1. These are the appeals relating to the assessment years 1969-70 to 1975-76 filed by the assessee. There are certain common issues which are dealt with and disposed of in a single consolidated order. The facts, relating to these appeals, may, briefly, be stated.
2. The WTO passed orders for the assessment years 1969-70 to 1974-75 on 31-3-1979 and for the assessment year 1975-76 on 7-3-1980. As there were certain disputes concerning the valuation of immovable properties, all these orders were appealed against and such appeals were disposed of by the CWT (Appeals) in his consolidated order dt. 30-5-1981 for the assessment years 1969-70 to 1974-75 (vide compilation at pages 41 to 52). The CWT (Appeals) dealt with the valuation of immovable properties in paras 2 to 6. Then he dealt with the issue concerning the claim of exemption under Section 2(e)(1) of the WT Act. Thereafter, he dealt with the valuation of business immovable assets in paras 8 to 10. He dealt with the dispute regarding the value of tractor in para 11 and about the deduction of liability of Rs. 5,83,719 in para 12. In paras 13 and 14 of his order, he set aside the assessment orders in the following words: Thus on consideration of the impugned assessment orders of the WTO in respect of valuation or/and taxability of the various items as discussed in the preceding paragraphs, it has been found that practically all the points need to be reconsidered by the WTO. It appears that the assessments were made by the WTO in a hurry and, therefore, neither the appellant could get adequate opportunity to put forth his case nor could the WTO consider the points properly.
Under the circumstances I consider it fit to set aside the whole assessment for each of the assessment years under appeal for the purpose of being re-made by the WTO according to law after giving necessary opportunity to the appellant to put forth his case in regard to the various assets or liabilities involved in the assessments. The WTO should make the fresh assessments after considering the taxability of the assets and deductibility of the liabilities and making proper valuation of the same according to facts and law. The WTO should also consider the other contentions, if any, raised in the grounds of appeal.
In the result, the impugned assessments are set aside to be made afresh according to law as indicated above.
In compliance with the directions contained in this order of the CWT (Appeals), the WTO passed fresh assessment orders for all these years on 27-3-1984. Some of the orders were the subject-matter of appeal before the CWT (Appeals). What is relevant for the purpose of the present appeals is that the CWT issued show-cause notices under Section 25(2) of the WT Act on 24-2-1986. The first para whereof reads as under: On examination of the assessment order for asstt. years 1969-70 to 1975-76 passed by the WTO, Central Circle XVI, Bombay, on 27-3-1984 in your case, it is noticed that the said order is prejudicial to the interests of the revenue due to the reasons stated overleaf.
A reply to the show-cause notice was given by the assessee's representative on 3-3-1986. Notwithstanding the reasons given in the letter dt. 3-3-1986, the Commissioner of Wealth-tax, Central-II, proceeded to pass a consolidated order under Section 25(2) of the W.T.Act for the assessment years 1969-70 to 1975-76 on 14-3-1986 in which after recording the arguments of the assessee in paras 3 and 4 of the order, he held that the old films produced by the assessee were valuable assets which were the fountainhead and source from which the substantial income had been earned by the assessee in earlier years and that the values of such assets had not been included while making the assessments by the WTO and such non-inclusion was erroneous and prejudicial to the interests of the revenue and that these assets were not eligible for exemption under Section 5(1)(v) of the WT Act but were includible in the net wealth of the assessee in all the years under consideration before the CWT. It is against this order of the CWT, Central-II, Bombay dt. 14-3-1986, that the present appeals are filed by the assessee.
3. At the time of hearing before us, Shri S.E. Dastur, the learned counsel for the assessee, took a preliminary objection stating that the initiation of action itself was bad in law. Shri Dastur argued that the CWT under Section 25(2) of the W.T. Act, could proceed only if he was initially satisfied that there was an error in the order and that the order was, therefore, prejudicial to the interests of the revenue. The show-cause notice under Section 25(2) issued by the CWT did not say that the orders passed by the WTO on 27-3-1984 were erroneous and, therefore, prejudicial to the interests of the revenue. Since there was no preliminary satisfaction on the part of the CWT, the orders were not erroneous as could be seen from the show-cause notice issued by him.
The initiation of proceedings under Section 25(2), according to Shri Dastur, was ab initio void.
3.1 Secondly and without prejudice, Shri Dastur argued that the order passed by the WTO on 27-3-1984 had a limited scope and a limited purpose. It was passed to give effect to the direction of the CWT (Appeals) contained in his consolidated order dt. 30-5-1981 and in particular, in paras 13 and 14 thereof (which are reproduced hereinabove). Therefore, the CWT, Central-II, was not competent to revise an order which was passed in consequent of and to comply with the direction given by the CWT (Appeals) on restricted set aside on a specific issue (sic). In this context, Shri Dastur relied on the decision of the Bombay High Court in Brihan Maharashtra Sugar Syndicate Ltd. v. P.R. Joglekar, Dy. CAIT [1987] 165 ITR 279, in which, the Bombay High Court held that the power of revision can be exercised by the Commissioner only in respect of orders passed by officers subordinate to the Commissioner, and the order passed by the Agricultural Income-tax Officer implementing the order of the Tribunal cannot be revised. Drawing an analogy, Shri Dastur argued that the order passed by the WTO which purportedly was passed to give effect to the directions of the CWT (Appeals) in his order dt. 30-5-1981 could not be revised by the CWT because while passing such order, the scope of the WTO's powers was limited as such powers were circumscribed by the directions of the CWT (Appeals). The WTO, according: to Shri Dastur, had not made a fresh assessment but had passed an order on the limited issues in accordance with the directions and observations contained in the CWT (Appeals)'s order. For this purpose, he emphasised the specific nature of the directions contained in paras 13 and 14 of the CWT (Appeals)'s order. The CWT (Appeals) had clearly indicated that the assessments are set aside to be made afresh, according to law, as indicated above. Therefore, the order passed by the WTO was an order in effect implementing the directions of the CWT (Appeals) which were specific.
3.2 In this context, Shri Dastur referred us to a decision of the Bombay High Court in CIT v. Indo-Aden Salt Works Co. [1959] 36 ITR 429.
In that case, the ITO allowed the claim of a firm for relief under Section 25(4) on the ground that there was a succession, only so far it related to income-tax but declined to grant any relief in respect of super-tax as super-tax had not been paid by the firm either for 1920-21 or for 1921-22. The firm appealed to the AAC and the only point raised was that relief in respect of super-tax was wrongly denied. The AAC, without going into merits of the case dismissed the appeal on the ground that a registered firm not being an assessable entity could not claim such relief as regards super-tax. On further appeal, the Tribunal reversed the order of the AAC and directed the AAC to deal with the assessee's claim for relief in respect of super-tax on merits. It vacated the AAC's order and restored the appeal with a direction that it be disposed of on its merits. When the matter went back to the AAC, he not only inquired into the facts relating to super-tax relief but went further, suo motu, into the question whether there was a discontinuance of the business earlier in 1933 and held that there was such discontinuance and therefore no relief could be granted to the assessee under Section 25(4) of the Indian Income-tax Act. On these facts, the Bombay High Court held that the order of the Appellate Tribunal, when read in the proper context, restricted the scope of enquiry by the AAC only to the question of merits affecting the claim of the assessee for relief from super-tax and, therefore, the AAC had no jurisdiction to issue the notice of enhancement and to withdraw the relief in respect of income-tax granted by the ITO under Section 25(4).
Deriving support from this judgment, Shri Dastur argued that the directions of the CWT (Appeals) were specific and the orders passed consequent to such directions by the WTO had restricted scope and could not be revised by the CWT under Section 25(2) of the WT Act.
3.3 Shri Dastur then referred us to another decision of the Bombay High Court in C.I.T v. Devidayal Metal Industries (P.) Ltd. [1968] 68 ITR 50. In that case, the assessee was a dealer in and manufacturer of vessels out of, stainless steel, copper and copper alloys and stainless steel scrap, claimed business losses of certain amounts for the years 1955-56 and 1956-57 and in the same years, the assessee had claimed that he had incurred loss in respect of transactions entered into by way of speculation in order to set off possible trading losses due to fluctuations in the market price of the metals which he had purchased.
The ITO disallowed the speculation losses and the AAC set aside the assessment and directed the ITO not only to verify the forward transactions in metals but also to check up the correctness of the results disclosed in the manufacturing and trading accounts of the assessee, The Tribunal directed that, although the assessment could be set aside, the scope of the enquiry to be undertaken by the ITO in the course of the reassessment proceedings must be limited to the specific points that arose in the appeal and should not include reassessment of the business profits. These observations of the Tribunal were upheld by the Bombay High Court which held that the issue as to what was the trading loss or profit of the assesses could not be reopened in the circumstances of the case, though the accounts as a whole may be looked into in order to determine the quantum of the hedging losses and that on the facts and circumstances of the case, the Tribunal was justified in restricting the powers conferred on the Income-tax Officer in making the reassessment under Section 31(3)(b) of the Indian Income-tax Act, 1922. Shri Dastur argued that the CWT could not have given a general set aside. In appeal, the order of the ITO could be set aside for specific issue as indeed it was in the present cases. While highlighting the restrictive nature of the jurisdiction of the WTO, in the circumstance like this, Shri Dastur cited the decision of the Supreme Court in CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 in which, the Supreme Court held that the AAC had no jurisdiction under Section 31(3) of the Indian Income-tax Act, 1922 to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order. It is not therefore open to the AAC to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-tax Officer, with a view to finding out new source of income and the power of enhancement under Section 31(3) is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. Eelying on these observations, Shri Dastur argued that the CWT (Appeals) had dealt in his order with certain specific issues, namely, the valuation of non-business immovable properties, other business immovable properties, availability of exemption and deductibility of liabilities claimed. He discussed these issues in his order and made certain observations in respect of these issues and directed the WTO to re-do the assessments in respect of these issues in the light of those observations. Therefore, fresh orders passed by the WTO on 23-3-1984 were restrictive in nature in so far as it had to necessity to bear the character of an order giving effect to the order of the CWT (Appeals). Therefore, the CWT, Central-II, had no jurisdiction to proceed under Section 25(2) and hold that a mistake had been committed in such order of the WTO. There was, if any, mistake by way of non-inclusion of value of old assets had been committed, if at all, in the original orders passed by the WTO on 31-3-1979 and 7-3-1980, the CWT would have been justified if he had proceeded under Section 25(2) in respect of those orders within the prescribed time. Without prejudice to the above arguments, Shri Dastur brought to our notice the decision of the Hyderabad Bench 'A' (Special Bench) in East Coast Marine Products (P.) Ltd. v. ITO [1983] 4 ITD 73, where the Tribunal, at page 86, observed as under: This approach can be further demonstrated with reference to a situation arising in a case where an ITO passes an order in conformity with the decision of the Tribunal. Suppose the ITO purporting to act in accordance with the decision of the Tribunal passes an order. In this order the ITO cannot do anything other than what the Tribunal envisages him to do. Such an order is definitely an order passed by the ITO. It is open to revision by the Commissioner under Section 263? Obviously it is not. Why do we say that he cannot revise, because the order is not that of the ITO. It is the order of the Tribunal which the ITO is giving effect to.
Where of course the ITO does more than what the Tribunal contemplated and if it is erroneous so as to be prejudicial to the interests of the revenue, to that limited extent alone the Commissioner may be able to revise. Otherwise, he cannot revise even though the order of the ITO is erroneous according to the Commissioner.
Without prejudice to the above arguments, Shri Dastur submitted finally that the fresh orders passed by the WTO for the assessment years 1972-73, 1973-74 and 1974-75 were a subject-matter of appeal and the AAC, Central Range-II had passed an order on 18-2-1986. Therefore, in respect of these three orders, the CWT could not have passed an order on 14-3-1986 because by that time, the order passed by the WTO had merged with the order of the AAC dated 18-2-1986 and for these three years, the ratio of the decision of the Bombay High Court in CIT v. P.Muncherji & Co. [1987] 167 ITR 671 would be applicable. Since there was a merger of the order of the WTO passed afresh with the order of the AAC, such order could not be revised by the CWT under Section 25(2) at least for these three years.
4. The learned Departmental Representative, while relying on the order of the CWT, argued firstly that there was an error or omission in not including the value of old films. When it is mentioned that the order is prejudicial to the interests of the revenue, the error is implicit.
Shri Subramanian further argued that the OWT (Appeals) had set aside the entire orders and had directed that fresh assessments be made. The orders passed on 27-3-1984 were fresh assessment orders made under Section 16(3) and not the orders giving effect to the CWT (Appeals)'s order. Shri Subramanian further argued that there was no appeal for the assessment years 1969-70 and 1971-72 and so far as the assessment years 1972-73 and 1975-76 were concerned, the proceedings were initiated on 3-3-1986 and the order was passed on 14-3-1986 whereas the order of the AAC was received by the CWT on 17-3-1986. Therefore, the CWT was not expected to be aware of the order of the AAC. Shri Subramanian thereafter relied on the decision of the Delhi High Court in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375. In that case, the Commissioner had under Section 263 cancelled the assessment on the ground that the ITO had not made sufficient enquiries before granting registration to the petitioner firm and directed the officer to make fresh assessment. When the petitioner filed a writ to the High Court, the Court held, dismissing the petition in limine, that there were no exceptional circumstances to depart from the normal rule that a writ petition complaining against the order of the Commissioner would not be entertained in the absence of an adequate explanation as to why the petitioner did not avail itself of the appeal provided against the order. We do not understand how this decision supports the case of the department. It is not relevant to the facts of the present cases.
4.1 Shri Subramanian further relied on the decision of the Madras High Court in Indian Textiles v. CIT [1986] 157 ITR 112. In that case, the ITO had given relief without any proper verification and the CIT had revised the order under Section 263 which order was justified by the Madras High Court. The Madras High Court held that the order of the ITO giving relief without proper verification was an order prejudicial to the revenue and it could properly form the subject-matter of revision.
The Commissioner in that order held that the order in so far as it gave relief in respect of expenditure incurred on air freight, insurance, carriage of goods and commission paid in India on export sales without proper verification was erroneous. Here again the facts are distinguishable. The scope of the order of the WTO in the present cases was restricted to the point that were the subject-matter of appeal before the CWT (Appeals) whose order could not be termed as general set aside. Therefore, this decision of the Madras High Court also does not advance the case of the Department any further.
4.2 Shri Subramanian thereafter relied on the decision of the Orissa High Court in Builders Union v. CIT [1987] 165 ITR 716. In that case, the orders of the assessment under Section 143(3) passed on the assessee-firm were confirmed by the AAC and on further appeal set aside by the Tribunal who remanded the matter to the ITO for fresh assessments for the assessment years 1971-72 and 1972-73. The ITO passed fresh assessment orders for these years. The Commissioner revised the orders of assessments. The assessee challenged the order but the Tribunal held that the orders of revision were valid. The Orissa High Court held that the original orders of assessment including the appellate orders had been set aside by the Tribunal. The ITO had passed fresh orders on remand and these orders had not merged in any appellate orders. The orders of revision were, therefore, valid. Shri Subramanian strongly relied on this decision.
5. Here again, the Tribunal had set aside the orders of the AAC and restored the matter to the ITO for fresh consideration of the issues involved. There was no consideration on merits of the first orders passed by the ITO by any of the appellate authorities. 5.1 In the present cases, specific issues were raised before the CWT (Appeals).
These issues were clearly spelt out by the CWT (Appeals) in the various paras. He made specific observations in respect of these issues and sent back the matter to the file of the WTO for reconsideration of these issues in the light of observations made by him. Therefore, on overall reading of the CWT (Appeals)'s order, it could not be said that the orders of the WTO were set aside wholly and the entire assessments were open before the WTO. The WTO had to adjudicate on the valuation of immovable properties, claim of exemption and claim of deduction of liabilities which were the issues on which the dispute had arisen before the CWT (Appeals). He concentrated his attention only on these issues. In fact, his jurisdiction was restricted to the consideration of these issues and he could not have gone beyond these issues in the light of the directions of the CWT (Appeals) contained in paras 13 and 14 as reproduced above. The Commissioner can proceed under Section 25(2) where an order of the WTO is erroneous and the error has resulted in prejudice to the interests of the revenue. The prejudice must be caused by an error on the part of the WTO. This principle had been laid down by the Supreme Court in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323. In the present case, non-inclusion of the value of the old films could not be considered as an error in the fresh assessments passed by the WTO consequent to the order of the CWT (Appeals). At best, it could be considered as an error in the original order for these years passed by the WTO in 1979-80. The raison d'etre for the WTO's fresh order was the order of the CWT (Appeals); but for the order of the CWT (Appeals) there would have been no occasion for the WTO to pass fresh orders dated 7-3-1984. For the same reasons, the WTO concentrated his attention on the issues raised before the CWT (Appeals) and the direction contained in his order. Therefore, there could not be any question of any mistake arising of the type mentioned by the CWT in the second order of the WTO. Therefore, we are satisfied that there is no error in these orders which has caused prejudice to the interests of the revenue and the CWT was not justified in proceeding under Section 25(2) for any of the years. For these reasons, we vacate the order of the CWT for all the years. Additionally and without prejudice, we hold that so far as the assessment orders for the years 1972-73, 1973-74 and 1974-75 are concerned, the orders of the WTO having merged with the order of the AAC, the CWT could not have revised these orders in view of the decision of the Supreme Court in P.Muncherji & Co.'s case (supra).