1. These are two departmental appeal directed against the order of the Commissioner (Appeals), Agra and relate to the assessment years 1971-72 and 1972-73.
2. The assessee is deriving income from a glass work factory at Shikoha-bad. While making the assessment the ITO found that the assessee-firm had paid certain amounts for purchase of raw materials required in its business. These payments exceeded Rs. 2,500 but the payments had not been made by crossed-cheques or drafts. After considering the explanations given by the assessee, the ITO held that these payments could not be allowed in view of the provisions of Section 40A(3) of the Income-tax Act, 1961 ('the Act'). There were in all four payments which were disputed and an addition of Rs. 58,909 was made in the assessment year 1971-72 and an addition of Rs. 12,273 was made in the year 1972-73. The disallowance was upheld by the AAC and the assessee filed appeals before the Tribunal. The Tribunal took up these appeals along with some other appeals of the same assessee relating to some other years. The Tribunal's orders are in IT Appeal Nos. 8 and 2760 (Delhi) of 1977-78, for these two years and the order of the Tribunal was passed on 16-4-1980. The Tribunal found that this question of disallowance under Section 40A(3) had not been considered by the ITO and the AAC in terms of Circular No. 220 dated 31-5-1977 [see Taxmann's Direct Taxes Circulars, Vol. 1, 1985 edn., p. 404]. The Tribunal, therefore, set aside the orders of the AAC and restored it to his file for fresh disposal in the light of the said circular and in accordance with law.
3. Though it is not directly connected with the present appeals, it may be mentioned that the Tribunal also disposed of the departmental appeals for the years 1974-75 and 1975-76 where the Commissioner (Appeals) had set aside the order of the ITO on certain points and had directed him to decide the issues. The Tribunal, however, directed that the Commissioner (Appeals) himself should look into this matter and decide it on the basis of the facts available.
4. It is in these circumstances that the present orders were passed by the Commissioner (Appeals). After considering the facts he applied the Board's Circular No. 220 dated 31-5-1977 and held that no part of the assessee's claim could be disallowed as they were covered under instructions prescribed by the Board's circular. He, therefore, deleted the additions under Section 40A(3) in both the years.
1. The learned Commissioner (Appeals) has erred in law and on facts in deciding the appeal as the jurisdiction over this case for the assessment year under consideration lies with the AAC in terms of clarification made vide Circular No. 269 dated 29-4-1980 [CBDT Bulletin Tech. Vol. XXVI 1st April-June 1980].
2. The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 58,909/12,000, made under Section 40A(3) in respect of the payments made in cash exceeding Rs. 2.500, as the payment does not fall within Clause (b) of para 4 of the Board's Circular No. 220 dated 31-5-1977 [CBDT Bulletin Tech.
XXIII-31.
3. The order of the learned Commissioner (Appeals) being erroneous in law and on facts be set aside and order of the ITO be restored.
6. Making submission on the first ground, the learned departmental representative submitted that the appellate order in the present case should have been passed by the AAC and not by the Commissioner (Appeals) and for this he relied on the Circular No. 269 dated 29-4-1980 [see Taxmanris Direct Taxes Circulars, Vol. 1, 1985 edn., p.
1274]. In this Circular certain clarifications were given regarding the jurisdiction of the Commissioners (Appeals) in the light of the provisions of Section 246(2) of the Act and subsequent notifications.
This circular was in the form of questions and answers where the Board had sought to clarify the legal position on this subject. A reference was made to Sub-section (2) of Section 39 of the Finance (No. 2) Act, 1977 by which the posts of the Commissioner (Appeals) were created. It was clarified that in respect of an order passed by the AAC before the appointed day where the Tribunal directs after the appointed date that the matter should be remanded to the AAC or set aside for fresh disposal, then 'any action required to be taken' had to be taken by the AAC and not by the Commissioner (Appeals). It was clarified that where the Tribunal passed an order before the appointed day setting aside the order and directing fresh disposal it would become a pending appeal and would stand transferred to the Commissioner (Appeals). However, where the Tribunal passed an order after the appointed date, the power to take follow up action would be with the AAC and not with the Commissioner (Appeals). It may be mentioned that the appointed date for the purpose of non-company-assessee was 10-7-1978. In view of this circular it was contended that the learned Commissioner (Appeals) had no jurisdiction to hear this matter after the set aside order of the Tribunal and the proper jurisdiction was only with the AAC.7. The learned counsel for the assessee raised a preliminary objection to the admission of this ground and he submitted that this ground should not be admitted at all. He contended that the ground itself refers to a circular of the Board which has no legal sanction and it was only for the guidance and information of the departmental officers.
He also submitted that the matter was heard by the Commissioner (Appeals) after giving due notice to the ITO and the ITO has not chosen to raise the question of jurisdiction before the Commissioner (Appeals). He, therefore, contended that in the absence of any objection taken before the first appellate authority it was not open to the revenue to take up this ground before the Tribunal. He further submitted that the department cannot have a grievance against the order of the learned Commissioner (Appeals) insofar as the question of jurisdiction is concerned. The Commissioner (Appeals) was a more senior officer who has applied his mind and has decided the matter on merits.
In this connection, he further pointed out that Section 246(2) which provided for appeals to the Commissioner (Appeals) has made a specific mention of such orders which are made as a result of the directions issued by the IAC under Section 144B of the Act. He, therefore, contended that this was a case where the law itself had conferred jurisdiction on the Commissioner (Appeals) as the order was passed after obtaining directions of the IAC as required under section 144B.He also pointed out that the assessed income of the assessee was more than Rs. 7 lakhs whereas cases of more than Rs. 1 lakh income for non-companies had been kept under the jurisdiction of the Commissioner (Appeals). He further submitted that the circular issued by the Board was not in accordance with law. In this connection, he drew our attention to the provisions of Section 246 and contended that there was no provision in this section whereby this matter could go back to the AAC. He submitted that while the matters pending before the appointed date and any matter arising out of or connection with such appeal stood transferred on that date to the Commissioner (Appeals) the matters which would come from the Tribunal as a result of order passed after the appointed day would also be such matter and the jurisdiction would lie with the Commissioner (Appeals). He pointed out that while making provision for another category of first appellate authority the Finance (No. 2) Act, provided in Section 39 that 'any action required to be taken', after the commencement of this section in relation to any appeal disposed of by the AAC may be taken by the AAC himself. He, however, contended that the hearing of an appeal and deciding the issue on merits should not be considered as 'any action required to be taken' and such action should be confined to only rectification or giving effect to the directions regarding verification of certain facts. It was, therefore, contended that under the law the category in which the assessee fall was to be under the jurisdiction of the Commissioner (Appeals) and, therefore, there was no error when the Commissioner (Appeals) passed this order. He also pointed out to the anamoly of the situation that if the order of the Tribunal was passed before the appointed date the appeal would still be transferred to the Commissioner (Appeals) but if the order of the Tribunal was passed after the appointed date it will go back to the AAC himself. He contended that this would be a wrong interpretation and effort should be made to avoid any such interpretation which makes the position look absurd. In the end it was pointed out that this ground does not arise out of the order of the Commissioner (Appeals) as he had no occasion to decide this matter as no party raised it before him. The Tribunal, it was submitted, should not exercise its discretion in admitting this ground. It does not arise out of the order of the Commissioner (Appeals). He contended that permitting the revenue to raise such frivolous ground when a senior officer has applied his mind and has decided the case on merit, would result in unnecessary harassment and delay, in the adjudication of the assessee's claims.
8. I have carefully considered the rival arguments on this extraordinary ground taken by the department. When a senior appellate authority was created, the intention was that more important appeals and particularly the matters where the IAC had been associated with the assessment or any other proceeding the appeals should be heard by an officer of the rank of the Commissioner. It was in view of this that the various amendments were made as per the Fifth Schedule added to the Finance (No. 2) Act. The case of the assessee was in a category where normally an appeal had to be filed before the Commissioner (Appeals) as the IAC had approved the order and had given instructions under Sections 144A and 144B of the Act as well. However, in this case the assessment was made on 2-9-1976 when there was no post of the Commissioner (Appeals). The AAC had decided the matter and the appeal had come before the Tribunal. As the order was by the AAC, the Tribunal had to set aside the order to the AAC. Now the provisions of Section 246(2) provided the circumstances where an appeal would lie to the Commissioner (Appeals) and Section 246(3) provided that all such appeals pending before the appointed date and any matters arising out or connection with such appeal which are so pending would stand transferred to the Commissioner (Appeals) provided the appeal is of such nature which would fall under Section 246(2). The position regarding the matters which were already before the Tribunal was not laid down in clear terms. For example, if the Tribunal passed an order before the appointed date and the matter was set aside to the AAC, the appeal would become pending before him and it will have to be transferred to the Commissioner (Appeals) as required under Section 246(3). However, where the Tribunal passed an order after the appointed date the only provision to which our attention has been drawn is under Section 39(2). Here it is provided that if an AAC has passed an order before the appointed date and any action is required to be taken after the commencement of that section, only the AAC would take action. This would certainly cover the matters of rectification, etc, of the AAC's order. However, it is not very clear whether the hearing of an appeal afresh on one point or as a whole would be considered as 'any action required to be taken'. It is this position that the Board sought to clarify in its circular. There can certainly be some debate regarding the correctness of the interpretation placed by the Board's circular in respect of such cases where the appeal has been set aside and the first appellate authority has to pass afresh order. If on that date it is considered as a fresh appeal it will have to go to the Commissioner (Appeals). Obviously the attention of the learned Commissioner (Appeals) had not been drawn to the circular and the ITO had also not raised any objection before him about his jurisdiction. It is true that jurisdiction cannot be conferred by consent but in the circumstances of the present case the difficulties arose as a result of interpretation of the provisions of law, notification and of the Finance (No. 2) Act.
In fact none of these were considered by the Commissioner (Appeals) and one can very well understand that the first appellate authority who was dealing with the case of an assessee for several other years would not think it necessary to go suo motu into the question of jurisdiction for another year of the same assessee.
9. Thus, I find that in the present case, there was no inherent lack of jurisdiction in the Commissioner (Appeals) who was not only dealing with the other cases of the assessee, but also looking to the nature of the assessment order, it was he who could be the proper authority to hear appeals on merits. In such a case the question arises whether on this issue we should set aside the order of the Commissioner (Appeals) and either direct him to go into the question of jurisdiction or restore the matter to the AAC for fresh disposal on merits. Having carefully considered the whole matter I am of the view that no such action is called for in this case. As already stated in the earlier part of this order, this is the second time that the matter has come up before the Tribunal. A comparatively senior officer like the Commissioner (Appeals) has applied his mind and has decided the appeal on merits. As we will be discussing in the following paragraphs I agree with his conclusions on the facts of the case and I find that his order is in conformity with the Board's beneficial circular explaining the provisions of Section 40A(3). In such a situation setting aside the order of the Commissioner (Appeals) or directing a comparatively junior authority to apply his mind to the merits of the case will have no meaning, particularly when in case of the conclusion being different the matter would again come before the Tribunal. Various forums of appeal are meant to provide substantial justice to the parties and any situation in which an appellant is sent from pillar to post for no fault of his should be avoided. I, therefore, reject the first ground.
10. I have now to dispose of the other ground taken by the department as both the parties have addressed their arguments before us on this issue as well. The ITO, as stated above, has made the addition of Rs. 58,909 under Section 40A(3) on the ground that the payments were made in cash for bills which were in excess of Rs. 2,500 each. It appears that the ITO had actually suggested a larger addition but the IAC had reduced it to Rs. 58,909. This related to four parties and the earlier order of the Tribunal had directed the first appellate authority to consider these in the light of the Board's circular where certain examples had been given for exceptional circumstances in which the additions should not be made under Section 40A(3).
11. The first addition was in respect of Rs. 10,668 where some purchases were made from Bansal Chemicals, Firozabad. Three items were just marginally above Rs. 2,500 and the fourth item was for Rs. 3,160.
Before the Commissioner (Appeals) it was pointed out that besides the fact that most of the items were only marginally above Rs. 2,500 being in excess by Rs. 2 or Rs. 3 only, the payment should be allowed as a deduction as the party from whom the purchases were made had insisted on cash payment. Reliance has been placed on Rule 6DD(j) of the Income-tax Rules, 1962 read with the circular of the Board. The Commissioner (Appeals) found that the stock position of the appellant of the raw material was nil on the date when they were purchased and the assessee was in badly need of those chemicals. He also found that several other purchases have also been made from the same party which were less than Rs. 2,500 and he, therefore, allowed. There was no doubt about the identity of the party or the genuineness of the transaction.
After looking into the cash memos, purchase bills and having regard to the Board's circular the Commissioner (Appeals) deleted this addition.
12. Another addition of Rs. 6,938 was made in respect of cash purchases made from Nand Lal Paliwal & Bros., Firozabad. la this case the purchases were made at Firozabad whereas the assessee was located at Shikohabad. The assessee was not having a bank account at Firozabad and as the party was demanding the payment in cash, the payment was made in cash. The Commissioner (Appeals) found that the case of the assessee fell under the exception given in the Board's circular, where it was provided that either the purchaser or the seller does not have a bank account at a place where the transaction takes place, an exception should be made to the provision of the section. He, therefore, deleted this addition.
13. Similarly, an addition of Rs. 4,930 was also deleted as soda ash was purchased from Ashok & Co., who belongs to Firozabad, where the assessee did not have a bank account. The Commissioner (Appeals) found that this also fell under the exceptional circumstances and deleted this addition.
14. The last addition was in respect of Rs. 36,673 made in respect of the transaction with Jindal Chemicals Works, Firozabad. It was found that in all payments of Rs. 70,355 had been made to the above party in cash. Here again the chemicals were found to be in short supply and the purchases could have been made only at Firozabad. The Commissioner (Appeals) found that there were large number of transactions with the above party and quite a substantial part was allowed by the ITO himself. It was also found that the assessee was having a regular business dealing with the above party, and the assessee had no bank account at Firozabad. The Commissioner (Appeals) held that the payments were made by the appellant to the said party in cash in respect of the goods duly accounted for and consumed. The appellant had regular accounts with the said party through which these payments were made.
Even in the first proceedings the certificate of the sellers had been duly obtained. It was, therefore, held that this also fell under the exceptions laid down in the Board's circular.
15. Having perused the order of the Commissioner (Appeals) and the Board's circular which has been followed by him, there is no material on the basis of which I could find any error in the order of the learned Commissioner (Appeals). All the circumstances have been duly considered by him and I would, therefore, agree with the conclusion of the first appellate authority on the merits of the case.
16. For the assessment year 1972-73 also we have perused the order of the learned Commissioner (Appeals) and I find that there the purchases were from Bansal Chemicals, Firozabad which had occurred in the earlier year also and for the reasons given in the earlier year, it was deleted. In the case of transactions by Gopi Chand Aggarwal it was found that diesel oil had been purchased at Agra and had been duly accounted for in the books. It was pointed out that the assessee had no bank account at Agra and there no diesel dealer takes a crossed cheque or a draft. Considering this the Commissioner (Appeals) deleted this addition. In this year also the order of the Commissioner (Appeals) is very reasonable and the circular of the Board has been correctly followed.
17. In the result, the two grounds taken by the department in this year are also rejected.
18. While I have disposed of the above matter, I must state that the revenue could have avoided taking the first ground before the Tribunal and should have challenged the order of the Commissioner (Appeals) only on merits. Here there was some confusion regarding the position of the jurisdiction of the two first appellate authorities and the Commissioner (Appeals) was deciding the appeals of this very assessee for many years as directed by the Tribunal. Besides the fact that the appellate authority was not bound by the Board's circular, the department did not raise any objection before the Commissioner (Appeals) regarding his jurisdiction. The revenue should not behave as an ordinary litigant particularly when it is not prejudiced by the Commissioner (Appeals) passing this order.
1. I have very carefully gone through the order framed by my learned brother. However, I regret my inability not to be in agreement with the conclusion arrived at. The facts have in detail been incorporated in the order. It may briefly be stated that status of the assessee is registered firm and assessments were completed on 2-7-1976.
Disallowances were made under Section 40A(3) on account of cash payments made of the sums exceeding Rs. 2,000. Against that action of the learned ITO, the assessee preferred appeals. The learned AAC vide order dated 1-2-1977 confirmed the disallowance of Rs. 58,907 and Rs. 12,273 for the assessment years 1971-72 and 1972-73, respectively. On further appeals by the assessee, the Tribunal vide order dated 16-4-1980, set aside the learned AAC's finding and in fact restored the matter to his file, i.e., the learned AAC, for disposal afresh in the light of the Board's circular and in accordance with law.
2. Consequent upon the restoration by the Tribunal as discussed above, the learned Commissioner came on the scene, no doubt, is not clear in what circumstances and manner. In fact, restored matters were required to be looked into by the learned AAC in terms of the Tribunal's direction. Thus, while disposing of the restored matter, the learned Commissioner (Appeals) vide two separate orders dated 29-12-1983 deleted the additions of Rs. 58,909 and of Rs. 12,273 for the assessment years 1971-72 and 1972-73, respectively. The revenue have filed the present appeals before us, inter alia, on the following grounds, for the assessment year 1971-72: 1. The learned Commissioner (Appeals) has erred in law and on facts in deciding the appeal as the jurisdiction over this case for the assessment year under consideration lies with the AAC in terms of clarification made vide circular No. 269 dated 29-4-1980 [CBDT Bulletin Tech. Vol. XXVI 1st April-June, 1980].
2. The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 53,909, made under Section 40A(3) in respect of the payments made in cash exceeding Rs. 2,500, as the payment does not fall within Clause (b) or para 4 of the Board's Circular No. 220 dated 31-5-1977 [CBDT Bulletin Tech. XXII1-3].
3. For the assessment year 1972-73, the only difference involved is Rs. 12,273.
4. To start with, the revenue's first ground is required to be decided first. The various dates have been mentioned earlier. The Tribunal passed the setting aside order on 16-4-1980. In terms of Circular No.269 of the Board the appointed date for determining the jurisdiction of the learned Commissioner (Appeals)/AAC was 10-7-1978 and if the remand order restoring the appeal to the file of the learned AAC for disposal on a particular date was passed before 10-7-1978, in the case of a non-assessee-company with assessed income or loss exceeding Rs. 1 lakh, the learned AAC alone will have the jurisdiction to decide the matter.
Thus, in the cases before us, in view of the Tribunal's order and the circular supra, only the learned AAC had the jurisdiction to dispose of the restored matters. The learned Commissioner (Appeals) totally lacked jurisdiction. The impugned orders thus, passed by him are without any jurisdiction and deserves to be quashed on that simple ground itself.
Nevertheless, inconvenience to the parties and the fact that a senior officer applied his mind in the matter are ulterior considerations, not effecting the point at issue, i.e., jurisdiction. I thus quash the impugned order on this ground of jurisdiction itself. In view thereto, the merit of the matter need not be touched upon.
Having differed in the above matters heard by us, we state below the point of difference and refer the matter, to the President so that he may get them decided by one or more of the other members of the Tribunal: Whether, on the facts and in the circumstances of the case, the department's challenge to the jurisdiction of the Commissioner (Appeals) was to be rejected or the orders of the Commissioner (Appeals) were to be quashed on the ground of back of jurisdiction 1. This is a matter which has been referred to me by the President of the Tribunal, to express my opinion. These appeals were originally heard by Delhi Bench 'D' and the learned Members could not agree on the following point: Whether, on the facts and in the circumstances of the case, the department's challenge to the jurisdiction of the Commissioner (Appeals) was to be rejected or the orders of the Commissioner (Appeals) were to be quashed on the ground of lack of jurisdiction 2. Shortly stated the relevant facts are: The assessee is a firm deriving income from glass works at Shikohabad. The ITO noticed that the assessee-firm paid certain amounts for purchase of raw materials of more than Rs. 2,500 in cash. Under the income-tax law payments in excess of Rs. 2,500 are required to be made by crossed cheques or drafts vide Section 40A(3). On the view that the provisions of this section were violated, the ITO made an addition of Rs. 58,909 in the assessment year 1971-72 and Rs. 12,273 in the assessment year 1972-73.
These disallowances on appeal were affirmed by the AAC. The assessee then filed further appeals before the Tribunal. The Tribunal took up these appeals along with some other appeals of the same assessee relating to some other years and insofar as the appeals for these two years were concerned, the Tribunal felt that the matter should be reheard by the AAC. By its order dated 16-4-1980 the Tribunal set aside the orders of the AAC and directed him to reconsider this matter afresh in the light of the Board's Circular No. 220 of 31-5-1977. Thereafter the Commissioner (Appeals) took up these matters for consideration and by applying the Board's Circular No. 220 dated 31-5-1977 held that no part of the assessee's claim could be disallowed. He was of the view that those payments were covered by the instructions contained in the Board's circular. The additions were, therefore, deleted by the Commissioner (Appeals). Aggrieved by the deletion of the additions made, the department filed further appeals before the Tribunal for the second time raising the following grounds: 1. The learned Commissioner (Appeals) has erred in law and on facts in deciding the appeals as the jurisdiction over this case for the assessment year under consideration lies with the AAC in terms of clarification made vide Circular No. 269 dated 29-4-1980 [CBDT Bulletin Tech. Vol. XXVI 1st April-June, 1980].
2. The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 58,909/12,000 made under Section 40A(3) in respect of the payments made in cash exceeding Rs. 2,500, as the payment does not fall within Clause (b) of para 4 of the Board's Circular No. 220 dated 31-5-1977 [CBDT Bulletin Tech. Vol.
XXIII-3].
3. The order of the learned Commissioner (Appeals) having erroneous in law and on facts be set aside and order of the ITO be restored.
3. Before the Tribunal on behalf of the department the submissions made were that in the present case these appeals should have been disposed of by the AAC and not by the Commissioner (Appeals) as per the Board's Circular No. 269 dated 29-4-1980. This was a circular containing certain clarifications regarding the jurisdiction of the Commissioner (Appeals) after that authority was created and the jurisdiction of the AAC. This circular was in the form of questions raised and answers given by the Board. Reference was also made by the department to Subsection (2) of Section 39 by which the posts of the Commissioner (Appeals) were created. This circular according to the departmental representative clarified the position that in respect of an order passed by the AAC before the appointed day, i.e., 10-7-1978 where the Tribunal directed after the appointed day that the matter should be remanded to the AAC or set aside for fresh disposal, then any action required to be taken had to be taken by the AAC and not by the Commissioner (Appeals). In this case the Tribunal passed the order on 16-4-1980, i.e., long after the appointed day. Therefore, it was the AAC, according to this circular that should have passed the orders and not the Commissioner (Appeals) and thus the Commissioner (Appeals) lacked jurisdiction. Relying upon this circular the objection taken to by the department was that the Commissioner (Appeals) had no jurisdiction to pass the appellate order and, therefore, the order must be quashed. That was also the point taken up in ground No. 1. On behalf of the assessee a preliminary objection was raised that this ground should not be considered by the Tribunal at all because whatever may be the contents of the circular, when the matter was heard by the Commissioner (Appeals) after giving a notice to the ITO, the ITO should have objected to the assumption of jurisdiction by the Commissioner (Appeals). Not having objected to the jurisdiction of the Commissioner (Appeals) and having permitted the Commissioner (Appeals) to proceed with the appeal on merits, it was not open to the department to raise the question of jurisdiction for the first time before the Tribunal.
The department could not have any grievance against the order of the Commissioner (Appeals) for the simple reason that he was a more senior officer than the AAC. Placing reliance upon Sub-section (3) of Section 246 it was urged that the circular of the Board could not have any application to a case where the order of the AAC was set aside in toto and the appeal was restored to the file of the AAC, in which case it should mean that the appeal was pending before the AAC and all such appeals stood transferred from that day onwards to the Commissioner (Appeals). Thus, the Commissioner (Appeals) rightly and correctly had and assumed jurisdiction to hear the appeal and no objection could be taken to that. The departmental representative, however, placed very great reliance upon the provisions of Section 39(2) and also the Board's circular and contended for the contrary position.
4. The learned Accountant Member agreed with the view of the assessee and held that the jurisdiction rightly was with the Commissioner (Appeals) and he was right in disposing of the appeal and that in any case there was no grievance to the department because as against a junior officer of the department a senior officer came to dispose of the appeal. The learned Judicial Member was, however, of the different opinion. He held that as per the circular of the Board the jurisdiction was with the AAC and the AAC alone should have disposed of the matter irrespective of the fact whether he is a junior officer or a senior officer and notwithstanding the inconvenience to the parties. He, therefore, directed the order passed by the Commissioner (Appeals) should be quashed for want of jurisdiction. The learned Accountant Member after having held that the Commissioner (Appeals) had the requisite jurisdiction to proceed with the appeal, gave his decision on merits also. But the learned Judicial Member having held that the Commissioner (Appeals) had no jurisdiction felt that there was no need to go into the merits. The merits were not gone into by the learned Judicial Member. Thus, the only point that was decided by both the Members was of jurisdiction on which there arose a difference of opinion as stated above, which was referred to me by the President under Section 255(4) of the Act, as a Third Member.
5. I have carefully perused the orders passed by the learned brothers and considered the arguments advanced before me by both the learned counsels on behalf of the assessee Shri Harish Salve and Shri A.P.Srivastava the learned departmental representative.
6. To understand the controversy it is necessary to refer briefly to the legal position. By the Finance (No. 2) Act, 1977 a new appellate authority was created called the Commissioner (Appeals) as and from the date the Central Government may by notification in the Official Gazette appoint. By Sub-section (2) of Section 39 certain doubts which are likely to be created by the creation of new appellate authority, are sought to be removed for which a provision was made in the following manner: (2) For the removal of doubts it is hereby declared that any action required to be taken, after the commencement of this section, in relation to any appeal disposed of by an Appellate Assistant Commissioner or a Commissioner before such commencement, under any Act referred to in subjection (1), may be taken as if the amendments directed to be made in that Act by Sub-section (1) had not been made.
Sub-section (3) of this section provided that this section shall come into force on such date as the Central Government may by notification in the Official Gazette appoint. Now the appointed date is 10-7-1978.
What this section seeks to clarify and declare is that any action required to be taken after the commencement of this section, namely, 10-7-1978 in relation to any appeal disposed of by an AAC or a Commissioner before such commencement, such action may be taken as if the amendments directed to be made had not been made. A doubt arose as to what exactly was meant by the expression 'that any action required to be taken used in this section. Did it mean that giving effect to the orders of the appellate anthorities or rectification of mistakes creeping into those orders or did it mean anything else It is only to give effect to the directions given by the Tribunal or any other appellate authority, that the Legislature envisaged that such action must be taken only by that authority, namely, the AAC. Similarly if a mistake was committed by the AAC in passing the order, such mistakes also are to be rectified by the AAC, i.e., to say to the limited extent of taking such action which is required to be taken, the same authority is vested with the jurisdiction to deal with the matters. Since doubts have arisen as to what are those actions required to be taken, the Board gave some clarifications by way of answers to questions and this is what the Board had pointed out to all the Commissioners by Circular No. 269 dated 29-4-1980: Certain jurisdictional problems in regard to the interpretation of the provisions of Section 246(2) [of the Income-tax Act] and of the corresponding sections of other Direct Tax Acts, and also in regard to the scope of the Board's Notification issued under Section 246(2)(i) have been referred to the Board for clarification. They are posed in the form of questions and answered hereunder: Question 1--(i) Who is to rectify any mistake in an order passed by the AAC before the appointed day, i.e., July 10, 1978 in a case of a non-company-assessee where the total income/loss exceeded Rs. 1 lakh, or in an order passed by the AAC before June 1, 1979 in the case of a company (2) Who is to comply with the requirements of the Appellate Tribunal for a remand report or to pass a fresh order in pursuance of any remand order restoring the appeal to the file of the AAC for redisposal on a particular point or entirely, if the order of the AAC was passed before July 10, 1978 in the case of a non-company-assessee with assessed income or loss exceeding Rs. 1 lakh or before June 1, 1979 in the case of a company Answer--A provision for the removal of doubts has been made in this behalf in Sub-section (2) of Section 39 of the Finance (No. 2) Act, 1977 by which the posts of Commissioners (Appeals) were created.
Vide para 27.5 of the Explanatory Notes on the provisions relating to Direct Taxes in the Finance (No. 2) Act, 1977 [Circular No. 229 dated 9-8-1977], the Board have clarified that any action required to be taken after the appointed day in relation to any appeal disposed of by an AAC before that day will be taken as if the amendments directed to be made by the Finance Act had not been made.
In other words, action in relation to such appeals will be taken by the AAC concerned and not by the Commissioner (Appeals). Thus the AAC may rectify any mistake in an order passed by him before the appointed day or take such action or pass such further orders as may be required in any appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal.
The words 'any action required to be taken' connote that the requirement for any action to rectify a mistake in an order passed by the AAC before the appointed day would arise after the said date.
Those words in Section 39(2) of the Finance Act, 1977 would cover cases where the rectification application had been filed after the appointed day or the AAC had issued the show-cause notice on his own after that date.
As for rectification application filed or show-cause notice for rectification issued before the appointed day, the normal rule in Section 154 that the authority may amend any order passed by him would apply and the same AAC or any other AAC presently having jurisdiction in respect of the concerned case of the assessee may amend the previous order.
Likewise Section 39(2) of ths said Finance Act would cover the cases where the Tribunal's order setting aside the AAC's order wholly or partly was passed after the appointed day, i.e., July 10, 1978.
Where the order of the Tribunal setting aside the AAC's order for redisposal on a particular point or entirely was passed before the appointed day, it would be covered under Section 246(3), being an appeal pending immediately before the appoiated day and would stand transferred on that day to the Commissioner (Appeals).
However, the remand order of the Tribunal requiring a remand report to be submitted after enquiry on some points, whether passed before or after July 10, 1978, would be complied with by the AAC whose order was the subject-matter of appeal before the Tribunal.
Thus, it would be seen from this circular that the authority to comply with the requirements of the Tribunal for a remand r eport or to pass a fresh order pursuant to any remand order passed by the Tribunal restoring the appeal to the file of the AAC for disposal o n a particular point or entirely, was with the AAC in case the order was passed by the AAC before the appointed day. He has to take the action as if the amendments directed to be made by the Finance Act had not been made. Then the Board pointed out that the AAC may rectify any mistake in an order passed by him before the appointed day or take such action or pass such further orders as may be required in an appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal. The Board also clarified, that the words 'any action required to be taken' connote that the requirement for any action to rect ify a mistake in an order passed by the AAC before the appointed day would arise after the said date.
7. It is no doubt true that the Board has clarified later in the same circular that Section 39(2) would cover the cases where the Tribunal's order setting aside the order of the AAC wholly or partly was passed after the appointed day. It is relying upon these words, that the departmental representative contended that the fresh order to be passed pursuant to the direction given by the Tribunal setting aside the order of the AAC, must be by the AAC and not by the Commissioner (Appeals).
The learned Judicial Member accepted this view.
8. I may mention here that reading this circular particularly these lines, on which reliance was placed by the departmental representative, it gave me the impression that the Board is placing an interpretation on Section 39(2) in such a way as to equate the cases where the Tribunal passed a remand order with orders setting aside the AAC's order either wholly or partly after the appointed day, namely, 10-7-1978. To say that the words 'further action to be taken' used in Sub-section (2) of Section 39 would cover cases where the Tribunal set aside the order of the AAC to pass a fresh order, in my opinion, is to state the proposition too broadly. When the Tribunal sets aside an order passed by the AAC, the appeal gets restored to the file of the AAC for disposal de novo and the AAC has to again follow the entire procedure that he is required to follow earlier while disposing of the original appeal. There is no difference in the procedure to be followed. That fresh disposal would create the same rights and liabilities on the parties as the earlier order. Against this order the aggrieved party can file a further appeal to the Tribunal.
9. Such being the case, it is, in my opinion, difficult to accept the position that those words would cover cases where the Tribunal sets aside the orders of the AAC for fresh disposal of the appeal. It may be that the Board in the interests of smooth administration and in order to avoid dislocation of work, might have prescribed this procedure.
Administrative convenience is of paramount importance as it is different from legal interpretation. In this context much depends upon the interpretation to be placed on the direction given by the Tribunal.
That direction has to be read in juxtaposition with the direction given in the circular of the Board.
10. Now again adverting to the circular, one would get the impression by going through the circular that the Board was prescribing the authority to deal with the situations arising out of orders passed by the Tribunal pursuant to remand order. A remand report or a remand order contemplated in the Board's circular have different connotation in law from an order setting aside an appeal. In the case of remand order, unless the matter is restored to the file of the AAC for redisposal, the Tribunal continues to be in seisin of the matter. But when the matter is set aside by the Tribunal, the Tribunal not only disposes of the appeal finally, but it has the effect of effacing the order of the AAC, as if it never existed and that order would have no legal consequences till a fresh order is passed, which is not the case in the case of a remand. To my mind, the Board was explaining the situation arising out of the remand orders though the expressions 'remand order' and 'set aside' were both used in the circular. Further, the expression 'set aside' used in the paragraph relied on, must be understood in the context of what was posed in the question. The question related as to how the requirements of the Tribunal in the case of a remand report or to pass a fresh order in pursuance to a remand order have to be dealt with. It was in answer to this question that the Board said that the AAC would deal with it. Since a situation arising out of setting aside of an order was not raised in the question, a separate paragraph was added to explain that situation also treating both of them on par. It makes no difference as to who passed the subsequent order, so long as the procedure provided by the law is followed. Understood in this light, the words 'any action required to be taken' used in Section 39(2) could not include orders of set aside because in those cases, what is to be done is not to give effect to the direction of the Tribunal but giving a fresh hearing, reconsidering the matter, appreciate fresh evidence and then come to fresh conclusions.
It is not like rectification of mistakes or complying with direction of ministerial nature. Thus, the words used in Section 39(2) cannot cover a case of an appeal which was set aside by the Tribunal in toto.
11. It may also be useful to notice the provisions of Section 246(3) which also dealt with situations arising out of the creation of this new appellate authority. Section 246(3) is in the following terms: (3) Every appeal against an order specified in Sub-section (2) which is pending immediately before the appointed day before an Appellate Assistant Commissioner or a Commissioner and any matter arising out of or connected with such appeal and which is so pending shall stand transferred on that day to the Commissioner (Appeals) and the Commissioner (Appeals) may proceed with such appeal or matter from the stage at which it was on that day: Provided that the appellant may demand that before proceeding further with the appeal or matter, the previous proceeding or any part thereof be reopened or that he be reheard.
The essence of this sub-section is that in every appeal pending on or before 10-7-1978 before the AAC or a Commissioner, if any action arising out of or connected with such appeal is to be taken, that is to be taken by the Commissioner (Appeals), to whom all those appeals were transferred. The Commissioner (Appeals) is to start from the stage at which the appeals were left by the preceding authority. However, right was given to the assessee to demand that before proceeding further with the appeal or matter the previous proceedings or part thereof could be reopened. If by Sub-section (3) of Section 246 all matters arising out of pending appeals are to be disposed of only by the new appellate authority, namely, the Commissioner (Appeals), it does stand to reason that even the matters set aside by the Tribunal requiring the AACs to deal with the matters afresh must have to be dealt with by the new appellate authority. The dividing line between the jurisdiction of the AAC and the jurisdiction of the Commissioner (Appeals) appears to be the appointed day. Except for administrative convenience there is no other conceivable reason as to why the appeals set aside by the Tribunal even after the appointed day should not be dealt with by the Commissioner (Appeals) provided requirements of jurisdiction are satisfied, namely, income, etc. If the income is below the jurisdiction of the Commissioner (Appeals) perhaps the AAC has to deal with it because it may be that the Legislature wanted that a senior officer like the Commissioner (Appeals) should not unnecessarily be burdened with small matters. But if the income is more than the stipulated limit, then it makes no difference whether the appeal is set aside or a fresh appeal because in either case he has to deal with the appeal afresh and apply his mind independently just like he applies his mind to a case when the Tribunal sets aside an order and restores it to the file of the Commissioner (Appeals).
12. It is only for the sake of convenience and uniform procedure that the Board had issued the circular but the Board was not by issuing that circular expressing a view that the Commissioner (Appeals) in such circumstances would be less competent to dispose of an appeal than the AAC. That apart there is very great substance in the argument of the learned counsel for the assessee that the ITO submitted to the jurisdiction of the Commissioner (Appeals) and having allowed him to proceed with the appeal and dispose it of on merits, he should not have raised this point of jurisdiction before the Tribunal for the first time. The Commissioner (Appeals) assumed jurisdiction not at the instance of the assessee but at the instance of the department itself.
If we turn to the order passed by the Tribunal the direction of the Tribunal was very categorical and clear that the whole assessment was set aside to be redone in accordance with the direction given by the Board in an earlier circular dealing with the provisions of Section 40A(3). As I have pointed out earlier the whole appeal got restored to the file of the officer, who was holding jurisdiction at that time over the file. At that time, the officer who was holding the jurisdiction over the file was the Commissioner (Appeals) and not the AAC because the Commissioner (Appeals) has dealt with the other appeals of the assessee along with these appeals, as pointed out by the learned Accountant Member in his order.
13. I may also point out another point that occurred to me while reading the paragraph starting with the words 'likewise'. That paragraph was dealing with two situations ; one a situation where the Tribunal had passed orders setting aside the orders of the AAC after the appointed day ; the other was a situation where the order of the Tribunal was passed setting aside the order of the AAC before the appointed day. In the former case it was said that Section 39(2) would cover those cases meaning thereby that it would be the AAC, who would be the authority to dispose of the further appeals. In the latter case it was pointed out that it would be the Commissioner (Appeals) who would be the authority to deal with the appeals. Reason given was that in the latter case the appeal would be deemed to be an appeal pending immediately before the appointed day. If an appeal is deemed to be pending with the authority as a consequence of the order passed by the Tribunal setting aside an appellate order, it would be so even when it is before the appointed day or after the appointed day. Thus, the appointed day would not make any difference insofar as the pendency of the appeal is concerned, except administrative convenience. If before the first appellate authority an appeal is deemed as pending as a consequence of the order passed by the Tribunal, then that authority alone has to deal with the matter. In this case, the Tribunal set aside the order of the AAC and restored the appeal to the file of the AAC. By reason of the jurisdictional changes in the meantime the AAC ceased to have the appellate jurisdiction over these files because of the income factor and the Commissioner (Appeals) assumed jurisdiction. Therefore, it was the Commissioner (Appeals) that was to deal with the appeal and not the AAC. Otherwise it would lead to incongruous results.
14. It is in this context that the experience gained by a senior officer would become relevant. If the appeal is to be disposed of afresh, no grievance can be said to have been caused to the interest of the department, if a senior officer deals with these appeals. In fact that authority was created only for the purpose of dealing with higher income cases, like the one in the case before us. The learned Accountant Member, was thus right when he observed that the department should not have taken up this hypertechnical point. It has also become purposeless, particularly in this case, for the reason that the merits of the appeal have still to be dealt with because the learned Judicial Member did not express his opinion on merits. To decide the merits, the matter has to go back either to the regular Bench or to the AAC again.
Since in any case, merits have again to be gone through, it makes little difference whether the AAC applies his mind once again or the Tribunal. All the points that the department desires to urge, can be placed before the Bench, and the Bench will hear those objections, consider the evidence and give its decisions and reasons therefor. It need not for the purpose go before a lower authority except for technical reasons. In this view, the question of jurisdiction in a way became academic.
15. For these reasons and for the reasons that the words 'any action required to be taken' cannot be said to embrace rehearing of an appeal de novo, I am of the considered view that the view taken by the learned Accountant Member is justified and I would agree with it.
16. Since this matter has not been disposed of on merits by the Bench, now the matter will go before the regular Bench to decide the issue of jurisdiction in accordance with the opinion of the majority and then on the merits.