Commissioner of Income Tax vs Vasantben H. Sheth

Mukesh R. Shah, J.—The present reference, at the instance of the Revenue, has been made by the learned Tribunal, referring the following substantial question of law arising out of the order of the learned Tribunal Dt. 14th Sept., 1998 in Misc. Appln. No. 87/Ahd/1996, for the opinion of this Court:

"Whether the Tribunal is right in law in entertaining the assessee''s miscellaneous application again when once the MA has been considered and rejected by the same authority?"

That the assessee, Shri Maganlal L. Mehta (since dead), initially was running Bhabha Dinning Hall and Bhabha Guest House. Subsequently, he transferred the business to his two sons and provided labour to them. On 11th Sept., 1984, a search operation was conducted by the IT authorities under s. 132 of the Act at the residential premises of the assessee resulting in the seizure of certain unexplained assets. A diary was also seized during the search operation. The AO passed the assessment order making various additions inclusive of the addition of Rs. 4,90,000 made on the basis of the entry appearing in the seized diary and passed the assessment order for the asst. yr. 1984-85. Then in appeal, the learned CIT(A) vide his order Dt. 19th July, 1988 confirmed the addition of Rs. 4,90,000 made on the basis of entries appearing in the seized diary, as above. On certain grounds, the CIT(A) restored other additions to the file of the AO. The assessee preferred appeal being ITA No. 2344/Ahd/1988 before the learned Tribunal against the order of the CIT(A). During the pendency of the said appeal to the learned Tribunal, the AO to whom the matter was restored by the CIT(A) reframed a fresh assessment on 27th March, 1991, inter alia, making an addition of Rs. 3,33,413 on the basis of the seized diary. Against the order of the AO, the assessee preferred appeal before the CIT(A) and CIT(A) vide his order Dt. 10th July, 1991 allowed the plea of the assessee and deleted the addition of Rs. 3,33,413 which was made on the basis of the seized diary.

That being aggrieved by and dissatisfied with the order passed by the CIT(A) deleting the aforesaid amount of Rs. 3,33,413, the Revenue preferred an appeal before the learned Tribunal being Appeal No. 4895/Ahd/1991. The learned Tribunal passed a common order disposing of the appeals of the assessee against the original order of CIT(A) (ITA No. 2344/Ahd/1988) as well as the appeal of the Revenue against the second order of the CIT(A) Dt. 10th July. 1991 (ITA No. 4895/Ahd/1991). That while passing the judgment and order Dt. 10th July, 1991, the learned Tribunal came to the finding that the seized diary belongs to the assessee and the entries therein relate to his business. The learned Tribunal rejected the contentions of the assessee that the diary belongs to his son Shri Bharatkumar. That on appreciation of evidence and considering the material on record, the learned Tribunal recorded a finding that the diary was recovered from the assessee and not from the room of his son, and therefore, the presumption contained under s. 132(4) of the Act has been rightly drawn by the AO against the assessee, and consequently, the learned Tribunal restored the order passed by the AO making addition of Rs. 3,33,413 on the basis of the seized diary.

It appears that thereafter, the assessee moved a miscellaneous application being MA No. 34 of 1995 pointing out that the observations of the learned Tribunal regarding ownership of the diary by the assessee in paras 8 and 9 of its order does not take into consideration the submissions made by the assessee. The learned Tribunal vide its order Dt. 11th April, 1996, dismissed the application by observing that the attempt on the part of the assessee is to get the review of the order of the learned Tribunal, is beyond the scope of s. 254(2) of the Act. At this stage, it is required to be noted that the original order passed by the learned Tribunal in respective appeals Dt. 6th June, 1995 and the order in Misc. Appeal No. 34 of 1995 were passed by the same Bench consisting of Mr. B.L. Chhibber, AM and Shri Phool Singh, JM. It appears that thereafter the assessee moved the second miscellaneous application pointing out the similar mistake in the order of the learned Tribunal. That by impugned order dated the 14th Sept., 1998, the learned Tribunal (Bench consisting of different Members), allowed the said miscellaneous application and recalled the order Dt. 6th June, 1995 passed by the learned Tribunal in ITA Nos. 2344 of 1988 and 4895/Ahd/1991.

That, as the Revenue was of the view that the learned Tribunal ought not to have entertained the second rectification application on the same ground on which the first rectification application was dismissed, and therefore, the learned Tribunal ought not to have passed the impugned order. Therefore, the Revenue has filed the present Reference seeking opinion of this Court on the following substantial question of law:

"Whether the Tribunal is right in law in entertaining the assessees miscellaneous application again when once the miscellaneous application has been considered and rejected by the same authority?"

Mr. Manish R. Bhatt learned advocate appearing on behalf of the appellant-Revenue has vehemently submitted that the learned Tribunal has erred in entertaining the second miscellaneous application once the assessees earlier miscellaneous application came to be rejected by the learned Tribunal, which was submitted for pointing out similar mistake in the order of the learned Tribunal. It is submitted that earlier the assessee has preferred Misc. Appln. No. 34 of 1995 and requested to review and recall the earlier order passed by the learned Tribunal, more particularly, with respect to the Panchnama of the seized material, i.e., the diary, and the learned Tribunal has dismissed the said application. It is further submitted that thereafter, another/second miscellaneous application on the very same ground which was not accepted earlier by the learned Tribunal, was filed which was not maintainable at all. It is further submitted that, as such, the second miscellaneous application was preferred in the appeal. It is further submitted that as the rectification application in rectification application was not maintainable in view of provisions of s. 254(2) of the Act, and therefore, intentionally second review application was preferred in the appeal to circumvent the provisions of s. 254(2) of the Act. It is further submitted that once the first rectification application was rejected, the second rectification application on the same issue was not maintainable. Mr. Bhatt learned advocate appearing on behalf of the Revenue has heavily relied on the following decisions:

"1. Commissioner of Income Tax Vs. Pearl Woollen Mills,

The Commissioner of Income Tax Vs. Shri Panchu Arunachalam,

Commissioner of Income Tax Vs. Aiswarya Trading Co., "

Mr. Manish Bhatt learned advocate appearing on behalf of the appellant-Revenue has further submitted that even otherwise on merits also, the learned Tribunal has materially erred in allowing the subsequent miscellaneous application and in recalling the earlier order passed by the learned Tribunal in the aforesaid appeal in exercise of powers under s. 254(2) of the Act. It is submitted that as such while deciding and disposing of the appeals earlier, the learned Tribunal has specifically dealt with and considered the issue with respect to the Panchnama of the seized article-pocket diary and also drawn inference against the assessee and when the said issue was specifically dealt with by the learned Tribunal, and therefore, thereafter again the said issue cannot be considered by the learned Tribunal while exercising the powers under s. 254(2) of the Act. It is submitted that as such only in a case where it is found that there is no (an) error apparent on the face of the record, then and then only, and to that extent, the powers under s. 254(2) of the Act can be exercised. It is submitted that in the present case, as such, there was no error apparent on the face of the record, more particularly, with respect to the finding recorded by the learned Tribunal on considering the Panchnama of the seized article/pocket diary. It is further submitted that, therefore, the learned Tribunal has materially erred in allowing the second rectification application, and has materially erred in recalling the earlier order passed by the learned Tribunal in appeal. It is submitted that as such, the impugned order passed by the learned Tribunal in second rectification application in exercise of powers under s. 254(2) of the Act, is beyond the scope and ambit of s. 254(2) of the Act. Mr. Bhatt has heavily relied on the decision of the Hon''ble Supreme Court in the case of T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, on the scope and ambit of the powers under s. 154 of the Act.

It is further submitted that, as such, by passing the impugned order, the learned Tribunal has entered into the controversy on merits of the case as if exercising the powers of appellate jurisdiction, which is not permissible.

Making the above submissions relying on the above decision of Hon''ble Supreme Court, it is requested to answer the question in favour of the Revenue and against the assessee.

Mr. Bandish S. Soparkar learned advocate appearing on behalf of the assessee has vehemently submitted that, as such, the observation made by the learned Tribunal in its order in appeal, more particularly, in paras 10 and 11 of the order that no appeal under s. 132(11) of the Act was preferred by the assessee, was found to be factually incorrect, when, in fact, the assessee did not prefer appeal/application under s. 132(11) of the Act. and therefore, the learned Tribunal is perfectly justified in entertaining not only the rectification application but reviewing and recalling its earlier order. However, Mr. Bandish S. Soparkar learned advocate for the assessee is not able to satisfy the Court with respect to the maintainability and entertainment of second rectification application on the same ground. He is also not in a position to dispute that as such there cannot be any rectification application in rectification application under s. 254(2) of the Act. However, he has submitted that in the facts and circumstances of the case and in view of the fact that a glaring mistake was found by the learned Tribunal in the order passed in an appeal with respect to the appeal under s. 132(11) preferred by the assessee, the learned Tribunal is justified in entertaining the second rectification application.

Heard the learned advocates appearing for the parties at length.

The short question which is posed for the consideration of this Court is, whether learned Tribunal is right in law in entertaining the assessee''s miscellaneous application again when once the MA has been considered and rejected by the same authority, the Tribunal?

At the outset, it is required to be noted that it is not in dispute that after the judgment and order was passed by the learned Tribunal Dt. 6th June, 1995 in ITA No. 2944/Ahd/1988, the assessee did submit an application in M.A. No. 34/Ahd/1995 for rectification of the alleged mistake in the order of the Tribunal, more particularly, the observations made in paras 8 and 9 about the seized material i.e., diary by submitting that certain material facts could not be considered. It is not in dispute that the said rectification application came to be rejected by the learned Tribunal vide order Dt. 11th April, 1996 by observing that the attempt on the part of the assessee is to get the review of the order of the Tribunal which is beyond the scope of s. 254(2) of the Act. At this juncture, it is required to be noted that such rectification application (first rectification application) was decided by the same Members, who have, earlier decided and disposed of the appeal. It appears that, thereafter, assessee preferred second rectification application for rectification of the order passed by the learned Tribunal on the same ground on which the earlier rectification application preferred which was rejected by the learned Tribunal, and by impugned order, not only the Tribunal has entertained the second rectification application on the same ground on which the earlier first application was made but has also allowed the same and has recalled/renewed its earlier order passed in appeal. Therefore, the question is whether the learned Tribunal was justified in entertaining the second rectification application on the same ground.

The identical question came to be considered by the Punjab & Haryana High Court in the case of CIT v. Pearl Woolen Mills (supra). The question before the Punjab & Haryana High Court was, whether it was open to the Tribunal to readjudicate the matter, and that too, when an earlier application under s. 254(2) had been dismissed on the same issue. Answering the aforesaid question, the Punjab & Haryana High Court has held that the Tribunal could not have readjudicated the matter under s. 254(2). While so holding, in paras 11 to 13, it is observed and held as under:

"11. It is well settled that a statutory authority cannot exercise power of review unless such power is expressly conferred. Reference may be made to the judgment of the Hon''ble Supreme Court in Patel Narshi Thakershi and Others Vs. Shri Pradyumansinghji Arjunsinghji, , wherein it was observed as under:

4..... It is well settled that the power to review is not an inherent power. It must be conferred by law either specifically or by necessary implication.''

The above view has been reiterated in Kapra Mazdoor Ekta Union Vs. Management of Birla Cotton Spinning and Weaving Mills Ltd. and Another, .

There is no express power of review conferred on the Tribunal. Even otherwise, the scope of review does not extend to rehearing a case on the merits. [ Aribam Tuleshwar Sharma Vs. Aribam Pishak Sharma and Others, , Smt. Meera Bhanja Vs. Smt. Nirmala Kumari Choudhury, . The finality of these order of the Tribunal cannot be disturbed by a different Bench beyond the statutory power available to it. The Tribunal has referred to the principle of inherent power and incidental power and also the principle that act of Court cannot prejudice anyone. The scope of the principle actus curiae neminem gravabit, i.e., nobody will be prejudiced by act of Court, extends to correcting an error from an accidental slip or omission. Such power is available under s. 254(2) of the Act, which is akin to s. 152 of the Civil Procedure Code. In Niyamat Ali Molla Vs. Sonargon Housing Co-operative Society Ltd. and Others, , after referring to earlier judgments, the scope of such power was considered and it was observed that the said power was neither akin to power of review nor could clothe the Court to modify judgment on the merits. The scope of power of rectification has been repeatedly considered, inter alia, in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, , Deva Metal Powders Pvt. Ltd. Vs. Commissioner, Trade Tax, U.P., , Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd., and such power is limited to correcting an error apparent on the face of record and not to an error to be discovered by long drawn process of reasoning. Thus, neither by invoking the inherent power nor the principle of mistake of Court not prejudicing a litigant nor by invoking the doctrine of incidental power, the Tribunal could reverse a decision on the merits. Power available to a Court of record, ex debito justitiae, or power to be invoked where an order may be nullity, on account of having been passed without service on a party, stand on a different footing."

In the case of CIT v. Panchu Arunachalam (supra), the Madras High Court has held that once the power for rectification of the earlier order is invoked/exercised and an order is passed and such order merges with the earlier order of the Tribunal on the ground that a mistake apparent from the record had occurred, another application for rectification of the original order passed in the appeal may not lie. While holding so, in para 9, the Madras High Court has observed and held as under:

"9. When once the power for rectification of the earlier order is invoked/exercised and an order is passed and such order merges with the earlier order of the Tribunal, in our opinion, on the ground that a mistake apparent from the record had occurred, another application for rectification of the original order passed in the appeal may not lie. We are inclined to take the above view keeping in mind that whatever power conferred on the authorities must be exercised and orders passed thereon should have a finality attached to it, as otherwise, the parties aggrieved by such orders would be entitled to file any number of such applications seeking for rectification and the same would amount to reviewing of the earlier order, which power does not vest in the Tribunal under s. 254 of the Act. Once an application seeking for rectification is disposed of, be it the Revenue or the assessee, if aggrieved, should have the recourse to the provisions of appeal before this Court and either of them cannot invoke the provisions of s. 254(2) by filing another application for rectification which, in our view, cannot be entertained under that section."

The identical question came to be considered by the Kerala High Court in the case of CIT us. Aiswarya Trading Co. (supra). The Kerala High Court in the aforesaid decision has observed and held that once the rectification application filed by one of the parties is considered and decided by the Tribunal rightly or wrongly, another rectification application on the same issue is not maintainable against the order issued by the Tribunal under s. 254(2) of the IT Act, 1961. It is further observed that the second rectification application by either party is maintainable only on issues not decided by the Tribunal in any other rectification application filed by either of the parties.

Considering the aforesaid decision of the Punjab & Haryana High Court, Madras High Court and Kerala High Court, and applying the same to the facts of the present case on hand, when the first rectification application was rejected by the Tribunal, the second rectification application on the same issue was not maintainable at all. Under the circumstances, the learned Tribunal has materially erred in entertaining the second rectification application and passing the impugned order of recalling its earlier order in exercise of powers under s. 254(2) of the Act. Once the second rectification application on the same issue was not maintainable, the learned Tribunal erred in entertaining the application and allowing the same.

Once it is held that the second rectification application on the same issue was not maintainable, and therefore, was not required to be entertained, thereafter, a further question, whether in the facts and circumstances of the case, the Tribunal is justified in allowing the second rectification application on merits and recalling the order passed in an appeal is as such not required to be considered. However, when the submissions have been made, we are considering whether even on merits the Tribunal was justified in recalling the order passed in appeal on merits or not. Considering the impugned order passed by the Tribunal, we are of the view that while passing the impugned order, the Tribunal has gone beyond the scope and ambit of s. 254(2) of the Act. The order passed by the Tribunal in appeal, it appears that the issue is with respect to the Panchnama of the seized article i.e.. pocket diary and the income should be considered in the hands of the assessee and not what specifically dealt with and considered by the Tribunal extenso and therefore, when the decision of the Tribunal on facts was against the assessee, and thereafter, the learned Tribunal could not have considered the second rectification application, on merits. Only when it is found that there was an error apparent on the face of the record, then and then only powers under s. 254(2) of the Act can be invoked. In the case of T.S. Balaram. ITO v. Volkart Brothers & Ors. (supra), while considering the scope and ambit of powers of review/rectification of mistake, the Hon''ble Supreme Court has observed that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning. From the impugned order passed by the learned Tribunal in second rectification application, it appears that the learned Tribunal has tried to consider the issue on merits which was already considered by the learned Tribunal earlier while deciding the appeal. Under the circumstances, even on merits also, the learned Tribunal has materially erred in exercise of powers under s. 254(2) of the Act by passing the impugned order and the learned Tribunal has gone beyond the scope and ambit of the powers of s. 254(2) of the Act. Under the circumstances, on merits, the order passed in second rectification application, cannot be sustained. In view of the above and for the foregoing reasons stated above, the question referred to this Court is answered in favour of the Revenue and against the assessee. The present reference is disposed of accordingly.