COMMISSIONER OF INCOME TAX BATHINDA vs. M/S PANCHVATI MOTORS P LTD.

ITA No.151 of 2011 (O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No.151 of 2011 (O&M)

Decided on: 31.07.2013

The Commissioner of Income Tax, Bathinda ..... Appellant

VERSUS M/s Panchvati Motors (P) Ltd., Bathinda ..... Respondent

CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Mr.Gaurav Hooda, Advocate, for the appellant. Mr.Sandeep Goyal, Advocate, for the respondent. ******* RAJIVE BHALLA, J. (

ORAL

) CM No.7810-CII of 2011 Prayer in this application is to condone delay of 987 days in refiling the appeal. We have heard counsel for the parties and as sufficient cause has been shown, allow the application and condone delay of 987 days in refiling the appeal. ITA No.151 of 2011 The revenue challenges order dated 21.09.2007, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, as well as order dated 04.07.2004, passed by the Commissioner of Income Tax (Appeals), Bathinda, whereby additions made by the Assessing Officer, for the year 2000-01 have been deleted in their entirety, partly by the Commissioner of Income Tax (Appeals), Bathinda and partly by the Income Tax Appellate Tribunal, Amritsar. The assessee filed a return on 29.11.2000, declaring a

ITA No.151 of 2011 (O&M) -2- loss of Rs.45,740/-. The return was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as the '1961 Act”) was issued on 28.11.2001. The assessee filed a revised return on 30.10.2001, declaring a total income of Rs.2,35,900/-, alongwith a fresh audit report, prepared by a Chartered Accountant followed by another revised return on 04.02.2002, declaring a total income of Rs.16,00,000/- to cover any possible leakage of income or any other discrepancies, in the return. The Assessing Officer added additional income under three heads namely: (a) undisclosed income on sale of vehicles, (b) undisclosed income from sale of spare-parts and (c) undisclosed income for service of vehicles. The undisclosed income of the assessee calculated at Rs.91,55,228/- was treated as concealed income and penalty proceedings were also initiated under Section 271(1)(c) of the 1961 Act . Aggrieved by this order, the assessee filed an appeal. The Commissioner of Income Tax (Appeals), Bathinda, confirmed the addition of income on account of sale of vehicles but partly set aside the addition on account of undisclosed income attributed to sale of spare-parts by holding that as this addition was founded on orders passed by the Sales Tax Authority, which have been set aside and no independent inquiry was conducted, the added income has to be excluded but ordered addition to the extent of 2.63% at GP rate. The addition of undisclosed income on account of service of vehicles was deleted on account of absence of any discussion, logic or material with which the assessee was confronted. The assessee as well as the department filed separate

ITA No.151 of 2011 (O&M) -3- appeals, before the Income Tax Appellate Tribunal. The appeal filed by the department was dismissed whereas the appeal filed by the assessee was allowed by holding that as discrepancies in sale of vehicles based upon a secret inquiry report prepared by the authority on the basis of a statement made by an officer of Maruti Udyog Ltd. were never furnished to the assessee and the assessee's prayer for cross-examining the said officer was wrongly declined, the addition is illegal for violation of principles of natural justice. As regards addition on account of sale of spare-parts, the Income Tax Appellate Tribunal set aside the addition in its entirety by holding that as the addition was based on an order passed by the Sales Tax Authority which was set aside by the Sales Tax Appellate Tribunal, this amount cannot be added to the income of the assessee. The third addition, on account of income from service of vehicles, deleted by the Commissioner of Income Tax (Appeals) on the ground that there was no evidence or material before the Assessing Officer for recording his conclusion, was upheld. Counsel for the revenue submits that the impugned orders are illegal and void for failure to appraise relevant material and in addition to the questions of law already framed the revenue may be allowed to raise an additional substantial question of law namely: - “Whether in view of findings recorded by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, that order passed by the Assessing Officer is violating principles of natural justice, the matter should not have been restored to the

ITA No.151 of 2011 (O&M) -4- Assessing Officer for considering the matter afresh after complying with principles of natural justice. ?”

Counsel for the respondents submits that the revenue should not be allowed to raise this fresh question at this belated stage as such a question does not arise. The appeal may, therefore, be dismissed. We have perused the questions framed in the memorandum of appeal and are at a loss to comprehend as to how these questions can be classified as substantial questions of law. Faced with this situation, counsel for the appellant submits that the question raised in his arguments may be allowed to be raised and decided. Before we record our opinion of the question of law framed during arguments and consider whether the revenue should be allowed to raise this question, it would be appropriate to briefly revisit the facts. The Assessing Officer added income to the return filed by the assessee under three heads namely: (a) sale of vehicles, (b) sale of spare parts, and (c) sale for service of vehicles. The Commissioner of Income Tax, Bathinda, confirmed the addition of income on account of sale of vehicles, partly set aside the addition with respect to sale of spare-parts and deleted the addition of undisclosed income for service of vehicles for absence of any discussion, logic or any material disclosed to the assessee. The Income Tax Appellate Tribunal set aside, the addition of income received from sale of vehicles by holding that

ITA No.151 of 2011 (O&M) -5- there was gross violation of principles of natural justice. The addition on account of sale of spare-parts was set aside in its entirety and deletion with respect to amount received for service of vehicles, was upheld. We would now consider whether the revenue should be allowed to raise a new question of law. The power to adjudicate an appeal inhers the power and duty to ascertain whether correct substantial questions of law have been framed and if not so framed, to frame correct substantial question of law. Counsel for the revenue has raised a fresh question of law, during arguments. It would, therefore, be appropriate to consider whether this question of law arises from the impugned orders and should be adjudicated? Counsel for the revenue has argued that as the assessment order was held to be null and void for violation of principles of natural justice, the Income Tax Appellate Tribunal should have restored the assessment to the Assessing Officer for adjudication afresh after complying with principles of natural justice and, therefore, the following substantial question of law arises for adjudication:- “Whether in view of findings recorded by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, that order passed by the Assessing Officer is illegal for violation of principles of natural justice, the matter should not have been restored to the Assessing Officer for considering the matter afresh after providing an opportunity to the assessee to rebut the material collected by the Assessing

ITA No.151 of 2011 (O&M) -6- Officer?”

Counsel for the respondent submits that no such question arises and even otherwise, should not be allowed to be raised at this stage. A perusal of the impugned orders reveals that addition on account of sale of vehicles was deleted for failure to comply with principles of natural justice. An order set aside for want of adherence to principles of natural justice, would require the appellate authority, in the absence of any legal impediment, to remit the proceedings/assessments to the original forum which committed the error, in this case the Assessing Officer. Failure to adopt such a course, in our considered opinion, would lead to a travesty of justice and an error of jurisdiction that would enable a defaulting assessee to escape the consequences of his default. The Income Tax Act, 1961 does not enact any statutory impediment that prohibited the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal or this Court from passing an order restoring the assessment to the Assessing Officer. The Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal should have while holding that the assessment order was violative of principles of natural justice, restored the matter to the Assessing Officer for compliance with principles of natural justice by confronting the assessee with the material collected. Failure of the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal to adopt such a course has enabled a defaulting assessee to escape the consequences of his alleged default and a consequent

ITA No.151 of 2011 (O&M) -7- error of jurisdiction. We are, thus, satisfied that the aforementioned question of law is a substantial question of law and while rejecting the substantial questions of law framed by the revenue, answer the question of law framed in Court today by holding that the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal have committed errors of jurisdiction by failing to remit the matter to the Assessing Officer to frame a fresh assessment after confronting the assessee with material available on record and granting him an opportunity to rebut the material so collected. Consequently, while upholding the impugned orders, the order passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, is modified by restoring the assessment to the Assessing Officer to decide the matter afresh and in accordance with law with respect to sale of vehicles after complying with principles of natural justice. The appeal is disposed of accordingly.

[ RAJIVE BHALLA ]

JUDGE 31.07.2013 [ DR. BHARAT BHUSHAN PARSOON ] shamsher JUDGE

Singh Shemsher 2013.09.05 17:03 I attest to the accuracy and integrity of this document Chandigarh