Commissioner of Income Tax vs Kantilal Bhaichand and Co.

Dr. B.P. Saraf, J.—This application has highlighted to us the most dismal state of affairs in the handling of the reference applications of the revenue which is resulting in dismissal of the same by the Prothonotary and Senior Master under rule 986 of the High Court, Original Side, Rules, 1980, for non-removal of the objections. It appears that none has taken note of this fact, nor has any one assessed the loss that might have been caused to the revenue on account of such rejections. We have made the above observation because in this case itself, first the application itself is made perfunctorily as is evident from the fact that in paragraph 6 of the application, instead of setting out the question which is sought to be referred, what is set out is "COPY FROM THE REFERENCE APPLICATION". Nowhere in the application, the question sought to be referred has been set out. This application in this state has also been counter-signed by the advocate for the revenue. Despite that we tried to find out the question sought to be referred from the application made before the Tribunal which is, fortunately, annexed to this application. On perusal of the same, we could find that the following question is sought to be referred:

"On the facts and in the circumstances of the case and in law whether the Tribunal was justified in deleting the entire penalty imposed u/s 271(1)(c) and in holding that there was no basis for imposition of concealment penalty u/s 271(1)(c) on the assessee with regard to the amount of Rs. 4,70,000 and Rs. 60,480 being additions made by the Assessing Officer on account of sales outside the books of account and under-valuation of closing stock in the assessment."

It is clear from the above question that the revenue is aggrieved by the cancellation of the penalty imposed by the assessing authority for concealment of income u/s 271(1)(c) of the income tax Act, 1961 (''the Act''). The penalty had been levied because of the additions made by the assessing authority of sums of Rs. 4,70,000 and Rs. 60,480 to the disclosed income of the assessee for the assessment year 1981-82 on account of concealment of sales and under-valuation of closing stock. Obviously, the basis of penalty was the above additions made by the assessing authority to the disclosed income of the assessee.

Rule was issued by us on this application on 27-3-1996 pursuant to which the assessee has appeared today before us through his counsel. At the outset, the counsel for the assessee pointed out to us that this application for reference has become infructuous in view of the fact that the application for reference made by the revenue against the order of the Tribunal deleting the above additions, which were the basis of levy of penalty u/s 271(1)(c) of the Act, had itself been rejected. The learned counsel placed the order of rejection of reference application before us. We perused the same and found that the reference application was rejected on 29-12-1995 not by the Court but by the Prothonotary and Senior Master of this Court for non-removal of the objections. The order of the Prothonotary and Senior Master reads as follows :

"Rejected under Rule 986 of the High Court, Original Side, Rules, 1980, for non-removal of office objections."

No steps, whatsoever, seem to have been taken even to get the above order of the Prothonotary and Senior Master set aside. Situated, thus, we are left with no option but to reject this reference application as infructuous and discharge the rule issued by us, which we hereby do.

As we were alarmed and concerned at the perfunctory manner in which these references are being handled, we enquired from the Prothonotary and Senior Master as to how many applications u/s 256(2) of the Act or u/s 27(3) of the Wealth-tax Act got rejected in this manner. The information supplied to us is alarming and the figures are staggering. We reproduce the figures of calendar year 1995.

Calendar year 1995

Total No. of applications filed in Court

Applications rejected by the Pro. & Sr. Master for non-removal of objections

Application which reached the Court for disposal

(1)

Applications u/s 256(2) of the income tax Act, 1961

929

834

95

(2)

Applications u/s 27(3) of the Wealth-tax Act

903

897

6

We were also informed that the order of rejection of the application had been made after giving repeated opportunities to the counsel who appeared in most of the cases to remove the objections.

The figures set out above are not only staggering but alarming. It appears that a very small percentage of applications filed by the revenue only could reach the Court for determination. Most of them got rejected in this manner which, in our opinion, virtually amounts to withdrawal of the same by the revenue.

We do not know whether the higher-ups in the Income Tax Department are aware of this dismal scenario or not, but on our part we can say that we are deeply distressed and concerned. Nobody knows what may be the revenue implications of rejection of such large number of reference applications, nor is it possible to say as to who is responsible for the same. We, however, feel that something is required to be done immediately. We, therefore, direct the Prothonotary and Senior Master to send a copy of this order to the (i) Chief Commissioner of Income Tax, Mumbai,

(ii) Chairman of the Central Board of Direct Taxes, and

(iii) the Secretary to the Government of India, Law and Judiciary, for information and necessary remedial action.

This application, however, stands disposed of.