12. Pr. Commissioner of Income Tax vs. A.A.
Estate Pvt. Ltd. (2019) 413 ITR 438 (SC)
Appeal to the High Court – There is
a distinction between the questions proposed by the appellant for admission of
the appeal and the questions framed by the Court – The questions proposed by
the appellant fall u/s 260-A(2)(c) of the Act, whereas the questions framed by
the High Court fall u/s 260-A(3) of the Act – The appeal is to be heard on
merits only on the questions framed by the High Court under sub-section (3) of
section 260-A of the Act as provided u/s 260-A(4) of the Act – The expression
‘such question’ referred to in sub-section (5) of section 260-A of the Act means
the questions which are framed by the High Court under sub-section (3) of
section 260-A at the time of admission of the appeal and not the one proposed
in section 260-A(2)(c) of the Act by the appellant – The respondent has a right
to argue ‘at the time of hearing’ of the appeal that the questions framed are
not involved in the appeal by taking recourse to sub-section (5) of section
260-A of the Act
In the case of the
respondent-assessee who was engaged in the business of development and building
of properties, the Assessing Officer completed the assessment u/s 143(3) read
with section 153A of the Income Tax Act, 1961 for the assessment year 2008-09
and determined the total income at Rs. 7,77,49,790.
Subsequently, the AO issued a
notice u/s 148 of the Act seeking to reopen the assessment on the basis of
information received from the ADIT (Investigation). By this notice, the AO
proposed to make an addition of Rs. 1,70,94,000 towards unaccounted sale
proceeds alleged to have been made by the assessee on the basis of one
document, which was seized by the Revenue Department in their search operation
carried out on 30th November, 2007 in the business premises of
another assessee by name M/s Ashok Buildcom Ltd.
The assessee objected to the
issuance of the notice contending inter alia that, first, there was no
factual foundation for issue of notice; second, there was no case for any
‘escaped assessment’; and third, there was no case or ‘reason to believe’.
The AO overruled these objections
and passed a re-assessment order by adding the sum of Rs. 1,70,94,000 in the
total income of the assessee.
Aggrieved at this, the assessee
filed an appeal before the CIT (Appeals). But the appeal was dismissed and the
addition made by the AO was upheld. Still aggrieved, the assessee filed a
second appeal before the ITAT. The Tribunal allowed the appeal and set aside
the order of the CIT (Appeals).
However, the Commissioner of Income
Tax felt aggrieved and filed an appeal before the High Court u/s 260-A of the
Act. By its impugned order, the High Court dismissed the appeal and affirmed
the order of the Tribunal, giving rise to the filing of the special leave to
appeal by the Commissioner of Income Tax in the Supreme Court.
The short question which therefore
arose for consideration before the Supreme Court was whether the High Court was
justified in dismissing the appeal filed by the Commissioner of Income Tax.
According to the Supreme Court, the
case had to be remanded to the High Court for the following reasons:
First, the High Court did not
formulate any substantial question of law as was required to be framed u/s
260-A of the Act.
Second, in para 2 of the impugned
order, the High Court observed that ‘Revenue urges following questions of law
for our consideration’. However, from a reading of para 2, the two questions
set out in it were not the questions framed by the High Court as were required
to be framed u/s 260-A(3) of the Act for hearing the appeal but were the
questions urged by the appellant.
According to the Supreme Court,
there is a distinction between the questions proposed by the appellant for
admission of the appeal and the questions framed by the Court. The questions
proposed by the appellant fall u/s 260-A(2)(c) of the Act, whereas the
questions framed by the High Court fall u/s 260-A(3) of the Act. The appeal is
to be heard on merits only on the questions framed by the High Court under
sub-section (3) of section 260-A of the Act as provided u/s 260-A(4) of the
Act.
Third, if the High Court was of the
view that the appeal did not involve any substantial question of law, it should
have recorded a categorical finding to that effect saying that the questions
proposed by the appellant either do not arise in the case or / and are not
substantial questions of law so as to attract the rigor of section 260-A of the
Act for its admission and, accordingly, should have dismissed the appeal in
limine.
According to the Supreme Court,
this was not done and instead the High Court without admitting the appeal and
framing any question of law had issued notice of appeal to the assessee, heard
both the parties on the questions urged by the appellant and dismissed it.
According to the Supreme Court, the respondent had a right to argue ‘at the
time of hearing’ of the appeal that the questions framed were not involved in
the appeal and this the respondent could urge by taking recourse to sub-section
(5) of section 260-A of the Act. But this stage in this case did not arise
because the High Court neither admitted the appeal nor framed any question as
required under sub-section (3) of section 260-A of the Act. The expression
‘such question’ referred to in sub-section (5) of section 260-A of the Act
means the questions which are framed by the High Court under sub-section (3) of
section 260-A at the time of admission of the appeal and not the ones proposed
in section 260-A(2)(c) of the Act by the appellant.
The Supreme Court, therefore,
concluded that the High Court had not decided the appeal in conformity with the mandatory procedure prescribed in section 260-A of the Act.
Fourth, the High Court should have
seen that the following substantial questions of law did arise in the appeal
for being answered on their respective merits:
(i) Whether the reasons contained
in notice u/s 148 are relevant and sufficient for issuance of the said notice
dated 22nd September, 2010?
(ii) Whether any case of escaped
assessment within the meaning of section 147 read with section 148 of the Act
for the assessment year in question is made out by the Commissioner of Income
Tax on the basis of the reasons set out in the notice?
(iii) Whether a case of presumption
as contemplated u/s 132(4A) of the Act could be drawn against the assessee on
the basis of a document (Annexure AB-1) which was seized in a search operation
carried out in the business premises of another assessee, M/s Ashok Buildcom,
by adding a sum of Rs. 1,70,94,000 for determining the total tax liability of
the respondent for the year in question as an escaped assessment so as to
enable the Department to issue notice dated 22nd September, 2010 u/s
148 of the Act to the respondent?
The Supreme Court thus remanded the
case to the High Court for deciding the appeal afresh to answer the questions
framed above on merits in accordance with the law.
13. Pr. Commissioner of Income Tax vs. Ballarpur
Industries Ltd. (2019) 413 ITR 447 (SC)
Appeal to the Appellate Tribunal –
Tribunal is the final fact-finding authority – Inconsistent findings recorded
by the Tribunal – High Court dismissed the appeal – Appeal to the Supreme Court
— Matter remanded for fresh consideration
In the case of the
respondent-assessee, a limited company, which was engaged in the business of
manufacturing of various kinds of papers, a question arose before the AO in the
assessment for assessment year 1993-94 as to what was the true nature of
payment of Rs. 3.25 crores made by the assessee to one Mr. G.R. Hada pursuant
to the compromise arrived at between the assessee company and Mr. Hada in a
civil suit filed by the latter against the company and others.
According to the assessee, Mr. Hada
and the company were the joint promoters of a company called M/s Andhra Pradesh
Rayons Limited in which Mr. Hada was holding 10.25% shares and the remaining
shares were held by other promoter shareholders in different percentages. Since
the dispute arose amongst the promoter shareholders, Mr. Hada filed a civil
suit against the assessee and other promoter shareholders on the basis of an
agreement, which was entered into amongst the promoter shareholders. In the
abovementioned suit, a compromise was arrived at between the assessee and Mr.
Hada. Pursuant to the said compromise, the assessee paid a sum of Rs. 3.25
crores to Mr. Hada.
The assessee claimed a deduction of
Rs. 3.25 crores in the assessment year in question as revenue expenditure
because, according to them, they had paid the said sum to Mr. Hada for running
their business.
The AO examined the claim in the
context of the terms of the agreement and held that the claim could not be
considered as ‘revenue expenditure’. He therefore rejected the claim.
The assessee
felt aggrieved by this order and filed an appeal to the Commissioner of Income
Tax (Appeals). However, the CIT (Appeals) confirmed the addition made by the
AO.
The assessee filed a second appeal
in the Income Tax Appellate Tribunal. The Tribunal examined the question and
allowed the appeal and directed the AO to allow the deduction of Rs. 3.25
crores as claimed by the assessee.
But now the Commissioner of Income
Tax-Revenue felt aggrieved and filed an appeal in the High Court. The High
Court dismissed the appeal, which gave rise to the filing of an appeal by way
of special leave by the Revenue in the Supreme Court.
According to the Supreme Court, the
short question which arose for its consideration was whether the High Court was
justified in dismissing the appeal filed by the Commissioner of Income Tax. The
Court held that the order of the High Court as well as the order of the
Tribunal had to be set aside and the case was required to be remanded to the
Tribunal to decide the appeal filed by the assessee afresh on merits in
accordance with law for the following reasons:
In para 26 of the order, the
Tribunal has recorded a finding, which read as under:
‘…The AO did not dispute the fact
that the expenditure related to the business of the Assessee. The CIT (A),
however, reversed the findings of the AO and held that the expenditure cannot
be considered as business expenditure. A perusal of the CIT (A)’s order can
only lead to a conclusion that the CIT (A) was of the view that the expenditure
in question was not a capital expenditure but of a revenue nature…’
The aforesaid observation of the
Tribunal, on what the AO and the CIT (Appeals) held, was not correct and rather
inconsistent with the finding of the AO. The Tribunal, therefore, had not
correctly appreciated what the AO and the CIT (Appeals) had held and what was
their reasoning which led to their respective conclusions.
Having wrongly observed about their
respective reasoning and the finding, the Tribunal proceeded to examine the
case and eventually reversed the order of CIT (Appeals). The High court did not
notice the aforesaid observation of the Tribunal and upheld the order of the
Tribunal.
According to the Supreme Court, in
such a situation like the one arising in the case and keeping in view the
question involved, the matter deserved to be remanded to the Tribunal for
deciding the appeal filed by the assessee afresh on merits, because the
Tribunal being the last Court of appeal on facts its finding on the question of
facts was of significance.
