Income Tax Appellate Tribunal - Mumbai
Dhirendra S. Parikh vs Fifth Income-Tax Officer on 22 October, 1993
Equivalent citations: [1994]49ITD257(MUM)
ORDER
V.K. Sinha, Accountant Member 1 to 3. [These paras are not reproduced here as they involve minor issues.]
4. Ground No. 2 relates to a disallowance of a sum of Rs. 1,06,760 as unproved liabilities. The Assessing Officer noticed that the assessee-firm had shown a liability of Rs. 2,83,122 in the balance-sheet stated to be clients' deposits. The assessee had income from profession. One of the credits amounting to Rs. 2 lakhs stood in the name of Sri U.J. Patel since 1978 and a sum of Rs. 40,097 was shown as interest payable to him. On being asked to prove the genuineness, the assessee explained that it was not actually the clients' deposit, but it was a loan from four persons, Mr. K.P. Bakshi, Mrs. P.K. Bakshi, Mr. K.R. Sheth and Mrs. P.K. Sheth. It was pointed out that they had sold shares of Advance Computers Services (P.) Ltd. to Sri U.J. Patel for Rs. 2 lakhs and the amount was paid to the assessee on their behalf by Sri U.J. Patel. Thereafter, the Assessing Officer recorded the statement of Sri K.R. Sheth under Section 131 of the Income-tax Act, 1961, when it was stated that the sale-proceeds of 2200 shares of Advance Computers Services (P.) Ltd., amounted to Rs. 93,240 only. According to the Assessing Officer, this figure was confirmed from a letter of Joint Controller of Reserve Bank of India, dated 24-11-1978. It was further stated that the balance of Rs. 2 lakhs might be receivable by Sri U.J. Patel about which they did not have any knowledge. The statement was made on behalf of the four concerned persons. The Assessing Officer summoned Sri U.J. Patel under Section 131 of the Act twice but he neither attended nor filed any explanation. The Assessing Officer concluded that at most, Sri K.R. Bakshi and Ors. had to receive a sum of Rs. 93,240 from the assessee and the genuineness of the balance of the liability amounting to Rs. 1,06,760 had not been proved. This sum was, accordingly, added to the income as income from undisclosed sources.
5. The Assessing Officer also gave a finding that the interest shown as payable to Sri U.J. Patel amounting to Rs. 40,097 could not be allowed fully since Sri K.R. Bakshi and others had to receive only Rs. 93,240 from the assessee. He allowed proportionate interest of Rs. 18,693 and disallowed interest of Rs. 21,404.
6. The CIT(A) held that the action of the Assessing Officer could not be faulted with as the buyer in whose name the money stands has not come forward to assert that he had given Rs. 2 lakhs and the receiver acknowledged liability of Rs. 93,240 only. However, the assessee raised an alternate plea before him to the effect that the liability, even if it was unproved, had to be added in the assessment year for the previous year ending 31st December, 1978 relevant for the assessment year 1979-80, where it had appeared for the first time and it should not be added in the assessment year 1983-84. The CIT(A) accepted this contention and gave a direction that "the addition made of Rs. 1,06,760 is directed to be deleted from this year and to be added in the assessment year 1979-80".
7. The learned counsel for the assessee challenged before us, first of all, the direction of the CIT(A) that the sum of Rs. 1,06,760 should be added in the assessment year 1979-80. It was submitted that once it had been found that a certain amount included by the Assessing Officer in the total income did not relate to that year, the finding was sufficient to dispose of the appeal before the CIT(A) and, he could not proceed to find further that the income related to any other particular year. It was, therefore, submitted that the directions of the CIT(A) to add the amount in assessment year 1979-80 should be deleted. Reliance was placed in support of this contention on the following decisions :
(i) ITO v. Murlidhar Bhagwandas [1964] 52 ITR 335 (SC);
(ii) N.K.T. Sivalingam Chettiarv. CIT [1967] 66 ITR 586 (SC); (iii) Mathuradas B. Mohtav. CIT [1965] 56 ITR 269 (Bom.); and (iv) Mrs. R.H. Davev. CIT [1983] 140 ITR 1035 (Cal.).
8. The learned Departmental Representative, on the other hand, submitted that the directions of the CIT(A) were in order. He also submitted that if the assessee's contentions are accepted in this regard, then the provisions of Section 150(1) and Section 153(3)(ii) of the Act, will become inoperative and redundant.
9. We have considered the rival submissions and have gone through the cases relied upon by the learned counsel for the assessee. In the case of Murlidhar Bhagwandas (supra), the Supreme Court was considering the question of limitation for reassessment made "in consequence of order to give effect to any finding or direction" in an order in appeal. Certain interest income was brought to tax for the assessment year 1949-50 but the AAC held that the income was received in the previous accounting year and directed that the amount should be deleted from the assessment for the assessment year 1949-50 and included in the assessment for assessment year 1948-49. Pursuant to this direction, the Assessing Officer initiated reassessment proceedings under Section 34(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the "1922 Act"), in respect of the assessment year 1948-49. The question was whether the second proviso to Section 34(3) of the 1922 Act applied and saved the notice which was served beyond the time prescribed by Section 34(1) of the 1922 Act. It was held that the jurisdiction of the AAC under Section 31 of the 1922 Act was strictly confined to the assessment order of the particular year under appeal, i.e., assessment year 1949-50 in that case. The assessment or reassessment made in consequence of or to give effect to any finding or direction contained in an order of the AAC under Section 31 of the 1922 Act, must necessarily relate to the assessment of the year under appeal. The second proviso to Section 34(3) of the 1922 Act only lifted the bar of limitation and did not enlarge the jurisdiction of the AAC under the relevant sections. Further, the expressions "finding" and "direction" in the second proviso to Section 34(3) of the 1922 Act meant respectively a finding necessary for giving relief in respect of the assessment for the year in question and a direction which the AAC was empowered to give under the sections mentioned in that provision. The AAC might hold, on the evidence, that the income shown by the assessee was not the income of the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context was that the income did not belong to the relevant year. He might incidentally find that the income belonged to another year but that was not a finding necessary for the disposal of the appeal in respect of the year of assessment in question. In that particular case, it was further held that the second proviso to Section 34(3) of the 1922 Act did not save an escaped assessment by an order other than which was the subject-matter of the appeal or revision and, accordingly, the notice issued under Section 34(l)(a) of the 1922 Act in this case was barred by limitation.
10. The above decision was further affirmed by the Supreme Court in the case of N.K.T. Sivalingam Chettiar (supra) and it was further held that the decision applied equally as much in relation to a finding recorded by the AAC as in relation to an express direction of the AAC.
11. That decision was also given with reference to the provisions of the Indian Income-tax Act, 1922.
12. The decision of the Bombay High Court in the case of Mathuradas B. Mohta (supra) was also given with reference to the provisions of the Indian Income-tax Act, 1922. Following the decision of the Supreme Court in the case of Murlidhar Bhagwandas (supra), it was held that the jurisdiction of the AAC under Section 31 is strictly limited to the assessment order of that particular year under appeal. The AAC was competent to decide whether a particular item or a particular amount was income of that assessment year, but he had no jurisdiction further to decide in that appeal the appropriate year in which the said income would fall.
13. The decision of the Calcutta High Court in the case of Mrs. R.H. Dave (supra) was given with reference to the provisions of the Income-tax Act, 1961 (hereinafter referred to as the "1961 Act"). The assessee had taken on lease a plot of land which was acquired by the Government on 12th May, 1961. Subsequently, the assessee received compensation by an award dated 13-2-1970. The Assessing Officer brought the compensation amount to tax in assessment year 1971-72. However, the AAC deleted the addition and directed the Assessing Officer to bring the amount to tax in assessment year 1962-63. The Tribunal held that the decision of the AAC to exclude the amount in assessment year 1971 -72 was correct and the AAC had no jurisdiction to direct the Assessing Officer to bring the amount to tax in the correct assessment year, i.e., assessment year 1962-63. The Tribunal further held that even without such a direction from the AAC, the Assessing Officer was at liberty to consider the assessment of the income in the correct assessment year in view of Explanation I(i) to Section 153 of the 1961 Act, and, therefore, declined to accede to the request of the However, the Calcutta High Court held that the Tribunal, having held that the AAC had no jurisdiction to direct the Assessing Officer to bring the amount to tax in the correct assessment year was in error in declining to delete the direction given by the AAC to the Assessing Officer. In coming to this decision, the Calcutta High Court followed the decision of the Supreme Court in the case of RqjinderNathv. C/T[1979] 120ITR 14 and, inter alia, referred to the decision of the Andhra Pradesh High Court in B.A.R. Abdul Rahman Saheb v. /TO [1975] 100 ITR 541. We shall be referring to these decisions also.
14. Before proceeding further, it may be mentioned that the relevance for the present dispute is there not on account of any impact for assessment year 1983-84 but for any impact in the course of the assessment for assessment year 1979-80. Section 150(1) contains the provision for cases where an assessment is in pursuance of an order on appeal and is reproduced below:
150(1). Notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authoriiy in any proceeding under this Act by way of appeal, reference or revision or by a court in any proceeding under any other law.
15. The above section is substantially similar to the second proviso to Section 34(3) of the 1922 Act which was considered by the Supreme Court in the case of Murlidhar Bhagwandas (supra). The section provides an exception to the normal limitation contained in Section 149ofthe 1961 Act f6Y initiating reassessment proceedings by issue of a notice under Section 148 ol'the 1961 Act.
16. The dispute is also relevant for the exception for time-limit for completion of assessments and reassessments contained in Section 153 of the Act. Sub-sections (1) and (2) thereof provide the normal time-limits. The exception is provided in Sub-section (3) and we are concerned with Clause I'd) thereof and Explanation 2, below it. These are reproduced below:
3 53(3). The provisions of Sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of Sub-section (2A), be completed at any time
(i)...
(ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Section 250, 254, 260, 262, 263 or 264, or in an order of any court in a proceeding otherwise than by way of appeal or. reference under this Act.
Explanation 1:...
Explanation 2: Where, by an order referred to in Clause (ii) of Sub-section (3), any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order.
17. The dispute before us can be bifurcated into two parts, relating, firstly, to the "finding" of the CIT(A) that the amount was assessable in the assessment year 1979-80 and, secondly, to the "direction" of the CIT(A) that the amount should be added in the assessment year 1979-80. The expressions "finding" and "direction" in Section 153(3) of the 1961 Act, were explained by the Supreme Court and their scope was also explained in the case of Rqjinder Nath (supra) and the relevant extract from the Head Note is given below :
(ii) That the observation that the ITO was 'free to take action' to assess the excess in the hands of the co-owners could not be described as a 'direction'. A direction by a statutory authority was in the nature of an order requiring positive compliance. When it was left to the option and discretion of the ITO whether or not to take action it could not be described as a direction.
(iii)...
The expressions 'finding' and 'direction' in Section 153(3) are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that in order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and to no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as As income. A finding respecting B is initially involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to As liability can be directly arrived at without necessitating a finding in respect of B, then a finding made in respect of B is an incidental finding only. It is not a finding necessary for the disposal of the case pertaining to A. As regards the expression 'direction' in Section 153(3)(ii) of the Act, it is now well-settled that it must be an express direction necessary for the disposal of the case before the authority or court. It must also be a direction which the authority or court is empowered to give while deciding the case before it. The expressions 'finding' and 'direction' in Section 153(3) (ii) must be accordingly confined. Section 153(3) (ii) is not a provision enlarging the jurisdiction of the authority or court.
18.As far as the direction of the CIT(A)to the Assessing Officer to ass the sum of Rs.1,06,760 in the assessment year 1979-80 is concerned, it Follows clearly from the above decision that there was no jurisdiction or authority to do so since it was not necessary to dispose the appeal for assessment year 1983-84. We, therefore, delete the concerned direction.
19. Coming to the "finding" that the amount was assessable in assessment year 1979-80, the matter has to be examined in the light of the illustration contained in the extract reproduced above. In our opinion, the "finding" that the amount, if assessable, would relate to assessment year 1979-80 is a necessary finding and is directly involved in the disposal of the case, inasmuch as it follows from that finding that the amount is not assessable in the assessment year 1983-84. The finding that the amount was assessable in assessment year 1979-80, if at all, is, therefore, not an incidental finding and it is not possible to directly arrive at a finding that the amount is not assessable in assessment year 1983-84 without such a finding. In fact, even the assessee's argument before the CIT(A) started with a contention that the liability, even if it is unproved, is to be added in the assessment year 1979-80, where it has appeared for the first time and from this contention, there was a claim that the amount cannot be added in the assessment year 1983-84. In the circumstances, relying on the latest available decision of the Supreme Court in the case of Rqjinder Nath (supra), we hold that the CIT(A) was within his jurisdiction to give a finding that the amount was assessable, if at all, in assessment year 1979-80.
20. We will now consider the effect of the decision of the Calcutta High Court in the case of Mrs. R.H. Dave (supra), relied upon by the learned counsel for the assessee. In that case, the Tribunal held that the AAC had no jurisdiction to give a direction that the amount was assessable in assessment year 1962-63 while deleting the addition in assessment year 1971-72. However, the Tribunal declined to delete the direction given by the AAC. It was held by the High Court that the Tribunal having held that the AAC had no jurisdiction to give the directions, the Tribunal was in error in declining to delete the direction given by the AAC. This decision has been respectfully followed by us above. In the case of the "direction" given by the CIT(A), we have held that he had no jurisdiction to give it and we have also directed that it should be deleted. However, the facts are different as far as the "finding" of the CIT(A) is concerned and we have held that the C1T(A) had jurisdiction to give the finding. In view of these different facts, the ratio of the decision in the case of Mrs. R.H. Dave (supra) is not applicable. Accordingly, we have given no directions to delete the "finding" of the CIT(A).
21. Before closing the matter, we will also deal with-the contention of the learned Departmental Representative that if the assessee's plea is accepted, then Sections 150(1) and 153(3)(ii) of the 1961 Act will become inoperative and redundant. In this context, it may be stated that Section 150(1) of the 1961 Act corresponds to the third proviso to Section 34(3) of the 1922 Act. Thus, these provisions were considered by the earlie decisions of the High Courts and Supreme Court when considering the la\ under the 1922 Act. However, Section 153(2) of the 1961 Act is ai altogether new provision. It lays down that no order of assessmeni reassessment, or reeomputation shall be made under Section 147 of th 1961 Act, after the expiry of two years from the end of the financial yea in which the notice under Section 148 of the 1961 Act was served. Unde the 1922 Act, there was no time-limit for completion of an assess men which had been reopened under Section 34(l)(a). Section 153(3) of the 1961 Act makes an exception, inter alia to the time-limit for completion of the assessment, or reassessment under Section 153(2) of the said Ad Thus, Section 153(3)(ii) of the 1961 Act is also a new provision and so also is Explanation 2 below it. To the extent that these new provisions have bee: introduced in the 1961 Act, the law has also undergone a corresponding change. These changes have been explained by the Andhra Pradesh High Court in the case of B.A.R. Abdul Rehman Saheb (supra) as under:
Explanation 2 to Sub-section (3) of Section 153 partially supersedes th Supreme Court decision in Murlidhar Bhagwandas's case and Sivalingai Chettiar's case by providing that in any case where income is excluded i appeal, reference, or revision, or any other legal proceedings, from the assessment for any year, an assessment of such income for another assessment year shall be deemed to be one made in consequence of or t give effect to, any finding or direction by the authority hearing the case This fiction of law removes the bar of limitation irrespective of the question whether the authority has in fact given or can, in law, give a finding c direction that the income should be taxed in a specified assessment ye other than the year for which the authority hears the case. The effect of Section 150 and this sub-section read with Explanation 2 is that, if an income is deleted from assessment in a higher proceeding on the ground that it is not the income of that year, steps may be taken under Section 147 to assess it as the income of another year, without any limitation applying to the issue of the notice under Section 148 or to the complettion of the assessment or reassessment.
Explanation 2 operates to put all the assessees on the same footing inasmuch as, once an income is excluded from assessment for a particular year on the ground that it is not the income of that year, the bar of limitation is necessarily removed for assessment for another year, regardless of the question whether there is any express finding by the higher authority that the amount represents the income of another specific year. On the other hand, in the 1922 Act there was scope for discrimination because the assessment of assessees in whose cases the appellate authority, for instance, gave a finding that the income was assessable was assessable, could plead the bar of limitation if an attempt was made to reopen their assessments for any other year.
Thus, on a careful reading of Explanation 2 to Sub-section (3) of Section 153, it is evident that the mere exclusion of an income from an assessment year by a higher authority in a proceeding before it, gives jurisdiction to the Income-tax Officer to assess or reassess that excluded income in a different assessment year, and, in such a case, under Explanation 2 to Section 153(3), it will be deemed to have been made in consequence of or to give effect to a finding or direction contained in the said order. If there is no finding or direction in the order of a higher authority, then Explanation 2 to Section 153(3) of the Act will apply. On the other hand, if there is a finding or direction, the case would fall under Section 153(3) (u).
22. In the case before us, the finding of the CIT(A) that the amount was assessable, if at all, in assessment year 1979-80, has been sustained. The case, therefore, falls under Section 153(3)(ii) of the 1961 Act. However, if there was no such finding, or if the finding had not been sustained by us, then the case would fall under Explanation 2 to Section 153(3) of the 1961 Act. Thus, the submissions of the learned Departmental Representative that acceptance of the assessee's plea m principle will make the provisions of Sections 150(1) and 153(3)(ii) ofthe 1961 Act inoperative and redundant, are not acceptable and, are rejected.
23. To summarise, we uphold the finding of the CIT(A) that the amount is assessable, if at all, in assessment year 1979-80 and not in assessment year 1983-84 but, delete the direction to the Assessing Officer that it should be added in assessment year 1979-80.
24. The learned counsel for the assessee has made a further submission before us relating to the merits of the addition, of Rs. 1,06,760. It has already been noticed above that the Assessing Officer recorded a statement of Sri K.R. Sheth, under Section 131 of the 1961 Act and, inter alia, relied upon it for making the addition. The learned counsel for the assessee submitted before us that the assessee was not confronted with the copy of the statement, which was recorded behind the back of the assessee and, therefore, no opportunity was made available to cross-examine Sri K.R. Sheth. In the circumstances, it was claimed that the principles of natural justice had not been followed and the statement cannot be used against the assessee. Reliance was placed on the decision of the Supreme Court in the case of Kalra Glue Factory v. Sales Tax Tribunal [1987] 167 ITR 498. The learned Departmental Representative, on the other hand, relied on the order of the CIT(A).
25. We have considered the rival submissions and have also perused the records. The assessee has filed a copy of the statement recorded under Section 131 of the 1961 Act, in the paper book, but it was explained by the learned counsel that a copy had been obtained from the Assessing Officer in 1988 whereas the assessment order had been passed on 20th March, 1986. We also find that the assessee had taken a ground of appeal being ground No. 5 before the CIT(A) where it was submitted that the Assessing Officer was not justified in relying upon the statement of Sri K.R. Sheth, without giving an opportunity to the assessee to cross-examine him. However, the CIT(A) has not dealt with this ground in his order.
26. In the case of Kalra Glue Factory [supra], it was claimed that a statement ought not have been taken into account by the Tribunal as this statement was recorded at the back of the appellant and the appellant had no occasion to test his statement by cross-examination. This contention was accepted and the order of the Tribunal was set aside and the matter remanded for fresh disposal. Respectfully following this decision,, we would restore the matter to the file of the Assessing Officer with a direction to give the assessee an opportunity to cross-examine Sri K.R. Sheth and to arrive at a fresh decision thereafter according to law.
27. Normally, it may not have been necessary to set aside the matter since there is already a finding that the addition cannot be made in assessment year 1983-84, but can be made only in assessment year 1979.-80. However, there is a further ground, being ground No. 3, before us regarding disallowance of Rs. 21,404 in respect of interest on above liabilities. The facts have already been stated and the sum of Rs. 21,404 is the amount relatable to the sum of Rs. 1,06,760.
28. We have heard the rival contentions regarding this ground. Insofar as the quantum is concerned, we direct that only that part of the liability can be considered for disallowance, which has been claimed as a deduction in assessment year 1983-84. Secondly, even that amount should be disallowed only if a finding on merit is given that the amount should be added as income from undisclosed sources in assessment year 1979-80. We direct accordingly.
29. In the result, the appeal is partly allowed.