COMMISSIONER OF INCOME TAX, JABALPUR vs. MIS. DURGA ENGINEERING AND FOUNDRY WORKS

CIVIL APPEAL No. 4089/1998Supreme Court2000 INSC 37303 August 2000Bench: 3 JudgesAuthor: S.P. BHARUCHA, U.C. BANERJEE, N. SANTOSH HEGDE OF6 pages
AI SummaryAllowed

What were the facts?

For assessment years 1987-88 and 1988-89, the Assessing Officer added sums to the assessee firm's income, treating them as unexplained cash credits in the partners' names. The Commissioner upheld these additions. The Income Tax Appellate Tribunal (ITAT) initially allowed the assessee's appeal on November 7, 1994, setting aside the assessments and remanding for a fresh order, allowing the assessee to support its documents. Subsequently, the assessee applied for rectification under Section 254(2) of the Income Tax Act, 1961, arguing a contention about payments by cheque to partners had not been decided. On January 4, 1995, the ITAT allowed the rectification, deleting additions of Rs. 5,00,851 and Rs. 85,700, noting the issue of payments by cheque to partners was valid and had not been decided. The Revenue then sought a reference on two questions of law arising from the rectification order, but the ITAT declined, deeming them questions of fact. The Revenue's application to the High Court under Section 256(2) was dismissed, following a prior ruling that references against rectification orders under Section 254(2) were not maintainable.

What did the Supreme Court hold?

The Supreme Court held that Section 256 of the Income Tax Act, 1961, contemplates the reference of a question of law arising out of an order passed under Section 254, which includes orders passed under both Section 254(1) (appellate orders) and Section 254(2) (rectification orders). The Court found the High Court's view, that a reference against an order of rectification under Section 254(2) was not maintainable, to be erroneous. The Court reasoned that rectification proceedings under Section 254(2) can have serious financial implications for the assessee, and it would be unthinkable for the assessee to be left without a remedy by way of a reference if the assessment is erroneously increased. Therefore, the Court concluded that the questions sought to be referred by the Revenue were questions of law. The Supreme Court allowed the civil appeal, set aside the High Court's order, and directed the Tribunal to refer the stated questions to the High Court for consideration after framing a statement of case. The Court noted that it was unclear whether assessments in the hands of partners were protective, and this could be examined by the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of section 68 of the Income Tax Act, 1961, are not applicable to the facts of the present case? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the additions of Rs. 5,00,851 and Rs. 85,700 made by the Assessing Officer under section 68 of the Income-tax Act, 1961, representing the unexplained cash credits in the accounts of the partners? Assessee's contentions: The assessee argued that the rectification application was allowed because a crucial contention regarding payments made by cheque to partners had not been decided by the Tribunal in its initial order. The deletion of additions was based on this unaddressed issue. Revenue's contentions: The Revenue contended that the questions arising from the rectification order were questions of law and should be referred to the High Court. The Revenue argued that the High Court's dismissal of its Section 256(2) application, based on the precedent in Popular Engineering Co. v. Commissioner of Income Tax, M.P., was erroneous because Section 256 contemplates references arising from orders under Section 254(1) and Section 254(2). The Revenue relied on the wording of Section 256 and the potential for significant financial implications from rectification orders.

Which sections of the Income-tax Act were involved?

Section 254(2),Section 256,Section 256(2),Section 68,Section 254(1),Section 254

AI-generated summary — verify with the full judgment below

COMMISSIONER OF INCOME TAX, JABALPUR A v. MIS. DURGA ENGINEERING AND FOUNDRY WORKS AUGUST 3, 2000 [S.P. BHARUCHA, U.C. BANERJEE AND N. SANTOSH HEGDE, JJ.] B Income Tax Act, 1961 : Ss. 254(2) and 256-Income return filed by assessee firm-Assessing Officer making additions to the income treating certain amount as unexplained cash credits-Assessment upheld by Commissioner in appeal-Assessee 's appeal allowed by Income Tax Appellate Tribunal and Assessing Officer directed to pass fresh order-Neither party sought any re.ference-Assessee filed b~fore Tribunal an application seeking rectification of its order- Application allowed-Tribunal directed to delete the additions made by Assessing Officer-Revenue filed an application seeking reference on two questions-Tribunal declining to make reference-Revenue then .filed an application u!s. 256(2) be.fore the High Court, which dismissed the application on .following its earlier judgment in which it had been held that a reference against an order of rectification under s.254(2) was not maintainable-Held, s.256 contemplates the reference of a question of law arising out of an order both under s.254( I) and s.254(2)-Having regar

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 256

All 32 judgments and leading authorities on Section 256 →

Recent GST High Court judgments

Search GST case law →