Kansai Nerolac Paints Ltd. vs Deputy Commissioner of Income Tax

This appeal challenges the order passed by the income tax Appellate Tribunal dated October 20, 2010, in the assessee''s appeal. The appellant-assessee approached the Tribunal by filing Income Tax Appeal No. 856/Mum/2008, aggrieved by the order passed by the Commissioner of income tax (Appeals) dated December 5, 2007, the assessment year in question is 2004-05. The issue was of the levy of penalty u/s 271(1)(c) of the income tax Act, 1961, in respect of short-term capital gains of Rs. 1.27 crores. They were not offered in the original return but offered in a revised return filed in the course of assessment proceedings.

The Tribunal was aware of the fact that the assessee before us had raised an issue that it has been dissolved without winding up and upon merger pursuant to the order of the High Court dated March 20, 2007. The scheme of amalgamation u/s 391 to section 394 of the Companies Act, 1956, which became effective on March 31, 2007. Therefore, and, according to the assessee, would not permit continuation of the proceedings in relation to imposition of penalty. They are null and void ab initio. The argument is the proceedings were commenced or continued against a non-existing company.

Mr. Dastur, learned senior counsel appearing in support of this appeal, submits that the Tribunal having noted this legal argument and finding that it goes to the root of the case urged in not answering it. It was a pure legal issue inasmuch as there was nothing beyond the scheme of amalgamation u/s 391 to section 394 of Companies Act, 1956, which received sanction of this court and by virtue of the order of this court the consequences followed. If these two documents were the only documents based on which the legal issue was raised then the Tribunal was obliged to answer it. The legal issue could not have been remitted for being answered by the Assessing Officer. What could have been remitted was a consequential act and depending on the answer to the legal issue. In these circumstances, this appeal deserves to be entertained. It deserves to be entertained additionally because this was an oblivious mistake made by the Tribunal and which could have been rectified by it. The rectification application also has been dismissed and that the order is vitiated by non-application of mind is the submission before us.

Ms. Bharucha, the learned counsel appearing on behalf of the respondent, on the other hand, submitted that the Tribunal has admitted the additional ground and the additional evidence filed by the assessee. However, it passed an order of remand because the Tribunal thought that the question could not have been answered purely in terms of law. It required a consideration of the documents or the additional evidence. Therefore, it has set aside the order passed by the authorities and remitted the matter back to the Assessing Officer for de novo consideration. Such an order does not raise any substantial question of law. Resultantly, she submits that the appeal be dismissed.

We have, with the consent of the learned advocates and with their assistance, perused the memo of this appeal and the orders impugned before us. On the earlier occasion, we had permitted the amendment to the memo of appeal by incorporating additional grounds to challenge the order on the rectification of mistake application made on September 28, 2011. Upon perusal of the entire material, we are of the opinion that the appeal raises the following substantial questions of law:

(i) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in setting aside the appeal to the file of the Assessing Officer to decide the matter afresh?

(ii) Whether, on the facts and in the circumstances of the case and in law, the Assessing Officer can sit in judgment over his own order and decide whether or not the order passed by him is a nullity or whether it is necessary that an appellate authority should take such a decision?

(iii) Whether the Tribunal ought to have clarified in the impugned order that the additional evidence pertaining to the merits of the case was also admitted and would have to be taken into account while deciding the issue?

With the consent of the learned advocates, we decide this appeal finally. The Tribunal in paragraph 7 of the order under challenge observed and held thus:

Aggrieved the assessee is on appeal before us. The assessee has raised the additional ground challenging levy of penalty when the assessee M/s. Polycoat Powders Ltd. has been amalgamated with the assessee M/s. Kansai Nerolac Paints Ltd. The assessee has also filed the order of the Mumbai High Court confirming the amalgamation of the two companies. The assessee contested the levy of penalty on a non-existing company. We find that this issue has been taken up by the assessee for the first time before the Tribunal. The order of the court confirming the amalgamation has also been produced before us for the first time. As it goes to the root of the matter involving legal interpretation, we admit the additional grounds and the additional evidence filed by the assessee. But we find that the lower authority did not have the opportunity to consider the issue. In the circumstances, we deem it fit to set aside the entire matter to the file of the Assessing Officer for considering the issue de novo in all aspects in accordance with the provisions of law. We have not decided any issue and it is open to the assessee to raise contentions on all aspects of the issue and the Assessing Officer shall after giving reasonable opportunity to the assessee to present their case and decide the issue in accordance with law.

Having so observed, the Tribunal should have answered the legal issue itself. The Tribunal was not prevented in any manner and in law from considering a purely legal issue for the first time, moreso, if this legal issue goes to the root of the matter. The issue was an impact and legal effect of a order of amalgamation and winding up of the assessee thereto on the penalty proceedings have been initiated and were continuing. If they were initiated prior to the order of the winding up passed or the scheme of amalgamation being sanctioned then whether the subsequent act of a order sanctioning the scheme would permit continuation of the proceedings against an entity or company which is wound up and in terms of the provisions contained in the income tax Act, 1961, was, thus, a clear legal issue. It should have been answered by the Tribunal, particularly when it had admitted the question or ground and also the additional evidence filed by the assessee. The only two documents which required to be looked into were the scheme of amalgamation and the order passed in pursuance thereof by this court. If that was the admitted factual position and based on which the legal issue was raised then the Tribunal was obliged to answer the legal question. Its omission to answer it, therefore, is vitiated in law. The Tribunal is a last fact finding court and equally if it could have been approached by the assessee court on law and fact, then, in the given circumstances, the Tribunal should have answered this issue and its failure to do so can safely be termed as not performing its duty in law. The direction to remit and to remand it to the Assessing Officer is not justified and in the peculiar facts and circumstances noted above.

As a result of the above discussion and without making any observations or rendering any finding on the legal issue, we quash and set aside the orders passed by the Tribunal and impugned in this appeal, namely, dated October 20, 2010, and September 28, 2011. We restore the appeal to the file of the Tribunal for the purpose of deciding the legal issue. The Tribunal shall permit both sides to raise the arguments on this legal issue. In the event, the legal issue is answered against the assessee and in favour of the Revenue, it would be open for the Tribunal to dispose of the appeal preferred by the assessee itself or if necessary and required or the facts justifying it remand the matter for consequential acts to the Assessing Officer with suitable directions. The appeal is disposed of in these terms. There would be no orders as to costs.