1. These miscellaneous applications by the Revenue are arising out of the Tribunal's orders in IT(SS)A Nos. 24, 26 and 27/Ahd/1998, dt. 6th Feb., 2001, and 20th Dec., 2002, for the block period 1st April, 1985 to 31st March, 1995, and 1st April, 1995 to 12th Dec., 1995. The issue raised in these miscellaneous applications are based on identical set of facts. Therefore, a common order is being passed for the sake of convenience.
2. The common issues raised in these miscellaneous applications read as under : "1. The Hon'ble Tribunal had decided the assessee's appeal for the above-mentioned period on 20th Dec., 2000. While deciding the issue, the Tribunal observed that "even if the AO did not believe the genuineness of the purchases, the additions could have been made only in the course of regular assessment proceedings and not in the block assessment proceedings in view of the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper & Board Ltd. and Ors.
v. Dy. CIT 2. In this case, the facts were that during the course of action Under Section 132 of the IT Act in the case of M/s Electrotherm India Ltd., it was found that the assessee's purchases from certain concerns were not genuine. Accordingly, actions Under Section 158BD of the Act r/w Section 158 BC have been initiated in those cases.
Against the additions made during the course of proceedings Under Section 158 BD of the Act, the issue came for consideration before the Hon'ble Tribunal. Considering the direction of the Tribunal mentioned above, the regular assessments were reopened. But, during the course of reopened assessment proceedings, the assessee brought to the notice of the Department that in view of the amendment made to Section 158B(b) of the Act effective from 1st July, 1995, the proceedings initiated are not proper and just.
3. As per the amendment made by the Finance Act, 2002, to Section 158B, the definition of "undisclosed income" is reproduced as under: 158B(b) : 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act Inserted by the Finance Act, 2002, w.e.f. 1st July, 1995. (, or any expense, deduction or allowance claimed under this Act which is found to be false).
4. In view of the above amendment, the additions made for the block assessment period in the case of the above assessee, was proper and just. I have, therefore, been directed by the CIT, Ahmedabad III, Ahmedabad, to move to the Registrar, Tribunal, for rectification of the abovementioned appeal order. In the premises mentioned above, I request your goodself to kindly do the needful in the matter." 3. The learned Departmental Representative submitted that while deciding the issue pertaining to bogus business, the Tribunal observed that if the AO did not believe the genuineness of purchases, the additions could have been made by him in the case of regular assessment proceedings and not in the block assessment proceedings in view of the decision of the Hon'ble Gujarat High court in the case of N.R. Paper & Board Ltd. and Ors. v. Dy. CIT (1998) 234 ITR 733 (Guj). The addition on account of bogus purchases was deleted by the Tribunal keeping in view the above judgment of jurisdictional High Court as that was the judgment on the relevant provisions of the Act applicable; that such addition cannot be made in block assessment but it can be made in regular assessment. The Departmental Representative further submitted that Section 158B(b) has been inserted by the Finance Act, 2002, w.e.f.
1st July, 1995, according to which such addition can be made even in the block assessment.
4. The learned Departmental Representative submitted that Section 158B(b) has been amended by the Finance Act, 2002, w.e.f. 1st July, 1995, and this amendment by legal fiction be deemed to have always been included in the Act w.e.f. 1st July, 1995, therefore, when the Tribunal passed the orders, the amended Section 158B(b) must be deemed to have been inserted in the Act. The amendment and the Rules which came into operation later must in view of the retrospective operation be deemed to be then extended and the fact that with the above ground, the learned Departmental Representative submitted that there is an apparent mistake of law in the order of Tribunal, therefore, the Tribunal is empowered to rectify such mistake of law Under Section 254(2). The learned Departmental Representative further submitted that the Tribunal has power to rectify a mistake apparent from record even though it is found in an order finally disposing of these appeals. He further submitted that 'any order' in Section 254(2) of the IT Act includes a final order disposing of an appeal. If there is a mistake apparent from record even though it is found in an order finally disposing of an appeal, the Tribunal would have the power to rectify it Under Section 254(2). The learned Departmental Representative in support of his contention relied upon the decision of the Calcutta High Court in the case of CIT v. Kelvin Jute Co. Ltd. (1980) 126 ITR 679 (Cal).
5. The learned Departmental Representative submitted that the amendment which came into operation later must in view of the retrospective operation be deemed to be then in existence, and the Tribunal did not take note of the law deemed to be in force must be regarded as defective and such order is subject to rectification Under Section 254(2). The Tribunal is competent to rectify the mistake Under Section 254(2). The learned Departmental Representative in support of his contention relied upon the decision of the apex Court in the case of S.A.L. Narayan Row and Anr. v. Ishwarlal Bhagwandas and Ors. (1965) 57 ITR 149 (SC).
6. The learned Authorised Representative submitted that the Tribunal has decided these appeals after considering all the relevant facts of the case and found that there were no bogus purchases. He further submitted that the Revenue preferred appeals before the High Court which have been dismissed. The learned Authorised Representative pointed out this fact from the order of the Hon'ble High Court of which photocopies are at pp. 6, 12 and 19 of assessee's paper book. He further submitted that the Supreme Court has also dismissed the SLP in the case of Electrotherm (India) Ltd. as submitted by the Revenue. The relevant photocopy of the judgment is at p. 23 of assessee's paper book. The learned Authorised Representative submitted that since the order of the Tribunal has been confirmed by the High Court and the apex Court, therefore the order of the Tribunal has merged with the order of the High Court and the apex Court and their decision alone is operative. The learned Authorised Representative in support of his contention relied upon the judgment of the apex Court in the case of CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC).
7. The learned Authorised Representative further submitted that the order of the Tribunal having merged with the order of the High Court, the order of the Tribunal had ceased to exist in the eye of law and, therefore, an application of rectification of the order of the Tribunal Under Section 254(2) by the Revenue is entirely misconceived. The judgments passed by the High Court and the Tribunal amount to affirmation of the order of the Tribunal and, therefore, the Tribunal cannot entertain such miscellaneous application for rectification of its order. The learned Authorised Representative in support of his above contention relied upon the judgment of the apex Court in the case of Kunhayammed and Ors. v. State of Kerala and Anr. (2000) 245 ITR 360 (SC).
8. While arguing the case on merit, the learned Authorised Representative submitted that the Tribunal has not decided the appeals on the basis of the judgment of Hon'ble High Court in the case of N.R.Paper & Board Ltd. (supra) but after detailed examination of the issue in Electrotherm India Ltd., wherein it has been held by the Tribunal that there were no bogus purchases. The said order has been followed in other cases. The learned Authorised Representative submitted that there is no mistake apparent from the record, therefore, the order of the Tribunal cannot be rectified Under Section 254(2).
9. We have heard the learned representatives of the parties, perused the record and gone through the decisions cited. The controversy under consideration is pertaining to Section 254(2) which reads as under: "254(2) The Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under Sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the AO : Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this Sub-section unless the Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee, a reasonable opportunity of being heard : Provided further that any application filed by the assessee in this Sub-section on or after the first day of October, 1998, shall be accompanied by a fee of fifty rupees." On reading of the above section, we find that there are two important aspects in the section which are to be examined with the facts of the case under consideration, firstly, there is mistake apparent from record and secondly, there should be the order of Tribunal, whether retrospective amendment amounts to apparent mistake from the record.
The apex Court in the case of M.K. Venkatachalam, ITO and Anr. v.Bombay Dyeing & Mfg. Co. Ltd. (1958) 34 ITR 143 (SC) held that the effect of the provisions of amended Act shall be decided to have come into force from the retrospective date for all purposes and, therefore, the amended provision must be deemed to be part of the section on the date of the passing of the order, consequently, the order which is inconsistent with the provision must be deemed to suffer from mistake apparent from the record and concerned authority passing of the order is empowered to rectify the same. The relevant observations of the Hon'ble Supreme Court are reproduced as below : (pp. 149 and 150) : "It is in the light of this position that the extent of the ITO's power Under Section 35 to rectify mistakes apparent from the record must be determined and in doing so, the scope and effect of the expression 'mistake apparent from the record' has to be ascertained.
At the time when the ITO applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted provision as from 1st April, 1952. If that be the true position then the order which he made giving credit to the respondent for Rs. 50603-15-0 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified Under Section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie, it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and wrong by virtue of the retrospective operation of the amendment Act. But, such a result is necessarily involved in the legal fiction about the retrospective operation of the amendment Act, if, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of Section 18A(5) of the principal Act, as from 1st April, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record.
That is why we think that the ITO was justified in the present case in exercising his power Under Section 35 and rectifying the said mistakes. Incidentally, we may mention that in Meka Venkatappaiah v. Addl. ITO, Bapatla, the High Court of Andhra has taken the same view".
On the basis of above ruling, we examine case under consideration. For this purpose we would like to refer the relevant original provisions and amended provisions, which read as under: "158B (b) 'Undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act (or any expense, deduction or allowance claimed under this Act which is found to be false.)" The underlined (italicised in print) portion of the section has been inserted by the Finance Act, 2002, w.e.f. 1st July, 1995. The Tribunal keeping in view the relevant provisions, passed the order. The relevant portion of the order reads as under : "We have considered the rival submissions and have also gone through the order passed by the AO as well as the decision of the Tribunal in the case of M/s Electrotherm (India) Ltd. referred to supra. The Tribunal in the aforesaid decision in paras 13 to 15 of its order has discussed the facts, submissions of the learned Authorised Representative of the assessee as well as the submissions of the learned Departmental Representative and has given its reasons for deleting the addition as under: '13. Even without prejudice to the above, the learned counsel for the assessee submitted that the entire additions made in this case were unjustified and contrary to the evidences produced before the AO. First, let us state the case of alleged bogus purchases. The facts regarding this issue had been discussed by the AO in paras 8 to 8.6 in his order. Vide para 8.6, he made additions on account of bogus purchases in the following manner: 'I have carefully considered the submissions of the assessee with reference to the Panchnama of the search and facts of the case which clearly lead to the following findings : (i) It is an admitted fact that during the year under consideration, the assessee-company has made purchases of raw materials/components from following parties in the periods relevant to the block assessments : (ii) During the course of search and seizure operation at the residential premises of Shri Shailesh Bhandari, Joint Managing Director of the assessee-company and Shri Pukhraj B. Shah, a close business associate of Electrotherm group, following documents containing evidence of bogus purchases from various bogus parties had been found and seized : (a) Page 9 of loose file A-2 as seized from residence "of Shri Shailesh B. Bhandari.
(b) Pages 84, 85 and 86 of A-47 as seized from the business premises of Shri Pukhraj B. Shah.
(c) Pages 14 to 57 of loose paper file A-3 as seized from business premises of Pukhraj B. Shah.
The details of transactions as recorded in these seized documents prove that the assessee had made bogus purchases as discussed earlier in paras (a), (b) and (c) on pp. 50 to 53 of this order. The scheme of making bogus purchases and utilisation of fund siphoned off of the assessee-company through bogus purchases have been shown in following scheme of diagram.' The main reason for making the additions were that though the payments to the above parties had been made through cheques, whereabouts of some of them were not available even after detailed enquiries and it was found that the bank accounts where the cheques had been deposited had been introduced by associates of the company.
In fact, it appeared that Shri Pukhraj B. Shah was the main person behind these transactions. The most important reason for disallowing these bogus purchases was that the consumption of materials out of alleged purchases could not be proved by the assessee.
The learned counsel for the assessee submitted that enquiries made by the Department were behind the back of the assessee and, therefore, those should not have been used for the purpose of making addition. He argued that the assessee received the materials and the same had been recorded in the books of account maintained by the assessee. He submitted that had no books of account regarding stock been maintained for the purchases to show the stock in hand, the additions made for excess stock found at the premises could not arise. He further submitted that the statutory requirement for purchases by way of cheques had been established. Therefore, there was no reason for making an addition for alleged bogus purchases.
The learned Departmental Representative submitted that the assessee had been given opportunity after obtaining the various enquiries by the Department. Therefore, it cannot be said that the assessee was not given any opportunity in these matters of enquiries. The learned Departmental Representative submitted that this issue has been discussed at great length by the AO in the assessment order on pp.
52 to 79 and it has been conclusively established from the results of enquiries that various parties as referred to in the assessment order, from whom such bogus purchases were claimed to be made, were bogus and non-existing and in fact no goods were actually purchased from them and bills were obtained to inflate the claim of purchases.
The documents found in records and statements of Shri Pukhraj B. Shah conclusively established that the payments claimed to be made to such bogus parties in fact were received back by the reasons controlling the managements and affairs of assessee-company (pp. 52 to 55 of the assessment order). The various contentions taken by the assessee had been elaborately examined and rebutted by the AO in para 8.6 "determination" on pp. 66 to 79 of the assessment order and the "detailed findings" are clear answers to all the contentions raised by the assessee, both in assessment and appellate stage and assessee despite sufficient opportunities given had not been able to prove that (i) goods were actually received against such bogus invoices, (ii) transportation vouchers/octroi receipts in respect of movements of such goods had not been produced, and finally, (iii) such goods were actually used for consumption as raw material in the manufacturing process. In the written submission filed by the assessee from pp. 53 to 79, the findings of the AO in this issue had been extracted. So also, the learned Departmental Representative submitted that it is an established legal position that onus lay on the assessee to establish any claim of expenses and hence, whether or not seized papers were written by Shri Bhandari is irrelevant, inasmuch as, in the course of assessment proceedings, assessee totally failed to establish that such purchases were genuine purchases and goods were actually received and went into production process for which such deduction had been claimed. Further, it is a settled position of law that the AO can make his own enquiries and the only requirement is that result of such enquiries were to be communicated to the assessee before utilising the same against the assessee and the same had been clearly done as has been discussed in the assessment order. The reliance placed by the assessee on various decisions as noted in written submissions are totally misplaced in the facts and circumstances of the case. The learned Departmental Representative referred to the following judicial decisions in the matter of burden of proof: (i) In order to claim that an expenditure falls Under Section 37(i), the burden of proving the necessary facts in this connection is on the assessee--CIT v. Calcutta Agency Ltd. (1951) 19 ITR 191 (SC) and Lakshmiratan Mills Co. Ltd. v. CIT (1969) 73 ITR 634 (SC).
(ii) Mere production of vouchers in support of the claim for deduction of the expenditure would not prove the claim made by the assessee. It is his duty to prove payment especially when the ITO doubts the genuineness thereof--CIT v. Chandravilas Hotel (1987) 164 ITR 102 (Guj).
(iii) Where the assessee has failed to adduce proof regarding purchases, transactions, although it has been given ample opportunity to do so the addition on that count was justified--Motilal Padampat Udyog Ltd. v. CIT (1991) 187 ITR 515 (All).
(iv) When a bogus entry is found in accounts, there cannot be a better solution than to remove that entry. The legitimate way of removing the entry would be to do what has been omitted to be done or undo what has been wrongly done--Tribunal, Jaipur Bench, Khandelwal Trading Co. v. Asstt. CIT (1996) 55 TTJ(Jp)261.
15. We have considered the rival submissions, facts and materials on record. It is not disputed that purchases had been recorded in the books of account claiming deduction. Otherwise, the same could not have been disallowed as expenditure for bogus purchases. When the search was conducted in fact excess stock was found than recorded in the books of account. Had there been no purchase, there should have been shortage in the stock than the books of account. Anonymity of the actual seller would not make the purchases as no purchases at all. In fact, bogus purchases as well as excess stock are contradictory to each other. The order of the AO on the point of bogus purchases is, therefore, fallacious. The facts of the case cited by the learned Departmental Representative are not applicable to the facts of the case before us. We are of the opinion that in these circumstances, addition for bogus purchases could not arise.
We delete the addition made by the AO for alleged bogus purchases.
8.1 Respectfully following the reasoning given by the Tribunal in the aforesaid order, we delete the addition of Rs. 85,08,522.
9. Before parting, we may observe that the assessee-firm was closed at the time of search. However, it has filed its returns for asst.
yrs. 1990-91 to 1995-96 in Ward-3, Ahmedabad, and the alleged bogus purchases were shown in the statements of trading account and P&L a/c filed along with the returns. The alleged bogus parties to whom some of the payments were yet to be made were shown as sundry creditors for goods in the balance sheets of the relevant assessment years. In this view of the matter, even if the AO did not believe the genuineness of the purchases, the additions could have been made only in. the course of regular assessment proceedings and not in the block assessment proceedings in view of the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper & Board Ltd. (supra)." On reading of above order, we find that the Tribunal was of the view that such addition can be made in the course of regular assessment proceedings and not in the block assessment proceedings in view of the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper & Board Ltd: (supra). Now, the provision has been amended, according to which such addition can be made in block assessment. For this principle, the learned Representatives of the parties have not much contrarily argued in this respect. Under, the circumstances, in principle, it is (an) admitted fact that after amendment such additions can be made even in the block assessment. If these provisions happened to be before the Tribunal and there was no judgment of jurisdictional High Court, the Tribunal certainly could have examined the issue on that line. Since, there is retrospective amendment in the relevant provision and it is settled law that such retrospective amendment amounts to apparent mistake from record, under the circumstances if this is only the issue then on principle we are of the view that such mistake is within the scope of Section 254(2). But, the learned Authorised Representative raised a further controversial issue in his argument that the order of the Tribunal has merged with the order of High Court as the Revenue has preferred an appeal before the High Court and the High Court has dismissed the appeal of the Revenue, so the order of the Tribunal has been merged with the order of High Court. If any rectification application is to be made by the Revenue, it should be made before the High Court and not before the Tribunal. It is also submission of the learned Authorised Representative that the miscellaneous application filed by the Revenue in case of Electropack--MA No. 26/2003, Megnatherm--MA No. 28/2003 and Connection--MA No. 27/2003 wherein the Tribunal has followed order of Tribunal in the case of M/s Electrotherm (India) Ltd., the Revenue preferred appeals, before the High Court in all four cases which have been dismissed by the High Court and the SLP of Revenue which has been filed against the order of High Court in the case of Electrotherm (India) Ltd. has been dismissed by the apex Court. The relevant orders are reproduced as below : No substantial question of law arises in the matter. The appeal is, therefore, dismissed. Notice is discharged." The Hon'ble High Court has also passed similar orders in cases of M/s Connection, order dt. 3rd Sept., 2001, in case of Megnatherm, order dt.
3rd Sept., 2001, and in case of Electropack, order dt. 9th July, 2001.
The Revenue has not filed SLP in the Supreme Court against these orders of High Court. The contention of the learned Authorised Representative that the lead order in the case of Electrotherm which has been followed in these three cases--M/s Connection, M/s Megnatherm and Electropack has been travelled upto the Supreme Court and same has been confirmed.
Therefore, such orders followed that decision of Tribunal is not subject to verification Under Section 254(2) of the IT Act. In short, the controversy raised by the learned Authorised Representative is whether under the circumstances of the case, the order of the Tribunal has been merged with the order of High Court or Supreme Court order The relevant provisions in IT Act are provided in Sections 254(4) and 260(A) which read as under : "254(4) : Save as provided in Section 256 (or Section 260A), orders passed by the Tribunal on appeal shall be final." "260A : An appeal shall lie to the High Court from every order passed in appeal by the Tribunal, if the High Court is satisfied that the case involves a substantial question of law." Keeping in view the above provisions of IT Act, we would like to discuss some judicial pronouncements in this regard as under:In Gojer Brothers (P) Ltd. v. Shri Rattan Lal Singh AIR 1974 SC 1380, this Court made it clear that so far as merger is concerned, on principle, there is no distinction between an order of reversal or modification or an order of confirmation passed by the appellate authority; in all the three cases the order passed by the lower authority shall merge in the order passed by the appellate authority whatsoever be its decision--whether of reversal or modification or only confirmation. Their Lordships referred to an earlier decision of this Court in U.J.S. Chopra v. State of Bombay AIR 1955 SC 633, 649, wherein it was held : "A judgment pronounced by the High Court in the exercise of its appellate or revisional jurisdiction after issue of a notice and a full hearing in the presence of both the parties would.... replace the judgment of the lower Court, thus constituting the judgment of the High Court, the only final judgment to be extended in accordance with law by the Court below.
'The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject-matter at a given point of time. When a decree or order passed by an inferior Court, Tribunal or authority was subjected to a remedy available under the law before a superior forum then, though the decree or order under challenge continues to be effective and binding, nevertheless its finality is put in jeopardy. Once the superior Court has disposed of the lis before it either way--whether the decree or order under appeal is set aside or modified or simply confirmed, it is the decree or order of the superior Court, Tribunal or authority which is the final, binding and operative decree or order wherein merges the decree or order passed by the Court, Tribunal or the authority below'." The Hon'ble Gujarat High Court in the case of Rajesh Babubhai Damania v. CIT (2001) 251 ITR 541 (Guj) held that the order of AO has been merged with the order of CIT(A), on appeal to the CIT(A) against the order of AO. In this regard decision of the Kerala High Court in the case of Mather & Co. (P) Ltd. v. ITO (1969) 71 ITR 247 (Ker) may also be referred.
1. Rohtak & Hissar Electric Supply Co. v. CIT (1981) 128 ITR 52 (Del) (on p. 59) : "We do not doubt that the mistake made by the ITO in his original assessment order dt. 30th Nov., 1966, in the matter of depreciation and development rebate was a mistake apparent oh the face of the record. Clearly, the new Act applied. Erroneously, the ITO had applied the old Act. Under Section 154, the ITO can recompute the correct amount of depreciation allowance after checking up the previous calculations : See Maharana Mills (P) Ltd. v. ITO (1959) 36 ITR 350 (SC). The application of wrong statutory provisions is a mistake apparent on the face of the record. But fortunately for the assessee, the ITO discovered the mistake too late. He discovered it after an appeal had been taken from his original assessment order and decided by the AAC. It is the order of the AAC dt. 23rd Jan., 1968, which is the determining factor in the matter of jurisdiction of the ITO. After this order he did not have any jurisdiction to act Under Section 154."Rajputana Mining Agencies and Ors. v. ITO (1979) 118 ITR 585 (Raj): "The question which, therefore, arises in these two writ petitions, is as to whether the ITO was authorised to make a rectification of an error which is said to have been committed by the AAC in directing the grossing up of the dividend income of these two petitioners. In CIT v. Rao Thakur Narayan Singh (1965) 56 ITR 234 (SC), it was held by their Lordships of the Supreme Court that it was not the intention of the legislature to enable the ITO to reopen final decisions made against the Revenue in respect of questions that directly arose for decision in earlier proceedings and were finally decided by the Tribunal. Their Lordships of the Supreme Court observed that if that was not the legal position, it would result in placing an unrestricted power of review in the hands of the ITO to go behind the findings given by a hierarchy of Tribunals and even those of the High Court and the Supreme Court, with his changing moods. In the case before their Lordships of the Supreme Court, the assessee went in appeal to the Tribunal against the revised assessment order passed by the ITO and the Tribunal accepted the contention of the assessee, but while passing the order, by inadvertence or by mistake, the Tribunal set aside the entire order of reassessment. No steps were taken to rectify the mistake committed by the Tribunal Under Section 35 of the Act nor any attempt was made to get the question of illegality referred to the High Court. Thus, the order of the Tribunal became final.
Thereafter, the ITO started fresh proceedings for reassessment. In these circumstances, it was held by their Lordships of the Supreme Court that the order of the Tribunal having become final and the finding of the Tribunal even though passed by mistake, the ITO could not initiate fresh assessment proceedings, as the order of the Tribunal was binding on the ITO. In Indra Co. v. ITO (1971) 80 ITR 400 (Cal), the Calcutta High Court held that when an appeal preferred from an order of assessment is decided by the AAC, the ITO's order under appeal merges in the appellate order and, thereafter, the operative order is the order of the appellate authority and the ITO has no jurisdiction to rectify such an order Under Section 35 of the Act, as it would have the effect to rectifying the order passed by the AAC. In S. Sewa Singh Gill v. ITO (1968) 70 ITR 534 (Del), the Delhi High Court also took the same view that where the assessment order was affirmed on appeal by the Tribunal, the only order that could be rectified was the order of the Tribunal and the ITO had no jurisdiction to rectify his own order, which had ultimately merged in the order of the Tribunal. In J.K. Synthetics Ltd. v. Addl. CIT (1976) 105 ITR 344 (All), the Allahabad High Court also held that where the assessment order was appealed against, that order merged in the appellate order passed by the AAC and the only operative decision in law, which is effective and can be enforced, is the decision of the appellate authority." "(ii) That as the entire order of penalty levied by the ITO was the subject-matter of an appeal before the AAC, the order of the ITO got merged in the order of the AAC. Further, the question as to whether the order of penalty made by the ITO merged with the order of the AAC and the ITO had no power to rectify his earlier order, was a pure question of law and hence the Tribunal was right in upholding the order of the AAC on a ground not raised before it. The ITO could not pass an order of rectification and enhance the penalty." With the above legal background, now we will examine the facts of the case under consideration. The Revenue has preferred appeals before the Hon'ble High Court against the order of Tribunal with following grounds of appeal: "Being aggrieved and dissatisfied by the order dt. 20th Dec., 2000, passed by the Tribunal, Ahmedabad Bench, Ahmedabad, the appellant begs to prefer this appeal on the following amongst other grounds (reproduced from Electropack) : (A) That the Tribunal has erred in law and on facts in deleting the addition of Rs. 85,08,522 made as bogus purchases even though the parties from whom the purchases are made were fictitious and non-existent.
(C) That even otherwise the order dt. 20th Dec., 2000, is bad in law.
In the premises stated above, the appellant submits that the following substantial question of law arises for the determination of this Hon'ble Court : 'Whether, the Tribunal is right in law and on facts in deleting the addition of Rs. 85,08,522 made as bogus purchases even though the parties from whom the purchases are made were fictitious and non-existent ?'" The Hon'ble High Court has decided above appeal by passing following order, which is produced as below : "CORAM : Mr. Justice A.R. Dave & Mr. Justice D.A. Mehta; Date of order 9th July, 2001, Oral order (Per: Mr. Justice A.R. Dave) 2. In our opinion, no substantial question of law arises in this matter. Moreover, Tax Appeal No. 217/1999 was filed by the Revenue, involving similar issue and the said appeal has been dismissed by this Court on 5th July, 2000. That is one more reason for which this appeal deserves to be dismissed......" On the basis of above backgrounds of facts and law that Revenue preferred appeal against the order of Tribunal Under Section 260A which has been dismissed. According to Section 254(4), in this case, order of Tribunal has been challenged in the High Court on the same ground which was before the Tribunal the order of the Tribunal will not be final order, that will merge with the order of High Court. Under the circumstances, we are of the considered view that the decision of Hon'ble High Court is the operative decision in law and the order/decision of Tribunal merges in the decision of High Court. The decision of the High Court alone subsists and is operative and capable of enforcement. This conclusion is supported by the judgment of Hon'ble Supreme Court, CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC).
Under the circumstances, where the order of the Tribunal has been merged with the order of High Court, the Tribunal has no power to consider the miscellaneous application of Revenue; the Hon'ble High Court only empowered to entertain such miscellaneous applications and the Tribunal can entertain such miscellaneous applications only on the direction of the High Court. Before parting from the matter we would like to mention that under such circumstances of the case like under consideration, entertaining such miscellaneous applications by the Tribunal, where its order has merged with the order of High Court, apart from that the said decision will be against the disciplinary principles of propriety in the hierarchy of justice delivery system. In the light of the above discussion, the miscellaneous applications are dismissed.
1. I have carefully gone through the order proposed by the learned AM, Brother, on the issue involved in these miscellaneous applications. I also have the benefit of discussion with my learned Brother in an endeavour to arrive at an agreed order. But, I am unable to persuade myself to concur with his conclusion.
2. The Tribunal decided the three appeals and deleted the addition made on account of bogus purchases on the ground that alleged bogus purchases were shown in statement of trading account and P&L a/c filed with the return and if AO did not believe the genuineness of the purchases, the addition could be made only during the course of regular proceeding and not in block assessment proceeding in view of decision of Hon'ble Gujarat High Court in the case of N.R. Paper & Board Ltd. v.Dy. CIT (1998) 234 ITR 733 (Guj). It is pertinent to note that no excess stock was found in case of all the three assessee's unlike it was found in the ease of M/s Electrothem (India) Ltd. The amount of bogus purchases was deleted, dates of decisions of Tribunal are as under:Sr.
Name of the assessee Amount of bogus Dt. of ITAT orderNo. purchases 3. These three miscellaneous applications were filed by the Revenue, contending therein that there is a mistake in the three orders of Tribunal because of retrospective amendment made by the Finance Act, 2002, to Section 158B in the definition of "undisclosed income". As per this amendment, Section 158B(b) is inserted by the Finance Act, 2002, with retrospective effect from 1st July, 1995, which contains the definition of 'undisclosed income' and reads as under: "158B(b): "Undisclosed income' includes any money, or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act (or any expense, deduction or allowance claimed under this Act which is found to be false)" 4. The mistake has crept in because of insertion of Section 158B(b) inserted by the Finance Act, 2002, with retrospective effect from 1st July, 1995, which contained the definition of "undisclosed income".
5. If during the pendency of appeal, law is amended retrospective by the amended law, is to be applied by the authority deciding the appeal and if law has been amended subsequent to the decision of the appellate authority in that event order is to be rectified in conformity with the amendment made with retrospective effect. The learned Departmental Representative argued that addition made on account of bogus purchases, in case of all the three assessee's, be restored because the addition for the block assessment period was proper and just, in view of amendment made by the Finance Act, 2002, to Section 158B with retrospective effect from 1st July, 1995. The counsel of the assessee objected to the same on the ground that in respect of M/s Electropack, Revenue filed an appeal Under Section 260A of IT Act, 1961, before Hon'ble Gujarat High Court and same was dismissed vide order dt. 9th July, 2001, in Tax Appeal No. 176 of 2001. The learned counsel of the assessee further submitted that in cases of M/s Megnatherm and M/s Connection also, the Revenue's appeals were dismissed by Hon'ble Gujarat High Court vide judgment dt. 3rd Sept., 2001, in Tax Appeal Nos. 241 and 240 of 2001. According to learned counsel of the assessee, the decision of Tribunal in all the three cases is merged with the order of Hon'ble Gujarat High Court. Therefore, Tribunal has no power to rectify the mistake pointed out by the Revenue in these three, miscellaneous applications. In reply the learned Departmental Representative submitted that Hon'ble Gujarat High Court in all the three cases, refused to assume jurisdiction to exercise its powers Under Section 260A of the IT Act, meaning thereby that High Court was not satisfied that the cases involve the substantial question of law.
Therefore, no appeal lies to the High Court and on this ground the appeal has been dismissed by Hon'ble Gujarat High Court.
6. In the proposed order, the learned AM held that order of Tribunal has been merged with the order of High Court. Therefore, Tribunal has no power to consider the miscellaneous applications of Revenue and only the Hon'ble High Court is empowered to entertain such miscellaneous applications and Tribunal can entertain the miscellaneous applications only on the direction of Hon'ble Gujarat High Court.
7. It is pertinent to note that a retrospective amendment can be declared to be a law existing from the date that it was given retrospectivity and is mistake apparent from the record within the meaning of Section 254(2) of the IT Act, 1961. In my view, there is no merger of Tribunal order because Hon'ble High Court has refused to assume jurisdiction to exercise its powers Under Section 260A of the IT Act. The Section 260A of the Act reads as under : "260A. (1) An appeal shall lie to the High Court from every order passed in appeal by the Tribunal, if the High Court is satisfied that the case involves a substantial question of law.
(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.
(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit." Section 260A of the IT Act clearly requires that the High Court should be satisfied that the case involves a substantial question of law and the appeal can be entertained by the High Court only if the High Court is so satisfied. This is a prerequisite like time-limit for filing or payment of Court fees for filing an appeal where the High Court is satisfied that a substantial question of law is involved; in any case, it shall formulate that questions. In this situation the position is that there is no decision by the High Court on the appeal itself except its refusal to entertain the appeal. The cases on which my learned Brother has relied are those where the superior judicial authority has entertained the appeal and given a decision on merit. These cases are, therefore, easily and clearly distinguishable from the present case. In the present case, the appeal to the High Court was at no stage even pending. Therefore, there cannot be any merger.
8. The right of appeal is a statutory right which has to be given in a statute. That being so, that appeal and its result are subject to the statute which gives that right. Therefore, the language in Section 260A of the IT Act is the governing factor. As pointed out above, the appeal will lie only if the High Court is satisfied that there is a substantial question of law and since the High Court is not satisfied that there is a substantial question of law, it is as if the appeal did not lie at all, particularly in the last mentioned case of CIT v.Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC) decided by the Supreme Court; it has been observed by their Lordships at p. 140 inter alia as follows : "There can be no doubt that even on the theory of merger the pendency of an appeal may put the order under appeal in jeopardy but until the appeal is finally disposed of, the said order subsists and is effective in law. It cannot be urged that the mere pendency of an appeal has the effect of suspending the operation of the order under appeal." 9. The counsel of the assessee heavily relied on the judgment of Hon'ble Supreme Court, dismissing the Special Leave Petition of the Revenue vide order dt. 31st Aug., 2001, in the case of M/s Electrotherm (India) Ltd. and contended that Tribunal has followed its decision in the case of M/s Electrothem (India) Ltd. which has been merged with the judgment of Hon'ble Supreme Court. The learned Departmental Representative objected to the same on the ground that unless leave to appeal has been granted, the appellate jurisdiction of the Supreme Court cannot be invoked. The learned Departmental Representative further pointed out that in the case of M/s Electrotherm (India) Ltd. also, the Hon'ble High Court dismissed the appeal of the Revenue on the ground that no substantial question of law arises in the matter and even there is no merger of order of Tribunal with the appellate authority. Under Article 136 of the Constitution, the Supreme Court may reverse, modify or affirm the judgment, decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction, disposing of a petition for special leave to appeal. The doctrine of merger can, therefore, be applied to the former and not to the latter as held by the apex Court in the case of Kunhayammed and Ors. v. State of Kerala and Anr. (2000) 245 ITR 360 (SC). In this judgment, their Lordships have also held that on an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court, the jurisdiction of the High Court to entertain a review petition is lost only thereafter, as provided by Sub-Rule (1) of Rule 1 of Order XLVII of the Code of Civil Procedure. Admittedly, in the case of M/s Electrotherm (India) Ltd., the Hon'ble Supreme Court dismissed the SLP and consequently, there is no merger.
10. For the reasons given hereinabove, I am of the view that the order of the Tribunal had not merged with the order of Hon'ble Gujarat High Court dismissing the appeal of the Revenue on the ground that no substantial question of law arose.
11. Keeping in view the amendment made in Section 258B with retrospective effect from 1st July, 1995, (reproduced by me hereinabove), I am of the view that the addition in respect of bogus purchases was correctly made by AO in block assessments. Therefore, all the three orders of Tribunal are rectified accordingly.
12. In the result, for statistical purposes, all the three miscellaneous applications of the Revenue are allowed.
REFERENCE UNDER Section 255(4) OF THE IT ACT, 1961 2 As there is a difference of opinion between the Members of the Bench who heard these miscellaneous applications, the following point of difference, common for all the miscellaneous applications, is referred to the Hon'ble President, Tribunal, for the opinion of the Third Member : "Whether, on the facts and circumstances of the case, the order of Tribunal is merged with the order of Hon'ble Gujarat High Court dismissing the appeal of the Revenue on the ground that no substantial question of law arises in the appeals of the Revenue ?" 1. These miscellaneous applications are arising out of orders passed in IT(SS)A Nos. 24, 26 and 27/Ahd/1998, dt. 20th Dec., 2002. One of the questions involved in the main appeal was regarding the contentions of different amounts in three cases on account of alleged bogus purchases.
The Tribunal vide para 8 of its order, deleted the addition on merits by following the decision of the Tribunal in the case of M/s Electrotherm (India) Ltd., vide order dt. 29th Dec., 1998, in ITA No.38/Ahd/1997, quoting para Nos. 13 to 15 of that order. The para 15 being the concluding portion, reads as under: "15. We have considered the rival submissions, facts and materials on record. It is not disputed that purchases had been recorded in the books of account claiming deduction. Otherwise, the same could not have been disallowed as expenditure for bogus purchases. When the search was conducted in fact excess stock was found than recorded in the books of account. Had there been no purchase, there should have been shortage in the stock than found in the books of account. Anonymity of the actual seller would not make the purchases as no purchases at all. In fact, bogus purchases as well as excess stock are contradictory to each other. The order of the AO on the point of bogus purchases is, therefore, fallacious. The facts of the cases cited by the learned Departmental Representative are not applicable to the facts of the case before us. We are of the opinion that in these circumstances, addition for bogus purchases could not arise. We delete the addition made by the AO for alleged bogus purchases." 2. Following the aforesaid reasoning given in the said order, the Tribunal deleted the additions in the present by observing in para 8.1 as under: "Respectfully following the reasoning given by the Tribunal in the aforesaid order, we delete the addition of Rs. 85,08,522." "9. Before parting, we may observe that the assessee-firm was closed at the time of search. However, it has filed its returns for asst.
yrs. 1990-91 to 1995-96 in Ward-3, Ahmedabad, and the alleged bogus purchases were shown in the statements of trading account and P&L a/c filed along with returns. The alleged bogus parties to whom some of the payments were yet to be made were shown as sundry creditors for goods in the balance sheets of the relevant assessment years. In this view of the matter, even if the AO did not believe the genuineness of the purchases, the additions could have been made only in the course of regular assessment proceedings and not in the block assessment proceedings in view of the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper & Board Ltd. and Ors.
v. Dy. CIT 4. There was an amendment by the Finance Act, 2002, to Section 158B, amending the definition of undisclosed income with retrospective effect from 1st July, 1995, which reads as under : 158B(b) "undisclosed income" includes any money, bullion, jewellery or other valuable articles or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable articles, thing, entry in the books of account or other document or transaction represents wholly or partly income or other property which has not been or would not have been disclosed in the purpose of this Inserted by Finance Act, 2002 with retrospective effect from 1st July, 1995. (or any expense, deduction or allowance claimed under this Act which is found to be false) 5. Based on this amendment, the Revenue made an application for rectification submitting that the order of the Tribunal stating that the order of the Tribunal holding that addition on account of genuine purchases could have been made in the course of regular proceedings and not in the block proceedings, in view of the decision of Gujarat High Court in the case of N.R. Paper & Board Ltd. and Ors. v. Dy. CIT (1998) 234 ITR 733 (Guj) suffers from a mistake apparent on the face of the record.
6. In the meantime, the Revenue carried the matter to the High Court Under Section 260A of the Act and the High Court rejected the appeal by holding that--"In our opinion no substantial question of law arises in this regard. Moreover, in Tax Appeal No. 217/1999, filed by the Revenue involving similar issue and the said appeal has been dismissed by the High Court on 5th July, 2000. That is one more reason for which this appeal deserves to be dismissed." The order in IT Appeal No. 217/1999, dt. 5th July, 2000, reads as under : 'No substantial question of law arises in the matter. The appeal is, therefore, dismissed. Notice is discharged.' 7. The above miscellaneous application came up for hearing before the Division Bench and there struck a difference of opinion between two members--AM holding that : "Under the circumstances, where the order of the Tribunal has merged with the order of the High Court, the Tribunal has no power to consider the miscellaneous application of Revenue, the Hon'ble High Court, only empowered to entertain such miscellaneous applications and the Tribunal can entertain such miscellaneous applications only on the direction of the High Court..." "...retrospective amendment can be declared to be law existing from the date that it was given retrospectively and is mistake apparent from the record within the meaning of Section 254(2) of the IT Act, 1961. In my view, there is no merge of Tribunal order because Hon'ble High Court has refused to assume jurisdiction to exercise its powers Under Section 260A of the IT Act." 8. On reference to the President, Tribunal, Under Section 255(4) of the IT Act, the following points of difference has been referred for my opinion : "Whether, on the facts and circumstances of the case, the order of the Tribunal is merged with the order of the Hon'ble Gujarat High Court dismissing the appeal of the Revenue on the ground that no substantial question of law arises in the appeals of the Revenue ?" 9. The learned Departmental Representative, Shri P.K. Ambastha, submitted that the Tribunal had decided the matter before the amendment brought in by the Finance Act, 2002, in Section 158B(b) with retrospective effect from 1st July, 1995, and, therefore, the order of the Tribunal holding that this issue can be agitated in regular proceedings alone, suffers from a mistake apparent from the record. As regards the merger of the order of the Tribunal, he supported the order of the JM and submitted (that) his view is in conformity with the order of the Supreme Court in the case of Kunhayammed and Ors. v. State of Kerala and Anr. (2000) 245 ITR 360 (SC) and later decision in the case of S. Shanmugavel Nadar v. State of Tamil Nadu and Anr. (2003) 263 ITR 658 (SC). The gist of the submissions of the learned Departmental Representative is that the High Court having refused to admit the appeal and assume the jurisdiction to exercise its power Under Section 260A, cannot mean that it has upheld the order of the Tribunal, whereby it could be said that the order of the Tribunal gets merged in the order of the High Court.
10. The learned counsel for the assessee, Shri S.N. Soparkar, on the other hand, submitted that the Tribunal had decided the appeal on merits in para 8 and alternative findings has been given in para 8 stating that the genuineness of purchases can be agitated only in regular assessment. In para 9 of the order, according to him, therefore, the decision of the case merits remain and this difference of opinion is of academic exercise, and in either of the situations, the Tribunal's order cannot be rectified. As regards merger, he submitted that the issue in the decisions of Kunhayammed and Ors.
(supra) and S. Shanmugavel Nadar (supra), are the cases where the doctrine of merger has been discussed with regard to Special Leave Petition, which is extraordinary jurisdiction of the Supreme Court. It was not in connection with the appeal against the order. The direct decision of the Supreme Court regarding merger in appellate jurisdiction, is in the case of Gojer Bros. (P) Ltd. v. Shri Ratan Lal Singh 174 (SC2) GJX 175 SC, wherein according to him, it is held that once the decree passed was taken in appeal to the Court of the subordinate Judge which confirmed the decree and then to the High Court, which after a contested hearing, dismissed the defendants' appeal and confirmed the decree passed by the subordinate Judge, the order/decree passed by the trial Court can be deemed to have merged in the decree passed by the High Court. The judgment of an inferior Court losses its identify by its merger with the judgment of the superior Court.
11. I have heard the parties and considered the rival submissions.
Income-tax Act provides for an appeal to High Court Under Section 260A of the Act. Under Sub-section (1), an appeal shall lie to the High Court from every order passed in appeal by the Tribunal, only if the High Court is satisfied that the case involves a substantial question of law Sub-section (2) of the said section authorises the Chief CIT or the CIT or the asgessee aggrieved by any order passed by the Tribunal to file an appeal to the High Court within 120 days from the date on which the order appealed against is received and it has to be in the form of memorandum of appeal precisely stating therein the substantial question of law involved. Sub-section (3) provides that where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question and Sub-section (4) provides that the appeal shall thereafter be heard on the question so formulated and at the time of hearing, the respondent is also permitted to argue on the appeal that the case does not involve such question, without taking away or to abridge the power of the High Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it. Sub-section (5) of this section further provides that the High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.
12. On reading of the aforesaid provisions, it is clear that an appeal lies to the High Court only when there is a substantial question of law involved. In an appeal filed by the party, when the High Court dismisses the same by stating that no substantial question of law arises, it cannot, in our opinion, be said that it was a decision of the High Court on merits. What the High Court can be said to have observed is that they declined to entertain/admit the appeal in the absence of any substantial question of law, which is pre-requisite for assuming the jurisdiction of the High Court. If there is no substantial question of law, in the opinion of the High Court, then by virtue of provision of Sub-section (1) of Section 260A, there lies no appeal.
13. In the case of Kunhayammed and Ors. (supra), the facts are that there was a large family consisting of 71 members who raised a dispute before the Forest Tribunal, with regard to the land to the tune of 1,020 acres. By order dt. 11th Aug., 1982, the Tribunal held that the land did not vest in the Government. The appeal before the High Court of Kerala was dismissed on 17th Dec., 1982, by an elaborate order.
There was no statutory remedy of appeal, revision or review against the order of the High Court. The State of Kerala filed a petition for special leave to appeal under Article 136 of the Constitution and the petition was dismissed by an order dt. 18th Aug., 1983, which reads as under: 14. There was an amendment in Section 8C, amongst other, enacting with retrospective effect from 19th Nov., 1983, a power to the Government to file an appeal or application for review in certain cases and under that section, the State of Kerala filed application for review before the High Court seeking review of order dt. 17th Dec., 1982. A preliminary objection was raised to the maintainability of the review petition which has been heard and disposed of by order dt. 14th Dec., 1995, overrunning the objections as to the maintainability of objections and directed the review petition to be posted for hearing on merits. Feeling aggrieved, the petitioner sought leave to appeal to the Supreme Court which was granted on 16th Sept., 1996, and when the matter came up for hearing, the question of merger was raised and dealt with elaborately by the Supreme Court. Discussing various judicial opinions on this issue, in the case of CIT v. Amritlal Bhogilal & Co.
(1958) 34 ITR 130 (SC) and in the case of S. Rathore v. State of Madhya Pradesh AIR 1990 SC 10, the Court held that the logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject-matter at a given point of time. When a decree or order passed by an inferior Court, Tribunal or authority was subjected to a remedy available under the law before a superior forum then, though the decree or order under challenge continues to be effective and binding, nevertheless, its finality is put to jeopardy. Once the superior Court has disposed of the lis before it either way, whether the decree or order under appeal is set aside or modified or simply confirmed, it is the decree or order of the superior Court, Tribunal or authority which is the final, binding and operative decree or order wherein merges the decree or order passed by the Court, Tribunal or the authority below. However, the doctrine is not of universal or unlimited application. The nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or which could have been laid shall have to be kept in view.
15. Thereafter, the Supreme Court considered the stage of SLP and post-leave stage and opined the legal position as under: (i) While hearing the petition for special leave to appeal, the Court is called upon to see whether the petition should be granted such leave or not. While hearing such petition, the Court is not exercising its appellate jurisdiction, it is merely exercising its discretionary jurisdiction to grant or not to grant leave to appeal.
The petitioner is still outside the gate of entry though aspiring to enter the appellate arena of the Supreme Court. Whether he enters or not would depend on the fate of his petition for special leave; (ii) If the petition seeking grant of leave to appeal is dismissed, it is an expression of opinion by the Court that a case for invoking the appellate jurisdiction of the Court was not made out; (iii) If leave to appeal is granted, the appellate jurisdiction of the Court stands invoked; the gate for entry in the appellate arena is opened. The petitioner is in and the respondent may also be called upon to face him, though in an appropriate case, in spite of having granted leave to appeal, the Court may dismiss the appeal without noticing the respondent.
(iv) In spite of a petition for special leave to appeal having been filed, the judgment, decree or order against which leave to appeal has been sought for, continues to be final, effective and binding as between the parties. Once leave to appeal has been granted, the finality of the judgment, decree or order appealed against is put to jeopardy though it continues to be binding and effective between the parties, unless it is a nullity or unless the Court may pass an specific order staying or suspending the operation or execution of the judgment, decree or order under challenge.
16. Thereafter, the Supreme Court discussed the fate of dismissal at the stage of special leave, without reasons and held that an order refusing special leave to appeal may be by a non-speaking order or by an speaking order. In either case, it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in the place of the order under challenge. All that it means is that the Supreme Court was not inclined to exercise its discretion so as to allow the appeal being filed. Whatever be the phraseology employed in the order of dismissal, if it is a non-speaking order, i.e., it does not assign reasons for dismissing the special leave petition, it would neither attract the doctrine of merger so as to stand substituted in the place of the order put in issue before it, or be a declaration of law by the Supreme Court under Article 141 of the Constitution for there is no law which has been declared.
17. If the order refusing leave to appeal is an speaking order, i.e., it gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 which will obviously be binding on all Courts and Tribunals in India and certainly the parties thereto. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court would be binding on the parties and the Court, Tribunal or authority whose order was under challenge, in any proceedings subsequent thereto, on the principle of judicial disciple, the Supreme Court being the apex Court of the country. The declaration of law will be governed by Article 141, but the case not being one where leave is granted, the doctrine of merger does not apply.
18. The Supreme Court may apply its mind to the merit worthiness of the petitioner's prayer seeking leave to appeal and having formed an opinion may say "dismissed on the merits". Such an order may be passed even in the absence of the opposite party. The dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the petition for special leave to appeal. Even if the merits have been gone into, they are the merits of the Special Leave Petition only. Neither the doctrine of merger nor Article 141 is attracted such to an order.
19. In spite of a petition for special leave to appeal having been filed, the judgment, decree or order against which leave to appeal has been sought for, continues to be final, effective and binding as between the parties. If at the stage when special leave is granted, the respondent/caveator appears and resists the grant of special leave and the ground urged in support of resisting the grant of special leave is rejected on the merits resulting in the grant of special leave, then it would not be open to the respondent to raise the same point over again at the time of final hearing of the appeal. However, if the respondent/caveator does not appear, or having appeared, does not raise a point, or even if he raised a point, the Court does not decide it before grant of special leave, the same point can be raised at the time of final hearing. There would be no technical bar of res judicata.
20. Even though it has dismissed the SLP on merits, the Supreme Court held that the order of the High Court did not merge with the order of dismissal of the petition for special leave to appeal passed by the Supreme Court and the High Court could review its own order Under Section 8C(2) of the Kerala Private Forests (Vesting and Assignment) Act, 1971, statutorily conferring the right to review by a retrospective amendment, the order of the Supreme Court dismissing the petition under Article 136 was a non-speaking and unreasoned order and all that would spelt out of that order was that the Supreme Court was not convinced of the need for exercising its appellate jurisdiction.
21. In the case of S. Shanmugavel Nadar (supra), the matter was again examined by the Supreme Court and it was held that apart altogether from the merits of the grounds for rejection, the mere rejection by a superior forum resulting in refusal to exercise its jurisdiction which is invoked cannot by itself be constructed as the imprimatur of the superior forum on the correctness of the decision sought to be appealed against. In this case, the constitutional validity of the amendment Act of 1960, amending the Madras City Tenants Protection (Amendment) Act, 1994, was challenged and uphold by the Madras High Court placing reliance in the case of M. Vamdaraja Pillai (1972) 85 LW 760. The appeal by the special leave was dismissed by the Supreme Court on the technical ground that the State of Madras, a necessary party, had not been impleaded. When the constitutional validity of an amendment Act, 1996, amending the 1921 Act, was challenged, a Division Bench of the High Court entertained some doubt about the correctness of the earlier decision in Varadaraja Pillai, (supra) and the matter was referred to a Full Bench for reconsidering that decision. Full Bench held that the appeals from the decision in Varadaraja Pillai (supra) having been dismissed, though on a technical ground that decision stood merged in the decision of the Supreme Court and according to the doctrine of merger, it was not open to the Full Bench to reconsider that decision.
On appeal, the Supreme Court held, reversing the decision of the Full Bench of the High Court, that the Supreme Court had dismissed the appeals from the decision of the Madras High Court in Varadaraja Pillai's case (supra) only on a technical ground without any law being laid down by the Supreme Court. Neither the merits of the judgment in Varadaraja Pillai's case (supra) nor the reasons recorded therein were gone into by the Supreme Court. The Full Bench of the Madras High Court was fully entitled to go into the merits and decide all controversies and was not to feel inhibited by the fact that the appeals against the decision in Varadaraja Pillai's case (supra) were dismissed by the Supreme Court.
21A. The decision in Gojer Bros. (P) Ltd. (supra) relied upon by the counsel has been considered by the Supreme Court in the case of Kunhayammed and Ors. (supra). The following observations of the Court were brought to our notice by the learned counsel: 11. The juristic justification of the doctrine of merger may be sought in the principle that there cannot be at one and the same time, more than one operative order governing the same subject-matter. Therefore, the judgment of an inferior Court, if subject to an examination by the superior Court, ceases to have existence in the eye of law and is treated as being superseded by the judgment of the superior Court. In other words, the judgment of the inferior Court loses its identify by its merger with the judgment of the superior Court.
12. Stated in this form, the principle may appear to be unexceptionable but the problem has many facets. What, if the higher Court dismisses the proceeding before it summarily without an speaking order Does the judgment of the lower Court still merges in the unspeaking order of the higher Court What, if the powers of the higher Court are invoked in the exercise of its revisional and not appellate jurisdiction Does a judgment or an order passed in the exercise of severally restricted jurisdiction like that Under Section 115 of the Code of Civil Procedure wipes out of existence a decree or order passed in the exercise of a wider jurisdiction as may be exercised by a Court possessed of a suit Does it make any difference to the application of the doctrine of merger that the higher Court has not modified or reversed the judgment of the lower Court but has merely affirmed it These nuisances had once raised issues on which conflicting views were expressed by the Courts. Over the years, the area of conflict was considerably narrowed down and most of the problems touched by us have been resolved by this Court.
16. In case where the decree of the trial Court is carried on (in) appeal and the appellate Court disposes of the appeal after a contested hearing, the decree to be executed is the decree of the appellate Court and not of the trial Court. In Jowad Hussain v. Gendan Singh (53 IA 197 : AIR 1926 PC 63 : 51 MLJ 781), the Privy Council while holding that the limitation of three years within which an application for a final decree must be made runs from the date of the decree of the appellate Court, quoted with approval the statement of law contained in the judgment of a learned Judge of the Allahabad High Court to the following effect : "When an appeal has been preferred, it is the decree of the appellate Court which is the final decree in the cause" (Per Banerji, J. in Gajadhar Singh v. Kishan Jiwan Lal, ILR 39 All 641 : 42 IC 93 : AIR 1917 All 163). The Privy Council also adopted the statement contained in a judgment of Tudball, J. to this effect : "When the Munsif passed the decree, it was open to the plaintiff or the defendant to accept that decree or to appeal. If an appeal is preferred, the final decree is the decree of the appellate Court of final jurisdiction. When that decree is passed, it is that decree and only that which can be made final in the course between the parties". Thus, when the decree of the Court of first instance is confirmed by the High court and the latter decree is confirmed by the Privy Council, the decree capable of execution is the decree of the Privy Council [Bhup Indar v. Bijai (1900) 27 Ia 209 : ILR 23 (All) 152 : 5 CWN 52]. In that case the decree passed by a district Judge in 1887 awarded "future mesne profits" to the plaintiff. That decree was reversed by the High Court but was confirmed by the Privy Council on 11th May, 1895. When the matter came back in executive proceedings, the Privy Council held that the decree which the Courts had to execute was the one passed by it in 1895 and since by that decree the District Judge's decree was confirmed, the decree of 1985 clearly carried the means profit upto its own date.
19. The fundamental reason of the rule that where there has been an appeal, the decree to be executed is the decree of the appellate Court is that in such decree the decree of the trial Court is merged in the decree of the appellate Court. In course of time, this concept which was originally restricted to appellate decrees on the ground that an appeal is a continuation of the suit, came to be gradually extended to other proceedings like revisions and even to proceedings before quasi-judicial and executive authorities.Shanker Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat (1970) 1 SCR 322 : (1960) 2 SCC 74), where after a Single Judge had dismissed a civil revision application filed by the tenant Under Section 115 of the Code of Civil Procedure, against a decree passed by the District Court, a Division Bench of the Bombay High Court entertained the tenant's writ petition under Articles 226 and 227 of the Constitution against the same decree and allowed it. The Bombay High Court had followed its earlier judgment in Sipahimalani's case (K.B. Sipahimalani v. Fidahussein Vallibhoy ILR 1956 Bom 422 : 58 Bom LR 344) which had taken the view that an order passed by the lower Court does not merge in the order passed by the revisional Court because whereas a right of appeal is a vested right and appeal is a continuation or rehearing of the suit and it is not obligatory upon the revisional Court to interfere with the order even if it is improper or illegal.
This Court disapproved of that view and held following judgment of the Privy Council in Nagendra Nath Dev. v. Suresh Chandra Dey (59 IA 283, 287 : AIR 1932 PC 165 : ILR 60 Cal 1) that the revisional jurisdiction is a part and parcel of the appellate jurisdiction of the High Court and, therefore, the principle of merger would apply to orders passed in the exercise of revisional jurisdiction also.
27. The learned Judge of the High Court has referred to some of these decision in his judgment but he took the view : 'I am of opinion that in cases where the appellate Court merely dismisses the appeal, the principle of merger has no application in cases of execution of the original decree except as to limitation and will not affect an executable decree passed by an inferior Court, insofar as its execution is concerned. The position would be otherwise if the decree is modified or varied by such appellate authority, as in such event, the original decree will be inexecutable.' This conclusion is clearly opposed to the view taken by this Court in the decisions referred to above and the learned Judge was in error in making a distinction between an appellate judgment whereby an appeal is dismissed and an appellate judgment modifying or reversing the decree of the lower Court. This distinction is unsound and is based on no discernible principle.
33. In the instant case, the subject-matter of the suit and the subject-matter of the appeal are identical. The entire decree of the trial Court was taken in appeal to the first appellate Court and then to the High Court. The appellate order also shows that the appeal after being heard on merits, was dismissed with the modification that the respondents should vacate the premises by the end of January, 1970. The decree of the High Court dt. 8th Jan., 1969, reads thus : 'It is ordered and decreed that the decree of the Court of appeal below be and same is hereby affirmed and this appeal dismissed subject to this that the defendant appellant, having duly filed the stipulated undertaking, through his learned advocate, is allowed time till the end of January, 1970, for vacating the disputed premises and delivering up quiet and peaceable possession thereof to the decree-holder respondent, on condition that the said defendant-appellant deposits in the trial Court, to the credit of the decree-holder respondent, within two months from this date, the outstanding areas, if any, on account of rents or means profits, as the case may be, and also goes on depositing, in the same Court to the same credit, month by month regularly, according to the English calendar, within the 15th of the next succeeding month according to the same calendar, a sum of Rs. 175 (rupees one hundred and seventy-five) per month, account of current rents or mesne profits'." And it is further ordered that in the events of the said defendant's failure to make any of the above deposits, this decree shall become executable at once.
22. The aforesaid case, in our opinion, is of no help to the assessee, as this was a case decided on merits in appeal after the appeal is admitted and the parties were heard at length. Further, the distinction made by the learned counsel for the assessee between SLP rejection and appeal dismissal is not of any significance in the present case. By virtue of Sub-section (1) of Section 260(A), an appeal lies to the High Court only when there is a substantial question of law. If the High Court says that there is no substantial question of law, the question of invoking the appellate jurisdiction of High Court does not arise.
The doors of the High Court are not open for the assessee's or the applicants to appeal. It is only when the High Court is satisfied that substantial question of law is involved, it formulates question and admits appeal for hearing. Until that stage, in our opinion, High Court does not exercise the appellate jurisdiction, and therefore, when an appeal is dismissed, on the ground that no substantial question of law arises, the appellate jurisdiction of the High Court is not invoked and the rejection of the appeal at that stage would not be an appellate order, in which the Tribunal's order can be said to have been merged.
The special jurisdiction is said to be a residuary power vested in the Supreme Court under Article 136, that is to say, it confers an appellate jurisdiction on the Supreme Court subject to special leave being granted in such matters as may not be covered by the preceding articles. Even in the field covered by the preceding articles, jurisdiction conferred by Article 136 is available to be exercised in an appropriate case. It is an untrammelled reservoir of power incapable of being confined to definitional bounds. The discretion conferred on the Supreme Court being subjected to only one limitation, that is, the wisdom and good sense or sense of justice of the Judges. While hearing the petition for special leave to appeal, the Supreme Court is called upon to see whether the petitioner should be granted such leave or not.
While hearing such petition, the Supreme Court does not exercise its appellate jurisdiction, it merely exercises its discretionary jurisdiction to grant or not to grant leave to appeal and if the petition seeking grant of special leave is dismissed, it is an expression of opinion by the Supreme Court that a case for invoking the appellate jurisdiction of the Court was not made out. Similar is the situation in an appeal Under Section 260A, wherein the High Court before admitting an appeal is to formulate a substantial question of law and prior to that stage, if such an appeal is dismissed on account that no substantial question of law is involved in the appeal filed by the assessee and it is rejected on that ground, in our opinion, it is not exercise of appellate jurisdiction. It is an expression of the fact that the High Court was not inclined to exercise its power so as to allow appeal being entertained. To summarise, the existence of the substantial question of law is a condition precedent for invoking of the appellate jurisdiction of the High Court. If an appeal is dismissed on the ground that no substantial question of law arises, it is not dismissal of appeal on merits but dismissal at threshold that no appeal is maintainable. It would be an order of High Court on the maintainability of the appeal and not an order on appeal. We see no difference in an order dismissing SLP by the Supreme Court under Article 136 and an order dismissing an appeal by the High Court Under Section 260A on the ground that no substantial question of law arises.
Both are for admission and maintainability of appeal. The former is conditioned by the discretion of the Supreme Court to exercise extraordinary jurisdiction and the later is conditioned by the existence of substantial question of law. The fact remains that both are for invoking appellate jurisdiction of the Courts. Until the appeal is admitted, it is a petition for appeal and the effect is that same, i.e., the petitioner is still outside the gate of entry though aspiring to enter the appellate arena of the Supreme Court under Article 136 in one case and of the High Court Under Section 260A in another, and if it is dismissed it is an expression of opinion given by the Court that a case for invoking the appellate jurisdiction was hot made out. The dismissal in such a case is not of the appeal but of the petition for appeal, on the ground that there is no substantial question of law involved therein. Therefore, the doctrine of merger will not apply in such cases. In my opinion, therefore, I hold that in this case, no merger was there, and consequently, I agree with the view expressed by the JM.23. The contentions of the learned counsel of the assessee that the Tribunal has decided the issue on merits also and, therefore, this entire exercise is of a academic nature, has also no force in these proceedings before me. Be that as it may, this subject is beyond my jurisdiction, as the question referred to my opinion is whether the order of the Tribunal merged in the High Court's order or not.
Therefore, the broader question is as to whether Tribunal had decided the appeal on merits and impugned dispute was only by way of alternate ground, should not detain me in expressing my opinion on the question referred to me Under Section 255(4) of the Act. I, therefore, need not and cannot, express any opinion on this issue. The appeal papers be placed before the Division Bench for passing consequential orders.