Centre for Individual and Corporate Action (CICA) vs Assistant Commissioner of Income Tax

R. Sudhakar, J.—These appeals are preferred by the assessee against the order dated July 23, 2012, passed by the Income-tax Appellate Tribunal, "C" Bench, Chennai, in I.T.A. Nos. 880 to 885/Mds/2012 for the assessment years 1995-96 to 2000-01. The following substantial questions of law have been framed for consideration in these appeals:

"(a) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in dismissing the appeals filed by the assessee as time barred?

(b) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the deduction claimed by the appellant under section 40(b) of the Income-tax Act, 1961, is not justifiable?

(c) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the appellant is not entitled to make a claim for deduction in the remand assessment proceedings even if the appellant is statutorily entitled to such claim to arrive at a correct assessable income?"

The appellant-assessee is engaged in supply and training of manpower for corporate sector. The appellant received professional charges for various technical services rendered by it for the assessment years 1995-96 to 2000-01, in all six assessment years. The assessment was completed under section 143(3) read with section 147 of the Income-tax Act by the Assessing Officer and the claim of expenditure at 98 per cent of the service charges was rejected and the expenditure to the extent of 20 per cent was allowed. Aggrieved against the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals), who estimated the assessee''s net profit at 25 per cent of the service charges received. On further appeal to the Tribunal in I.T.A. Nos. 2164 and 2165/Mds/2003, 393 to 396/Mds/2003, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and directed the Assessing Officer to assume the net profit at 40 per cent of the gross professional receipts and not on all the credit entries appearing in the bank statement.

On remand, in the course of assessment proceedings under section 143(3) read with section 256, the appellant claimed deduction of expenditure towards remuneration to partners and interest on capital accounts. The Assessing Officer completed the assessment, vide order dated January 31, 2006, and arrived at the net taxable income by treating 40 per cent of the total consulting charges as net profit of the appellant and allowed interest on capital account of the partners. However, the Assessing Officer disallowed the assessee''s claim for expenditure towards payment of remuneration to partners under section 40(b).

Aggrieved against the above order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals) against all the orders disallowing the assessee''s claim for expenditure towards payment of remuneration to the partners under section 40(b). However, the Commissioner of Income-tax (Appeals) dismissed the appeals by order dated August 29, 2006, confirming the order of the Assessing Officer.

Aggrieved by the said order of the Commissioner of Income-tax (Appeals), the assessee filed six appeals before the Tribunal with a delay of 2053 days and the Tribunal, vide common order dated July 23, 2012, framed the following two questions for consideration:

"(i) Whether condonation of 2053 days in filing the appeals before the Tribunal is justified?

(ii) Whether the appellant is entitled to claim deduction under section 40(b) as claimed?"

The Tribunal took up all the matters together and after setting out the details of the claim and the reasons as submitted by the assessee for condonation of delay, rejected the same holding that the explanation submitted by the assessee is not satisfactory and there are no sufficient particulars. The Tribunal while holding that there is no ground for condonation of delay, further proceeded to dispose of the appeals on the merits and dismissed the same. Having dismissed the appeals of the assessee on the question of condonation of delay, the further order of the Tribunal dismissing the appeals of the assessee on the merits is now challenged before this courts by the assessee by taking similar grounds as stated above.

Heard Mr. Senthil Kumar, learned counsel appearing for the appellant-assessee and Mr. Narayanasamy, learned standing counsel appearing for the respondent-Department.

The net taxable income differs for each assessment year and this court is not concerned with the said aspect. Though three questions of law have been raised for consideration in these appeals, in view of the order that is to be passed in this appeals, this court is not going into any of the question of law at the present time.

Even at the very outset we find that the procedure adopted by the Tribunal is highly prejudicial to the interests of the appellant-assessee inasmuch as the Tribunal having decided not to proceed with the matter on the ground of condonation of delay, cannot unilaterally decide the appeals on the merits, more so when the appellant-assessee was not given proper opportunity to contest the matter in the main appeals on the merits. The order of the Tribunal is also not in consonance with section 253(5) of the Income-tax Act. Section 253(5) of the Income-tax Act mandates that an appeal should be admitted before ever an order is passed on the merits. Once the appeal itself is not entertained, the question of going into the merits of the matter does not arise. We, therefore, find that the order of the Tribunal deciding the appeals of the assessee on the merits, after dismissing the appeal itself on the question of delay, is an error apparent on the face of the record and that the order passed is without jurisdiction since when there is no appeal, there is no question of deciding the issue raised in the appeal on the merits.

The above view of ours is fortified by the decision of the Gauhati High Court in the case of Williamson Financial Services Ltd. Vs. Commissioner of Income Tax and Another, . In view of the reasons abovementioned, we set aside the order of the Tribunal and remand the matters back to the Tribunal for reconsideration. Accordingly, the matters are allowed by way of remand to the Tribunal. Consequently, connected miscellaneous petitions are closed. It is needless to add that while dealing with the condonation of delay issue, the Tribunal shall keep in mind the proceedings which the assessee first went through even before this order, which goes to show that the assessee has been acting bona fide and diligently pursuing the matter before the appropriate forum.