Income Tax Appellate Tribunal - Delhi
Indian Airlines Ltd., New Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I' : NEW DELHI
BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND
SMT.DIVA SINGH, JUDICIAL MEMBER
ITA No.72/Del/2011
Assessment Year : 2001-02
M/s Indian Airlines Limited, Vs. Dy. Commissioner of Income Tax,
(Now Air India Limited), Circle-11(1),
Airlines House, New Delhi.
113, Gurudwara Rakabganj
Road,
New Delhi.
PAN No.AAACI0613E.
(Appellant) (Respondent)
Appellant by : None
Respondent by : Smt. Shyama S.Bansia, CIT-DR
ORDER
PER DIVA SINGH, JM :
This is an appeal filed by the assessee against the order dated 29.10.2010 of the CIT(A) pertaining to AY 2001-02. The assessee has raised the following grounds of appeal:-
"1. The ld.Commissioner of Income Tax (Appeals) has erred in law and facts in dismissing the grounds of appeal by holding that the memorandum of appeal was not signed by the Managing Director, Director of the appellant company, without appreciating the facts that the same was duly signed by the General Manager (Finance) under the delegation of administrative powers duly approved by the Board of Directors of the appellant company. Therefore, the action of the ld.Commissioner of Income Tax (Appeals) is arbitrary, illegal unjustified and against the provisions of law.I T A - 72/Del/2011 2
M/s Indian Air Lines Limited (Now Air India Ltd)
2. The ld.Commissioner of Income Tax (Appeals) has erred in law and facts in canceling the appeal, without appreciating the facts that the provisions of Rule 45(2)C are only directory being procedural in nature and not mandatory, the ld.Commissioner of Income Tax (Appeals) was not justified in holding that the General Manager Finance was no so empowered and the appeal was not entertained on merits. Therefore the action of the ld.Commissioner of Income Tax (Appeals) is arbitrary, illegal and against the provisions of law.
3. Without prejudice to the above, the ld.Commissioner of Income Tax (Appeals) has erred in law and facts in dismissing the appeal, without appreciating the facts that the mistake if any procedure in nature and is rectifiable for which the proper opportunity has to be granted to the appellant. Therefore, the action of the ld.Commissioner of Income Tax (Appeals) is arbitrary, illegal and against the provisions of law.
4. The appellant craves to add, amend any additional grounds of appeal at the time of hearing or before the hearing of appeal."
2. None was present on behalf of the assessee at the time of hearing. The record shows that on an earlier date, the appeal was adjourned at the request of the learned AR on behalf of the assessee. Accordingly, after considering the material available on record on the grounds of appeal, it is considered appropriate to proceed with the present appeal ex-parte qua the assessee-appellant on merits.
3. A perusal of the impugned order shows that the CIT(A) passed a consolidated order for AYs 2001-02 & 2005-06.
3.1. In the present appeal, we are concerned with AY 2001-02. The relevant facts, as taken into consideration by the CIT(A) qua the said year, are found discussed at pages 2 & 3 of the impugned order. For ready reference, they are reproduced below:-
I T A - 72/Del/2011 3M/s Indian Air Lines Limited (Now Air India Ltd) "AY 01-02 :- The asstt. was completed u/s 143(3) on 30/01/04 computing total income at Nil and after adjustment of b/f losses of Rs.2,16,94,94,200/-. The case was reopened u/s 147 after recording the reason and thereafter complying with the formalities the asstt. was completed u/s 147/143(3) on 30/03/07 computing total income at Rs.102,01,19,124/- and after adjustment of b/f losses the total income came to Nil. The addition/disallowance interalia includes :- i) on a/c of prior period expenses (Rs.70,49,711/-)."
4. Aggrieved by this action the assessee came in appeal before the CIT(A).
4.1. The CIT(A) observed that the record shows that contrary to the requirement of Sec. 140 of the Income Tax Act, 1961 read with Rule 45(2) of the I.T.Rules the appeal was signed by the General Manager (Finance) instead of the Managing Director. Accordingly he brought this fact to the notice of the assessee.
4.2. Before the CIT(A) the assessee contended that as per the Board's Resolution dated 28.6.93 delegating the administrative powers to the General Manager (Finance) and DGM (Finance), the G.M.(Finance) is authorized to file appeal on behalf of the assessee company. As such signing and verifying was stated to be correct and being a procedural matter, decisions were considered to be not relevant. Submissions were further made on merits.
4.3. The submissions qua the issue are set out in paragraph 2.4 of the impugned order. For ready reference they are reproduced hereunder.
Regarding proper filing of the appeal:- The Board of the appellant company passed a resolution on 28.6.93 delegating the administrative power incorporating certain changes. The forwarding letter dated 14.2.94 would speak for itself (P/1 of enclosure attached with written submission dt. 22.10.10). Para I T A - 72/Del/2011 4 M/s Indian Air Lines Limited (Now Air India Ltd) 16.1 of resolution has authorized the General Manager (F) and DGM (F) to file the appeal on behalf of the appellant company and that is why the same was filed. It is procedural matter and the appellant has followed the same. In both the assessment years, under appeal the returns were signed and verified by the MD and the reason is that on the date of filing of return the MD was available and the same was filed under his signature and verification. As it is a procedural matter, there is no need for relying upon any decision.
4.4. Not convinced with the explanation offered and relying upon the order of the Tribunal in the case of Gold Stone Exports Ltd. Vs. ACIT - 104 ITD 15 (Hyd.), the CIT(A) dismissed the appeal of the assessee holding as under:-
"2.5 Examined the submission of the appellant. It is an admitted fact that in all the relevant assessment years the returns were filed by the Managing Director of the Co. which was as per Sec. 140 of the I.T.Act 1961. There is no other provision for filing of appeals other than Rule 45(2) of the IT Rules 1962 read with Sec. 140 of the I.T.Act. The Managing Director is the competent person to file an appeal in case of a company and where for any unavoidable reason such Managing Director is not able to sign and verify the return/appeal, or where there is no Managing Director, the appeal memo could be signed by any Director thereof. It is clear from the record that there were directors available on the date of filing of the appeals for the two assessment years, yet the Managing Director/Director of the appellant company on his own wisdom has authorized another person, General Manager (Fin.) to file the appeals. The statute does not permit such an action of the appellant. The statute has vested the power of filing appeal with the Managing Director/Director of the appellant company and under no stretch of imagination this power can be delegated to any employee of the rank of General Manager (Fin.) or DGM(Fin.). The appellant company is a resident company and all the directors were also resident in India. By a Board Resolution, General Manager (Fin.)/DGM(Fin) was delegated with the power to file appeal before the Deptt. As delegation of such power is beyond the provisions of the statute, such delegation is not as per the provision of the law and the appeal memos signed and verified by an employee, not being the Managing Director/Director of the appellant company became void ab-initio. This goes to the root of the matter I T A - 72/Del/2011 5 M/s Indian Air Lines Limited (Now Air India Ltd) and vitiates the entire proceeding. No cognition can be taken on such appeal memo and hence all the two appeals for the respective assessment years stand rejected and the appeals fail. As the issues are decided on filing of appeal, no discussion is warranted on the merits of the case. Reliance is placed on Gold Stone Exports Ltd. v Asstt. CIT (Hyd.) 104 ITD 15 (Hyd.). In that case the Commissioner (Appeals) dismissed the assessee company's appeal without going into its merit on the ground that the same was not maintainable in as much as the appeal form was signed and verified by Senior Vice-President (Finance) and not by its Managing Director or even a Director, in accordance with the relevant provisions of the rules and the Act.
5. Aggrieved the assessee is in appeal before the Tribunal.
6. The Ld.D.R. places reliance upon the impugned order. It was her contention that the 'memo of appeal' which was filed before the CIT(A) was not duly signed and verified by the Authorized Representative in terms of the requirement of the Act.
As such the CIT(A) was fully justified in dismissing the appeal of the assessee.
6.1. Ld.D.R. further contended that the CIT(A) has followed the order of the Hyderabad Bench of the Tribunal in the case of Goldstone Export Ltd. on which heavy reliance is being placed by the department. Accordingly the prayer was made that the assessee's appeal be dismissed.
7. Having heard the submissions and perused the material available on record, we propose to reformulate the issues which the assessee is agitating vide the grounds raised. The grounds agitated before us have been reproduced in the earlier part of this order. The grounds may be summed up briefly as under.I T A - 72/Del/2011 6
M/s Indian Air Lines Limited (Now Air India Ltd) "i. The impugned order is arbitrary, illegal and unjust as the assesee's appeal before the CIT(A) was maintainable having been singed by the GM(Finance) in terms of powers delegated to him which had been approved by the Board of Directors; ii. Provisions of Rule 45(2) C are only directory being procedural and not mandatory as such GM(Finance) was empowered to sign as such the appeal should have been decided on merit;
iii. In the alternative if the CIT(A) was of the view that the appeal was not maintainable the opportunity to rectify its procedural defect should have been given.
8. Before we proceed to adjudicate upon the grounds it is relevant to note that the basic ground for appeal raised by the assessee as per the appeal memo is based upon its reference to the provisions of Rule 45(2)(c) of Income Tax Rules as being only directory and procedural in nature. In so submitting the assessee company has referred to and relied upon a provision Rule 45(2)(c) which is no more on the Statute.
Sub rule (2) as amended by the Income Tax (third amendment) Rules 1976 with effect from 1.4.1976 on which reliance appears to have been placed by the assessee in ground no.2 of the appeal had been substituted by the present Sub Rule (2) of the Income Tax (5th amendment) Rules 1989 w.e.f. 18.5.1989. It is seen that the provisions (a), (b), (c) of Sub Rule (2) of Rule 45 prior to the above amendment in 1989 were substantially similarly worded as S.140 (a), (b), (c) of the Income Tax Act, 1961 and were introduced by the Taxation Laws (Amendment) Act, 1973 w.e.f. 1.4.1976. As such reliance placed on the belief that the I T A - 72/Del/2011 7 M/s Indian Air Lines Limited (Now Air India Ltd) procedural requirement to be fulfilled is under the rules and not under the provisions of the Act is misplaced. However since the basic issue under consideration is interpreting a remedy provided by the statute to the assessee to file an appeal against the assessment order, and the remedy is so provided so that tax payer may recover, if so warranted under the law, taxes unjustly collected, just as the mentioning of a wrong section, provision or recital will not per se invalidate an order, similarly the legality and maintainability of the appeal must be judged with reference to the provision under which the appeal was actually maintainable and mere recital of wrong provision is not material. In the facts of the present case the assessee is agitating the maintainability of the appeal before the CIT(A). As such solely because in ground no.2 reference has been made to Rule 45 (2)(c) which no longer exists on the Statute, we do not dismiss the appeal of the assessee out right and consider the grounds raised in the light of the provisions and Rules as they stand for consideration.
9. Before we proceed to adjudicate ground no.1 raised before us, it is necessary to first consider the relevant provisions. The provision which fall for our consideration are namely section 140 of the Income Tax Act, 1961 read with rule 45 - Income Tax Rules, 1962.
9.1. The same are reproduced hereunder.
Return by whom to be signed :
Section 140 of the Income Tax Act, 1961 : The return u/s 115 WD or S.139 shall be signed and verified :I T A - 72/Del/2011 8
M/s Indian Air Lines Limited (Now Air India Ltd) (a ) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(b) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (c ) in the case of a company, by the managing director, thereof, or where for any unavoidable reason such managing director is not able to sign and verify the return, or where there is no managing director, by any director thereof:
Provided that where xxxxxxxxxxxxxxxxxxxxxxx Provided further that :
(a) xxxxxxxxxxxxxxxxxxxxx
(b) xxxxxxxxxxxxxxxxxxxxx 9.2. We now reproduce Rule 45of the Income Tax Rules, 1962 which falls for our consideration. The Rule reads as under.
Form of Appeal to Commissioner (Appeals) Rule 45 (1)) An appeal to the Commissioner (Appeals) shall be made in Form No.35.
(2) The form of appeal prescribed by sub-rule (1), the grounds of appeal and the form of verification appended thereto relating to an assessee shall be signed and verified by the person who is authorized to sign the return of income under section 140 of the Income Tax Act, 1961, as applicable to the assessee.
9.3. On a careful reading of the provisions it is clear that Section 140 of the Income Tax Act 1961 mandates that return in the case of a company shall be signed and verified by the Managing Director or where for any unavoidable circumstances Managing Director is not able to sign and verify the return, or where there is no Managing Director then it may be signed and verified by any Director thereof. Appeals filed before the CIT(A) against the action of the A.O. are permitted by Sec. 246/246-A. The present appeal was filed before the CIT(A) u/s 246(1). The form of appeal and limitation is set out u/s 249 of the Act which mandates that every appeal in the said chapter namely chapter XX shall be in the I T A - 72/Del/2011 9 M/s Indian Air Lines Limited (Now Air India Ltd) prescribed Form and shall be verified in the prescribed manner. Rule 45 of the Tax Rules, 1962 in conformity with the statutory requirements mandates that the same shall be in Form No. 35. Sub Rule (2) of the same further sets out that the grounds of appeal and the form of verification appended thereto relating to an assessee shall be signed and verified by the person who is authorized to sign the return of income u/s 140 of the Income Tax Act 1961 as applicable to the assessee.
9.4. Thus as far as the assessee in the present proceedings is concerned being a company the only competent person who can file the grounds of appeal before the CIT(A) under his signature and verification is the Managing Director or Director in certain circumstances. The assessee company in the memo of Appeal (Form 35) has not met this initial requirement. The statute by the usage of the words "shall be signed and verified" does not leave any ambiguity in regard to the intention of the legislature.
9.5. Having thus examined the relevant provisions we are of the view that the Form No. 35 mandatorily requires the signing and verification by the Managing Director/Director. This requirement has not been met. In the context of these unassailable facts on record we proceed to consider ground No. 1 moved by the assessee.
9.6. By the said ground on behalf of the assessee it is agitated that the appeal before the CIT(A) was maintainable as it had been signed by GM (Financial) in terms of the powers delegated to him by an internal administrative Resolution which had been approved by the Board of Directors. Considering the merit of the claim in the light of the statutory I T A - 72/Del/2011 10 M/s Indian Air Lines Limited (Now Air India Ltd) provisions we have no hesitation in holding that the stand of the assessee is mis-placed, mis-conceived and ill-advised.
9.7. An important aspect of the rule of law is that generally the Courts, Tribunals and the authorities created under Special Statutes only have those powers which have been specifically conferred on them by some positive law. The CIT(A) therefore is bound by the provisions of the Income Tax Act and Rules made thereunder. The procedures and remedies provided under the Income Tax Act and the rules including those for preferring an appeal before the CIT(A) are not just nitty gritty considerations for the Tribunal. The procedures for preferring an appeal are practical steps that an assessee must take to get an appeal heard by the CIT(A).
9.8. As discussed Section 140 of the Income Tax Act read with Rule 45(2) of the Income Tax Rules are the provisions to be construed by us for deciding the issue raised in the appeal. It is the first principle of interpretation that a statute should be read in its ordinary natural and grammatical sense as observed by the Hon'ble Supreme Court of India in M/s Hiralal Rathanlal vs. STO in AIR 1034 "in construing a statutory provision the first and fore most rule of construction is the literary construction. All that the Court has to see at the very outset is what does the provision say. If the provision is unambiguous and if from the provision the legislative intent is clear, the Court need not call into it the other rules of construction of statutes. The other rules of construction are called into aid only when the legislative intent is not clear."
9.9. In the face of clear cut statutory requirements certain procedural steps are to be performed/fulfilled before the appeal can be taken up for I T A - 72/Del/2011 11 M/s Indian Air Lines Limited (Now Air India Ltd) adjudication. The internal administrative resolution even when approved by the Board of Directors even in the case of a company which is a government undertaking cannot circumvent the statutory requirements. The procedures are laid down so as to assist in the rendering of justice.
9.10. The assessee who moves an appeal under the Income Tax Act before the CIT(A), who is created by the same statue in order to seek adjudication upon the merits of the grounds of appeal raised before it u/s 246 of the Income Tax Act cannot dictate to the said authority that the internal administrative procedure, though of a government undertaking, must bow to the procedural requirements set out under the rules under the Income Tax Act, 1961. The CIT(A)'s action in holding that dismissing the appeal of the assessee is not maintainable for want of signature of the competent person is fully in consonance with the settled legal principles and cannot be faulted with. The assessee cannot arrogate to itself the power to dictate that the Board Resolution should be allowed to circumvent the statute under which he seeks a redressal. The time tested procedures which have been set out in the relevant provisions cannot be circumvented at the ill advised whims of the assessee and it is in the assessee's own self interest that they are not allowed to be circumvented.
9.11. The assessee in the present proceedings is a company and not GM(Finance), Board of Directors or for that matter M.D. The Assessee is in the proceedings before the CIT(A) the company and the GM (Finance) under the statutory provisions of the Act under which redressal is sought by the assessee cannot sign and verify Form No. 35 and the CIT(A)'s action is fully supported by the order of the co-ordinate Bench of Hyderabad. While so holding we observe that although the Boards circular is not before us however the CIT(A) has given a finding of fact that at the relevant point of time the Directors were available. The I T A - 72/Del/2011 12 M/s Indian Air Lines Limited (Now Air India Ltd) delegation of powers vested contrary to the statutory requirement cannot be accepted and the CIT(A) was fully justified in dismissing the appeal of the assessee as non-maintainable for want of necessary verification and signing of the competent person.
9.12. The plea which may be taken that GM (Finance) would be by virtue of his specialty and expertise in tax and financial matters would be fully conversant, responsible and more conscious of the implications and as such a responsible person for the assessee company hold good as it is a universally settled legal position that the company being an artificial juridical person is responsible for all its civil, criminal or tax related acts through its M.D. or Director as it may be. The responsibility so fixed is in the better interest of the assessee itself as the laws of the land hold the M.D./Director responsible for all acts of omission or commission of the company in civil, criminal or taxation matters. The MD / Director as it may be is the final interface of the company with the world at large and the laws of the land hold him responsible and accountable. Thus delegation of this onerous responsibility contravening the statutory requirements of the Income Tax Act in the present proceedings cannot be accepted as it is against the law.
9.13. Before parting we may reiterate that the responsibility so fixed is in the better interest of the assessee itself as the assessee at the highest responsible and accountable position is fully aware and participates in the proceedings where huge tax liabilities affecting the performance of the company are at stake.
9.14. In the face of no other fact except the Board's Resolution the CIT(A)'s action in dismissing the appeal in limine for want of necessary signatures of the competent person, cannot be quashed on the grounds of being arbitrary as the said authority has acted in accordance with law I T A - 72/Del/2011 13 M/s Indian Air Lines Limited (Now Air India Ltd) and without arbitrariness. The action of the said authority also cannot be set aside on the ground of being illegal as no illegality is brought out nor is it contrary to the provisions of law as CIT(A) has followed the law and applied the principle laid down in the order of the Higher Forum i.e. the Hyderabad Bench of the Tribunal. Accordingly ground No. 1 of the assessee is rejected.
10. By ground No. 2 it is agitated that the provisions of Rule 45(2)(c) are directory and being procedural are not mandatory; the signing having been done by the GM (Finance) the appeal should have been decided on merits. The said rule as discussed on the earlier part of this order has been amended as such reference to the same in the ground is considered in the light of Sec.140 of the Income Tax Act read with Rule 45(2) of the Income Tax Rules.
10.1. Considering the merits of the arguments advanced in the said ground we are of the view that it cannot be disputed that Rule 45 is a procedural rule and provides the form in which the appeal is to be made and who is the competent person to sign the verification appended to the appeal.
10.2. In the case of the assessee company it is the Managing Director or any Directors thereof in certain circumstances as has been discussed while considering the said rule in the earlier part of this order. The appeal before the CIT(A) has to be filed in Form 35 of Appendix II of the IT Rules 1962. In accordance with the prescribed form the appeal is to be signed by the authorized and responsible person who represent the company. As observed under the laws of the land and for that matter it is a universal settled legal principle qua the company that that the MD/Director is the person having the ultimate responsibility in civil, criminal and taxation liabilities. The GM (F) even when authorized by I T A - 72/Del/2011 14 M/s Indian Air Lines Limited (Now Air India Ltd) internal administrative Resolution duly approved by the Board of Directors is still not the authorized person under rule 45 to sign and verify Form No. 35. As such the CIT(A) was fully justified in not proceeding to adjudicate upon the points at issue on merit and dismiss the appeal in limine for want of signature verifying Form No. 35 and signatures of MD on the grounds of appeal agitated as such ground No. 2 is also rejected.
10.3. Before parting we again emphasis the right to appeal under the Income Tax Act 1961 against the assessment order is given only to the assessee, in order to ensure that the assessee is not visited upon by any adverse action at the appellate stage without his knowledge. It has been ensured by Section 140 of the Act read with Rule 45 that the only person who can sign the grounds of appeal and the verification in Form No. 35 is the very same person as the one who files the return as an assessee under his own signature. The authorized person who can file the return in the case of the assessee company is the MD/Director as such Form No. 35 necessarily in the interests of the assessee company's own self interest has to be signed by the MD/Director. The fact that MD/Director is universally accepted to be the responsible person for the act of omission and commission of the company is a well settled legal principle leaving no scope to argue with.
10.4. The present case is therefore a clear case of Jurisdictional error of fact where on behalf of the assessee company the reliance is being placed upon the administrative decisions of the management. The assessee company has mistakenly assumed that it had the powers to delegate the power to file an appeal upon the DG (F) thereby giving to itself extra powers not provided by the Income Tax Act. The exercise of power or jurisdiction depends upon the precedent establishment of an objective fact. This precedent requirement includes the requirement to follow the I T A - 72/Del/2011 15 M/s Indian Air Lines Limited (Now Air India Ltd) procedural requirement as in the present case of the appeal being filed before the CIT. The administrative authority cannot increase its power by mistakenly thinking that it also has the power to decide the authority empowered to file an appeal before the CIT(A) which it does not.
10.5. Sec.140 of the Act read with Rule 45(2) is worded in such a manner that the procedural requirement is a mandatory requirement . The prevalent largely consistent judicial view which we shall discuss in detail in the later part of this order while considering identical procedural requirements the Courts have no doubt held that despite the wording which makes it mandatory the requirements having been construed as a procedural requirement as such is curable. The defect is not an incurable defect but a rectifiable defect. The liberal interpretation so given does not mean that being procedural the defect is to be ignored. The correct and only interpretation is that being procedural it is a curable. As such the emphasis on the ground that being directory as such being procedural is not mandatory and GM(Finance) was empowered to file as such the CIT(A) erred in not deciding on merits is mis reading the case law and contrary to the settled legal position. It cannot be said that the Courts have waived the said requirement into oblivion. They have merely observed that non performance or non fulfillment of the procedural requirements of the Rules can be cured.
10.6. The procedural requirement cannot be ignored as they are in the best interests of the assessee itself as by ensuring that only the authorized person performs these responsible tasks the assessee is necessarily at the highest and accountable level kept fully informed about the liability which may be fastened upon the assessee. The right to appeal conferred upon the assessee must be exercised through the person who is authorized to sign the return and the only person who under law can participate on behalf of the assessee who is a company is I T A - 72/Del/2011 16 M/s Indian Air Lines Limited (Now Air India Ltd) a Managing Director/Director in certain cases who takes full responsibility on behalf of the company on the tax liability though procedural is mandatory and required to be cured.
10.7. The importance of it whereby tax liability may be fastened upon an assessee in the best interests of the assessee itself cannot be disregarded and the authorized person as such is necessarily the person who is to sign and verify the return/appeal memo along with the grounds before the CIT(A) u/s 140 of the Income Tax Act read with Rule 45(2) of the I.T.Rules. . As such ground no.2 of the assessee is dismissed.
11. Without prejudice to the above grounds the assessee has also agitated vide ground No. 3 that if it is to be held that the CIT(A) was correct in forming the view that the appeal was not maintainable then opportunity to rectify the procedural defect should have been given by the CIT(A).
11.1. A perusal of the impugned order shows that opportunity was given vide letter dated 1.7.2010 with corrigendum dated 30.8.2010 asking for the clarification. Extract of the said letter is found attached at pages 3 & 4 of the impugned order. The assessee's reply thereto dated 22.10.10 is also found reproduced at page 4 relevant extracts addressing the issue under consideration have been reproduced in the earlier part of this order. On consideration of the same it cannot be said that the fact of defect was not confronted to the assessee company. The relevant provision was specifically confronted by the CIT(A) requiring the assessee to show how the appeal was not maintainable. The assessee would have been well advised to promptly rectify the defect at that stage. The merits of such an action cannot be overemphasized. However the assessee chose to obdurately insist upon the correctness of the I T A - 72/Del/2011 17 M/s Indian Air Lines Limited (Now Air India Ltd) procedures followed giving greater sanctity to the procedures followed by the assessee company by virtue of which powers were delegated to the GM (Finance) is unfortunately ill advised. We are called upon to state in unambiguous words that internal administrative procedures running / flouting the statutory procedural requirements can not cure the defect of signing and verifying by the competent person. The defect can be cured only by signatures of the MD or Director as may be applicable. The reliance placed upon internal administration procedures is as such misplaced.
11.2. Having thus observed considering the specific ground namely ground No. 3 the fact remains that the assessee by the said ground seeks to canvass that had the opportunity been given the defect would have been cured.
11.3. As we have discussed earlier the fact of appeal not confirming to the statutory requirements and the rules hereunder was brought to the notice of the assessee and its explanation / clarification was sought. The assessee having rendered its explanation cannot be doubted to have a bonafide belief that if the explanation is not satisfactory then opportunity to rectify the defect would be given. As the ground under consideration bears out this bonafide belief which may have been entertained. As such the plea put up that in the eventuality the explanation offered was not accepted the CIT(A) would grant a specific opportunity to rectify the defect is very much within plausible beliefs and is not a far-fetched claim. The expectation of the assessee cannot be said to be an impossible and unrealistic expectation. We are inclined to so hold as it is a settled legal proposition that if any order by a judicial or a quasi-judicial authority or for that matter an administrative authority is passed which is adverse to the party, implicitly by reading the rules of natural justice into it a responsibility is cast on the authority passing the I T A - 72/Del/2011 18 M/s Indian Air Lines Limited (Now Air India Ltd) order to give a reasonable opportunity of correcting the defect. The same is embedded in the right to be heard as a hearing pre supposes on an issue like this that if the CIT(A) was not satisfied with the explanation the assessee was necessarily required to be given a reasonable opportunity to rectify the defect. To hold otherwise would mean that the opportunity of being heard given to the assessee was only a pre gone pre closed issue. The authority cannot be said to have acted in such a manner. The assessee when called upon to explain/clarify may entertain a belief that if the explanation is not accepted he will be given opportunity to make good the defect. There may be occasions where at a point of time the memo of appeal may have been signed by any other person who in the eyes of law is not authorized to so sign. The said situation may have arisen on account of the fact that there being no competent person at the point of time where the signing and verifying is done in order to ensure that limitation does not expire. As such the assessee may be asked to explain and clarify the position. Wrong bonafide belief on the part of the assessee on consideration necessarily cannot be accepted. However opportunity to rectify the defects is to be given.
12. We now propose discuss at length the legal position on the issue of signing and verifying the appeal form and grounds wherein the Courts have been seized of such issues. A perusal of the following would show that the settled legal position which emerges from a study of these is that the defect is a rectifiable/curable defect and does not amount to illegality and instead is only an irregularity.
12.1. We first propose to consider the judgement of the Orissa High Court in the case of ACIT vs. K.Padmalochan Sahu (1974) 95 ITR 113 I T A - 72/Del/2011 19 M/s Indian Air Lines Limited (Now Air India Ltd) (Orissa) wherein relating to a matter where the memorandum of appeal was not signed by a Karta or a member of HUF as such should the appeal be rejected or not , the Court held as under.
"The difference between the AAC and the Tribunal lies within a narrow campus purely in the matter of exercise of discretion. The first appellate authority gave one chance for rectification, and on the failure thereof the appeal was dismissed. The Tribunal, however, was of the opinion that a further opportunity should be given for rectification as on the second occasion the assessee committed another mistake by not getting the memorandum of appeal signed by the Karta, but by his son. This being a matter of discretion, the Tribunal is to exercise it as it thinks proper as the last Court of fact. Strictly speaking, the question referred to us should not have been referred. As, however, the question has already been referred we answer it by saying that the first part would be answered in the negative and the second party by saying that the defect was an illegality, but such defect should be allowed to be rectified by giving proper opportunity to the assessee."
12.2. Reference may also be made to the judgement of the Hon'ble Calcutta High Court in the case of Sheonath Singh vs CIT (1958) 33 ITR 591 (Cal.), wherein their Lordships of have held in some what similar circumstances :
"the absence of or defect in the signature of the appellant in the memorandum of appeal was not an illegality or fatal but only an irregularity which could be rectified by amendment, the amendment taking effect from the date when the document had originally been field. The memorandum as I T A - 72/Del/2011 20 M/s Indian Air Lines Limited (Now Air India Ltd) originally filed were not nullities and the Tribunal had power to accept them in the condition in which they found them at the time they were hearing the appeal provided they were satisfied that the assessee had in fact intended the appeal to be placed before them and had done so through the Authorised Representative although he had not himself signed the memorandum. The Tribunal was, therefore, wrong in holding that the absence of the signature of the appellant at the proper places in the memorandum of appeal was a material defect which prevented them from accepting the document as good and that although the defects had subsequently been removed, the period of limitation having meanwhile expired the removal was of no assistance to the assessee."
12.3. It can also be seen that their Lordships of the Gujarat High Court were seized of somewhat similar facts in the case of Rajendra Kumar Maniklal Sheith (HUF) vs CIT reported in 213 ITR 715 (Gujarat) . The Lordships therein reversed the action of the Tribunal and upheld the action of the Appellate Asst.Commissioner in exercising his discretion by way of which the said authority allowed the assessee in appeal permitted the assessee to submit a revised appeal in form no.35 duly signed by him so as to overcome the hurdle that the Memo of Appeal originally filed did not carry the signature of the appellant as it was signed by somebody else. Before the CIT(A) it was contended by the ITO vide his written submissions that the appeal was not properly filed by the assessee as it did not bear his signature. To the said objection the assessee intimated that the appeal form really bore his signature and even if the appeal form was not signed by him he should be permitted to sign a revised form which was duly done along with condonation of delay petition. Considering various decisions over ruling the ITO's objections the appeal was admitted, delay condoned and allowed on I T A - 72/Del/2011 21 M/s Indian Air Lines Limited (Now Air India Ltd) merits. The Tribunal did not uphold the action and remanded the issue for verification of the signature back to the CIT(A).
12.3.1. Their Lordships held that the Appellate Asst.Commissioner exercised his discretionary jurisdiction and has condoned the delay and had admitted the appeal for adjudication on the merits u/s 249(3) of the Income Tax Act, 1961. The Lordships were pleased to hold that for condonation of delay the said authority has considered the facts stated by the appellant and also the case laws cited before him. Further by admitting the appeal for adjudication on merits their Lordships held that the department is not likely to suffer any loss or prejudice. Hence it could not be said that the discretionary power exercised by the Appellate Authority including the so called irregularity with regard to signature on the Appeal Memo calls for any interference by the Tribunal particularly when the fresh appeal memo duly signed by the appellant was submitted before it.
12.4. At this stage, it may be appropriate to refer to similar provisions of the Code of Civil Procedure. In terms of 0.6 rr 14 and 15, there is an obligation upon the plaintiff to sign and verify the plaint by a duly authorized person. In the event of such signing and verification is defective, either for want of authority or on such similar grounds, in that event, it would not be proper to reject a plaint under the provisions of O. 7, r.11 of the CPC, but an opportunity should be provided to the plaintiff to correct the defect so that substantive dispute between the parties can be decided. In the case of United Bank of India vs Naresh Kumar and another 1996 (6) SCC 660, their Lordships of the Apex Court while referring to the law of practice and procedure considering the objection I T A - 72/Del/2011 22 M/s Indian Air Lines Limited (Now Air India Ltd) that the plaint was not signed and verified in accordance with law by a duly authorized person. The suit had been dismissed by the Courts below their Lordships sitting in the Supreme Court held :
"............... Procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause. There is sufficient power in the Courts, under the Code of Civil Procedure, to ensure that injustice is not done to any party who has a just case. As far as possible a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable."
They further opined as under.
".................. If, for any reason whatsoever, the Courts below were still unable to come to this conclusion, then either of the appellate Courts ought to have exercised their jurisdiction under O. 41, r. 27(1) (b) of the CPC and should have directed a proper power of attorney to be produced or they could have ordered Shri L.K. Rohatgi or any other competent person to be examined as a witness in order to prove ratification or the authority of Sh. L.K.Rohatgi to sign the plaint. Such a power should be exercised by a Court in order to ensure that injustice is not done by rejection of a genuine claim."
12.5. Substantial compliance to the rules of procedure has normally been accepted by the Courts and consistent view appears to be that the doors of adjudication should not be shut on an applicant at the very threshold of the proceedings, unless there was violation of the substantive provision which resulted in settlement of right of parties.
Procedural law is panacea for achieving the goal or object of fair I T A - 72/Del/2011 23 M/s Indian Air Lines Limited (Now Air India Ltd) adjudication. Applying this principle, the Supreme Court in the case of Ragu Thilak D John vs S Rayappan & others AIR 2001 SCW 342 while relying upon the judgements of the Supreme Court in L.J. Leach & Co.Ltd. vs Jardine Skinner & Co. AIR 1957 SC 357, Smt.Ganga Bai vs Vijay Kumar AIR 1974 SC 1126, BKN Pillai vs P Pillai AIR 2000 SC 614, held as under:
"......But it is equally true that the Courts while deciding such prayers should not adopt hypertechnical approach. Liberal approach should be the general rule particularly in cases where the other side can be compensated with the costs. Technicalities of law should not be permitted to the pleadings to avoid uncalled for multiplicity of litigation."
12.6. It is necessary to refer to the judgement of the Jurisdictional High Court on the issue under consideration. A perusal of CIT vs. Bhiwani Synthetics Ltd. 318 ITR 177 (Delhi) shows that their Lordships while considering the provisions of S.140(c ) in regard to filing of return in the context of signatures on return were seized of the issue wherein the AO treated the return as non est on account of fact that it was not signed by the Managing Director or Director of assessee and had been signed by the General Manager. In the facts of the said case the assessee neither disowned the return nor objected to its filing by G.M. as in the facts of that case a power of attorney was given to the G.M. to sign the return. The Tribunal therein set aside the order of the A.O. The Hon'ble High Court was of the view that it would have been appropriate if an opportunity had been granted to the assessee to have the return signed by the M.D. or its Director in accordance with the directions given by the CIT(A) and there was nothing to suggest that any prejudice would be caused to the Revenue if the direction is complied with.
I T A - 72/Del/2011 24M/s Indian Air Lines Limited (Now Air India Ltd) 12.7. Similarly their Lordships in Haryana Steels 318 ITR 173 (Delhi) of Delhi High Court again considering the provisions of Sec.140 held that the said section mandates that the M.D. or some other responsible Officer can sign and cure the irregularity. Their Lordships had observed that though the Secretary as per the provisions of the Companies Act is competent to sign under that Act however as far as the Income Tax Act is considered not having the signature of the authorized person was considered to be an irregularity curable and the doctrine of relation back was held to have been rightly applied.
12.8. Reference may also be made to yet another judgement of the Jurisdictional High Court in the case of Remfry & Sons vs CIT 276 ITR 1 (Delhi) which fully supports the view taken. A perusal of the said judgement would show that the appeal filed before the CIT(A) was signed and verified by the Authorised Representative of the assessee and not by the competent person. The CIT(A) dismissed the appeal of the assessee holding that the appeal was a right given by the Statute and can be availed only by scrupulously fulfilling the condition required for filing of such an appeal. The said action of the CIT(A) was upheld by the Tribunal. In a reference filed before the Delhi Court the assessee canvassed that Rule 45(2) be given a liberal construction and stated that once the memorandum was signed by the Authorised Representative it would be a valid presentation of the appeal and if in any case it was to be held as a defect opportunity should have been granted to rectify the defect. Their Lordships held that the irregularity committed by the I T A - 72/Del/2011 25 M/s Indian Air Lines Limited (Now Air India Ltd) assessee was curable and could be rectified on the date of its filing and even subsequent thereto, as appeal admittedly was filed within the period of limitation.
12.9. It may not be out of place to make a reference to the observations of Bowen L.J. in the case of Cropper vs. Smith (1884) 26 Chancellary division 700 (CA) wherein his Lordship held that the object of Courts is to decide the rights of parties and not to punish them for their mistakes in the conduct of their cases and that the proper function of the Court was not in such cases to impose discipline but to decide the points of controversy.
12.10. Similarly Lord Penzance in Kendall vs. Hamilton (1879) 14 App Cas 504 at 525 has said even more eloquently that procedure was after all the machinery of law, the channel and means whereby law was administered and justice reached and that procedure would be strangely departing from its proper office, when in place of facilitating it was permitted to obstruct and even extinguish legal rights and was thus made to govern where it ought to subserve.
12.11. The importance of the said legal position cannot be over-
emphasised. The rules or procedure are to further the cause of justice and any approach which would render the remedy ineffective is to be avoided unless it was said so specifically or by necessary implication I T A - 72/Del/2011 26 M/s Indian Air Lines Limited (Now Air India Ltd) stated in the relevant provisions. The basic object of every procedural law, is the attainment of effective and efficacious disposal of the cases in conformity with the provisions of the Statute. A hyper technical interpretation or enforcement of the provisions may not be quite in adherence to the basic rule of law and interpretation and opportunity to the affected party is to be given. A procedural defect should not be allowed to stand in the way of an effective remedy to which the assessee is entitled.
12.12. The common law rule 'qui facit per olium facit per se' covers the matter of signature by persons, but it is equally established that when a statute makes a specific provision requiring the signatures and verification of a specific person the requirement cannot be obviated by the signature of any other person than the authorized person.
12.13 We are also fortified in our view by the principles laid down by their Lordships of the M.P. High Court in the case of CIT vs. Hope Textiles Limited, 287 ITR 321 (M.P.) who have relied upon the judgements in the case of Dahyabhai Girdhardas vs. Bobaji Dahyaji Kotwal, AIR 1953 Bom 28; Kalu Ram Pannalal v. Jagannath Kalua, AIR 1963 MP 151; Udhay Shankar Triyar v. Ram Kalewar Prasad Singh (2006) 1 SCC 75; and Sangram Singh v. Election Tribunal, AIR 1955 SC
425. In the facts of the said case, the memo of appeal had been signed by the Advocate who was appearing for the assessee. The Tribunal I T A - 72/Del/2011 27 M/s Indian Air Lines Limited (Now Air India Ltd) remanded the matter back to the file of the CIT(A) with the direction to allow the assessee to sign the memo of appeal so as to make the appeal in conformity with the requirements of Rule 45 read with section 140 of the Income Tax Act, 1961. The said action of the Tribunal was upheld by the M.P. High Court.
12.14. In the light of the above position of law, considering the fact that the department has placed heavy reliance on Goldstone Exports Ltd.
(supra), it is seen that it also does not lay down the principle that opportunity cannot be granted to the assessee to rectify the defect. A careful perusal of the said order of the Coordinate Bench would show that that therein the assessee was given repeated opportunities to rectify the defect by the CIT(A) of having signed the memo of appeal and verified by Sr.V.P.(F) instead of by M.D. or Director. Accordingly in the circumstances the CIT(A) was held to be justified in rejecting the appeal of the assessee in limini. The assessee therein before the Tribunal had also relied upon the resolution of the board of directors of the company authorizing Sr.V.P.(F) to do certain acts on behalf of the assessee. The Coordinate Bench did not accept the contention of the assessee holding that the resolution of the board of directors of the company cannot prevail over the statutory provisions mandating compliance by specified persons to initiate valid proceedings. However since the assessee before the Coordinate bench realizes its folly, the Coordinate bench accepted the prayer of the assessee for want of more opportunities and the I T A - 72/Del/2011 28 M/s Indian Air Lines Limited (Now Air India Ltd) assessee was allowed to rectify the defect before the CIT(A) by way of filing a fresh memo of appeal under signature and verification by the M.D. or Director of the assessee company as the case may be.
12.15. In the facts of the present case admittedly even going by ld.CIT, D.R.'s arguments only one opportunity is given to the assessee by the CIT(A) and the assessee in its wisdom chose not to avail of the same and carry out necessary corrections. As per the ground no.3 which is before us the assesee's stand is that opportunity is not granted. The perception may have been that after pointing out the defect and seeking clarification the said action should have been followed up with a specific opportunity to cure the defect. On considering we find that however ill advised, misconceived and obdurate stand the assessee may have taken, which is unfortunate, still specific opportunity to cure the defect cannot be denied. It is also seen that the assessee's case is on a better footing than as was considered by the Co-Ordinate Bench sitting at Hyderabad.
The purpose of the remedy provided in the Act by way of filing an appeal ought not to be allowed to be defeated on technicalities. The defect being an irregularity ought to be allowed to be rectified by way of an opportunity to cure the same. Accordingly in the interest of substantial justice we see no good reason as to why the assessee should be deprived of seeking adjudication on merits after having cured the defect.
I T A - 72/Del/2011 29M/s Indian Air Lines Limited (Now Air India Ltd)
13. Accordingly for the reasons given hereinabove, we are of the view that the present case is a fit case for restoring the issue back to the file of the CIT(A) with the directions to give the assessee a specific opportunity to rectify the defect and file a proper memo of appeal complying with the rules of the statute. As such ground no.3 of the assessee is allowed.
14. In the result the appeal filed by the assessee is allowed for statistical purposes.
Decision pronounced in the open Court on 30th September,2011.
Sd/- Sd/-
(G.E.VEERABHADRAPPA) (DIVA SINGH)
VICE PRESIDENT JUDICIAL MEMBER
Dated : 30th September, 2011.
* Manga
Copy forwarded to: -
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR, ITAT Assistant Registrar