Lekshmi Traders vs Commissioner of Income Tax

T.R. Ramachandran Nair, J.—This appeal is filed against annexure H order passed by the Income-tax Appellate Tribunal, Cochin Bench. The main question raised is whether the rejection of the plea by the appellant to raise an additional ground is justified or not. The view taken by the Tribunal is that in the light of the judgment rendered by the Division Bench on an earlier round of litigation between the same parties, in I.T.A. Nos. 146 of 2009 and 1510 of 2009, the Tribunal cannot allow the appellant to raise additional grounds. Now, we will come to the bare facts for the disposal of the appeal. The appellant is a partnership firm and the Assessing Officer has adopted the status as association of persons. They are involved in liquor business. In the premises of one of the partners of the association of persons, viz., Shri R. Prasad, a search was conducted on February 23, 1999, under section 132 of the Income-tax Act, 1961 (for short "the Act"). Thereafter, assessment proceedings were commenced against the firm and annexure A is the notice issued under section 158BD of the Act. The block period is from April 1, 1988, to February 23, 1999. After the filing of the return by the assessee, disclosing an income of Rs. 5,30,000, the block assessment was completed by the Deputy Commissioner of Income-tax, Circle I, Kollam, on December 28, 2001, and by annexure B, a block assessment order has been passed. In appeal filed by the appellant, the Commissioner of Income-tax (Appeals) passed annexure C order by partly allowing the same. The appellant filed an appeal before the Income-tax Appellate Tribunal, Cochin Bench, and an additional ground was raised as per annexure D. The Department also filed an appeal. The contention raised in the additional ground raised therein was that the notice issued under section 158BD of the Act is invalid. It was pointed out that the assessing authority can issue notice only as per section 158BC of the Act and that the notice should have been issued under section 158BC read with section 158BD of the Act. The Tribunal accepted the contentions of the appellant and held that the notice issued was invalid and the assessment in consequence of the notice was also not valid. Annexure E is the order passed by the Tribunal. This was taken in appeal by the Department before this court and, consequently, annexure F judgment was rendered by this court. The matter went back and the appellant again raised an additional ground relying upon the decision of the apex court in Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, . The said additional ground was refused to be admitted by the Tribunal. The Tribunal apparently has taken the view that the powers of the Tribunal are confined to the order of the remand passed by this court as per annexure F wherein, while disposing of the appeal, a direction was given by this court to consider the appeal on the merits. On that score, the appellant''s plea has not been accepted.

We heard the learned counsel for the appellant, Shri P. Gopinath Menon and the learned senior counsel for the Department, Shri P. K.R. Menon.

Learned counsel for the appellant, Shri P. Gopinath Menon, contended that the additional ground raised by the appellant is on a question of law. It cannot be said that the powers of the Tribunal are limited so as to consider the same. It is submitted that in the earlier round of litigation, the only question considered by this court was regarding the validity of the notice. Herein, the contention raised is that the Assessing Officer should have appreciated that the conditions precedent for making block assessment are mandatory and fully satisfied and that when the block assessment of a person other than the person whose premises have been searched is carried out, the Assessing Officer assessing the searched person has to record the satisfaction that some undisclosed income belonged to the other person and then the Assessing Officer has to hand over the books of account and other documents and assets seized to the Assessing Officer having jurisdiction of that other person. It is submitted that these statutory requirements have not been complied with and, therefore the entire assessment is invalid. It is submitted that the above legal position has been laid down by the apex court in Manish Maheshwari''s case (supra).

Learned senior counsel for the Department, Shri P. K.R. Menon, submitted that the judgment of the apex court has been distinguished by a Division Bench of this court on facts in Commissioner of Income Tax Vs. Panchajanyam Management Agencies and Services, . This case is identical on facts. According to the learned senior counsel, the parties are bound by the remand order. The operative portion of the judgment shows that this court had directed the Tribunal to consider the matter on the merits of the appeal alone. Therefore, the Tribunal cannot travel beyond the direction issued by this court, which is the view taken by the Tribunal herein and the same is fully justified. It is submitted that the argument raised by the learned counsel for the appellant has only to be rejected.

A reading of annexure F judgment of the Division Bench shows the following : The Tribunal cancelled the assessment for the reason that annexure D notice was issued under section 158BD and not under section 158BC read with section 158BD. In appeal, the Revenue raised a question as to whether the Tribunal is right in holding that annexure D notice is invalid and, consequently, the assessment is also invalid. In paragraph 4 of the judgment, the Division Bench has recorded thus : "Since the validity of this notice is the crux of the issue in these appeals, we have thoroughly examined the contents of the said notice." In paragraph 5, the following question was considered:

"The question to be considered is whether the notice sent under section 158BD is invalid for the reason that the Assessing Officer has not separately mentioned in the said notice that it is issued under section 158BC also."

Further discussions have been made in the said paragraph. In paragraph 6, the following findings have been rendered:

"What is clear from the above provisions is that the notice should be issued in the name of the assessee proposed to be assessed and in the case of an association of persons, to the principal officer or any member thereof and serve the notice on such person to represent the association of persons. In this case, admittedly, notice was received by the respondent-assessee, and one of the members of the association of persons. In other words, when the assessee admits receipt of notice and files its proper return in the prescribed form in terms of the notice, we do not think that the assessee is entitled to contend that the notice is not served in accordance with the procedure prescribed under the above sections. In our view, proof of the detailed procedure adopted for service of notice under sub-section (2) of section 282 is required to be enquired into only when the assessee complains non-receipt of notice. In other words, when notice issued is accepted by the assessee and return is filed in terms of the notice, the assessee cannot contend that there is no service of notice in terms of the section. Besides the above, what we find is that annexure D notice is a notice prescribed under rule 12(1)(a) of the Rules and in the said notice what is called for is return in the prescribed format, i.e., in Form 2B, which is for making block assessment under section 158BC. So much so, even though the Assessing Officer has corrected section '' 158BC'' to section '' 158BD'', the contents of the notice satisfy the requirement of a notice under section 158BC as well. Therefore, in our view, the notice served on the assessee has to be necessarily taken as a notice issued under section 158BC read with section 158BD, as held by the Tribunal. As already found by us the assessee rightly understood the notice as one issued under section 158BD read with section 158BC and in fact the assessee correctly responded by filing return in Form 2B... So much so, we hold that the finding of the Tribunal that the notice is one issued under section 158BD alone is incorrect and unsustainable."

The last sentence of paragraph 7 is the following:

"We, therefore, answer the question referred in favour of the Revenue and against the assessee."

For easy reference, the operative portion of the judgment also is extracted hereinbelow:

"Therefore, these appeals are allowed vacating the orders of the Tribunal and by restoring both the appeals filed by the assessee and the Department to the Tribunal for fresh decision on the merits, after hearing the parties."

Arguments have been raised vehemently by both sides as to the effect of the operative portion of the judgment. What is ordered is to send the appeals back to the Tribunal "for fresh decision on the merits after hearing the parties". When we understand the judgment in toto, it is clear that the question that is considered by this court is only with respect to the validity of the notice, annexure D. The findings we have already quoted will surely lead to the said conclusion. The order of the Tribunal has been vacated. Can it be said that the fresh decision directed is only to consider the grounds already raised in the appeal? We do not find any reason to hold so. The direction is to have a fresh decision on the merits. That means, definitely on the merits of the orders passed itself leading to the assessment.

Learned counsel for the appellant relied upon the judgment of a Division Bench of this court in COMMISSIONER OF Income Tax Vs. KERALA STATE CO-OPERATIVE MARKETING FEDERATION LTD.., to contend for the position that there is no bar in raising additional grounds in an appeal and the Tribunal has got ample power to permit the parties to do the same. The Division Bench, after analysing section 254(1) of the Act and rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, has held as follows (headnote):

"The Tribunal gets power under section 254(1) of the Income-tax Act which provides that the Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, enables the Tribunal to permit the appellant to urge any ground not set forth in the memorandum of appeal. That rule provides that the appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal. It is further provided that it is open to the Tribunal to rest its decision on a ground not set forth in the memorandum of appeal and not taken by leave of the Tribunal provided the party affected thereby has been afforded sufficient opportunity of being heard on that ground. An appellant before the Tribunal can, therefore, urge a new ground in appeal only with the leave of the Tribunal. The Tribunal has thus jurisdiction to permit the appellant to raise any ground which has not been raised before the assessing authority or the Commissioner of Income-tax (Appeals). Once any such new or additional ground is raised before the Tribunal, they are duty bound to entertain that ground and render a decision thereon either themselves or by remanding the matter if further investigation into the facts is necessitated."

The view taken is that the Tribunal has jurisdiction to permit the appellant to raise any ground which has not been raised before the assessing authority or the Commissioner of Income-tax (Appeals).

Learned senior counsel for the Revenue submitted that there cannot be any quarrel to that proposition but the question is whether in the light of the judgment rendered by this court, the same can be permitted.

The view expressed by the Tribunal in the impugned order, annexure H, is that the legality of the proceedings has been admitted by the High Court and the matter was restored back to the file of the Tribunal for a fresh decision and in such a situation can the Tribunal entertain another ground with regard to the validity of the proceedings? It was the view of the Tribunal that when this court upheld the validity of the proceedings with regard to the block assessment, the same cannot be reagitated again by raising another ground with regard to the same proceedings. But we are of the opinion that as far as the views taken by the Division Bench in annexure Fare concerned, it is clearly discernible that the validity of the notice alone was considered by the Division Bench. That was the pointed question raised before the Division Bench which was answered after analysing various aspects. Therefore, it is not a case where the Division Bench has addressed the entire aspects concerning the validity of the block assessment proceedings and, consequently has upheld the validity of the proceedings.

Learned counsel for the appellant, Shri Gopinath Menon, further submitted that what is raised as an additional ground by the appellant is a question of law, that too by relying upon the decision of the apex court in Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, . It is, therefore, submitted that the parties are not prevented from raising a question of law and it is up to the Tribunal to consider the acceptability of the same and such a power of the Tribunal is not curtailed by the judgment rendered by the Division Bench as per annexure F. The learned senior counsel for the Revenue reiterated that the decision applicable in this case is Commissioner of Income Tax Vs. Panchajanyam Management Agencies and Services, .

We need not resolve the said controversy in this appeal, as it is up to the Tribunal to consider the same. We are definitely of the view that the powers of the Tribunal are not curtailed by the judgment of the Division Bench as annexure F, merely because the said judgment, in the operative portion "directed the matter to be considered on the merits after hearing the parties." It is also not correct to say that the decision of the Division Bench concerning the validity of the notice will prevent the Tribunal to consider any other ground which the appellant has raised for consideration. It cannot, therefore, be said that when this court sent back the matter for fresh consideration, no other points than those raised in the grounds of appeal can be considered and no additional ground can be allowed to be raised for consideration. We, accordingly, answer the questions raised, in favour of the assessee and against the Revenue. In that view of the matter, we allow the appeal and set aside annexure H order passed by the Tribunal. The Tribunal will consider the matter afresh in the light of the findings rendered by us above and it is up to the Tribunal to consider the additional ground raised by the appellant and take appropriate decision as enjoined by law. No costs.