Commissioner of Income Tax vs Chemmeens (Regd.)

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law for the decision of this court :

"Whether, on the facts and in the circumstances of the case, the addition made on the basis of the agreement with Mr. T. K. Gopatan Nair, the financial adviser to the assessee-firm, was untenable because he was not specifically authorised u/s 288 of the Income Tax Act, 1961 ?"

The respondent is a registered firm. We are concerned with the assessment year 1977-78. The only question that arises for consideration is whether the addition of Rs. 1,00,000 made to the trading results is valid and justified in law. The addition was made stating that the assessee agreed to the disallowance of a total sum of Rs. 1,00,000 in the profit and loss account. It seems that one Mr. T. K. Gopalan Nair, who was stated to be the financial adviser of the assessee-firm, appeared before the Income Tax Officer and signed on a sheet of paper agreeing to the disallowance of Rs. 1,00,000. The assessee pleaded that Mr. Gopalan Nair, aforesaid, was neither authorised to represent the assessee, nor had he informed the assessee about the agreement and, therefore, it was not binding on it. The addition was deleted by the Commissioner of Income Tax (Appeals) as per his order, dated March 26, 1983, holding that, in the light of the complete accounts maintained, the addition was unjustified and unwarranted. Before the Appellate Tribunal, the Revenue contended that the addition was made on the basis of the agreement and so it should not have been interfered with by the Commissioner of Income Tax (Appeals). In disposing of the above plea, the Appellate Tribunal held that Mr. T. K. Gopalan Nair was not an authorised agent of the assessee ; nor was there any material to show that in fact Mr. T. K. Gopalan Nair agreed to the disallowance as authorised by the assessee. In coming to the conclusion aforesaid, the Appellate Tribunal relied on Section 288 of the Income Tax Act as well and concluded that any agreement made before the assessing authority by an unauthorised person is not binding on the assessee. No written authorisation was available in the files to show that Mr. T. K. Gopalan Nair was authorised to act on behalf of the assessee. In this view, the addition of Rs. 1,00,000, stated to be on agreed basis, is unauthorised. The appeal filed by the Revenue was dismissed. It is thereafter, at the instance of the Revenue, that the question of law formulated hereinabove has been referred by the Appellate Tribunal for the decision of this court.

We heard counsel. Section 288 of the Income Tax Act states as follows :

"288. (1) Any assessee who is entitled or required to attend before any Income Tax authority or the Appellate Tribunal in connection with any proceeding under this Act otherwise than when required u/s 131 to attend personally for examination on oath or affirmation, may, subject to the other provisions of this section, attend by an authorised representative.

(2) For the purposes of this section, "authorised representative" means a person authorised by the assessee in writing to appear on his behalf, being--

(i) a person related to the assessee in any manner, or a person regularly employed by the assessee ; or

(ii) any officer of a scheduled bank with which the assessee maintains a current account or has other regular dealings ; or

(iii) any legal practitioner who is entitled to practise in any civil court in India ; or

(iv) an accountant ; or

(v) any person who has passed any accountancy examination recognised in this behalf by the Board ; or

(vi) any person who has acquired such educational qualifications as the Board may prescribe for this purpose ; or

(via) any person who, before the coming into force of this Act in the Union Territory of Dadra and Nagra Haveli, Goa, Daman and Diu, or Pondicherry, attended before an Income Tax authority in the said territory on behalf of any assessee otherwise than in the capacity of an employee or relative of that assessee ; or

(vii) any other person who, immediately before the commencement of this Act, was an Income Tax practitioner within the meaning of Clause (iv) of Sub-section (2) of Section 61 of the Indian Income Tax Act, 1922 (11 of 1922), and was actually practising as such.

Explanation.--In this section, "accountant" means a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of Sub-section (2) of Section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.

(3) (omitted)

(4) No person--

(a) who has been dismissed or removed from Government service after the 1st day of April, 1938 ; or

(b) who has been convicted of an offence connected with any Income Tax proceeding or on whom a penalty has been imposed under this Act, other than a penalty imposed on him u/s 271 ; or

(c) who has become an insolvent, shall be qualified to represent an assessee under Sub-section (1) for all times in the case of a person referred to in Clause (a), for such time as the Chief Commissioner or Commissioner may by order "determine in the case of a person referred to in Clause (b), and for the period during which the insolvency continues in the case of a person referred to in Clause (c).

(5) If any person--

(a) who is a legal practitioner or an accountant is found guilty of misconduct in his professional capacity by any authority entitled to institute disciplinary proceedings against him, an order passed by that authority shall have effect in relation to his right to attend before an Income Tax authority as it has in relation to his right to practise as a legal practitioner or accountant, as the case may be ;

(b) who is not a legal practitioner or an accountant, is found guilty of misconduct in connection with any Income Tax proceedings by the prescribed authority, the prescribed authority may direct that he shall thenceforth be disqualified to represent an assessee under Sub-section (1).

(6) Any order or direction under Clause (b) of Sub-section (4) or Clause (b) of Sub-section (5) shall be subject to the following conditions, namely :--

(a) no such order or direction shall be made in respect of any person unless he has been given a reasonable opportunity of being heard ;

(b) any person against whom any such order or direction is made may, within one month of the making of the order or direction, appeal to the Board to have the order or direction cancelled ; and

(c) no such order or direction shall take effect until the expiration of one month from the making thereof, or, where an appeal has been preferred, until the disposal of the appeal.

(7) A person disqualified to represent an assessee by virtue of the provisions of Sub-section (3) of Section 61 of the Indian Income Tax Act, 1922 (11 of 1922), shall be disqualified to represent an assessee under Sub-section (1)."

The sole question that arises for consideration is whether Mr. T. K. Gopalan Nair was authorised in writing to represent the assessee before the assessing authority. As a final fact-finding authority, the Appellate Tribunal has found that no such authorisation by the assessee in favour of Mr. T. K. Gopalan Nair ever existed, nor was any material shown before the Tribunal to justify that Mr. T. K. Gopalan Nair was in fact an authorised agent. There was no entry in the order sheet on the relevant date to show that Mr. T. K. Gopalan Nair acted as the authorised agent of the assessee. Whether Mr. T. K. Gopalan Nair was authorised by the assessee to represent it is a question of fact. Section 288 of the Income Tax Act requires the authorisation to be in writing. No such writing was ever produced in this case by the Revenue. So, even if there was any agreement by Mr. T.K. Gopalan Nair, it will not bind the assessee-firm. The Income Tax Appellate Tribunal was justified in taking the said view. Therefore, we are of the view that the Appellate Tribunal was justified in holding that the assessee is not bound by the agreement, if any, made by Mr. T. K. Gopalan Nair for the addition of Rs. 1,00,000 and the addition, stated to be on agreed basis, is unsustainable and illegal.

We, therefore, answer the question referred to this court in the affirmative, against the Revenue and in favour of the assessee.

A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.