The Income Tax Officer v. M/S Gehna And Anr

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Civil Writ Petition No. 26 / 2011 The Income Tax Officer ----Petitioner Versus M/S Gehna And Anr ----Respondent D.B. Civil Writ Petition No. 531 / 2011 The Income Tax Officer ----Petitioner Versus Upendra Kumar Soni And Anr ----RespondentD.B. Income Tax Appeal No. 27 / 2008M/S Gehna----AppellantVersusC I T & Ors----Respondent D.B. Income Tax Appeal No. 26 / 2008 Upendra Kumar Soni ----Appellant VersusC I T & Ors ----Respondent D.B. Income Tax Appeal No. 232 / 2011 CIT Jaipur ----Appellant VersusM/S Gehna ----Respondent _____________________________________________________ For Petitioner(s) : Mr. Anil Mehta For Respondent(s) : Mr. Sanjay Jhanwar _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 10/05/2017 1. In all these cases, common question of law and facts areinvolved and they are decided by the common judgment of thetribunal, therefore they are decided by this common judgment. 2.By way of writ petitions, the department has challenged thejudgment and order of the Tribunal whereby MA preferred by theassessee was allowed and judgment delivered by the tribunal wasrecalled. 3.Counsel for the petitioner has contended that tribunal hascommitted serious error in allowing MA and recalling the judgmentto decide the matter afresh. Therefore, he contended thatprovisions of section 254 are required to be interpreted and onlyin case an error is apparent on the face of record the same shouldbe considered. 4.In that view of the matter, Mr. Mehta contended that viewtaken by the tribunal is required to be reversed and MA is liable tobe dismissed as there is no error apparent on the face of record. 5. Counsel for the respondent Mr. Jhanwar contended that tribunalin para no.25, 26, 27 & 29 has observed as under:- 3.Counsel for the petitioner has contended that tribunal hascommitted serious error in allowing MA and recalling the judgmentto decide the matter afresh. Therefore, he contended thatprovisions of section 254 are required to be interpreted and onlyin case an error is apparent on the face of record the same shouldbe considered. 4.In that view of the matter, Mr. Mehta contended that viewtaken by the tribunal is required to be reversed and MA is liable tobe dismissed as there is no error apparent on the face of record. 5. Counsel for the respondent Mr. Jhanwar contended that tribunalin para no.25, 26, 27 & 29 has observed as under:- “25. After going through all the records of the appeal filesand records of Miscellaneous Application files, it is seenthat during the appellate proceedings before the Tribunalat the time of hearing of appeals of the department andassessee, a detailed written submissions were filed beforethe Tribunal in support of the order of ld. CIT(A). Copy ofthe same is available in the record. Though thesubmissions of the ld. Counsel of the assessee have beenstated in the order of the Tribunal dated 31.05.2007.however it is seen that while taking a view against thefinding of ld. CIT (A), the finding of ld. CIT(A) has notbeen taken into consideration by the Tribunal as Tribunalin operative paras of its order has mentioned about theorder of AO only. The assessment in this case wascompleted by the AO by rejecting the books of account inview of provisions of section 145(3) and thereafter theprofit has been estimated on the basis of past history ofthe case. The ld. CIT(A) decided the appeal of theassessee and the ground against rejection of books ofaccount and applying the g.p. rate on the basis of pasthistory were allowed in favour of the assessee. Whileallowing the ground of the assessee, the ld. CIT(A) hasgiven his findings in paras 5 to para 5.19 at pages 15 to22. The brief facts of the case and submissions of theassessee and objection of AO have been considered by ld.CIT(A) at pages 2 to 15 of his order. The ld. CIT(A) hasdiscussed the issue in detail that AO issued only noticeunder section 143(2) and no notice was issued undersection 142(1) for calling upon the books of account.Provisions of section 142 and 143(2) have been discussedin detail by ld. CIT(A) and then by placing reliance onvarious case laws i.e. in case of P.S. SubramaniamChettiar vs. JCTO 18 STC 357, in case of Abdul Kayumand Co. vs. CIT 1 ITR 375, in case of Jyotram Shersingvs. CIT 2 ITR 129 (All.) and in case of Gunda Subbayyavs. CIT. 7 ITR 21 (Mad.) (Full Bench) held that AO has notfollowedb the proper procedure before invoking provisionsof section 145(3) for the purpose of rejection of books ofaccount. Therefore, it was held that the AO was notjustified in rejecting the books of account and making theassessment on the basis of past history. Thereafter theBoard’s circular no. 387 dated 6.7.1984 was also takeninto consideration whereby it has been guided that inwake of the fact that the books of account were not inexistence on the date of framing the assessment, the TAR(Tax Audit Report) assumes greater importance andrather becomes pivotal document and therefore, the taxaudit report as guided by the CBDT Circular has to betaken into consideration. 26. Thereafter reliance has been placed on the decision ofHon’ble Delhi High Court in the case of Addl. CIT vs. JayEngineering Works Ltd. 113 ITR 389 wherein it has beenheld that- “Where the books of account are examined and auditedunder statutory provisions and audit report is submittedthereabouts, reliance could be placed by the Income-tax 26. Thereafter reliance has been placed on the decision ofHon’ble Delhi High Court in the case of Addl. CIT vs. JayEngineering Works Ltd. 113 ITR 389 wherein it has beenheld that- “Where the books of account are examined and auditedunder statutory provisions and audit report is submittedthereabouts, reliance could be placed by the Income-tax Authorities on such a report treating the same as amaterial in case the books of account of the assesseeweredestroyedbyfire,etc.”The ld. CIT(A) has also taken into consideration that theauditors have taken a note that there was nomanufacturing during the yeard under consideration andno expenses have been claimed in the profit & Lossaccount on account of manufacturing of the jewelleryRemand report was also sought from the AO andthereafter only the ld. CIT(A) had given a finding thatrejection of books of account was not justified. Tribunalwhile rejecting the appeal of the assessee has notconsidered the detailed reasoning and submissions of theassessee. The Tribunal has mentioned in its order that theAO was right, correct etc. and thereafter theobservations/view of the AO in rejecting the books ofaccount have been upheld. Neither the finding given byld. CIT(A) that where books of accounts are rejected thenfor making assessment procedures laid down underprovisions of section 144 has to be followed. The detailedwritten submissions were filed before Tribunal in supportof the findings of the ld. CIT(A). Reliance was placed onvarious case laws i.e. ion case of EMC(Works) Pvt. Ltd. 49ITR 650 in the case of Addl. CIT vs. Jay EngineeringWorks Ltd., 113 IR 389 and in the case of Godavari DeviSarraf, 113 ITR 589 (Bombay). The binding circular ofCBDT and the decision of the Tribunal on identical factsi.e. in case of ITO vs. Girish & Mehta. 99 TTJ 394 and thedecision in the case of Pushpanjali Dying and Printing Mills(P) Ltd. vs. JCTT, 72 TTJ(Ahd.) 886 were relied upon. 27. After going through the order of Tribunal, we noticedthat there is even no whisper in respect to these decisionsrelied upon by ld. Counsel of the assessee during thehearing of the appeal before the Tribunal. The statementof Shri A.K. Khandelwal, the auditor of the assessee wasrecorded by ld. CIT (A) under section 131. The AO wasallowed cross examination. However, there is no whisperin the order of the Tribunal about these facts. The mostvital facts which in our considered view remained to beunconsidered is that it was specifically mentioned beforeTribunal in para 5 at page 9 of the written submission thatthe later development has to be considered by the Bench.Which is that on identical facts the assessment forassessment year 1999-2000 was completed by the AOunder section 143(3). For this year also no books ofaccount were produced as they were also destroyed in fireand the declared profit at 0.894% on the turnover of Rs.15.70 crores or so was accepted. No comments havebeen given by the Tribunal in this respect. It is also a vitalfact that during the year under consideration variousparties sold their jewellery declared under VDIS Scheme1997 and the same was seldom traded, therefore, therewas no comparison of the cases for earlier year as nosuch purchases were made in earlier year. In earlier yearthere was only small turnover whereas in the year underconsideration turnover of the assessee was increased by many folds. This aspect is also not taken intoconsideration by the Tribunal while accepting the groundsof the department. It is further seen that for comparablecases and for applying g.p. rate the reliance was placedon the decisions i.e. in case of CIT vs. EasternEnterprises, 210 ITR 103 (Cal.) and in case of UOI vs.Chiranji Estate Pvt. Ltd. 251 ITR 7(SC) and also in thecase of R.B. Jassa Ram Fateh Sugar Department vs. CIT75 ITR 33(Bom.) and in the case of C.M. Franss & Co. vs.CIT 77 ITR 449 (Ker.). However, there is no discussionabout these cases in the order of Tribunal. many folds. This aspect is also not taken intoconsideration by the Tribunal while accepting the groundsof the department. It is further seen that for comparablecases and for applying g.p. rate the reliance was placedon the decisions i.e. in case of CIT vs. EasternEnterprises, 210 ITR 103 (Cal.) and in case of UOI vs.Chiranji Estate Pvt. Ltd. 251 ITR 7(SC) and also in thecase of R.B. Jassa Ram Fateh Sugar Department vs. CIT75 ITR 33(Bom.) and in the case of C.M. Franss & Co. vs.CIT 77 ITR 449 (Ker.). However, there is no discussionabout these cases in the order of Tribunal. 29. It means the order before the Tribunal was order ofld. CIT(A) and not the order of AO. As mentioned above,the Tribunal has not given any finding in respect to thefinding of ld. CIT(A) which was given after taking intoconsideration various case laws. The order of ld. CIT(A)may be correct and order of the AO may be correct butwhile reversing the order of ld. CIT(A), in our consideredview it is the duty of the Tribunal to controvert the findingof the authorities against which the appeal has been filedbefore it. We have gone through the order of Tribunal minutely andfound no where the comments in respect to detailedfinding given by ld. CIT(A). At one or two points theTribunal has observed that ld. CIT(A) was not correct inholding that provisions of section 145(3) are notapplicable. How the ld. CIT(A) is not correct, no findinghas been given by the Tribunal. Regarding the g.p. ratealso, the Tribunal has observed that order of the AOseems to be correct. However, regarding the finding of ld.CIT(A), the only observation that “the ld. CIT(A), in ourconsidered view, was not justified in accepting the tradingresult declared by the assessee” How the trading resultaccepted by the ld. CIT(A) are not correct, no finding ordiscussion has been made by the Tribunal.” 6.In view of the above, he has specifically contended that onthis ground the order of the tribunal is not required to be recalled. 7.Counsel for the respondent Mr. Jhanwar has relied upon thedecision of Supreme Court in Honda Siel Power Products Ltd. vs.Commissioner of Income Tax (2007) 295 ITR 466 (SC) andAssistantCommissioner,IncomeTax,RajkotVs. :Saurashtra Kutch Stock Exchange Ltd. reported in 2008 (14)SCC 171 wherein Supreme Court held as under:- “13. "Rule of precedent" is an important aspect of legalcertainty in rule of law. That principle is not obliteratedby Section254(2)of the Income Tax Act, 1961. Whenprejudice results from an order attributable to theTribunals mistake, error or omission, then it is the dutyof the Tribunal to set it right. Atonement to the wrongedparty by the court or Tribunal for the wrong committedby it has nothing to do with the concept of inherentpower to review. In the present case, the Tribunal wasjustifiedinexercisingitspowersunderSection254(2)when it was pointed out to the Tribunalthat the judgment of the co-ordinate Bench was placedbefore the Tribunal when the original order came to bepassed but it had committed a mistake in notconsidering the material, which was already on record.The Tribunal has acknowledged its mistake; it hasaccordingly rectified its order. In our view, the HighCourt was not justified in interfering with the said order.We are not going by the doctrine or concept of inherentpower. We are Simply proceeding on the basis that ifprejudice had resulted to the party, which prejudice isattributable to the Tribunal's mistake, error or omissionand which error is a manifest error then the Tribunalwould be justified in rectifying its mistake, which hadbeen done in the present case.” 8.He has relied upon the judgment of Principal Set at Jodhpurin Commissioner of Income Tax vs. Ramesh Chand Modi (2001)249 ITR 323 (Raj.) and other decision of this court in Champa LalChopra vs. State of Raj. (2002) 257 ITR 74 (Raj.) wherein it hasbeen held as under:- 8.He has relied upon the judgment of Principal Set at Jodhpurin Commissioner of Income Tax vs. Ramesh Chand Modi (2001)249 ITR 323 (Raj.) and other decision of this court in Champa LalChopra vs. State of Raj. (2002) 257 ITR 74 (Raj.) wherein it hasbeen held as under:- A reading of Sub-section (2) of Section254of the Actmakes it clear that its scope and ambit is limited. Itrestricts to rectify the mistakes apparent from therecord. Thus, in the normal course, the power ofrectification cannot be extended for recalling the entireorder, obviously it would mean passing of a fresh order.That does not appear to be the legislative intent.However, in agiven case where the factual mistake is soapparent that it becomes necessaryto correct the same,the Tribunal would be justified in not only correctingthesaid mistake by way of rectification but if thejudgment has proceeded on thebasis of that fact, itwould be justified in recalling such order and postingforhearing. 8. A Division Bench of the Madhya Pradesh High Court inCIT v.Mithalal Ashok Kumar MANU/MP/0063/1984 :[1986]158ITR755(MP) , the Tribunal found apparentmistake from the record in its order while deciding the question as to whether the firm was genuine or not,accordingly the rectification was granted. On a challengeby the Revenue, the Division Bench held that whileconsidering the application for rectification, theprovisions of Order 47, Rule 1 of the Civil ProcedureCode, can be strictly applied. The judgment of theMadhya Pradesh High Court is based on the decisions ofthe apex court in K.M. Shanmugam v. S. R. V.S. (P.)Ltd. MANU/SC/0182/1963: [1964]1SCR809 andNagendra Nath Bora v.Commissioner of Hills DivisionMANU/SC/0101/1958: [1958]1SCR1240 . The DivisionBench confirmed the order of the Tribunal grantingrectification, there being manifest error on the face ofthe proceedings. In a recent decision the Allahabad HighCourtinCITv.U.P.ShoeIndustriesMANU/UP/0517/1997: [1999]235ITR663(All) has takenthe view that where there is apparent mistake from therecord, the Tribunal has jurisdiction to rectify themistake by recalling the entire order and posting forrehearing. Once the conclusion is reached that the Tribunal hadpower to rectify mistakes on the face of the record andthat there existed mistakes on the face of the recordthat the Tribunal has not dealt with the important issuearising in the case which goes to the root of the matter,the only consequential order of rectification that couldbe passed was to recall the earlier order and make afresh order deciding the issue which was left undecidedafter hearing the parties on that issue. That undecidedissue could not have been decided in favour or againstany party without hearing them in that regard. Thecontention of learned counsel that there is no power torecall and substitute another order as a result ofrectification because it amounts to review is not wellfounded. Once a mistake on the face of the record isestablished what order should follow to correct thatmistake shall always depend on the facts andcircumstances requiring to rectify the mistake. If themistake is one which requires determination of someundecided issue because it has not been decided thoughraised, the procedure that would follow the discovery ofsuch mistakes is to recall the order, and decide the caseafresh or to decide that issue after affording anopportunity of hearing the parties concerned and pass afresh order in the light of finding on such issue. Theorder under Section254(2)is not confined toarithmetical or clerical mistake, nor only to correctsubstantive mistakes but also procedural mistakes. 8. The whole contention of learned counsel for theappellant is founded on the premise that recalling of theorder for making a fresh order amounts to review andnot rectification. While it is true that the power ofrectification of an order is far narrower than the powerto review gene-Tally, the methodology of rectifying theorder when mistake apparent from the record is found, may to correct a mistake in the substantive aspect ofthe order as well as mistake in the procedural aspect ofmaking order. Recalling of an order for correcting anapparent mistake in the procedural aspect cannot beequated with review. For illustration purposes, if fromthe record it appears that one of the parties has not atall been heard and the order has been made in breachof the principles of natural justice going to root of thematter. The only appropriate method of correcting suchmistake is to recall the order and make a fresh orderafter affording an opportunity of hearing to such party.So also when an order is made ex parte when a partyabsents himself on any date of hearing, if the partyshows sufficient cause for his absence the court haspower to make a fresh order after recalling the earlierorder by affording a hearing to such party. Similarly, inthe present case, where the Tribunal fails to decidesome of the questions raised before it inadvertently orby oversight, adopting a similar course is therequirement of correcting such mistake. In all suchcases, ordinarily the court or the Tribunal acts ex debitojustitiae to prevent abuse of process, even in theabsence of specific provision. 9.Taking into consideration, in our considered opinion, the grounds which are taken by the tribunal as reproduced hereinabove, the view taken by the tribunal is just and proper. 10.The writ petitions deserve to be dismissed and the same aredismissed. 11.In view of the decision of two writ petitions, the threeappeals 27/2008, 26/2008 & 232/2011 have become academic. 12.The appeals stands disposed of. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Brijesh 154-158