Judgment:
1. This is bunch of four appeals of the assessee filed against two orders dt, 16th Sept., 2003, (i.e., one consolidated order for the asst. yrs. 1989-90, 1990-91 and 1991-92 and another of the same date for the asst. yr. 1992-93) of CIT(A), Jammu, with headquarters at Amritsar. Since the issues involved in all the four appeals are identical, these were heard together and are being disposed of by this consolidated order for the sake of convenience. In these appeals, the assessee has raised following identical grounds: 1. On the facts and in the circumstances of the case, the learned CIT(A) has acted illegally without any justification by rectifying its own order and disallowing the expenses which the Hon'ble Tribunal has termed as revenue, 2. That the learned CIT(A) seems to be ignorant about law that only those orders can be rectified where there is mistake apparent from record and all the orders are not at the whims and fancies of the CIT(A).
3. That the learned CIT(A) has ignored the contention of the assesses that the nature of these expenses are revenue and Dy. GIT in asst. yr. 1988-89 given appeal effects of Hon'ble Tribunal order has allowed.
4. That learned CIT(A) has even ignored the fact that these expenses have been incurred by a third party on the basis of an agreement and the assessee has remitted the expenses to Dalmia Resorts International (P) Ltd. and the details were furnished.
5. That the appellate order is full of surmises and conjectures and has been passed by violating all the norms of natural justice.
6. That the assessee craves leave to amend, alter or raise any other ground of appeal at the time of hearing not having been mentioned herein.
2. The facts common for all the assessment years are that the assessee was a private limited company engaged in the business of manufacture of cigarettes on behalf of M/s Golden Tobacco Company Ltd. Subsequently, the company decided to expand and diversify its business into resort-cum-hotel. The company entered into an agreement with partnership-firm of Pahalgam viz., namely, M/s Green Hotels, whereunder the said partnership firm undertook the obligations to develop, built/construct, equip and complete a resort-cum-hotel unit together with other amenities and facilities at Pahalgam in the State of Jammu & Kashmir in accordance with architectural plans provided by, and under the guidance and supervision, of the company. The said holiday resort-cum-hotel complex was to be constructed by the said firm at its own cost from its own resources. The assessee was required to pay by way of deposit an amount of Rs. 93 lakhs for speedy execution of the project. The said firm was required to make available 60 per cent of the resort-cum-hotel unit of assessee with all amenities and facilities for 65 years on a lease rent of Rs. 46.50 lakhs per annum for first 15 years and thereafter the rent was to be paid on higher rates as per the agreement. The assessee entered into an agreement with M/s Dalmia Resorts International (P) Ltd. for promotion and advertisement of said resort-cum-hotel. The said Dalmia Resort International (P) Ltd. was authorized to process appropriate application forms and make allotments, entertain and engage in all correspondence in respect of resort unit and was also to receive from the prospective members consideration money as an advance and deposit the same in appropriate account. The said Dalmia Resort could further raise monthly bills in respect of the works carried on and the assessee was to reimburse the said expenses and costs to M/s Dalrnia Resorts. In the accounting year 1988-89, the assessee had shown a loss of Rs. 29,53,589 from "resort division" after claiming expenses of Rs. 27,67,206 billed by M/s Dalmia Resorts International Ltd. It was the contention of the assessee that due to interconnection, interlacing, interdependence and unity brought about the existence of common management, common business organization, common administration, common finance and common place of business carried by the assessee and, therefore, the same amounted to expansion and diversification of the existing business. It was, therefore, contended that the expenses incurred by the 'resort division' were revenue in nature and hence allowable. However, the AO disallowed the claim on the ground that such expenses were in the nature of capital and, therefore, the assessee was not entitled to the same. On appeal, the learned CIT(A) upheld the order of the AO for disallowing the claim of the assessee. The assessee filed an appeal before the Tribunal, Arnritsar Bench. The Tribunal, Amritsar Bench vide its order dt. 31st March, 1993 in ITA No. b86/Asr/1992 for the asst. yr. 1988-89 accepted the claim of the assessee that expenditure incurred was revenue in nature and the assessee was entitled to deduction of the same. However, the matter was restored to the file of the AO for examining the admissibility of such revenue expenditure in accordance with law and subject to scrutiny. The relevant findings recorded by the Tribunal in the aforesaid order are as under: Here in the present case, the business had commenced, inasmuch as, the assessee had even received payments from the intending members and had derived advantage. The frustration of the business subsequently could not have the effect of denying the assessee its claim of expenditure on the ground that the business was in its initial stages and the expenditure incurred was only of capital nature.
26. We are not dealing in detail with the judicial precedents cited for the assessee because it is not the Revenue's case that a different management was controlling the Holiday Resorts business and that the assessee's assertion in that regard was factually incorrect. Therefore, these being interlacing and interlocking of the business activities, the assessee was entitled to the claimed expenditure as revenue in nature.
27. We, therefore, direct that the income be recomputed after allowing the assessee's claim (supra) treating the same to the Revenue if otherwise admissible according to law as the admissibility of revenue expenditure is also subject to scrutiny.
3.1 Thereafter, the AO vide his order dt. 18th April, 1994 gave effect to the order of the Tribunal and the assessee was asked to furnish the details of the expenses. It was submitted before the AO that the expenditure was being incurred by Dalmia Resorts International (P) Ltd. on behalf of the assessee-company with whom it had entered into an agreement and all the books of account, the vouchers, the bills, etc.
were being maintained by the said company. It was also stated that the assessee was updating its books on the basis of information provided by M/s Dalmia Resorts International (P) Ltd., at different intervals. The AO observed that the decision of the Tribunal, Amritsar Bench, treating the expenditure as revenue in nature was subject-matter of reference application under Section 256(2) of the IT Act, 1961 (in short 'the Act1). However, following the order of the Tribunal, the AO allowed deduction of the entire expenses of Rs. 27,67,206 in respect of Pahalgam Resort Division as revenue expenses and the net loss for the asst. yr. 1988-89 was computed at Rs. 17,38,556.
3.2 In the returns of income filed for the asst. yrs. 1989-90, 1990-91, 1991-92 and 1992-93, the assessee had claimed deduction of similar expenses incurred in respect of resort division amounting to Rs. 65,14,836, Rs. 36,71,793, Rs. 5,58,339 and .Rs. 3,95,261, respectively.
The AO completed the assessment for the asst. yr. 1989-90 under Section 144 on 22nd Jan., 1992 at income of Rs. 55,75,103. This assessment was cancelled by CIT under Section 263 of the Act. Thereafter, the AO completed the set aside assessment under Section 143(3) on 7th March, 1994 at an income of Rs. 28,92,416 by making disallowance of expenses on the ground that the same were capital in nature. This assessment was also set aside by the GIT(A) vide his consolidated order dt. 5th Dec., 1996 for the asst. yrs. 1989-90, 1990-91 and 1991-92 where the learned CIT(A) referred to the order of the Tribunal, Amritsar Bench for the asst, yr. 1988-89 (supra) and restored the matter to the file of AO for verification and scrutiny of details of the various expenses, i.e., whether these were allowable or not. The AO again completed the assessment under Section 144 at an income of Rs. 27,27,360 disallowing the claim of the assessee for the expenses on the ground that these were capital in nature. The learned CIT(A) again set aside the assessment vide his order dt. 30th March, 1999 directing the AO to verify the details of the various expenses to see whether same were allowable under the Act. The AO again completed the set aside assessment under Section 144 on 28th Feb., 2001. The relevant extracts from the assessment order for the asst. yr. 1989-90 appear on pp. 2 to 4 of the CIT(A)'s order dt. 22nd July, 2002. The reason given by the AO for making disallowance of the expenses were that the said expenditure was capital in nature because business had not since commenced in respect of this project.
3.3 Aggrieved, the assessee filed an appeal against the assessment order before the CIT(A). The CIT(A) vide his order dt. 22nd July, 2002 again referred to the order of the Tribunal for the asst. yr. 1988-89 (supra), where it was held that the expenditure incurred by the assessee was revenue in nature. He also observed that the nature of expenses incurred for the asst. yr. 1989-90 was the same as for the asst. yr. 1988-89. Accordingly, the learned CIT(A) deleted the disallowance made by the AO. But the learned CIT(A) directed the AO to examine the allowability of these expenses as per law at the time of giving effect to his order and the AO should examine as to whether these expenses were incurred wholly or exclusively for the purpose of business.
3.4 As regards the asst. yr. 1990-91, the assessment was first completed by the AO under Section 143(3) on 15th Feb., 1993 at income of Rs. 24,33,108. The AO had again disallowed the expenses in respect of 'resort division' for the reason that the same were capital in nature, This assessment was set aside by the CIT(A) vide his consolidated order dt. 5th Dec., 1996 referred to in the preceding para. The AO again completed the assessment under Section 144 on 16th Jan., 1999 at income of Rs. 21,18,220. This was again set aside by the learned CIT(A) vide his order dt. 30th March, 1999 along with the order for the asst. yr. 1989-90. The AO again completed the assessment under Section 144 on total income of Rs. 21,18,220 as determined earlier and expenses claimed were disallowed. This was subject-matter ol appeal before the CIT(A), who set aside the same vide his identical order dt.
23rd July, 2002 as for the asst. yr. 1989-90. The relevant facts and reasoning given by the learned CIT(A) have already been discussed while dealing with the appeal for the asst. yr. 1989-90.
3.5 For the asst. yr. 1991-92, the AO completed the assessment under Section 143(3) on 7th March, 1994 at income of Rs. 30,07,692 disallowing the claim of the assessce for deduction of expenses incurred for 'resort division'. This assessment was set aside by the CIT(A) vide his order dt, 5th Dec., 1996 by referring to the order of the Tribunal, Arnritsar Bench for the asst, yr, 1988-89, The AO completed the set aside assessment under Section 144 on 15th Jan., 1999 at income of Rs. 28,31,827 by making similar disallowance. This assessment was again set aside by the CIT(A) vide order dt. 30th March, 1999. The AO again completed the assessment under Section 144 at income of Rs. 28,31,817 by making similar disallowance of expenses on the ground that the same were capital in nature. This was again subject-matter of appeal before the CJT(A). The CIT(A) vide his order dt. 23rd July, 2002 restored the matter to the file of the AO for scrutiny and examination of the expenses as to whether these were incurred wholly and exclusively for the purposes of assesseo's business. This was done on the same line as for the earlier assessment years.
3.6 For the asst. yr. 1992-93, the AO completed the assessment under Section 143(3) on 30th Dec., 1994 at income of Rs. 32,91,243 by making disallowance of the expenses relating to 'resort division' on the ground that the same were capital in nature and by repeating the earlier orders. This assessment was set aside by the CIT(A) vide order dt. 30th March, 1996. Again, the AO completed assessment under Section 144 on 28th Feb., 2001 on income of Rs. 11,80,687 by disallowing the expenses relating to resort division by referring to the earlier assessment orders. The assessce filed an appeal against the said order and the CIT(A) vide his order dt. 23rd July, 2002 restored the matter to the file of AO for verification of the details of the expenses as to whether the expenditure was incurred for the purpose of assesseo's business or not.
3.7 In order to give effect to the orders of CIT(A) for all those assessment years, the AO asked the assessee to produce the vouchers, books of account and to justify that the expenditure incurred was genuine and was for the purpose of assessee's business. In reply, the assessee's counsel stated that by virtue of an amendment, to Sub-section (1) of Section 251, power of the CIT(A) for setting aside the assessment was taken away w.e.f. 1st June, 2001. The assessee submitted that the learned CIT (A) has already accepted the appeals of the assessee and, therefore, the AO had no power to examine allowability of the claim of the assessee for deduction of the expenses for the various assessment years.
3.8 Thereafter, the AO vide his letter dt. 8th Aug., 2003 pointed out the difficulty in giving effect to the orders of the CIT(A) for all the assessment years and, therefore, requested the learned CIT(A) to pass necessary rectification order. The learned CIT(A) considered the request of the AO for rectification under Section 154 and after allowing an opportunity to the assessee, the learned CIT(A) observed that the findings given in the orders dt. 23rd July, 2002 that the disallowance made was deleted in view of the decision of Tribunal, Amritsar Bench for the asst. yr. 1988-89 where it was held that such expenditure was revenue in nature. He also observed that further directions given in the order that the AO should examine the allowability of the expenses according to law by referring to vouchers and book of account, etc, were contradictory to the earlier findings holding that the disallowance made by the AO was deleted. This according to the learned CIT(A) was a mistake apparent from records.
He, therefore, rectified the same order under Section 154 and modified the first part of the order that the finding of the AO in treating the same expenditure as capital in nature could not be sustained. He further referred to the amendment introduced to Clause (a), Sub-section (1) of Section 251 of the Act whereby the power of the CIT(A) to set aside the assessment was taken away w.e.f. 1st June, 2001. Thus, the learned CIT(A) observed that there was a mistake in the earlier orders dt. 23rd July, 2002 in setting aside the assessments because such power was not vested with him on the date when he passed the orders, Having done so, the learned CIT(A) considered the admissibility of the expenses of the aforesaid amounts for the various assessment years and observed that a perusal of the assessment records for the asst. yrs, 1989-90 to 1991-92 showed that during three rounds of the assessment proceedings, the assessee failed to produce any details, bills and vouchers, etc. in respect of expenses. The assessee had only filed break-up of the expenses under the various heads from which genuineness of the same and the fact whether these expenses were incurred wholly or exclusively for the purpose of business could have not been examined.
Thus, the learned CIT(A) observed that the assessee failed to fulfil the conditions laid down under s, 37 of the Act to establish that the expenditure was incurred wholly and exclusively for the purpose of business. He1, therefore, upheld the disallowance of entire expenditure in the rectification orders passed under Section 1 54 for these assessment years and the same order was followed for the asst. yr.
1992-93.
3.9 Before parting with the facts of case, we wish to mention that the Department had filed a reference application under Section 256(1) against order dt. 31st March, 1993 of Tribunal, Amritsar Bench for the asst. yr. 1988-89, This was rejected by the Tribunal. Thereafter, the Revenue moved an application under Sub-section (2) of Section 256 of the Act before the High Court and we were informed that the same is still pending with the High Court. The Tribunal had also upheld the orders of the CIT(A) dt, 19th Jan., 1995 for the asst, yrs, 1989-90 and 1991-92 by its order dt. 2nd April, 2002 (supra) where by referring to the earlier order for the asst. yr. 1988-89, the action of the CIT(A) in restoring the matter to the file of the AO for scrutiny and verification of the expenses was found in order. The Revenue filed appeals under Section 260A of the Act against the order of the Tribunal, Amritsar Bench dt. 2nd April, 2002 for the asst. yrs. 1989-90 and 1991-92. We were informed by the learned Counsel that these are pending with the Hon'ble J&K High Court. Copies of these appeals were placed at pp. 13 to 30 of the paper book.
3.10 The assessee has now filed present appeals against the rectification orders dt. 16th Sept., 2003 passed by the CIT(A) for the abovementioned assessment years whereby the disallowance of expenses was upheld.4. The learned Counsel for the assessee, Shri Ravi Mehta, after referring to the factual position in this case submitted that the first orders dt. 23rd July, 2002 of the CIT(A) for all the assessment years did not amount to setting aside the assessment. The learned CIT(A) had only directed the AO to examine the allowability of the claim of the assessee for deduction of expenses at the time of giving appeal effect.
He submitted that the issue under consideration is more than 10 years old. The assessee had not maintained any bills and vouchers for the expenses because of an agreement with Dalmia Resorts International (P) Ltd. The assessee made payment to the said concern by virtue of an agreement and a copy of the same was placed before the AO, The AO had disallowed the expenses purely on the ground that the same were capital in nature despite finding given by the Tribunal that the said expenses were revenue in nature. Thus, he submitted that the first orders could not be considered for setting aside the assessments and, therefore, the action of the CIT(A) in considering the rectification of the Revenue was illegal and invalid. He further argued that as per provisions of Section 154 of the Act, the concerned Revenue authorities including the CIT(A) have been vested with limited power to rectify the mistake of law or facts which are apparent from records. The learned CIT(A) is not vested with the powers to call for details and examine the allowability of the claim in rectification proceedings. He relied on the decision of Hon'ble Delhi High Court in the case of J.N. Sahm v. ITAT and Ors.
(2002) 174 CTR Del) 367 : (2002) 257 ITR W (Del), where it was held that the Tribunal is not vested with any power to review its own order and has no power to recall its order passed on merits in rectification proceedings. He further relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Vardhaman Spinning , where it was held that the power of the Tribunal under Section 254(2) of the Act is limited, only to rectify the mistakes which are apparent from record. He submitted that the power of the CIT'(A) under Section 154 is similar to the power of the Tribunal vested under Section 254(2) of the Act. Thus, he contended that the action of the CIT(A) in rectifying the order under Section 154 was without jurisdiction and hence illegal and invalid. He further argued that assuming for a while that the learned CIT(A) had rightly invoked the provisions of Section 154 of the Act. He submitted that under such circumstances, he should have either remanded the case to the AO for examination of the bills and vouchers with reference to books of account and called for remand report or he should have himself examined such claim by calling for similar details before sustaining the disallowance of the entire expenses. He submitted that since CIT(A) did nol take such action, the impugned rectification orders were invalid.
He further stated that there are three orders of the Tribunal, one is dt. 20th Jan., 2003 for the asst, yrs. 1989-90 to 1991-92 in ITA Nos.
153 to 155/Asr/1997 (copy placed at pp. 9 to 12 of the paper book), order dt. 25th March, 2004 in ITA No. 156/Asr/1997 (copy placed at p.
14 of the paper book) for the asst. yr. 1992-93 and order dt. 2nd April, 2002 in ITA Nos. 365 and 366/Asr/1995 for the asst. yrs. 1989-90 and 1991-92 (copy placed at pp. 11 and 12 of Annex. C of the paper book). He submitted that the orders of the CIT(A) had merged with that of Tribunal and, therefore, the CIT(A) had no jurisdiction to rectify the orders under Section 154 of the Act. As regards the merits of the case, the learned Counsel submitted that the factory of the assessee has been closed. No business is being carried on at resort-cum-hotel at Pahalgarn because of adverse law and order situation. The bills and vouchers were not maintained by the assessee because of an agreement with Dalmia International (P) Ltd. A copy of this agreement was placed before the AO. He submitted that under these circumstances, it is virtually impossible for the assessee to produce bills and vouchers at this stage. He further stated that one reference application under Section 256(2) for the asst. yr. 1988-89 and appeals of the Revenue for the asst. yrs 1989-90 and 1991-92 are pending with the High Court- .
Therefore, whatever decision is taken by the High Court would be followed by the Revenue for all these assessment years, Thus, he submitted that the disallowance sustained by the CIT(A) for these assessment years may be deleted.
5. The learned Departmental Representative, Sh. Achal Sharrna, on the other hand, heavily relied on the orders of the authorities below. He submitted that there was a mistake in the earlier orders dt. 23rd July, 2002 of the CIT(A) inasmuch he had recorded contradictory findings for deleting the disallowance and at the same time restoring the issue back to AO for verification of the expenses. Therefore, the CIT(A) was justified in rectifying the orders under Section 154 of the Act. He further stated that despite three rounds of assessment proceedings and the proceedings before the CIT(A), the assessee has not been able to produce bills and vouchers to establish the genuineness of the expenditure and the fact that the said expenditure was incurred wholly and exclusively for the purpose of assessee's business. Thus, he submitted that the learned CIT(A) was justified in sustaining the disallowance of the said expenses under Section 37(1) of the Act.
6. We have heard both the parties at some length and given our thoughtful consideration to the rival contentions, examined the facts, evidence and material placed on record. We have also gone through the orders of the authorities below and referred to relevant pages of the paper book to which our attention has been drawn. In our view, the following issues need to be decided by this Bench: (i) Whether the action of the learned GIT(A) in directing the AO to examine alienability of the expenditure after verification of the details, bills and vouchers, etc. tantamounted to setting aside the assessments (ii) Whether the action of CIT(A) in rectifying the orders under Section 154 was within the scope and ambit of powers vested with him under Section 154 of the Act (iii) Whether the earlier orders of the GIT(A) had merged with the orders of the Tribunal and, therefore, the impugned rectification orders could be considered without jurisdiction and invalid (iv) Whether, the learned CIT(A) was justified in sustaining the disallowance of the expenses on merits in rectification proceedings 6.1 As regards the first issue, we find that the learned CIT(A) while deciding the appeals vide his orders dt. 23rd July, 2002 had followed the orders of the Tribunal for the asst. yr. 1988-89 (supra). The dispute before the Tribunal for the asst. yr. 1988-89 related to whether the impugned expenditure was capital or revenue in nature. The Tribunal held that the expenditure was in the nature of revenue and hence allowable. However, the Tribunal did not delete the disallowance at its end for the reason that the allowability of the claim under Section 37 was never examined by the AO at the time of disallowing the claim. The AO was mainly guided by the reason that the said expenditure was capital in nature. Therefore, the Tribunal had restored the issue of allowability of the expenses for verification and scrutiny of the AO. The same order has been followed by the CIT(A) in deciding the appeals. This is clear from the findings of the CIT(A) extracted on p.
4 of the impugned combined order for the asst. yrs. 1988-89 to 1990-91 which is as under: A perusal of the above extracts from the orders of the Hon'ble Tribunal shows that it has already decided the controversy as to whether the expenses in respect of resort division are in the nature of capital expenses or revenue expenses in favour of the appellant.
Since the issue involved and facts in the present case are the same the decision of the Hon'ble Tribunal is binding. Therefore, following the decision of the Hon'ble Tribunal in' ITA No. 586/Asr/1992 for the asst. yr. 1988-89 and its decision in ITA Nos.
365 and 366/Asr/1995 for the asst. yrs. 1989-90 and 1991-92, I am of the opinion that the AO was not justified in treating the expenses in respect of resort division amounting to Rs. 65,14,836 as capital expenses as distinguished from revenue expens.es. Moreover, a perusal of the chart showing break-up of expenditure in respect of resort division which have been disallowed by the AO shows that these expenses are mainly of similar nature as those incurred for the asst. yr. 1988-89, This being the case, I am of the opinion that the disallowance made by the AO in respect of resort division amounting to Rs. 65,14,836 is not justified, and, therefore, stands deleted. However, while giving effect to this order the AO should examine the allowability of these expenses according to the law by reference to relevant vouchers, books of account, etc, after necessary examination. These directions are in accordance with the directions issued by the Hon'ble Tribunal in appellant's case for the asst, yr, 1988-89.
From the bare reading of the aforesaid order, it is obvious that the directions given by the CIT(A) were based on the directions issued by the Tribunal for the asst. yr. 1988-89, where the matter was restored to the file of the AO. If the learned CIT(A) had intended to delete the disallowance as- it is, there was no need for him to direct the AO to scrutinize the details and examine the genuineness and admissibility of the expenses as to whether these have been incurred wholly and exclusively for the purpose of assessee's business. Obviously, if on verification, the AO was of the view that the assessee had failed to prove the genuineness of the expenses and also part of the expenses were not allowable as per provisions of the Act, the AO would have been within his rights to disallow the claim at the time of giving effect to the CIT(A)'s order. Moreover, this was not the first round of assessment. The matter had been restored to the file of the AO thrice by the CIT(A) for deciding the same afresh after taking into account the directions given by the Tribunal for the asst. yr, 1988-89. In fact, all the assessment orders were passed under Section 143(3)7144 r/w s, 250(6) of the IT Act. Therefore, we do not find any merit in the submissions of the assessee that the orders dt. 23rd July, 2002 of GIT'(A) did not amount to setting aside the assessments. Accordingly, this plea of the assessee is rejected and the first issue is decided in favour of the Revenue.
6.2 The next aspect which requires consideration is whether the learned CIT(A) was justified in rectifying the orders under Section 154 of the IT Act. Section 154 of the Act empowers the IT authorities including the CIT(A) to rectify the mistake apparent from record and amend the order passed by him where such mistake exists. Such mistake could be mistake of law or fact. The only requirement is that it must be apparent from the record. It is settled law that the scope of powers vested with the IT authorities under Section 154 of the IT Act is confined only to rectify such mistakes which are obvious and patent and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from record. Reliance in this regard is placed on the judgment of apex Court in the case of T.S. Balram, ITO v. Volkart Brothers .
The scope of powers vested with the IT authorities is analogous to scope of powers vested with the Tribunal under Sub-section (2) of Section 254 of the IT Act. In the case of J.N. Sahni v. ITAT and Ors.
(supra), the Hon'ble Delhi High Court has held that power of review is not vested with the Tribunal and, under Section 254(2) of the Act, the Tribunal is empowered to rectify only such mistakes which are apparent from record. Similar view was held by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Vaidhman Spinning (supra). Like Tribunal, the learned CIT(A) does not have powers to review his own orders. Now, the action of the CIT(A) in resorting to provisions of Section 154 of the Act is to be seen in the light of above legal position. It is a fact that while deciding the present appeals, the learned CIT(A) referred to the decision of the Tribunal, Amritsar in the case of the assessee for the asst. yr, 1988-89 where it was held that the impugned expenditure was in the nature of revenue. However, the Tribunal had not deleted the disallowance itself. The matter was restored to the file of the AO for scrutiny and verification of the details from the point of view of allowability of the same. It may be mentioned that even if the expenditure falls in the category of revenue, the allowability of the same is subject to the provisions of the Act. For example, Sub-section (1) of Section 37 provides that only such expenditure can be allowed as deduction which is not a capital expenditure, not personal expenses of the assessee and it must be laid out or expended wholly and exclusively for the purpose of business. Explanation to Section 37(1) of the Act further prohibits deduction of the expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law.
Section 40A(3) of the Act prohibits cash payments of expenditure exceeding the prescribed monetary limit. Thus, even if the expenditure may be revenue in nature, the same is subject to scrutiny arid verification as directed by the Tribunal for the asst. yr. 1988-89.
Therefore, the finding of the CIT(A) that the disallowance made by the AO stood deleted was contrary to the finding given by the Tribunal for the asst. yr. 1988-89 which was relied upon by the CIT(A). Besides, if the learned CIT(A) had deleted the disallowance, there was no need for him to direct the AO to verify the allowability of the same after calling for the details of expenses with reference to bills and vouchers, etc. to see whether the same was incurred wholly and exclusively for the purpose of business. Thus, there was inherent contradiction in the orders of the CIT(A) which constituted a mistake apparent from record.
6.3 Besides, we have already held that the directions given by the CIT (A) in his orders dt. 23rd July, 2002 amounted to setting aside the assessments. It is an admitted fact that power to set aside the assessment was taken away by an amendment to Clause (a) of Sub-section (1) of Section 251 introduced by the Finance Act, 2001, w.e.f. 1st June, 2001. The learned CIT(A) passed the order on 23rd July, 2002 and set aside the assessments when he had no authority to do so. Such action on the part of the learned CIT(A) constituted a mistake of law apparent from record which the CIT(A) was justified in rectifying the same under Section 154 of the Act. In the light of these facts and circumstances of the case and the legal position discussed above, we are of the view that the learned CIT(A) was justified in invoking the provisions of Section 154 of the Act to the extent indicated above.
However, such findings are subject to subsequent findings recorded in the succeeding paras. Therefore, this plea of the assessee is also rejected.
6.4 The third issue which requires to be decided by this Bench is whether there was any merger of the order of the CIT(A) with the orders of the Tribunal. Asalready discussed, the Tribunal had restored the issue for the asst. yr. 1988-89 to the file of the AO. The learned CIT(A), Jammu, vide his first round of orders dt. 19th Jan., 1995 had restored the appeals for the asst. yrs. 1989-90 and 1991-92 by relying on the order of the Tribunal for the asst. yr. 1988-89. The Tribunal vide its order dt. 2nd April, 2002 in ITA Nos. 365 and 366/Asr/1995 confirmed the action of the CIT(A) for restoring the matter to the file of the AO by relying on the decision of the Tribunal for the asst. yr.
1988-89. The same is the position in regard to other two orders of the Tribunal dt. 20th Jan., 2003 for the asst. yrs. 1989-90 to 1991-92 (supra) and order dt. 25th March, 2004 for the asst. yr. 1992-93 (supra). Since the matter had only been restored to the file of the AO for examination and scrutiny of the claim of the assessee for deduction of the expenses, it could not be said that there was a merger of the order of CIT(A) with that of the Tribunal so far as merits of the claim was concerned. The Tribunal had not recorded any findings on the merits of the claim except that nature of expenditure was revenue. So far as the orders of CIT(A) dt. 23rd July, 2002 are concerned, the learned Counsel for the assessee conceded before us that appeals were not filed by the assessee against the said orders. It appears that Revenue too had not filed appeals against the- orders of the CIT(A) dt. 23rd July, 2002. The matter has only now come up before Tribunal. Therefore, we do not find any merit in the submissions of the assessee that the orders of the GIT(A) had merged with orders of Tribunal and the impugned rectification orders were without jurisdiction. Hence, this plea is also rejected, 6.5 The last aspect of the case which requires to be decided by us is whether the learned CIT(A) was justified in sustaining the disallowance in rectification proceedings under Section 154 and even on merits. From the facts discussed above, it is obvious and admitted by the Revenue authorities including the CIT(A) that the facts of the case for the assessment years under reference were similar to the facts for the asst. yr. 1988-89. While deciding the appeal for the asst. yr. 1988-89, the Tribunal restored the matter to the file of the AO for scrutiny and verification of the claim for deduction of expenses. The AO completed the set aside assessment vide his order dt. 18th April, 1994 (a copy placed at pp. 21 to 23 of the paper book). A perusal of the same shows that assessee filed the details as per books of account and submitted before the AO that assessee had made payments to Dalmia Resorts International (P) Ltd., as pen agreement and all bills, vouchers etc.
were being maintained by the said concern. The AO did not find any objection to the allowability of the claim on the basis of details filed by the assessee except that he was of the view that this expenditure was capital in nature. Nowhere the AO had recorded any finding that expenditure incurred by the assessee was not genuine or was not incurred for the purpose of assessee's business. He has also not doubted the genuineness of the agreement with Dalmia Resorts International (P) Ltd. There is no finding recorded that the same was collusive or a ruse for reducing the taxable income of assessee. The AO allowed the deduction of the same. This shows that he was satisfied that the expenditure was genuine. It is not in dispute that the facts of the case for the assessment years are absolutely identical to the facts of the case for the asst. yr. 1988-89. This is accepted by the CLT(A) and AO in the respective orders. We have observed that even for the assessment years under reference, the AO had not disallowed the claim of the assessee on the ground that the assessee failed to furnish details, bills and vouchers to prove the genuineness of the expenditure. Despite the fact that the assessment orders were set aside thrice by the CIT(A) for deciding the same in accordance with the directions of the Tribunal, yet the AO kept on disallowing the claim merely on the ground that expenditure incurred related to the period before the commencement of the business of the project and, therefore, was capital in nature. Such findings of the AO have not been approved by the Tribunal and it is for the same reason that the matter was restored to the file of the AO for verification of expenses in earlier appeals. In other words, the AO had not found any infirmity in the claim of the assessee for allowability of the expenses as per provisions of the Act. Now the question is when the issue came up before the CIT (A), while deciding the appeals on 23rd July, 2002, the same CIT(A) thought it better to again restore the issue to the file of the AO for examination and scrutiny of the expenses with reference to books of account, bills and vouchers, etc. Obviously, no further investigation was carried out by the AO as the assessee pointed out to AO that the learned CIT(A) had no power to set aside the assessments after 1st June, 2001. It is also a fact that during the course of appeal proceedings, Lae learned CIT(A) did not remand the case to the AO for verification of the expenses and then to obtain the remand report, It is also a fact that the learned CIT(A) did not ask the assessee to produce these details so as to examine the claim of the assessee for allowability of the expenditure at his own end. He referred to the same facts that the assessee did not produce bills, vouchers and details before the AO in three rounds of assessment proceedings which were already available with the CIT(A) when he passed order on 23rd July, 2002 directing the AO to carry out such verification. On the same facts, the learned CIT(A) sustained the disallowance of the entire expenses in the impugned orders which in our view amount to review of his own orders. Such course of action is not permitted in the rectification proceedings under Section 154 of the Act as the CIT(A) has no power to review his own orders. This view finds support from the judgment of Delhi High Court in the case of J.N. Sahni v. ITAT (supra) and the judgment of Punjab & Haryana High Court in the case of CIT v. Vardhman Spinning (supra). Therefore, such orders are liable to be quashed on this point.
6.6 Even otherwise, we find that the learned CIT(A) was not justified in disallowing the expenses on merits for these assessment years when the Tribunal had already given finding that the expenditure was revenue in nature. Assuming for a while that the assessee failed to furnish the details like bills and vouchers before the AO, it was the duty of the CIT(A) to examine the nature of various expenses and then to record a finding that such expenses were not allowable as per provisions of the Act, i.e., whether the same were personal in nature or were not incurred wholly and exclusively for the purpose of assessee's business.
It is not in dispute that the assessee had entered into an agreement with Dalmia Resorts International (P) Ltd. to whom the various items of work were assigned and the payments were made by the assessee as per bills submitted by the said concern in terms of an agreement, A copy of this agreement was also placed before the AO who did not find fault at the time of giving effect for the asst. yr. 1988-89 and allowed the same. Even if the assessee did not produce the bills and vouchers because of the agreement and these were maintained by other party, viz., M/s Dalmia Resorts International (P) Ltd., the entire expenses could have not been disallowed. Only part of the expenses could have been disallowed. The learned CIT(A) could have not snatched away from the assessee, what was allowed by the Tribunal by holding that the said expenditure was revenue in nature, We, therefore, find no merit in the action of the CIT(A) in disallowing the claim of the assessee for deduction of various expenses claimed in the returns of income filed moreso in the rectification proceedings under Section 154.
6.7 Now the question is whether any useful purpose will be served in again setting aside the impugned orders and restoring the issue to the file of AO. We have already observed that the matter was restored to the file of the AO thrice with repeated directions to verify the claim of the assessee for deduction of expenses. The AO repeatedly made the same disallowance on the ground that the expenditure was capital in nature. Even for the asst. yr. 1988-89, the AO while completing the set aside assessment did not find any fault with the claim of the assessee for deduction of expenses and allowed the deduction. The facts of the case for the assessment years under reference are the same as for the asst. yr. 1988-89. This matter is now 15 years old and has been subject-matter of protracted litigation. During this period, the assessments have been set aside thrice. Thus, the AO had been allowed sufficient opportunity to examine the allowability of the same. If he has failed to do, the assessee cannot be blamed for the same. The matter has travelled to the Tribunal four times. We are, therefore, of the considered opinion that no useful purpose would be served in restoring the matter again to the file of the AO except prolonging the litigation further. Thus, taking into account the totality of all these facts and circumstances of the case and repeated opportunities allowed to the Revenue, we are of the opinion that the learned CIT(A) was not justified in sustaining the impugned disallowance. Accordingly, we set aside the orders of the CIT(A) and delete the impugned disallowance for all the assessment years. Therefore, this ground of appeal for all the assessment years is allowed.