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Judgment
Harsha Devani, J.—By this application, the applicant has prayed to recall and set aside judgment and order dated 31st August, 2006 passed by this Court in Income Tax Reference No. 120 of 1997 and to restore Income Tax Reference No. 120 of 1997.
Before adverting to the merits of the case, it may be necessary to set out a few facts.
At the instance of the revenue, the Income Tax Appellate Tribunal, Ahmedabad Bench ''B'' in the matter of Income Tax Appeal No. 1290/Ahd/1992 relating to assessment year 1990-91 referred the following question for the opinion of this Court:
Whether, the Appellate Tribunal is right in law and in facts in confirming the order passed by the CIT(A) deleting additional Income Tax of Rs. 22,42,320/- leviable u/s 143[1A] of the Act on the ground that there is loss, additional tax cannot be imposed?
The notice of the reference had been served on the applicant. However, the applicant did not put in appearance hence, vide judgment and order dated 31st August, 2006, the reference was decided ex parte on merits in favour of the revenue and against the applicant - Assessee. Pursuant to the decision on the reference, a demand notice came to be issued to the applicant, pursuant to which the applicant learnt about the decision made on the reference and approached this Court by way of the present miscellaneous civil application seeking the relief noted hereinabove. Since a delay of 28 days had occasioned in filing the present application, the applicant had also moved an application for condonation of delay. Vide order dated 13th September, 2007, a Division Bench of this Court rejected the application for condonation of delay with costs on the ground that the applicant had failed to make out a case for condoning the delay occasioned in filing the miscellaneous civil application. Being aggrieved, the applicant preferred a SLP before the Supreme Court challenging the said order dated 13th September, 2007. The Supreme Court on 19th July, 2010 passed an order in the following terms:
None appears for the Department, though served.
Leave granted.
This civil appeal is filed against an ex-parte decision dated 13th September, 2007, in Civil Application No. 94 of 2007 in Income Tax Reference No. 120 of 1997. From the records, we find that there was a delay of twenty eight days in moving Civil Application No. 94 of 2007. Moreover, it appears that the Tribunal has decided the matter in favour of the Assessee.
For the afore-stated reasons, the impugned ex-parte decision is set aside and the matter is remitted to the High Court for de novo consideration on merits in accordance with law.
The civil appeal is, accordingly, allowed.
No order as to costs.
Pursuant to the said order, both the civil application for condonation of delay as well as the present miscellaneous civil application, were placed before this Court for hearing the same afresh. Vide order dated 21st September, 2010, this Court condoned the delay caused in filing the present miscellaneous civil application and allowed the application.
Mr. S.N. Soparkar, learned senior advocate appearing on behalf of the applicant invited the attention of the Court to the order dated 19th July, 2010 made by the Supreme Court to submit that the Court had set aside the impugned ex parte decision and remitted the matter to the High Court for de novo consideration on merits in accordance with law. It was submitted that insofar as the order dated 13th September, 2007 is concerned, the same was passed after bipartite hearing. That it was the judgment and order dated 31st August, 2006 made in Income Tax Reference No. 120 of 1997 which was an ex parte decision hence, it is apparent that the Supreme Court has set aside the order dated 31st August, 2006 made in the Income Tax Reference and has directed the High Court to consider the reference de novo, on merits, in accordance with law. It was submitted that in the circumstances, the reference is required to be heard on merits.
On the other hand, Mr. M.R. Bhatt, learned senior advocate appearing on behalf of the revenue vehemently opposed the application. It was submitted that what was subject matter of challenge before the Supreme Court was the order dated 13th September, 2007 whereby the application made by the applicant seeking condonation of delay had been rejected by this Court. Thus, what has been set aside by the Supreme Court is also the said order dated 13th September, 2007, hence, the submission that the Supreme Court had set aside the order dated 31st August, 2006 made in the reference does not merit acceptance. It was submitted that the Court would firstly have to consider the present miscellaneous civil application on merits and in the event the Court comes to the conclusion that the matter requires consideration, the order dated 31st August, 2006 may be recalled. It was submitted that before recalling the order, the Court may consider the merits of the case to examine as to whether the applicant is able to make out any case on merits so as to warrant interference with the earlier order. According to the learned Counsel for the revenue, the controversy in issue stands concluded by the decision of the Apex Court on which reliance has been placed by this Court while deciding the reference in favour of the revenue. In the circumstances, recalling the order and passing another order in the same terms would be an exercise in futility. Hence, unless the applicant is able to make out a case on merits, this application may not be entertained.
Insofar as the contention raised on behalf of the applicant that the Apex Court has set aside the order dated 31st August, 2006 made in Income Tax Reference No. 120 of 1997 which was an ex parte decision is concerned, though the Supreme Court in its order dated 19th July, 2010 has, while setting aside the impugned order, referred to the impugned ex parte decision, a perusal of the memorandum of the SLP indicates that what was the subject matter of challenge before the Supreme Court was the judgment and order dated 13th September, 2007 passed by this Court in Civil Appeal No. 94 of 2007 in Stamp No. 4083 of 2006 in Income Tax Reference No. 120 of 1997 which was the application seeking condonation of delay occasioned in filing the present Miscellaneous Civil Application. Thus, when the order dated 31st August, 2006 was not subject matter of challenge before the Supreme Court, it is not possible to accept the contention raised on behalf of the applicant that the Supreme Court had set aside the said order.
However, having regard to the preliminary contentions raised by the learned advocate for the respective parties, the Court thought it fit to examine the reference on merits to ascertain as to whether it was possible to take a different view in the matter so as to warrant recalling of the earlier order dated 31st August, 2006. Before referring to the submissions advanced by the learned Counsel on the merits of the case, it may be germane to briefly refer to the facts of the case.
The Assessee had filed a return of income for assessment year 1990-91 on 23rd October, 1990 declaring loss of Rs. 22,90,36,633/-. The return so filed was processed u/s 143(1)(a) of the Act and as per the adjustment explanatory sheet, the total income was computed at Rs. 3,58,822/- and additional tax was calculated on prima facie adjustment made of Rs. 2,63,24,652/-. The Assessee made an application u/s 154 of the Act against the adjustment made and additional tax levied. The Assessing Officer while passing the order u/s 154 of the Act restricted the deduction claimed u/s 80P of the Act to the extent of income from property and dividend at Rs. 3,58,822/- against the claim made of Rs. 2,58,21,400/-. Thus, the disallowance of deduction u/s 80P of Rs. 2,54,62,578/- was treated as made by prima facie adjustment. The Assessing Officer revised the adjustment explanatory sheet as under:
Total income as per explanatory sheet. Rs. 3,58,822 Less: Deduction u/s 80P allowed to the extent of gross total income of Rs. 3,58,822 Rs. 3,58,822 ----------------
Rs. Nil =======
The Assessee claimed deduction u/s 80P at Rs. 2,58,21,400/- on account of profits from members. Since the entire business income stood set off against the earlier years'' business loss, the deduction was available only to the extent of gross total income available at Rs. 3,58,822/-. Accordingly, the prima facie adjustment was taken at Rs. 2,54,62,578/- (2,58,21,400 - 3,58,822). With other adjustments made, the total prima facie adjustment was worked out at Rs. 2,59,62,784/- and the Assessing Officer charged additional tax thereon at the rate of 20%. Being aggrieved, the Assessee preferred appeal before the Commissioner (Appeals). Before the Commissioner (Appeals), it was contended on behalf of the Assessee that the Assessee had brought to the notice of the Assessing Officer that the question as to whether in the case of a co-operative society which has losses for the earlier years to be set off against the income of the year in question is entitled to deduction u/s 80P of the Act is highly debatable and that the Madras High Court in the case of COMMISSIONER OF Income Tax, TAMIL NADU-III Vs. KATPADI CO-OPERATIVE TIMBER WORKS LTD., , had taken a view that a Co-operative Society is entitled to deduction u/s 80P(2)(c) of the Act on the amount included in the gross total income before making any deduction for the set-off of carried forward losses of depreciation. It was further contended on behalf of the Assessee that the income of the Assessee in this case was ''nil'' as the entire income of the year under appeal was adjusted against the brought forward losses of earlier years. That the total income determined by the Assessing Officer was also at a nil figure and, therefore, there was no difference in the total income returned and the total income determined by the Assessing Officer after making adjustments. It was accordingly submitted that there was no case for levy of additional tax u/s 143(1)(a) of the Act because one of the necessary conditions for levy of additional tax under the said provision was that the total income computed after the adjustments should exceed the total income declared in the return filed by the Assessee. That in the present case, since the income returned and assessed were at the same figure namely nil, there was no question of any increase in the total income declared by the Assessee.
The Commissioner (Appeals) held that deduction u/s 80P has to be computed with reference to the income computed after adjusting the brought forward losses. He, accordingly, held that the Assessing Officer was justified in rejecting the contention of the Assessee to allow deduction u/s 80P of the Act on the income computed before adjusting the brought forward losses.
On the question as regards levy of additional tax u/s 143(1A) of the Act, Commissioner (Appeals) placed reliance upon the decision of the Delhi High Court in the case of Modi Cement Limited v. Union of India 100 CTR 48 wherein it was held that where even after the adjustments, there is no positive income and there is no demand of tax, the additional tax u/s 143(1A) of the Act cannot be charged and held that the Assessing Officer was not justified in levying additional tax on the Assessee and accepted the said ground of appeal.
Against the order of the Commissioner (Appeals), revenue preferred appeal before the Tribunal on the ground that the Commissioner (Appeals) had erred in deleting additional Income Tax of Rs. 22,42,320/- leviable u/s 143(1A) of the Act. The Tribunal noted that in the present case, the Assessee had declared income from property and dividend at Rs. 3,58,822/- and claimed deduction u/s 80P at Rs. 2,58,21,400/-. The Assessing Officer restricted the claim u/s 80P to Rs. 3,58,822/- and assessed the total income at nil. Thus, the loss declared was neither reduced nor the same was converted into income, rather the income was assessed at nil. According to the Tribunal, the provisions of Sub-section (1A) of Section 143 would not be attracted in the facts of the present case. While holding so, the Tribunal placed reliance on the decision of the Delhi High Court in the case of Modi Cement Limited (supra). At the instance of the Commissioner of Income Tax, Gujarat-II, Ahmedabad, the Tribunal formulated the question reproduced hereinabove for the opinion of this Court.
Vide order dated 31st August, 2006, this Court decided the reference in favour of the revenue and against the Assessee by placing reliance upon the decision of the Supreme Court in the case of Assistant Commissioner of Income Tax Vs. J.K. Synthetics Ltd., wherein the Court was dealing with the question as to whether a loss which is reduced by reason of application of the provisions of Sub-section (1)(a) of Section 143 falls within the ambit of Sub-section (1A). The Court held that Sub-section (1A) as amended by the Finance Act, 1993 with effect from 01st April, 1989, (which was the date upon which Sub-section (1A) had been introduced into the Act), made it clear that even where the loss declared by an Assessee had been reduced by reason of adjustments made under Sub-section (1)(a), the provisions of Sub-section (1A) would apply. The Court further observed that this being a retrospective amendment, it covers the controversy in the appeal and, therefore, the appeal would have to be decided in favour of the revenue. In the light of the aforesaid view taken by the Apex Court, this Court had set aside the order passed by the Tribunal and decided the reference in favour of the revenue and against the Assessee.
Mr. M.R. Bhatt, learned senior advocate appearing for the revenue submitted that the only issue before the Tribunal was as to whether the Commissioner (Appeals) had erred in deleting additional Income Tax of Rs. 22,42,320/- leviable u/s 143(1A) of the Act. Inviting attention to the decision of the Supreme Court in the case of Assistant Commissioner of Income Tax v. J.K. Synthetics Ltd. (supra), it was submitted that the controversy involved in the present case stands concluded by the said decision and as such, even on merits, the applicant has no case. It was submitted that in the circumstances, when the controversy stands concluded by the decision of the Apex Court and this Court has, by applying the said decision, answered the reference in favour of revenue, there is no warrant for any interference with the said order and as such, the application deserves to be rejected.
On the other hand, Mr. S. N. Soparkar, learned senior advocate appearing for the applicant-Assessee invited attention to the fact that the Assessing Officer had while sending intimation to the Assessee u/s 143(1)(a) of the Act adjusted loss to be carried forward at Rs. 20,29,11,981/-. The Assessing Officer while computing income u/s 143(1)(a) had held that the Assessee was not entitled to any relief u/s 80P of the Act because of the set off of brought forward loss, since after allowing the unabsorbed business loss of the earlier assessment year, the Assessee did not have any positive gross total income. It was submitted that the Assessee had brought to the notice of the Assessing Officer the question as to whether in the case of a co-operative society which had losses for the earlier years to be set-off against the income of the year in question, is entitled to deduction u/s 80P of the Act, is highly debatable and as such, prima facie adjustment could not have been made u/s 143(1)(a) of the Act.
Inviting attention to the decision of the Madras High Court in the case of Commissioner of Income Tax, Tamil Nadu-III v. Katpadi Co-operative Timber Works Ltd. (supra), it was submitted that at the relevant time, there was a direct decision of the Madras High Court holding that so long as gross total income of a co-operative society includes income referable to the activities mentioned by Section 80P(2)(c), the Assessee would be eligible for deduction and it is only if there is any amount left thereafter that could be the subject of consideration for set off of carried forward losses or depreciation. It was submitted that in the circumstances, as to whether the Assessee was entitled to set off the brought forward losses from the earlier years u/s 80P of the Act or not, was a debatable issue and as such, no prima facie adjustment could have been made by the Assessing Officer u/s 143(1)(a) of the Act. It was submitted that the said contention was also taken before the Commissioner (Appeals); however, since the Commissioner (Appeals) had held in favour of the Assessee on merits, the Assessee had no reason to prefer any appeal against the said order. However, the fact remains that the Assessee had challenged the order of the Assessing Officer in making preliminary adjustment u/s 143(1)(a) of the Act in relation to issues which were debatable issues. In the circumstances, when no prima facie adjustment could have been made, there was no question of levy of additional tax on such adjustment made by the Assessing Officer. Also when no prima facie adjustment could have been made, the decision of the Supreme Court in the case of Assistant Commissioner of Income Tax v. J.K. Synthetics Ltd. (supra) would not be applicable. It was accordingly submitted that in the circumstances, the impugned order of the Tribunal does not call for any interference and as such, the order dated 31st August, 2006 made by this Court is required to be recalled and the reference is required to be answered in the negative.
In rejoinder, Mr. M.R. Bhatt, learned senior advocate invited attention to the fact that against the order of the Commissioner (Appeals), it was only the revenue which had preferred appeal. It was submitted that before the Commissioner (Appeals), the Assessee had challenged the order of the Assessing Officer raising two principal contentions in respect of the issues involved in the present case. Firstly, that no prima facie adjustment could have been made u/s 143(1)(a) of the Act. Secondly, that the income assessed in this case was nil as the entire income of the year under appeal was adjusted against the brought forward losses of the earlier years; the total income determined by the Assessing Officer was also at a nil figure and, therefore, there was no difference in the total income returned and the total income determined by the Assessing Officer after making adjustment and as such, the provisions of Section 143(1A) of the Act would not be attracted. It was submitted that insofar as the first issue is concerned, namely that in respect of a debatable issue no prima facie adjustment could have been made, the Commissioner (Appeals) had decided against the Assessee whereas on the second issue, the Commissioner (Appeals) had held in favour of the Assessee. However, the Assessee had not thought it fit to challenge the order of the Commissioner (Appeals) holding against it on the first issue and as such, the order of Commissioner (Appeals) insofar as the first issue is concerned, has become final and as such, the Assessee cannot be permitted to challenge the said finding in the reference made at the instance of the revenue.
Having regard to the submissions advanced by the learned Counsel for the respective parties, it is apparent that insofar as the question referred by the Tribunal for the opinion of this Court is concerned, the same stands concluded by the decision of the Supreme Court in the case of Assistant Commissioner of Income Tax v. J.K. Synthetics Ltd. (supra). Hence, as such, there would be no question of taking a different view from that taken by this Court in the order dated 31st August, 2006.
The only issue that remains to be examined is as to whether the Assessee is entitled to raise the contention that prima facie adjustment u/s 143(1)(a) of the Act could not have been made since the issue involved was a debatable issue. In this regard, it is true that at the relevant time, there was a decision of the Madras High Court in the case of Commissioner of Income Tax, Tamil Nadu-III v. Katpadi Co-operative Timber Works Ltd. (supra) taking a view in favour of the Assessee. Though subsequently the said decision came to be impliedly overruled by the decision of the Supreme Court in the case of Commissioner of Income Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, at the relevant time, the issue involved was certainly a debatable issue. The Assessee in the appeal before the Commissioner (Appeals) had raised contention in this regard. However, the Commissioner (Appeals) had decided the said issue against the Assessee as a result of which, the business income shown for the year under consideration was set off against unabsorbed business loss of the earlier years and deduction u/s 80P was permitted only on the positive business income left thereafter. Thus, the Assessee''s claim for deduction of Rs. 22,92,36,633/- u/s 80P of the Act had been disallowed, despite which, the Assessee did not deem it fit to challenge the same before the Tribunal. On behalf of the Assessee, it has been contended that since the Commissioner (Appeals) had decided in favour of the Assessee, the Assessee had no reason to challenge the order of the Commissioner (Appeals) before the Appellate Tribunal. However, the said contention does not merit acceptance inasmuch as though the Commissioner (Appeals) had held that additional income tax at the rate of 20% of the adjustment made could not be levied as there was no positive income, the Assessee''s claim for deduction of Rs. 22,92,36,633/- u/s 80P of the Act had been turned down. In the circumstances, it cannot be said that the Assessee would not be aggrieved by the order of the Commissioner (Appeals). Hence, once the Assessee has accepted the order of the Commissioner (Appeals) insofar as the first issue is concerned, the same has attained finality and the Assessee cannot be permitted to agitate the same in the present reference which has been made at the instance of the revenue.
Once it is held that the Assessee is not entitled to agitate the issue as regards prima facie adjustment made u/s 143(1)(a) of the Act, the only issue that remains for consideration is as regards the levy of additional tax u/s 143(1A) of the Act, which stands concluded by the decision of the Apex Court in the case of Assistant Commissioner of Income Tax v. J.K. Synthetics Ltd. (supra) on which reliance has been placed by this Court while making the order dated 31st August, 2006. Therefore, on merits, it is not possible to take a different view than the view taken by this Court in the order dated 31st August, 2006 whereby the reference has been answered in favour of revenue. In the circumstances, no useful purpose would be served in recalling the order dated 31st August, 2006 and again passing an order in the same terms.
In the light of the aforesaid, the applicant has not been able to make out a case for recalling the judgment and order dated 31st August, 2006 and restoring the reference being ITR No. 120 of 1997. The application, therefore, fails and is accordingly rejected. Rule is discharged with no order as to costs.