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24.04.2019
Heard learned counsel for the parties.
By way of the above appeals, the appellant has challenged the order passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack, dated 31.3.2010, dismissing the appeals preferred by the appellant-assessee.
The first three appeals i.e. I.T.A. Nos.58, 59 and 60 of 2010 are against the quantum of assessment for the assessment years 1985-86, 1989-90 and 1993-94 respectively and the other three appeals i.e. I.T.A. Nos.62, 63 and 64 of 2010 are against the penalty imposed on the assessment for the assessment years 1985-86, 1989-90 and 1993-94 respectively.
Learned counsel for the appellant has taken us to the checkered history of the assessee-appellant as per the paper book which has been supplied before this Court that the 1st Assessment order of the ITO was passed on 28.03.1988, which was challenged before the leaned CIT (A) and the same was dismissed on 28.11.1988. Against the said order, the assessee filed an appeal before the ITAT, Cuttack Bench, Cuttack, which was dismissed on 19.01.1990. Thereafter, by order dated 13.12.1990 passed in a Misc. Application, the order dated 19.01.1990 was recalled and the matter was heard afresh. Again on 10.05.1991, learned Tribunal decided the matter and allowed the exemption to the assessee. The revenue filed writ petition before this Court challenging the rectification order dated 13.12.1990. This Court on 02.12.1991 allowed the writ petition and quashed the recalling order dated 13.12.1990 as well as its substantive order dated I.T.A. Nos. 58, 59, 60, 62, 63 and 64 of 2010
-2- 10.05.1991. For ready reference, the said order dated 02.12.1991 of this Court passed in OJC No.2953 of 1991 is quoted hereunder: “The CIT, Orissa, in this writ application, questions legality of the order passed by the Income-tax Appellate Tribunal, Cuttack Bench (in short 'the Tribunal'), in purported exercise of the powers under s. 254(2) of the I.T. Act, 1961 (in short 'the Act'). 2. The background facts are as under : Prajatantra Prachar Samity (hereinafter referred to as 'the assessee'), is a public charitable trust registered as such by the CIT, Orissa, under s.12A of the Act. For the assessment year 1985-86, it filed return disclosing loss of Rs. 15,76,880, before the ITO, Ward A, Circle II, Cuttack. The loss was arrived at after making provision for liabilities incurred, taking into account amounts receivable but not received. The Assessing Officer took the view that the assessee was doing business; s.11(4) of the Act was applicable, and the method of accounting is such that the income cannot be properly deduced therefrom. By adopting first proviso to s. 145 of the Act, he determined the taxable income at Rs.16,49,580. A sum of Rs. 30,91,093 which represented the amount receivable from sundry debtors was added to the figure of loss disclosed. The exclusion of this amount from the turnover was concluded to be improper. The assessee challenged the assessment in appeal before the CIT, (A), Orissa, who affirmed the addition. The matter was carried in appeal before the Tribunal. By order dated 19th January, 1990, the Tribunal upheld the assessment. An application was filed by the assessee purported to be one under Section 254(2) alleging that certain mistakes apparent from the record needed rectification. The primary grounds indicated in support of the application were that (i) the assessee was not engaged in any business in
-3- the commercial sense, and, therefore, the observation of the Tribunal that the assessee was running a business is patently erroneous; (ii) applicability of s.11(4A) was not in issue before the Tribunal and, therefore, the Tribunal was wrong in invoking the provision and making out a new case which was not urged by any of the parties before the lower forums; and even before framing the issue, the Tribunal had prejudged the matter; (iii) the assessee had pleaded its case with reference to a decision reported in CIT v. Ganga Charity Trust Fund (1986) 53 CTR (Guj) 365: (1986) 162 ITR 612 (Guj), which was not specifically dealt with by the Tribunal; (iv) contentions relating to acceptability of the method of accounting followed by the assessee were not considered in their proper perspective. The motion for rectification was opposed to by the Revenue. The Tribunal observed that the assessee's grievance was relating to rejection of its method of accounting, and the Tribunal has applied the provisions of s.11(4A) which were not raised before the authorities and, therefore, that was a clear and apparent error. Since the Tribunal applied the Section suo motu, it constituted a rectifiable mistake in terms of s.254(2). 3. The stand of the Revenue in essence in this writ application is that the approach of the Tribunal was erroneous. What is rectifiable under s.254(2) is a mistake apparent from the record and not any other mistake which may have crept into the Tribunal's order. The question whether s.11(4A) had on the facts application or not is not a mistake apparent from record. Merely because the authorities below have not specifically dealt with the section, it cannot be held that they had not considered the case in the background of the section.
Mr. S. N. Rotho, learned counsel for the assessee, however, submitted that while dealing with the rectification application the
-4- Tribunal has recorded a categorical finding that the Tribunal made out a case suo motu and, therefore, the rectification is justified. 4. For resolution of the controversy, it is necessary to deal with the scope and ambit of rectification under s.254(2). What is rectifiable is a mistake which is apparent, it must be one for the discovery of which no elaborate reasoning or enquiry is necessary. It must be visible and patent. In the instant case, we find that the Tribunal, while dealing with the appeal, observed that s.11(4A) had application to the facts of the case. Even assuming that the Tribunal committed an error of judgment, that would not be sufficient to exercise power under s.254(2). A pure question of law, or plea which could be considered on the evidence already on record, can, for the first time, be raised and pleaded before the Tribunal. If a question of law goes to the root of the matter and does not involve further investigation into facts, it can also be permitted to be urged. The Tribunal in deciding the appeal is not restricted to the grounds set forth in the memorandum of appeal or taken by the leave of the Tribunal provided the party who is affected by the consideration of new issues is afforded sufficient opportunity of being heard in the matter. The Tribunal in its wisdom thought that on the facts, this provision of law had application. Whether in reality it had application or not, cannot be decided in an application for rectification under s.254(2). It involves detailed analysis of factual aspects which is outside the scope of application of s. 254(2). Where an issue has not been raised by the parties and yet the Tribunal has recorded a finding or a conclusion in respect thereof a question of law referable under s.256(1) arises. This position has been succinctly stated in CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC). Therefore, the exercise of power under s.254(2) in such a case would be
-5- inappropriate. The so-called mistakes highlighted by the assessee in its application for rectification related to certain alleged erroneous conclusions. The conclusions may be inappropriate, but they per se do not constitute mistakes apparent from the record. They are not obvious, patent, but require detailed and critical appreciation of factual disputes. The Tribunal was therefore, not justified in recalling its order. Consequently, we vacate the order dated 13th December, 1990 (annexure-1). It is brought to our notice that as a sequel to the said impugned order, a fresh order has been passed by the Tribunal on 10th May, 1991, vide annexure-2. In view of our conclusion that the order of the recall is interdicted, the subsequent order dated 10th May, 1991 (annexure-2) cannot also be maintained. 6. In the result, annexures-1 and 2 are quashed. Writ application is allowed. No costs.”
4.1 Against the said order of this Court, the assessee filed SLP in SLP (Civil) No.2154 of 1992 before the Hon’ble Supreme Court and on 18.01.1993, the following interim order was granted by the Hon’ble Supreme Court:
“Heard Shri G.L. Sanghi, learned senior counsel for the petitioner and learned Solicitor General for the respondents. Leave granted. As the point involved in a question of law, printing of record is dispensed with. Hearing of the appeal to be expedited. Additional papers, if any, to be filed by both side within eight weeks. In the meanwhile, while assessment proceedings to tax be proceeded with and demand notice issued, the collection of tax shall be stayed until further orders.”
4.2 Finally, on 24.04.1996, the said SLP was disposed of with certain directions and in obedience to the direction
-6- contained therein, the Tribunal referred the matter to this Court under Section 256(2) of the I.T. Act for opinion on the following three questions: “(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is not entitled to the exemption under s.11 of the Act? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in rejecting the method of computing the income followed by the assessee? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in declining to grant exemption to the assessee-trust on a completely new ground made out suo motu without affording an opportunity to the assessee to have its say on the said new ground?”
4.3 This Court vide its order dated 15.01.2003, set aside the order of the Tribunal dated 10.05.1991 and directed the Tribunal to consider the case on all the points arising out of the CIT’s order dated 28.11.1988 and directed that while doing so the Tribunal will also keep in view the provision of Section 11 (4A) of the Income Tax Act (for short “the Act”) which came to be inserted by the Finance Act, 1983, w.e.f. 1st April, 1984. Accordingly, this Court while answering the above question no.3 in favour of the assessee and against the Revenue, returned the reference unanswered in respect of the questions nos.1 and 2 to the learned Tribunal for fresh consideration. Learned Tribunal vide its order dated 17.06.2004 restored the matter back to the Assessing Officer for deciding afresh on question Nos.1 and 2 and further observed that the
-7- Assessing Officer should take into consideration the fact that the question no.3 had been decided in favour of the assessee and also take into consideration the provision of Section 11 (4A) of the Act which came into effect from 01.04.1984. The AO vide its order dated 28.03.2006 did not accept the hybrid system of accountancy adopted by the assessee and denied the exemption under Section 11 of the Act, which was confirmed by the learned CIT(A) vide its order dated 16.10.2006. Aggrieved by the said order of the learned CIT(A) dated 16.10.2006, the assessee filed the appeal before the learned ITAT, Cuttack, which was ultimately dismissed vide order dated 31.03.2010.
Challenging the order of the learned ITAT, Cuttack (hereinafter referred to as “the Tribunal”) dated 31.03.2010, the assessee has approached this Court in the present appeals and has framed the following substantial questions of law for consideration of this Court: i) Whether on the facts and under the circumstances of the case, the Ld. ITAT is justified in unsettling a settled issues passed by an earlier bench vide order dtd.10.05.91? ii) Whether on the facts and under the circumstances of the case, the Ld. ITAT is justified to ignore its interim order dtd.05.05.2008, where there was a direction to the department to verify the accounts taking into consideration the practical aspects of the case i.e., whether the bill receivables for the assessment year 1985-86 has been accounted for in the succeeding year or not? iii) Whether on the facts and under the circumstances of the case, the Ld. ITAT is justified to ignore the direction of an earlier Bench and confirmed the first appeal order
-8- under the plea of “appellant has not advanced any arguments in terms of section 11(4A) of the I.T. Act so as to attract the income to be exempted u/s 11 of the Act. iv) Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified to concur with the forum below that hybrid system of accounting adopted by the assessee, which was prevalent and legally permissible under the law at the given point of the time is prejudicial to the interest of revenue. ”
The main contention which falls for our consideration is whether the order dated 05.05.2008 under Annexure-3 to the ITA Nos.58, 59 and 60 of 2010 has been complied with or not. For ready reference, the said order is reproduced hereunder: “05.05.2008
During the course of hearing, we find that in all these appeals, the only common issue is relating to the accountability of the income on cash basis or on accrual basis. As per the submission of the learned AR of the assessee, the assessee has taken the income on cash basis but the Department has assessed the income on accrual basis. But as per the record, we are unable to find whether the accrued income for these particular years have subsequently been accounted by the assessee in other assessment years on cash basis or not. Hence, we direct both the parties to bring on record whether the accrued income has been assessed by the Revenue in these years are accounted by the assessee in subsequent years or not. We direct both the parties to furnish the required information within a reasonable time. The assessee is specifically directed to cooperate with the Department in getting the materials required for the purpose.
-9-
The cases are adjourned accordingly.
Copy of this order be supplied to both the parties.”
Learned counsel for the appellants-assessee in support of his contention that the receipts of bill for the year 1985-86 are accounted in the subsequent years, has taken us first to the order of 1st Assessment order dated 28.03.1988, more particularly paragraph-2 and the Rule- 12 of the Income Tax Rules. For ready reference, the relevant portion of said paragraph-2, which has been relied upon by the assessee and Rule-12 of the Income Tax Rules are reproduced hereunder: “2. The contention of the assessee that new system of accountings has been followed by the assessee for the asst. year 1986-87 and 1987-88 onwards so as to (ineligible) the sense of regularity the new method would not make any material difference so far as the computation of assessable income for asst. year 1985-86 is concerned. Examination of asst. records for subsequent asst. years revealed that notwithstanding that the assessee’s claim that the turnover not included in the account for 1985-86 have not been actually received were received in subsequent asst. year and accordingly the accounts have been drawn.xxx Rule-12 of the I.T. Rules [Return of income and return of fringe benefits. 12. (1) The return of income required to be furnished under sub-section (1) or sub-section
(3) or sub-section (4A) or sub-section (4B) or sub-section (4C) or sub-section (4D) of section 139 or clause (i) of sub-section (1) of section 142 or sub-section (1) of section 148 or section 153A relating to the assessment year
-10- commencing [on the 1st day of April, [2013]] shall,— [(a) in the case of a person being an individual where the total income includes income chargeable to income-tax, under the head,— (i) “Salaries” or income in the nature of family pension as defined in the Explanation to clause (iia) of section 57; or (ii) “Income from house property”, where assessee does not own more than one house property and does not have any brought forward loss under the head; or (iii) “Income from other sources”, except winnings from lottery or income from race horses, [and does not have any loss under the head] be in Form [SAHAJ] (ITR-1) and be verified in the manner indicated therein:] [Provided that the provisions of this clause shall not apply to a person who,— (I) is a resident, other than not ordinarily resident in India within the meaning of sub- section (6) of section 6 and has,— i) assets (including financial interest in any entity) located outside India; or (ii) signing authority in any account located outside India; (II) has claimed any relief of tax under section 90 or 90A or deduction of tax under section 91; or (III) has income not chargeable to tax, exceeding five thousand rupees ] (b) in the case of a person being an individual [not being an individual to whom clause (a) applies] or a Hindu undivided family where the total income does not include any income chargeable to income-tax under the head “Profits or gains of business or
-11- profession”, be in Form No. ITR-2 and be verified in the manner indicated therein; (c) in the case of a person being an individual or a Hindu undivided family who is a partner in a firm and where income chargeable to income-tax under the head “Profits or gains of business or profession” does not include any income except the income by way of any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by him from such firm, be in Form No. ITR-3 and be verified in the manner indicated therein; [(ca) in the case of a person being an individual or a Hindu undivided family deriving business income and such income is computed in accordance with special provisions referred to in section 44AD and section 44AE of the Act for computation of business income, be in Form SUGAM (ITR- 4S) and be verified in the manner indicated therein:] [Provided that the provisions of this clause shall not apply to a person who,— (I) is a resident, other than not ordinarily resident in India within the meaning of sub- section (6) of section 6 and has,— (i) assets (including financial interest in any entity) located outside India; or (ii) signing authority in any account located outside India; (II) has claimed any relief of tax under section 90 or 90A or deduction of tax under section 91; or (III) has income not chargeable to tax, exceeding five thousand rupees. ] (d) in the case of a person being an individual or a Hindu undivided family other than the individual or Hindu undivided family referred to in clause (a) or clause (b) or clause (c) [or clause (ca)] and deriving
-12- income from a proprietory business or profession, be in Form No. ITR-4 and be verified in the manner indicated therein; (e) in the case of a person not being an individual or a Hindu undivided family or a company or a person to which clause (g) applies, be in Form No. ITR-5 and be verified in the manner indicated therein; (f) in the case of a company not being a company to which clause (g) applies, be in Form No. ITR-6 and be verified in the manner indicated therein; (g) in the case of a person including a company whether or not registered under section 25 of the Companies Act, 1956 (1 of 1956), required to file a return under sub-section (4A) or sub-section (4B) or sub-section (4C) or sub-section (4D) of section 139, be in Form No. ITR-7 and be verified in the manner indicated therein; (h) omitted, ibid. [(2) The return of income required to be furnished in Form SAHAJ (ITR-1) or Form No. ITR-2 or Form No. ITR-3 or Form SUGAM (ITR- 4S) or Form No. ITR-4 or Form No. ITR-5 or Form No. ITR-6 shall not be accompanied by a statement showing the computation of the tax payable on the basis of the return, or proof of the tax, if any, claimed to have been deducted or collected at source or the advance tax or tax on self-assessment, if any, claimed to have been paid or any document or copy of any account or form or report of audit required to be attached with the return of income under any of the provisions of the Act:] [Provided that where an assessee is required to furnish a report of audit under section 44AB, 92E or 115JB of the Act, he shall furnish the same electronically.] (3) The return of income referred (words “or return of fringe benefits” omitted by the IT (Third Amdt.) Rules, 2011 w.r.e.f. 1-4-2011) to
-13- in sub-rule (1) may be furnished in any of the following manners, namely:— (i) furnishing the return in a paper form; (ii) furnishing the return electronically under digital signature; (iii) transmitting the data in the return electronically and thereafter submitting the verification of the return in Form ITR-V; (iv) furnishing a bar-coded return in a paper form: Provided that— [(a) [ a person, other than a company and a person required to furnish the return in Form ITR-7 ] if his or its total income, or the total income in respect of which he is or it is assessable under the Act during the previous year, exceed [five lakh rupees], shall furnish the return for the assessment year [2013-14]and subsequent assessment years in the manner specified in clause (ii) or clause (iii); (aa) an individual or a Hindu undivided family, being a resident, [ other than not ordinarily resident in India within the meaning of sub-section (6) of section 6 ] having assets (including financial interest in any entity) located outside India or signing authority in any account located outside India and required to furnish the return in Form ITR-2 or ITR-3 or ITR-4, as the case may be, shall furnish the return for assessment year 2012-13 and subsequent assessment years in the manner specified in clause (ii) or clause (iii);] [[(aaa)] a firm required to furnish the return in Form ITR-5 or an individual or Hindu Undivided Family (HUF) required to furnish the return in Form ITR-4 and to whom provisions of section 44AB are applicable, shall furnish the return for assessment
-14- year 2011-12 and subsequent assessment years in the manner specified in clause (ii);] [(aab) a person claiming any relief of tax under section 90 or 90A or deduction of tax under section 91 of the Act, shall furnish the return for assessment year 2013-14 and subsequent assessment years in the manner specified in clause (ii) or clause (iii);] [(ab) a company required to furnish the return in Form ITR-6 shall furnish the return for assessment year 2010-11 and subsequent assessment years in the manner specified in clause (ii);] (b) a person required to furnish the return in Form ITR-7 shall furnish the return in the manner specified in clause (i) [for clause-(ii) or clause-(iii)]. (4) The Director-General of Income-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to furnishing the returns in the manners specified in clauses (ii), (iii) and (iv) of sub-rule (3). [and the report of audit in the manner specified in proviso to sub-rule (2)] (5) Where a return of income [words “or return of fringe benefits” omitted by the IT (Third Amdt.) Rules, 2011 w.r.e.f. 1-4-2011] relates to the assessment year commencing on the 1st day of April [2012] or any earlier assessment year, it shall be furnished in the appropriate form as applicable in that assessment year.]”
We have perused the impugned order of the learned Tribunal in detail. Learned Tribunal had considered the matter for the assessment years 1985-86, 1989-90 and 1993-94 on 31.03.2010 and the substantial
-15- questions of law has been raised for the first time today on 24.04.2009 that means almost 34 years after the first assessment year i.e. 1985 and almost after 9 years of the Tribunal’ order dated 31.03.2010.
Learned Tribunal while considering the matter has taken into consideration the factual matrix of the case and has also reproduced the High Court’s order dated 15.01.2003 in paragraph-2.3 and thereafter while discussing the law has taken into consideration the submission made by the Department representative in Paragraph-2.7 and has rightly come to the conclusion in paragraph-5. For ready reference, the above said Paragraphs are reproduced hereunder: “1. Paragraphs-2.3.
The Hon’ble High Court vide its order dated 15th January, 2003 held that order of the Tribunal dated 19th January, 1990 dismissing the assesee’s appeal suffered from the mistake apparent from the record and, therefore, the application made u/s.254(2) of the Act for rectification of the order dated 19th January, 1990 was rightly accepted by the Tribunal by its order date 13th December, 1990. As far as the substantive order passed by the Tribunal on 10th May, 1991 is concerned, the Hon’ble High Court held as under:
“11. Sub-s.(2) of s.254 of the Act states that the Tribunal while rectifying mistake apparent from the record may amend any order passed by it under sub-s (I). We have already noted that in exercise of that power the Tribunal can only make changes in the original order consequent on the rectification and it cannot go further and deal with the entire appeal afresh. A perusal of the aforesaid substantive order dt.10th May, 1991, would clearly show that in the garb of
-16- rectification/amendment, the Tribunal has substituted a fresh order which, in our opinion, is in excess of its jurisdiction. Therefore, having regard to the nature of the issue that was before the Tribunal and in view of what has been stated above, we think it proper to set aside that order dt.10th May, 1991, and direct the Tribunal to consider the case on all the points arising out of the CIT’s order dt.28th Nov., 1988. While considering the matter, the Tribunal will also keep in view the provision of s.11(4A) of the Act which came to be inserted by the Finance Act, 1983, w.e.f. 1st April, 1984.
In the result, we answer question No.(3) in favour of the assessee and against the Revenue. The references are returned unanswered in respect of question Nos.(1) and (2) in view of our direction to the Tribunal as mentioned above.” 2. Paragraph-2.7
Ld. DR on the other hand, placed reliance on the original order dated 19.1.1990 by the Tribunal in which the method of accounting adopted by the assessee was not accepted and the exemption u/s.11 was denied. He also placed reliance on the following decisions: Samajbadi Society-vs-ACIT 79 ITD 112, ACIT-Vs-Thanthi Trust 247 ITR 785 and Sole Trustee, Loka Sikshana Trust-Vs-CIT 101 ITR 234. 3. Paragraph-5
“Ground Nos.2 and 3 relate to applicability of Section 11(4A) to the facts of assessee’s case. The assessee is aggrieved by applying the provisions of section 11(4A) of the Act to the facts of this case by the lower authorities. We find no merit in these grounds as the AO was specifically directed by the Tribunal to keep in view the provision of section 11(4A) of
-17- the Act which came to the inserted by the Finance Act, 1983 w.e.f. 1st April, 1984 when the matter was restored to him vide Tribunal’s order dated 17th June, 2004, following the direction of the Hon’ble High Court to the Tribunal in this regard, which we have already reproduced in para 2.3 above. Thus, the lower authorities were in fact duty bound to see the applicability of the provisions of section 11(4A) of the I.T. Act to the facts of the present case. As far as how the provisions of section 11(4A) are not applicable to the facts of the assessee’s case, no argument has been advanced before us. Therefore, ground nos.2 and 3 are dismissed.”
While going through Section 11 (4A) of the Act, which clearly barred that sub-Section (1) or sub-Section(2) or sub-Section (3) or sub-Section 3(A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.
In our considered opinion, although the separate books of account is attempted to be maintained for the business of the trust, but there is no material to show that it was incidental to the trust objective. In that view of the matter, the provisions of Section 11 (4A) of the Act will not be applicable to the case of the assessee.
As regard to the question no.4 to the substantial questions of law as has been framed by learned counsel for the appellant-assessee with regard to hybrid system of
-18- accounting adopted by the assessee, the learned Tribunal has rightly come to the conclusion in the last paragraph of the impugned order i.e. paragraph-6, which reads as under:
“6. As far as ground no.4 is concerned, this ground is relevant only if the assessee’s changed method of accounting from this year is found to be acceptable. Since the changed method of accounting has not been accepted by the lower authorities and the assessee has not challenged this action of the lower authorities on this issue before us, we find no merit in this ground taken by the assessee before us and the same is also dismissed.”
In that view of the matter, we are of the considered view that question no.4 is not raised in its proper form.
Considering the submissions made and keeping in view the above facts of the case, we find no substantial questions of law to be adjudicated by this Court.
Hence, the appeals, being devoid of merit, deserve to be dismissed and the same are dismissed.
All connected Misc. Cases/I.As. if any, are accordingly disposed of.
MP .…….......……………… ( K.S. Jhaveri ) Chief Justice
…………………..……… (K.R.Mohapatra) Judge