The Commissioner of Income Tax vs Palaniappa Dyeing Unit

Satyabrata Sinha, C.J.—The applicant has filed this application for grant of leave to appeal to Supreme Court of India in terms of Section 261 of the Income Tax Act, 1961.

The factual matrix of the matter lies in a very narrow compass. The applicant filed an application before the Income Tax Appellate Tribunal (for short ''the Tribunal) seeking reference to this Court, the following questions for its opinion:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that further enquiries were required to sustain the levy of penalty u/s. 271(1)(c) even in a case where revised return was filed.

Whether, on the facts and in the circumstances of the case, the finding of the ITAT that there was no material on record for the asst. year 1985-86 to show that the purchases made by the assessee from the said four parties were bogus, is not baseless and perverse.

Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting the penalty exigible u/s. 271(1)(c) on the concealed income of Rs.5,21,307, representing the purchases of dye and chemicals from four parties.

The Tribunal, however, having narrated the factual matrix obtaining therein, in para 5 observed:

... we are of the opinion that question No. 1 raised by the Revenue is a question of law and arises out of the order of the Tribunal. This question would also cover the other aspects. We accordingly, refer the said question to the Hon''ble High Court for opinion...

Thus, only question No. 1 was referred to this Court for its consideration. This Court while answering the said question in favour of the assessee and against the Revenue, refused to go into the other two questions stating:

Though we are of the view that much can be said against the finding of the Tribunal and the manner in which the statements of the assessee''s partners as regards the purchases made from the four selling-firms were overlooked by the Tribunal, still, we are of the opinion that the perversity of the finding of the Tribunal cannot be gone into in this reference case as it is not a question referred to the High Court. On the question as framed, we are unable to return the answer in favour of the Revenue. It cannot be laid down as a broad proposition of law that whenever a revised return is filed showing an additional income, no further enquiry is required to be made by the assessing authority to determine whether it represents concealed income. The sine qua non for levying penalty being concealment of income and the penalty proceedings are not merely consequential to the assessment proceedings, it is the duty of the assessing authority to determine on the basis of the material on record that the income returned in the revised return is nothing by a concealed income. If, in order to probe that issue, certain equiries have to be made, obviously, the law does not bar such enquiries merely for the reason that the revised return has been filed. It is a different matter if in the revised return, an admission is made by the assessee that what is returned is unaccounted or concealed income, but, there is nothing on record to show that such a categorical admission was made in the return. In such circumstances, the answer to the question could only be in the affirmative...

As regards question No. 3, it was held that this Court was not concerned with the question whether the material on record, including the statements of the partners would reasonably justify the conclusion that was reached by the Tribunal.

Sri. J.V. Prasad, the learned counsel appearing on behalf of the applicant brought to our notice the fact that the Tribunal has failed to refer to this Court the other two questions under misapprehension that the first question covers those two questions. This Court, however, answering the same observed:

We do not think that at this stage, the scope of adjudication in this reference case should be widened so as to cover those questions, which were omitted.

The learned counsel for the applicant inter alia submits that since the Tribunal did not expressly refuse to refer the other two questions for the opinion of this Court in exercise of power u/s 256(1) of the Income Tax Act, 1961, but proceeded on the basis that the first question would cover the second and third questions also, this Court must be held to have committed an error in refusing to go into the aforementioned questions, and in support of this submission, he placed strong reliance on the decision of the apex Court in BHANJI BAGWANDAS v. COMMR. OF INCOME TAX1 and the decision of this Court in C.I.T. v. HINDUSTAN SHIPYARD LTD2.

Nobody appears on behalf of the assessee to oppose the prayer made by the applicant.

The apex Court in BHANJI BAGWANDAS (1 supra) while dealing with the objection raised by the appellant to the effect that the respondent has not raised the point before the High Court, nor was there any reference made to it in the statement of the case filed by the respondent, and that the point raised was outside the scope of the questions of law referred by the Appellate Tribunal to the High Court held:

We do not think there is any substance in the objection raised on behalf of the appellant. One of the questions referred to the High Court is: "Whether on the facts and in the circumstances of the case, the assessment made is saved from the bar of limitation under the second proviso to Section 34(3)". It is true that the impact of the Amending Act, 1959 (1 of 1959), was not raised before the Appellate Tribunal or before the High Court, but it is not a separate question by itself and is only an aspect of the question of limitation which has already been referred by the Appellate Tribunal to the High Court...

Yet again, in HINDUSTAN SHIPYARD LTD. (2 supra), O. Chinnappa Reddy, J, (as he then was), speaking for the Division Bench of this Court, while placing reliance on the decision of the apex Court in COMMISSIONER OF INCOME TAX v. MC LEOD & CO. LTD.3 held:

The observations show that where the reference is defective either because the statement of case is incomplete for the question of law raised by the Tribunal or because the Tribunal has not raised the proper questions arising on the statement of case, it is open to the Court to consider, on a notice of motion by the aggrieved party, the further and other facts necessary for decision by the Court or the further or other questions of law arising in the case and requiring a decision by the Court. The observations of the Supreme Court are confined only to such defective references. They do not justify adjudication by the Court of a question not referred to it by the Tribunal either because the Tribunal was not invited to refer such question or because the Tribunal expressly refused to do so.

Having regard to the aforementioned authoritative pronouncements, we find substance in the submissions made by the learned counsel appearing on behalf of the applicant. Therefore, we are of the opinion that the following two substantial questions of law, formulated by the applicant in this application for grant of special leave, need consideration by the Supreme Court of India:

Whether the question of law referred ought not to be considered in the light of the facts arising in the case and if so, whether the referred question can be said to have been answered accordingly?

Whether when once the applicant seeks reference u/s. 256(1) of the Income Tax Act, 1961 of a particular question of law and the Tribunal reframes the same, whether the Hon''ble High Court u/s. 260 of the Act is barred from considering the reference by framing a question to include a substantial question of law arising from the order of the Tribunal?

For the reasons aforementioned, the application is allowed and the applicant is granted leave to appeal to Supreme Court of India. No costs.