Income Tax Appellate Tribunal - Bangalore
M. R. Raghuram (Huf) & Ors vs Assistant Commissioner Of Income Tax on 31 March, 1996
ORDER
S. Bandyopadhyay, A.M.
1. All these appeals have been filed by the assessees belonging to the same group against the orders of the CIT(A). The issue involved is also found to be the same. The hearing of the appeals was fixed up by the Tribunal several times and on each occasion, the Department had asked for adjournments on some ground or other. When the hearing was fixed once more on 3rd July, 1996, the learned Departmental Representative raised a legal objection. He contended that the appeals are not maintainable and hence, the Tribunal should dismiss the appeals without hearing the same. Accordingly, a preliminary hearing was given to the representatives of both the sides on the question of maintainability of the appeals alone.
2. The learned Departmental Representative has stated in this connection that all the assessees under consideration filed their returns of income showing therein considerable amounts of agricultural income mostly for the purpose of explaining certain deposits made by them in banks. He furthermore stated that the agricultural income was returned by the different assessees from the common agricultural operations at Gokul farm by considering the total income of the farm to be distributed in the ratio of 1/11th for each assessee, irrespective of their extent of holding. In the assessment orders, the agricultural income returned by the assessees was disbelieved partly and corresponding additions of income from other sources were made. The learned Departmental Representative has further stated in this connection that the assessees approached the Settlement Commission for fixation of the agricultural income for the earlier period prior to the assessment years considered in the present appeals i.e., asst. yrs. 1983-84 to 1986-87 whereas in the present appeals, assessment years involved are from 1987-88 to 1992-93. The learned Departmental Representative also stated that the assessees did not maintain proper books of account with regard to the agricultural operations. However, a small diary with regard to such operations is stated by him to have been seized by the Department in January, 1995. The learned Departmental Representative further states in this connection that the revised estimates filed by the assessees were accepted by the Settlement Commission and the agricultural income of the assessees for the earlier period was determined by the Settlement Commission on the basis of the said revised estimates. The CIT(A) passed orders against the assessments made originally for the years under present appeals by taking into consideration the agricultural income at considerably reduced figures and making enhancement in the amounts of income from undisclosed sources thereby.
The Departmental Representative goes on stating that on the basis of the diary found during the search, the assessments for all the years for all the assessees were reopened and majority of those reopened assessments were completed in March, 1996, by taking into consideration the seized materials as well as certain other evidence gathered. The Departmental Representative states that in the reassessments, the agricultural income of the assessees has been determined on the basis of proper evidence. The first appeals filed by the assessees against such reassessment proceedings are pending before the CIT(A). The learned Departmental Representative thus argues that inasmuch as the assessments, the appeals arising from which are before the Tribunal now, have themselves been revised considerably in the reassessments, the present appeals do not have any value. The learned Departmental Representative thus contends that the appeals are not maintainable, need not be heard and should be considered as infructuous and liable to be dismissed. In support of his contention in this regard, he has firstly relied on the decision of the Kerala High Court in the case of CIT vs. K. Keshava Reddiar (1989) 178 ITR 457 (Ker). In that particular case, the ITO had passed an assessment order adding a sum of Rs. 90,000 to the income returned by that assessee, which was directed to be deleted by the CIT(A). The Department filed an appeal before the Tribunal against the said order of the CIT(A). During the pendency of the said appeal before the Tribunal, the ITO had initiated proceedings under s. 147(b) and passed a revised assessment order, in which the reassessment proceedings were closed as 'nil assessment'. In view of the said reassessment order, when the appeal filed by the Department from the original assessment proceedings came up for hearing before the Tribunal, the Tribunal took the view that the original order of the assessment had been superseded by the reassessment order. The appeal was, therefore, dismissed. The High Court upheld the decision of the Tribunal. The learned Departmental Representative has brought our attention to the following observation of the Kerala High Court in the reference application filed by the Department in this particular case.
"The effect of reopening the assessment is to vacate or set aside the initial order of assessment and substitute in its place the order made in reassessment proceedings. The initial order of assessment cannot survive in any manner or to any extent. The result of reopening the assessment is that a fresh order of assessment should be made." (Page 466 of the reported judgment)
3. The learned Departmental Representative thus argues that it should be held in view of this particular judgment of the Kerala High Court that once the reassessment proceedings have been initiated and reassessment orders have been passed, the original assessment orders get superseded and thus become infructuous. He thus contends that the appeals against those original assessments should also be considered as having become infructuous.
4. Thereafter, the learned Departmental Representative has referred to the judgment of the Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. 198 ITR 297 (SC). He has brought to our notice the obiter passed by the Supreme Court in the said case to the following effect :
"It is not proper to regard a word, a clause of a sentence occurring in a judgment of the Supreme Court, divorced from its context as containing full exposition of the law on a question, when the question did not even fall to be answered in the judgment." (Page 320 of the reported judgment) The learned Departmental Representative has thus argued that the discussion made by the Supreme Court about the case of V. Jaganmohan Rao vs. CIT/CEPT (1970) 75 ITR 373 (SC) in the aforesaid judgment of CIT vs. Sun Engineering Works (P) Ltd. (supra) should not be given much importance to. Ultimately, the Departmental Representative has strongly argued that once a reassessment order is passed, the original assessment order loses its significance and the same fate applies to any appeal pending against the said assessment also.
5. In this connection, we can refer to the discussions made by the Supreme Court in the matter of its earlier judgment in the case of V. Jaganmohan Rao (supra). The Supreme Court noted (in the case of Sun Engineering Works (P) Ltd. vs. CIT/CEPT that certain High Courts had taken the view that, in the proceedings under s. 147 of the Act, the entire assessment is reopened, the original assessment is "wiped off" and the assessee can put forward all pleas even rejected during the original proceedings, by relying on the observation in the case of V. Jaganmohan Rao vs. CIT/CEPT (supra) to the effect that "the previous under-assessment is set aside and the whole assessment proceedings started afresh", while certain other High Courts had taken the view that the reassessment is confined only to the escaped assessment and an assessee can put forward pleas only in respect thereof, by relying upon certain other portion of the same judgment of the Supreme Court in the case of V. Jaganmohan Rao vs. CIT/CEPT, as below :
"When once valid proceedings are started under s. 84(1)(c), the ITO has not only the jurisdiction, but it was his duty to levy tax on the entire income that had escaped assessment during that year." (Pages 317 & 318 of the reported judgment) Ultimately, after discussing the real purport of the judgment in the case of V. Jaganmohan Rao vs. CIT/CEPT (supra), the Supreme Court finally held to the effect that "what is set aside is, thus, only the previous under-assessment and not the original assessment proceedings". The Supreme Court concluded in this connection ... "but to read the judgment in V. Jaganmohan Rao's vs. CIT/CEPT (1970) 75 ITR 373 (SC) as laying down that reassessment wipes out the original assessment and that reassessment is not only confined to "escaped assessment" or again "underassessment" but to the entire assessment for the year and starts the assessment proceedings de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceedings, which had acquired finality, is not only erroneous but also against the phraseology of s. 147 of the Act and the object of reassessment proceedings".
6. The case of CIT vs. K. Keshava Reddiar (supra), as decided by the Kerala High Court was a peculiar one. In that case, certain income was determined in the original assessment, whereas the reassessment ended as "nil assessment". According to the final judgment of the Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (supra) a reassessment proceeding is not liable to end up as a benefit to the assessee in that manner. Hence, it may be said that the basic proceedings adopted by the Department in that case were erroneous and out of place. The Kerala High Court put a stamp on the judgment of the Tribunal apparently, to a large extent on the basis that by concluding the reassessment at nil income, the Department had lost its right to stick to the original assessment which had resulted in some positive figures of income. That is why, in the peculiar circumstances of the case, the Kerala High Court had come up with the proposition that on completion of the reassessment proceedings, the original assessment proceeding got vacated or set aside. The judgment of the Kerala High Court in that regard, therefore, seems to be relating to the peculiar circumstances of that particular case.
7. Even if it be assumed that the proposition as above had been laid out by the Kerala High Court rather in a general manner, we may find that the said proposition has been impliedly overruled by the Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (supra). It is true that the abovementioned Kerala High Court decision was not before the Supreme Court in the case of Sun Engineering Works (P) Ltd., for its examination. However, a host of other judgments in similar line passed by different High Courts agreeing with the view taken by the Kerala High Court as above were disapproved by the Supreme Court.
The Supreme Court, in its judgment in the case of CIT vs. Sun Engineering Works (P) Ltd. (supra) (at page 313 of the reported judgment) discussed the order of the Division Bench of the Madras High Court in the case of CIT vs. Standard Motor Products of India Ltd. (1983) 142 ITR 877 (Mad). The Madras Bench had opined in the said case that once the assessment is reopened, the ITO will not only have the jurisdiction but it would be his duty to determine the tax liability of an assessee. In the process, the Bench went on holding that once an assessment is reopened, the previous assessment is set aside and the whole assessment proceedings started afresh and the initial order of assessment stands automatically cancelled.
The Supreme Court also took into consideration a similar judgment of the Rajasthan High Court in the case of CIT vs. Ranganath Bangur (1984) 149 ITR 487 (Raj). A portion of the said judgment was quoted at page 315 of the reported judgment of the Supreme Court as below :
"... that once a reassessment proceeding is initiated, the original order of assessment is set aside or ceases to be operative. The finality would take the place of and completely substitute the initial order of assessment."
After taking into, account its earlier judgment in the case of V. Jaganmohan Rao vs. CIT/CEPT (supra), the Supreme Court finally decided in the case of CIT vs. Sun Engineering Works as below :
"It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated." (Page 321 of the reported judgment) Ultimately, the Supreme Court disapproved the broad proposition laid down by the various High Courts in the abovementioned line about the original assessment getting set aside on completion of the reassessment proceeding, including those of the Madras and the Rajasthan High Courts in the cases of CIT vs. Standard Motor Products of India Ltd. (supra) and CIT vs. Ranganath Bangur (supra) respectively.
8. In view of the abovementioned clear judgment of the Supreme Court in the latest case of CIT vs. Sun Engineering Works (P) Ltd. (supra), we must hold that the Kerala High Court's decision as relied upon by the learned Departmental Representative stands overruled by implication. The correct law, therefore, seems to be that the original assessment stands in respect of the matters dealt in by it. On the other hand, again, the reassessment under s. 147 also stands in respect of the matters considered therein. The assessee has got the right to appeal against both the assessments, and such appeals are not to be mixed up. Even if the issue involved in both the assessments be the same, to the extent to which certain addition has been made in the original assessment, shall be subject to the appeal against the original assessment. Any further addition made even on the same matter in the reassessment proceedings on the ground of escapement of the further income in the original assessment shall be subject to the appeal against the reassessment proceeding. If the assessee does not appeal against the original assessment, he shall not be permitted to take up the addition made in the original assessment and in any appeal filed by him against the reassessment proceeding and therein he can agitate against the further addition made in the reassessment proceeding only. We are, therefore, unable to accept the contention of the learned Departmental Representative that the original assessment proceedings in these cases stand merged in the reassessment proceedings and hence are infructuous. Even if addition be made in the reassessment proceedings on the same issue viz., relating to determination of the agricultural income, we have got to take up and examine the additions in the original assessments in the present appeals before us.
If any further additions might have been made in the reassessment proceedings, those will be the subject-matter of appeals in the reassessment proceedings alone.
9. Accordingly, we dismiss the Departmental contention in the preliminary hearing and direct that appeals be fixed for hearing at an early date, inasmuch as stay of demand has been granted in all the appeals.