Sri.joseph Markose, Learned Senior v. Assistant Commissioner Of Incometax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE T.R.RAVI TUESDAY, THE 08TH DAY OF DECEMBER 2020 / 17TH AGRAHAYANA, 1942 WA.No.1418 OF 2020 AGAINST THE JUDGMENT IN WP(C) NO.29322/2019(M) OF THE HIGH COURTOF KERALA DATED 30.09.2020 APPELLANT/PETITIONER: M/S. MOIDU'S MEDICARE PRIVATE LTD.,(NATIONAL HOSPITAL), MAVOOR ROAD, KOZHIKODE, REPRESENTED BY ITS MANAGING DIRECTOR DR. K. MOIDU. BY ADVS.SRI.SANTHOSH P.ABRAHAMSMT.S.K.DEVISRI.JOSEPH MARKOSE (SR.) RESPONDENTS/RESPONDENTS: 1THE DEPUTY COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE-2, AAYAKAR BHAVAN, NORTH BLOCK, KOZHIKODE-673001. 2THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BRANCH, KENDRIYA SADAN, KAKKANAD, ERNAKULAM-682030. R1 BY ADV. SRI.P.K.RAVINDRANATHA MENON (SR.) R1 BY JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 08.12.2020, THECOURT ON THE SAME DAY DELIVERED THE FOLLOWING: K. Vinod Chandran & T.R.Ravi, JJ. -------------------------------------W.A.No.1418 of 2020 ------------------------------------ Dated, this the 08[th] day of December, 2020 .R. Vinod Chandran, J. JUDGMENT The appeal is against the judgment of the learned Single Judge, who rejected the challenge onthe ground that there is an alternate remedy ofappeal as provided under Section 260A of the IncomeTax Act, 1961 [for brevity, 'the I.T. Act']. Thechallenge was against the order of the Tribunalrejecting an application for rectification filedunder Section 254(2) of the I.T. Act. LearnedSingle Judge found the writ petition to be bereftof merits for reason of the Court invoking thejurisdiction under Article 226 of the Constitutionof India being prohibited from assuming the role ofan Appellate Court. We would have normally declinedto interfere with the refusal to exercise discretion under Article 226; but for the fact thatthere is a divergence of opinion as to whether anappeal would lie from the rejection of anapplication for rectification. 2. Sri.Joseph Markose, learned Senior Counsel appearing for the appellant, relies on Chem-Amit v. Assistant Commissioner of IncomeTax [(2005) 272 ITR 397], Viswas Promoters (P) Ltd. v.-IncomeTax Appellate Tribunal and Another [(2010)323 ITR 114]and Madhav Marbles and Granites v.-IncomeTax Appellate Tribunal and Another [(2014)362 ITR 647] of different High Courts. The learnedStanding Counsel for the Revenue relies on L.-Sohanraj v. Deputy Commissioner of IncomeTax andAnother [(2003) 260 ITR 147 (Kar)],a judgment ofthe High Court of Karnataka, which was approved bya Division Bench of that Court. 3. On the question of rectification, it ispointed out by the learned Senior Counsel that the Tribunal has refused to admit the additional groundfor reason of non-production of evidence by theappellant/assessee. The additional ground raisedis only with respect to the satisfaction requiredto be recorded under Section 153C, which could havebeen verified on a perusal of the assessmentrecords. There is no evidence, which could havebeen produced by the assessee and hence the refusalto admit the additional ground is a mistakeapparent from the face of the record and had to berectified. Learned Standing Counsel, on the otherhand, relies on the judgment of the Hon'ble Delhi-High Court in Deeksha Suri and Others v. IncomeTaxAppellate Tribunal and Others [(1998) 232 ITR 395]to remind us of the confined jurisdiction underrectification. 4. Two questions arise in the appeal. Oneas to whether there could be an appeal filed under Section 260A against the rejection of an WA.No.1418 OF 2020 4. Two questions arise in the appeal. Oneas to whether there could be an appeal filed under Section 260A against the rejection of an WA.No.1418 OF 2020 application under Section 254(2) of the I.T. Act.If it is not permissible, then the writ petitionwould be maintainable, as has been found in theconcurring judgment in Deeksha Suriand the nextquestion would be whether the ground raised is amistake, which could be rectified under Section254(2) of the I.T. Act; to be answered in theseproceedings under Article 226 itself. 5. The first question we are required toanswer is as to whether an appeal would lie againstan order rejecting a rectification application. Wehave gone through the judgments of the KarnatakaHigh Court, which only refused jurisdiction underArticle 226 on the well entrenched principle ofself-restraintexercisedininvokingtheextraordinary remedy under Article 226, when thereis an appeal provided by the statute, which is anequally efficacious remedy. The provision underSection 260A though discussed was not looked at in the perspective in which their Lordships of the Bombay High Court analyzed it, in Chem Amit[supra]. The other decisions are of Single Judgesof the High Court of Madras and Rajasthan, whichfollowed the Bombay High Court decision.6. Chem Amitheld in paragraphs 6 & 7 asfollows: “6. In Durga Engineering and FoundryWorks [200] 245 ITR 272], the Supreme Courtheld that the reference under Section 256 ofthe Income-Tax Act, 1961 could be made fromthe order of the Appellate Tribunal passed onthe application for rectification underSection 254(2). That was so held by theSupreme Court in the light of the language ofSection 256 which empowered the assessee andthe Revenue to “require the AppellateTribunal to refer to the High Court anyquestion of law arising out of an orderpassed under Section 254”. Section 254comprises two sub-sections. Sub-section (1)of Section 254 provides that the AppellateTribunal may pass such order on an appeal asit thinks fit after giving both the partiesto the appeal an opportunity of being heard. Sub-section (2) of Section 254 permits theTribunal to verify any mistake apparent fromthe record and amend any order passed undersub-section (1) within four years from thedate of the order. The expression employedin Section 260A that provides for an appealto the High Court is materially differentfrom the expression used in Section 256 thatempowers the assessee and the Revenue torequire the Appellate Tribunal to refer tothe High Court any question of law. Asalready noticed above, in Section 256 theexpression used is “require the AppellateTribunal to refer to the High Court anyquestion of law arising out of an orderpassed under Section 254”. However, inSection 260A, the Legislature has notprovided an appeal to the High Court fromevery order passed under Section 254 but hasconfined it to the order passed in appeal bythe Appellate Tribunal. This is made clear bythe use of the expression, “an appealshall lie to the High Court from every orderpassed in appeal by the Appellate Tribunal”.If the Legislature intended to provide anappeal to the High court from the orderpassed by the Appellate Tribunal on theapplication for rectification under Section 254(2), the Legislature would not have usedthe expression in Section 260A that anappeal shall lie to the High Court fromevery order passed in appeal by theAppellate Tribunal, but instead used theexpression as is used in Section 256 that anappeal shall lie to the High Court from everyorder passed under Section 254. Theexpression “an appeal shall lie to the HighCourt from every order passed in appeal bythe Appellate Tribunal” in Section 260Acannot be equated with the expression “anappeal shall lie to the High Court fromevery order passed under Section 254”. InDurga Engineering and Foundry Works [200]245 ITR 272], also the Supreme Courtobserved that “Section 256 contemplates thereference of the question of law arising outof an order passed under Section 254; thatis to say, an order passed both underSection 254(4) and Section 254(2)”. We havealready highlighted the departure of thelanguage in Section 260A from the languageoccurring in Section 256. 7. In a given case where as theconsequence of an order passed on therectification application under Section254(2), the amendment in the order passed in appeal under Section 254(1) takes place,such amended order in appeal as aconsequence of the order passed in therectification application, however, shall,be amenable to appeal under Section 260A. Inso far as the present case is concerned, theassessee has only challenged the orders ofthe Appellate Tribunal rejecting theapplication of rectification, the appealunder Section 260A is not maintainable.” 7. The Bombay High Court on the specificlanguage employed, found that an appeal underSection 260A would lie only from an order inappeal; which an order rejecting an applicationunder Section 254(2), obviously cannot be. Howeverwhen a rectification application filed underSection 254(2) is allowed, then necessarily thereis a modification made to the original order andthe order under Section 254(2) would be one made inthe appeal itself. We respectfully bow to the aboveproposition and follow the same. We are of theopinion that a rejection of an application filed under Section 254(2) will not be an 'order inappeal' and there could be no appeal filed underSection 260A of the IT Act. The party to astatutory appeal cannot be without remedy from anorder prejudicial to that party and definitely thewrit jurisdiction could be invoked. 8. Deeksha Surihas very distinct and complex facts and relates to an assessment yearprior to the introduction of Section 260A. Therein,one Lalit Suri, his wife and two minor children hadforeign remittances in their accounts, which wereclaimed as gifts under a Scheme framed under aStatute. Since the declaration necessitated by thenotified scheme was not produced, the AssessingOfficer treated the deposits as unexplained cashcredit under Section 68 of the I.T. Act. Before theFirst Appellate Authority an application was filedto accept additional evidence, which was rejected.In second appeal before the Tribunal, again an application was filed for acceptance of additional evidence under Rule 29. A Bench of the Tribunalrecorded its opinion that first the applicationunder Rule 29 would have to be disposed of. Later,another Bench, which heard the matter, rejected theappeals, but the application under Rule 29 was notdisposed of. The assessees filed an applicationwithout any mention of the provision of law, on theground that a grievous mistake was occasioned.Later, an application under Section 254(2) wasfiled alleging an error apparent on the face of therecord for reason of the application for acceptanceof additional evidence having not been considered.This application was rejected, against which writpetitions were filed by all the appellants, whichstood rejected by two concurring judgments of theBombay High Court. evidence under Rule 29. A Bench of the Tribunalrecorded its opinion that first the applicationunder Rule 29 would have to be disposed of. Later,another Bench, which heard the matter, rejected theappeals, but the application under Rule 29 was notdisposed of. The assessees filed an applicationwithout any mention of the provision of law, on theground that a grievous mistake was occasioned.Later, an application under Section 254(2) wasfiled alleging an error apparent on the face of therecord for reason of the application for acceptanceof additional evidence having not been considered.This application was rejected, against which writpetitions were filed by all the appellants, whichstood rejected by two concurring judgments of theBombay High Court. 9. The first of such judgments in DeekshaSuri noticed the Tribunal's finding that when the appeal was finally heard, the assessees neverreferred to the application under Rule 29. Moreimportantly, it was found that an application underSection 256(1) was pending before the Tribunal,wherein one of the questions of law raised was withrespect to the non-consideration of theapplication for accepting additional evidence. Itwas also noticed that one of the assessees hadapproached the High Court with a writ petitionearlier, challenging the order of the Tribunalrejecting her appeal on the very same grounds,which writ petition was rejected for reason of thealternative remedy under Section 256. This orderwas found to be binding on all the assessees, whowere husband, wife and minor children. Theassessees were left to agitate their cause underSection 256 and the writ petition stood dismissed. 10. In the concurring judgment, thestatutory authorities were faulted for being obsessedwithextraneousandproceduralconsiderations, when even the Department did notdispute the genuineness of the documents producedas additional evidence. The learned Judge agreedthat the remedy lies under Section 256(1). However,it was cautiously observed that if the verdict, inthe application under Section 256(1), is that thereis no question of law involved, then necessarilythe assessees would have a remedy under Article 226or 227 of the Constitution of India, since it wouldnever be the intention of law to leave a partywithout any remedy. procedural 11. Here we once again emphasise thedifference in the language employed in Section 256and 260A as held in Chem Amit. While Section 256provided for reference by the Tribunal to the HighCourt 'any question of law', Section 260A permitsan appeal from 'every order passed in appeal by theTribunal'. The order impugned before us is one in an application for rectification under section254(2); that too an order rejecting the prayer forrectification which cannot be an 'order passed inappeal' by the Tribunal. In fact, the concurrentjudgment in Deeksha Suriread with the Section260A; which permits only appeals from an orderpassed in an appeal by the Tribunal, leans more infavour of the assessee than the Department, on thefacts discernible from the present case at least onthe maintainability of this writ petition. 12. Now we come to the question whetherthe ground is one possible of consideration underSection 254(2) as a rectification; an obvious andpatent error, the establishment of which would notrequire a long drawn process of reasoning onpoints, which could give rise to more than oneopinion [T.S. Balram,ITO v. Volkart Bros. (1971)82 ITR 50 (SC)]. The additional ground raisedbefore the Tribunal is essentially as to whether the Assessing Officer ought to have noticed that itis mandatory to record the satisfaction in the caseof assessment of a connected person under Section153C of the I.T. Act . The ground has been framedso, as is seen from paragraph 3.2 of the originalorder of the Tribunal : 12. Now we come to the question whetherthe ground is one possible of consideration underSection 254(2) as a rectification; an obvious andpatent error, the establishment of which would notrequire a long drawn process of reasoning onpoints, which could give rise to more than oneopinion [T.S. Balram,ITO v. Volkart Bros. (1971)82 ITR 50 (SC)]. The additional ground raisedbefore the Tribunal is essentially as to whether the Assessing Officer ought to have noticed that itis mandatory to record the satisfaction in the caseof assessment of a connected person under Section153C of the I.T. Act . The ground has been framedso, as is seen from paragraph 3.2 of the originalorder of the Tribunal : “3.2 The Assessing Offer shouldhave appreciated that it is mandatory torecord the satisfaction in the case ofassessment of a connected person u/s.153C.He should have known that, no incriminatingdocuments or any money bullion, jewellery orvaluable article or things or books ofaccounts or documents belonging to theappellant for the assessment year was seizedor requisitioned. He should have appreciatedthat nothing has been brought on record bythe AO and no reference has been made tosuch material relating to the appellant forthe assessment year being unearthed. In theabsence of any incriminating evidence or anymoney, bullion, jewellery or valuablearticle or things etc. the assessmentu/s.153A r.w.s. 153C is not valid.” 13. The Tribunal has considered in detailthe requirement under Section 153C in theparagraphs numbered as 8 to 8.4. It has beencategorically found that Section 153C of the I.T.Act can be invoked only when there is asatisfaction recorded by the Assessing Officerhaving jurisdiction over the persons searched orrequisitioned under Section 132A of the I.T. Act,that any money, bullion, jewellery or othervaluable article or thing or books of account ordocuments seized or requisitioned belongs to aperson other than that referred to in Section 153A.Without recording such satisfaction, no proceedingcan be initiated under Section 153C in the case ofsuch other person, a third party, who has not beensubjected to a search. What remained was only averification of the assessment records. However theTribunal has rejected the admission of the grounditself, while the Revenue insists that the question raised has been elaborately considered and answeredin the negative. 14. We see from paragraph 8.6 that theTribunal in the opening sentence, opined that theadditional ground raised by the assessee cannot beadmitted for adjudication, for not bringing thefacts on record. It was also held that since thequestion was first raised before the Tribunal,discretionary power to permit the assessee to raisesuch issue for the first time before the Tribunalis refused. A Division Bench judgment was quotedand then the additional ground is seen to have beenrejected. The order passed in the rectificationapplication in its operative portion has againcategorically found so: “6.1 ...Since the production ofadditional evidence required by theassessee as additional ground is directlylinked to the examination of the originalrecords by the Tribunal, the Tribunalconsidered the additional ground and observed that the additional ground cannotbe admitted in the absence of bringing onrecord the additional evidence pertains torecording satisfaction so as to issuenotice u/s 153A of the I.T. Act. TheTribunal considered every material fact,for and against the assessee, with due careand given a finding that the additionalground could not be admitted at thatstage.” “6.1 ...Since the production ofadditional evidence required by theassessee as additional ground is directlylinked to the examination of the originalrecords by the Tribunal, the Tribunalconsidered the additional ground and observed that the additional ground cannotbe admitted in the absence of bringing onrecord the additional evidence pertains torecording satisfaction so as to issuenotice u/s 153A of the I.T. Act. TheTribunal considered every material fact,for and against the assessee, with due careand given a finding that the additionalground could not be admitted at thatstage.” 15. In the above circumstances, we have tofind that the original order of the Tribunal itselfis one refusing to permit the assessee to raise theadditional ground. We notice that the Tribunalitself has quoted the decision of the Hon'bleSupreme Court inNational Thermal PowerCorporation Ltd. v. CIT [229 ITR 383] and one ofthe grounds on which the Tribunal could exercisediscretion to admit an additional ground has beenextracted, which is as follows: “b) If the Tribunal is required toconsider only the question of law arising from the facts which are on record in theassessment proceedings. Such question shouldbe allowed to be raised.” Having found that the recording of satisfaction by the AO of the searched person is mandatory; whichis the question of law, what remained was only tocall for the records of the assessment proceedingsof the appellant and peruse the same to find outthe satisfaction recorded before transmitting thefiles to the AO of the appellant. We are hencesatisfied that the ground necessarily has to beadmitted and the Tribunal committed a mistake inrefusing the admission of such ground. We henceset aside the impugned order and direct theTribunal to call for the assessment proceedingsfrom the Department and ensure that thesatisfaction is recorded under Section 153C by theAO of the persons searched. 16. Here we have to observe that if at alla question of law is raised from the original order in appeal, it can only be one against refusal ofthe Tribunal to admit the additional ground. If theHigh Court finds it in favour of the assessee thenwhat remains is only the examination of records.The Tribunal has found; which cannot be otherwise,that the satisfaction has to be recorded as per thestatutory provision. What remained was onlyexamination of the records; which refusal makes itan error apparent from the face of the record.There can arise no contrary or conflicting opinionon this since the interpretation of the provision,as to the satisfaction being mandatory is crystalclear. We fail to understand what evidence requiresto be produced by the assessee to substantiatetheir ground. The Tribunals should be morepragmatic and the recording of the satisfactioncould have been verified with lesser effort thanthat involved in making copious extracts from theoriginal order; in the order impugned. WA.No.1418 OF 2020 17. We allow the appeal setting aside the judgment of the learned Single Judge as also theorder of the Tribunal in the rectificationapplication. The rectification application standsallowed and the appeal before the Tribunal standsrestored only to the extent of admitting theadditional ground. We direct consideration of theadditional ground in accordance with the directionsherein above; by calling for the records of theDepartment. No order on costs. Sd/- K.VINOD CHANDRAN, JUDGE. Sd/- T.R. RAVI, JUDGE. sp/09/12/2020 //True Copy// P.A. To Judge