the only question referred to him, viz., whether the firm's application for registration should be allowed. There is no other question before the Income-tax Officer and he would certainly be transgressing the limits set down by law if he were to embark upon a fresh enquiry as to the quantum of the income or the loss incurred by the petitioner."25
We are also supported in our above conclusion by the decision of the Calcutta High Court in Katihar Jute Mills (P.) Ltd. v. CIT [1979] 120 ITR 861. In that case, in the assessment of the assessee, a limited company owning a jute mill, for the assessment year 1955-56, under section 23(3) of the 1922 Act, a sum of Rs. 5 lakhs odd had been brought to tax as representing the price of loom hours. In the appeal before the Appellate Assistant Commissioner, the assessee had not questioned the finding about the loom hours but questioned only the treatment of certain loss in speculative transactions. After dealing with the latter point, the Appellate Assistant Commissioner observed : "in the result the assessment is set aside with the direction to the Income-tax Officer to go through the contract papers again and do the assessment afresh". Before the Income-tax Officer could take up the matter again, the Supreme Court delivered a judgment holding that proceeds from sale of loom hours were of a capital nature, not assessable as income. The assessee, thereafter, filed a revised return claiming that the sum of Rs. 5 lakhs odd representing the sale proceeds of loom hours was not taxable.
The Income-tax Officer rejected the assessee's request for excluding the sum of Rs. 5 lakhs odd and passed a fresh assessment order. On appeal, the Appellate Assistant 26 Commissioner held that the receipt of Rs. 5 lakhs odd arising out of sale of loom hours was not taxable. On further appeal, the Tribunal set aside the order of the Appellate Assistant Commissioner holding that there was no dispute about the sum of Rs. 5 lakhs odd before the Income-tax Officer or the Appellate Assistant Commissioner and it was not open to the assessee to take advantage of the fact that the assessment has been set aside for a limited purpose and to claim a different relief which was nowhere in the picture previously and that there was no method by which the assessee could raise the issue in the reassessment proceeding. On a reference to the Calcutta High Court, it was held :
"In the case before us, if the entire assessment order had been set aside, the contention of Mr. J. C. Paul would have been unassailable but unfortunately the fact is not so. There was no dispute with regard to the assessibility of the sale proceeds of the loom hours at any stage of the proceedings. The Appellate Assistant Commissioner also did not consider that question at all, inasmuch as, that was not one of the points before him in appeal. The order of the Appellate Assistant Commissioner setting aside the assessment was only partial and to the extent as to the question of treatment of a loss in speculative transaction, as clearly indicated in 27 the order itself. The order of the Appellate Assistant Commissioner, if read as a whole in its proper context, would clearly show that it was neither the intent nor the purpose nor the import of the order that the whole assessment was set aside and everything is kept at large so as to allow the Income-tax Officer to make a fresh assessment on all the aspects of the matter and give a free hand to the assessee to make all claims and all arguments in that assessment. In that view of the matter, we are unable to accept the contentions of Mr. J. C. Paul. The hands of the Income-tax Officer and in appeal against his order, of the Appellate Assistant Commissioner, were tied."
In view of the above, it is clear that the Tribunal, in this case, was right in holding that it was not open to the assessee to challenge the validity of the reassessment in view of the findings of the Appellate Assistant Commissioner in that regard in the order of remand. We, therefore, answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee.
This reference is disposed of accordingly with no order as to costs."
2821. Respectfully following the decision of the Hon'ble Jurisdictional High Court as well as Hon'ble Bombay High Court supra, it is not open to the assessee to challenge the validity of re-assessment in the proceedings pursuant to the remand order of this Tribunal for limited purpose. Accordingly, the answer to the first issue is in the negative.
22. When the assessee cannot challenge the validity of proceedings initiated u/s 147 in the second round of litigation in view of the findings of the Commissioner of Income Tax (Appeals) and remand order of this Tribunal in the first round of litigation, then the second issue becomes infructuous and non est.
23. In the result, this appeal filed by the assessee is dismissed.
The order was pronounced in the court on Sd/-
(Vijay Pal Rao) Judicial Member Chennai, Dated the 29th March, 2010.
Jb.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file 29 IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH 'C' BEFORE SHRI PRADEEP PARIKH, VICE-PRESIDENT AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A. No.2089/Mds/2008 Assessment Year: 2001-02 M/s.Hemal Knitting Industries, The Asst. CIT., 659, Angeripalayam Road, Vs. Circle-I, Tirupur. Tirupur.
PAN - AABFH 5813 P (Appellant) (Respondent)
REFERENCE UNDER SEC.255(4) OF THE INCOME TAX ACT, 1961 There being a difference of opinion between the Members who heard this matter, the same is being referred to the Hon'ble President with a request to nominate a Third Member to resolve the difference. The point of difference is as follows :
"Whether, on the facts and in the circumstances of the case, is it open to the assessee to challenge the validity of re-assessment proceedings before the Tribunal in the second round of litigation, when in the first round, the Tribunal had remanded the order for limited purpose?"
Sd/- Sd/-
(VIJAY PAL RAO) (PRADEEP PARIKH)
JUDICIAL MEMBER VICE-PRESIDENT
Chennai,
Dated the 29th March, 2010
mpo*
30
THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'C'
THIRD MEMBER CASE
BEFORE SHRI G.E.VEERABHADRAPPA, VICE-PRESIDENT I.T.A. No.2089/Mds/2008 Assessment Year: 2001-02 M/s.Hemal Knitting Industries, The Asst. CIT., 659, Angeripalayam Road, Vs. Circle-I, Tirupur. Tirupur.
PAN - AABFH 5813 P (Appellant) (Respondent) Appellant by : Shri T. Banusekar Respondent by : Shri Tapas Kumar Dutta ORDER PER G.E.VEERABHADRAPPA, V.P. As there was a difference of opinion between the Members of the Division Bench who heard this appeal, the same was referred to me as a Third Member by President u/s.255(4) of the Act, to resolve the same. The point of difference which is agreed to by both the Members of Division Bench is as under :
"Whether, on the facts and in the circumstances of the case, is it open to the assessee to challenge the validity of re-assessment proceedings before the Tribunal in the second round of litigation, when in the first round, the Tribunal had remanded the order for limited purpose?"
2. The assessee in this case is a firm engaged in the business of manufacturer and exporter of garments. The assessment year is 2001-02. The original assessment was completed on 31.3.2004 determining the total income at ` 9,16,870/- after allowing 31 deduction under sec.80HHC to the extent of ` 4,25,650/-. Gross bank interest of ` 8,10,462/- was treated as income from other sources by the Assessing Officer. The assessee preferred an appeal before the CIT(A), taking as many as seven grounds. The ground No.1 is raised against the initiation of proceedings under sec.147 of the Act. The said ground read as under:
"The order of the Income Tax Officer, Ward-I(1), Tirupur is erroneous in law and unsustainable on the facts and circumstances of your appellant's case. Proceedings initiated under Section 147 are also bad in law."
The other grounds related to taxability of bank interest earned which was considered by the Assessing Officer as a part of income under other sources and also consequential claims which had the implications on eligible claims of deduction under sec.80HHC of the Act. The CIT(A) vide order dated 3.12.2004 dismissed the assessee's appeal both on jurisdiction as well as on merits.
3. His order on jurisdiction read as under :
"....In ground No.1, the appellant objects to the initiation of proceedings u/s.147 of the Act. However, the appellant has not pointed out the basis for raising such objection and, at the stage of the hearing of the appeal, no material is brought on record questioning the validity of the action u/s.147 of the Act. Accordingly, Ground No.1 of the appellant is rejected."
On the other grounds raised, it may be stated that the same have been disposed off by a detailed discussions (in about 16 pages) on merits against the assessee.
4. Only the assessee was in appeal. The only ground raised in the appeal was that the CIT(A) has erred in holding that the interest 32 income derived from the bank deposits is income from other sources and not income from business and thereby reducing the quantum of deduction available under sec.80HHC. The other issues connected therewith was that the CIT(A) was not justified in not permitting the netting of interest. It is clear from the above that the assessee has not raised any ground relating to jurisdictional issues. The Bench of the Tribunal vide its order dated 17th November, 2006 in the first round set aside the impugned orders and remitted the matter back to the file of the Assessing Officer to examine the purpose for which the deposit was made with the bank and to find out the nexus of deposits with export business and to decide the issue in accordance with law.
5. When the matter thus got restored before the Assessing Officer, the assessee raised issues on jurisdiction, which according to him goes to the root of the entire proceedings. He contended that the entire proceedings are bad in law as the return of income was filed 29.10.2001 and the time limit for issuance of notice under sec.143(2) was available till October 2002 and the Assessing Officer in the meantime could not have any reasons to believe that income has escaped assessment warranting an action under sec.148 of the Act. The notice issued under sec.148 in the first round itself was therefore, claimed to be bad in law. This view according to him was decided in its favour by the Jurisdictional High Court in the case of CIT v. Qatalys Software Technologies Ltd. 2008 - TIOL - 392 - HC-Mad - IT. A copy of the order of the High Court was placed on records and also the decision of the Division Bench in the case of C.Vasantha v. ACIT in ITA nos.614 & 615/Mds/2007 wherein identical issue was involved were placed on record. The Assessing Officer when posed with this contention, was of the view that the Tribunal vide its order dated 17.11.2006 has only set aside the assessment and remitted the 33 matter back to the file of the Assessing Officer to examine the purposes for which deposit was made with the bank and to find out the nexus of deposits with export business and decide the issues in accordance with law. According to him, the ITAT has not directed anything about the validity of proceedings u/s 147. The assessment is only to give effect to the order and question raised by the assessee on the validity of notice according to him was out of the purview of his order. The CIT(A) agreed with the Assessing Officer and the assessee came before the Tribunal in second round and challenged the issuance of notice under sec.148 of the Act. This contention thus came to be considered by both the Members of the Division Bench.
6. The ld. Vice-President who first wrote the order for the bench agreed with the assessee in the light of the decision of the Gujarat High Court in the case of P.V.Doshi vs CIT (113 ITR 22). The ld. V.P. examined the issue with reference to the first round as well as the second round of appeal and he extracted the operative portion of the order of the CIT(A) (para 3 above) which gives rise to the litigation and has given the following finding adverting to the case cited above:
"7. The above judgment clearly establishes two things, (a) that the issue relating to jurisdiction which goes to the very root of the matter, can be raised at any point of time including in the second round of the litigation, and (b) that there cannot be a waiver so far as jurisdiction aspect is concerned. The following decisions are also to the same effect:
1. Inventors Industrial Corporation Ltd. vs. CIT - 194 ITR 548 (Bom.)
2. Ramilaben Ratilal Shah vs. CIT - 282 ITR 176 (Guj.)
3. Peerless General Finance & Investment Co. Ltd. vs. ACIT - 21 SOT 440 (Kol.).34
Thus, so far as the present appeal is concerned, the issue whether jurisdiction can be challenged in the second round of litigation or not, is well settled by the above decisions. However, the ld. D.R. has pointed out that in the first round before the CIT (A), the assessee had raised the ground challenging the validity of reopening and that the same was disposed of by the CIT (A) by dismissing the ground. This issue needs to be examined in the light of the facts on record. The CIT (A) by his order dated 3.12.2004 disposed of the ground in the following manner:
"There are seven grounds of appeal in this case. In ground No.1, the appellant objects to the initiation of proceedings under sec.147 of the Act. However, the appellant has not pointed out the basis for raising such objection and, at the stage of hearing of the appeal, no material is brought on record questioning the validity of the action under sec.147 of the Act. Accordingly, ground No.1 of the appellant is rejected." (Underline by us).
From the above, two things are very evident. Firstly, though the assessee raised the ground relating to the initiation of proceedings under sec.147, it did not point out as to on what basis the objection is being raised. Secondly, and more importantly, even at the time of hearing, the assessee did not raise the issue as to why it is questioning the validity of action under sec.147 of the Act. The only inference that can be drawn from the conduct of the assessee is that it did not press the ground pertaining to the action under sec.147 of the Act. Had the assessee placed some material or mentioned some basis on which action under sec.147 is being challenged, the CIT (A) would have dealt with the issue on merits. Not having done so, the CIT (A) had no occasion to deal with the issue on merits and rejected the ground as not pressed. Though it is not mentioned in so many words, the inference is that the assessee did not press the ground before the CIT (A). This being the case, and in view of the decisions cited earlier, as there cannot be any waiver in respect of the jurisdictional aspect of the matter, we hold that the present case clearly falls within the ambit of the judgment in the case of P.V.Doshi (supra). Therefore, respectfully following the judgment of the Gujarat High Court as well as other decisions cited before us, we are of the considered view that it was within the right of the assessee to raise the ground challenging the validity of reopening of the assessment before the Tribunal in the second round of litigation.
8. The only issue which now remains to be dealt with is whether the reopening of the assessment was in fact bad in law in view of the fact 35 that the same had been initiated when the time limit for issuing notice under sec.143(2) was still available. In this connection, besides several decisions relied upon by the learned counsel, a recent Third Member decision is also there in the case of Super Spinning Mills Ltd. in I.T.A.No.977/Mds/2008 dated 12.3.2010. In this decision it has been held that an assessment cannot be reopened under sec.147 of the Act if a valid return is pending and in respect of which the time available to issue notice under sec.143(2) has not expired. Therefore, respectfully following the various decisions including the decision by the Third Member in the above case, we hold that the reopening in the present case is invalid as the time was still available for issue of notice under sec.143(2) of the Act. Accordingly, the reassessment order dated 31.12.2007 is quashed."
7. The Judicial Member however had a difficulty in concurring and agreeing with the reasoning, view and conclusion of the V.P. In the proposed order the J.M. was of the view that the undisputed fact is that the assessee did not challenge the finding of the CIT(A) or the issue of validity of proceedings u/s 147 before the Tribunal in the earlier round of litigation. According to him, the issue relating to the jurisdiction has therefore, attained finality and the assessee should not be permitted to agitate the issue in the present appeal. According to him, at the very threshold, the appeal of the assessee should be dismissed. He further elaborately discussed various case laws relied upon by the ld. D.R to support his view point. The major thrust of the order is based on the following authorities :
1. M.S.P.Senthil Kumar v. CIT (241 ITR 502)(Mad)
2. Murlidhar Bhagwandas v. CIT (234 ITR 548) (Bom) The ld. J.M. accordingly held that the second part of the issue relating to issuance of notice u/s.147 as infructuous and non est. This is how the matter has come before me for adjudication.36
8. I have heard Shri T.Banusekar on behalf of the assessee and Shri Tapas Kumar Dutta, on behalf of the Revenue. Shri Banusekar had first pointed out the bare facts of the case as discussed by both the Members. According to him, there is no dispute as regards the factual aspects of the matter between the Members. He mainly relied upon the decision of the Gujarat High Court in the case of Doshi (supra) to plead that this issue having regard to the facts and circumstances of the case has not reached any finality by way of a Judicial application of mind to the relevant facts. According to him, although he had challenged the jurisdiction before the CIT(A) in the first round the ground that was taken was vague and it was not supported by any material and the assessee has not pursued the ground with any sort of argument or seriousness. In a way the ground was rejected and not disposed of on merits. He further clarified that there are only two methods for disposal of a matter when raised before the judicial forum. One is on merits and the other is 'as not pressed'. Before the CIT(A) in the first round the assessee was not at all serious about the ground. He did not give any material or specific objection to the ground that he has raised and it cannot be said that the CIT(A) has disposed of anything against the assessee except he has recorded a fact that the assessee has virtually given up the ground of appeal. Therefore, he justified the findings and the inferences drawn by the ld. V.P. to the effect that the conduct of the assessee is in the direction of not pressing the ground pertaining to the action taken under sec.147 of the Act. The assessee, it was argued, had not placed any material on the basis of which action under sec.147 was challenged. Not having done so, the CIT(A) had no occasion to deal with the issue on merits and rejected the ground as not pressed. He fairly agreed that in so many words the CIT(A) did not mention in 37 the order in the first round but virtual effect of his discussion is that he has rejected the grounds. According to him, he fairly agreed if the matter has reached some finality by conscious decision on merits, he will be simply out of the Court. When questioned by me, he pointed out whether the assessee would be better off, in not taking any ground, he agreed and that according to him that itself will entitle him to raise the same issue in the second round. The ratio of the decision of the Gujarat High Court in the case of Doshi (supra) is exactly in that situation. According to him, facts of the assessee's case exactly fit into the facts as discussed by the Gujarat High Court and, therefore, the order of the V.P., according to him, needs to be upheld. The ld. counsel for the assessee further argued that he is not quarrelling with the proposition of law as discussed by the J.M. According to him, J.M. has only concluded without properly appreciating the facts of the case that the impugned issue has reached a finality, which fact, according to him, is not borne from the impugned orders of the authorities. Therefore, reference to the decision of the Madras High Court in M.S.P.Senthil Kumar (supra) and the decision of the Bombay High Court Murlidhar Bhagwandas (supra) are not relevant, having regard to the peculiar facts of this case. According to him, in both these decisions, there was a valid order rejecting the contentions raised on jurisdiction and that order became final in the first round and therefore in those cases respective High Courts held that such a final view cannot be reviewed or challenged in the second round. It is to this proposition those cases are helpful. In the case of the assessee no such finality has resulted from the impugned order even in the first round. According to him, that makes the difference. Since the J.M. has disposed of first aspect of the ground and held that the assessee cannot challenge the validity 38 of the proceedings initiated u/s.147 in the second ground of litigation, he has come to the view that the second issue which is admittedly covered by various decisions of the Tribunal and various decisions of the High Courts has become infructuous and non est.
9. The ld. counsel further relied upon the decision dated 9.6.2010 of the Supreme Court in Civil Appeal No.2395 of 2008 in the case of Improvement Trust, Ludhiana where the Supreme Court in para 6 of that order pointed out that justice can be done only when the matter is fought on merits and in accordance with law rather than to dispose it of on such technicalities and that too at the threshold. The SC in this case has concerned with the condonation of delay in filing appeals. It was pointed out by their lordships in that case that only if malafides are writ large on the conduct of the party, generally as a normal rule, delay should be condoned. In the legal arena, an attempt should always be made to allow the matter to be contested on merits rather than to throw it on such technicalities. This part of the judgment was very heavily relied upon so as to impress me that the order of the J.M. is based on technicalities and not on the tests of substantial justice or merits.
10. The ld. D.R. on the other hand, vehemently argued that in the first round of litigation the issue relating to the validity of sec.147 proceedings has reached the finality and therefore, the views of the Assessing Officer as well as the CIT(A) in the second round and so also the views of J.M. in the second round are justified, in rejecting the assessee's contention. To challenge the same in the second round of litigation, is doing a violence to the finality of the Judicial orders. According to him, the decision of the Madras High Court in MSP Senthil Kumar (supra) and the decision of the Bombay High Court in Murlidhar 39 Bhagwandas (supra) clearly supports the stand taken by the Department and he heavily relied upon them. Apart from this, reliance was placed on the provisions of sec.151(2) of the Act where according to him, there is nothing in the section which prevents the Department from issuing the notice within a period during which notice under sec.143(2) could be issued to the assessee.
11. I have carefully gone through the records as also the elaborate discussions in the dissenting orders of the Members constituting the Bench. The issue raised in this appeal is quite interesting and even a matter of detailed discussions in the dissenting orders. According to me the crux of the matter is whether in the first round of litigation it could be said that the issue relating to the validity of the proceedings u/s 147 has reached finality. If the answer to this is 'yes', there would be no question of the issue being re-agitated in the second round, but the question remain whether the issue in this case has at all reached finality. According to the learned Vice President, it has not reached finality, whereas in the opinion of the Judicial Member, it has reached. Now my exercise, therefore, would be simply to cull out from the impugned orders in the light of the facts and circumstances of the case and see whether the issue has reached finality. The only order on the issue available is the order of the CIT (Appeals) dated 3.12.2004 which has been extracted by me in para 2 above. A cursory look at this four sentences order of the CIT (A) wherein he has rejected the assessee's ground, in my opinion, cannot be said to confer a finality of the matter relating to jurisdiction of the A.O in issuing the notice u/s 147 of the Act. In fact the order itself says that no material was brought on record questioning the validity of action u/s 147 of the Act. The whole approach of the assessee was casual and it did not raise the issue seriously. It does not appear to have made any arguments on the 40 merits of the matter. In such a circumstance, to say that the said order has reached a finality and to throw the assessee out of the court, in the second round of litigation, we will only be extending the rules of technicalities in the matter and thereby rendering injustice. It is for these reasons, in my opinion, the learned Vice President was correct to draw an inference having regard to the factual circumstances to say the assessee at best could be said to have not pressed the issue before the CIT (Appeals). I am conscious of the fact that the CIT (Appeals) did not record such a finding in so many clear and pointing words. But substance of the decision is that the disposal was never on merit. It was more like an assessee having taken the ground has given up that ground as was appreciated by the Gujarat High Court in the case of P.V. Doshi (cited supra).
12. The assessee in the first round of litigation did not raise this issue before the Tribunal, although it was in appeal before the Tribunal on merits. Therefore, there was no scope for the Tribunal in the first round even to have tinkered with the decision and to confer finality to such an order in a manner that in the second round that doors of justice would be closed to the assessee on the issue regarding the jurisdiction. It is now well established that the issue of jurisdiction of the authorities is fundamental and is like the root of the proceedings or matter. The matter, in my opinion, had not reached the finality and the dispute or defect as regards the jurisdiction was got inbuilt into the order and should therefore always be subject matter for legal scrutiny when questioned. After all the jurisdiction to the authorities cannot be conferred by acceptance or negligence of the parties to the dispute. It can always be agitated or questioned when the assessee get some opportunity over the issue. In a way that issue is always open to challenge even if the round is second or third. As long as the issue had 41 not reached the finality, it is always open to question or challenge in judicial proceedings. To shut the doors at the threshold on the grounds of technicalities in my view is not within the spirit of the decision of the Apex Court in the case of Improvement Trust (cited supra). Again the Apex Court in the aforesaid case has stressed that in such matters it should be allowed to be fought on merits and not on technicalities and super technicalities. It is from this background, I am persuaded to agree with the view expressed by the Vice President in upholding the assessee's contention about the lack of jurisdiction of the A.O in proceedings u/s 147 of the Act and it may be stated that action of the A.O in taking an action u/s 147 within a period of time available to him to issue the notice u/s 143(2) is again impermissible in the light of the decision of Jurisdictional High Court in the case of Qatalys Software Technologies Ltd. (cited supra). In my view the matter has not reached the finality and, therefore, it was open to the assessee to take up the issue even in the second round of litigation. I have gone through the facts in the case of M.S.P. Senthil Kumar (Mad) and of Bombay High Court in the case of Murlidhar Bhagwan Das. In both these cases the issues, which were re-agitated in the second round, have reached the finality by an order on merits in the first round. I think the difference lies there and therefore should not be blindly applied to the facts and circumstances of this case. As regards the reliance of the D.R to the provisions of Section 151(2) of the Act, I may state the stand of the Department is not accepted by the decision of the jurisdictional High Court in the case of Qatalys Software Ltd. (cited supra). Accordingly the said contention does not give any force to deviate from the view that is being expressed. In the light of the discussions, I, therefore, fully agree with the order of the learned Vice President.
4213. The appeal will now go before the regular Bench for passing the order in conformity with the view of the majority.
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(G.E.Veerabhadrappa) VICE PRESIDENT Date: August 30th ,2010.
mpo* 43 IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH 'C' BEFORE SHRI PRADEEP PARIKH, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A. No.2089/Mds/2008 Assessment Year : 2001-02 M/s. Hemal Knitting Industries The Asst. CIT., 659, Angeripalayam Road, Vs. Circle-I, Tirupur. Tirupur.
PAN - AABFH 5813 P
(Appellant) (Respondent)
Appellant by : Shri T. Banusekar
Respondent by : Shri B. Srinivas
ORDER
PER PRADEEP PARIKH, V.P.
As there was a difference of opinion between the Members of the Division Bench who heard this appeal, the same was referred to the Third Member by the Hon'ble President under sec.255(4) of the Income-tax Act, 1961 (the Act) to resolve the same. The point of difference referred to the Third Member was as follows :
"Whether, on the facts and in the circumstances of the case, is it open to the assessee to challenge the validity of reassessment proceedings before the Tribunal in the second round of litigation, when in the first round, the Tribunal had remanded the order for limited purpose?".
2. The Third Member by his order dated 30.8.2010 has agreed with the order of the Vice-President. Thus, according to the majority 44 view, it is held that it is open to the assessee to challenge the validity of reassessment proceedings before the Tribunal in the second round of litigation, when in the first round, the Tribunal had remanded the order for limited purpose.
3. Besides the above issue, the second issue before the Tribunal was whether the assessment could be reopened when the time limit for taking up the case for scrutiny under sec.143(3) was available. Since the ld. J.M. had held that the assessee cannot challenge the validity of proceedings initiated under sec.147 of the Act in the second round of litigation, he did not adjudicate on this second issue on the ground that it was infructuous. Accordingly, we heard both the sides on this second issue.
4. The ld. counsel has relied on another Third Member decision of the Chennai Bench of the Tribunal in the case of Super Spinning Mills Ltd. vs. ACIT (129 TTJ 305). He has also relied on the judgment of the Madras High Court in the case of CIT vs. TCP Ltd. (323 ITR 346). The ld. D.R. has relied on another judgment of the Madras High Court in the case of ITO vs. K.M. Pachiappan (311 ITR 31) and on the judgment of the Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291 ITR 500).
5. We have considered the arguments of both the sides, the material on record and the judgments cited by the parties. In the case of Super Spinning Mills Ltd. (supra), the Third Member has considered the following judgments :
45(1) CIT vs. Qatalys Software Technologies Ltd. - 308 ITR 249 (Mad) which is in favour of the assessee.
(2) CIT vs. K.M.Pachayappan - 304 ITR 264 (Mad) which is in favour of the assessee.
(3) ITO vs. K.M.Pachiappan - 311 ITR 31 (Mad) which is in favour of the revenue.
(4) ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. - 291 ITR 500 (Supreme Court).
After considering all the above judgments and other judgements as well, the Third Member has explained and distinguished the decision in the case of Rajesh Jhaveri (supra). Further, the Third Member has not followed the judgment in the case of K.M.Pachiappan (311 ITR 31) but instant has followed the judgments in the case of Qatalys Software (supra) and K.M.Pachyappan (304 ITR 264). Thus, since the Third Member has considered all the judgments in the case of Super Spinning Mills (supra), we respectfully follow the said decision and hold that an assessment cannot be reopened when the time limit for taking up the case for scrutiny under sec.143(3) is available.
6. In the result, the appeal of the assessee is allowed.
The order was pronounced in the court on 1-10-2010.
Sd/- Sd/-
(HARI OM MARATHA) (PRADEEP PARIKH)
JUDICIAL MEMBER VICE-PRESIDENT
Chennai,
Dated the 1-10-2010
mpo*
Copy to : Appellant/Respondent/CIT/CIT(A)/DR