Utkal Road Lines Vs. Registrar, Income Tax Appellate Tribunal, Ctc and ors. - Court Judgment

B.N. Mahapatra, J.

1. This Tax Appeal has been filed raising several questions of law. However, at the time of hearing, Learned Counsel for the Appellant confined his argument only to question No. 3, which reads thus:

Whether on the facts and circumstances of the case can Appellate Income Tax Tribunal came to a final conclusion regarding determination of rate of net profit on a higher side i.e. @ 7.5% without assigning any reasons when two similar decision based on similar facts have adjudicated by the same Tribunal previously vide IInd Appeal Nos. 489/CTK/1973 dt. 11.01.1980 and 293/CTC/1991 resulting net profit @ 2% and @ 7.5% respectively which leads to discrimination and miscarriage of justice.

2. Bereft of unnecessary details the facts and circumstances leading to the present appeal are that the Appellant is a partnership firm. It carries on business in Execution of Transport Contract. In the year 1992-93, the Appellant filed its return disclosing the net income at Rs. 1,95,120. The said return was scrutinized by the Opposite Party No. 6-Income Tax Officer (hereinafter called, 'the assessing officer'), who vide his Order Dated 17.02.1995 passed under Sections 143(3) and 182(1) of the IT. Act, 1961 (hereinafter referred to as 'IT Act') determined the net income at Rs. 3,00, 120. Subsequently, by exercising powers under Section 263 of the IT Act, the Commissioner of Income Tax-Opposite Party No. 3, vide his Order Dated 27.03.1997 set aside the order of assessment with certain directions to the assessing officer to pass fresh assessment order on the ground that the assessment order was erroneous and prejudicial to the interest of the Revenue. Pursuant to the said order of the Commissioner-Opposite Party No. 3, the Deputy Commissioner of Income Tax, Berhampur Circle, Berhampur- Respondent No. 5 (hereinafter referred to as the 'DCIT') scrutinized the accounts of the Appellant. The DCIT vide his Order Dated 25.03.1999 after scrutinizing all the accounts inter alia came to the conclusion that the cash books maintained by the assessee were devoid of any authenticity and rejected the books of account maintained by the assessee holding that the same could not be relied upon. Invoking the provisions of Section 145(2) of the IT Act, the DCIT estimated the net profit at the rate of 12% of the gross contract receipt before depreciation and determined the profit from transport contract business at Rs. 13, 07,754 . The DCIT also made addition of Rs. 3,00,000 under Section 68 of the IT Act. Being aggrieved by the said order of the DCIT, the Appellant filed first appeal before the Commissioner of Income Tax (Appeals)-1 -Opposite Party No. 4 who vide his Order Dated 21.12.1999 passed in L.T. Appeal No. 99/ORS/99-2000 allowed the appeal in part estimating the net income from the transport business at Rs. 2.5 lakhs with further direction to the assessing officer to pass fresh order after affording reasonable opportunity to the partners to establish their genuineness and worthiness for investment. Being aggrieved by the order of the first Appellate authority, Deputy Commissioner of Income Tax- Opposite Party No. 5 filed appeal before the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack, bearing ITA No. 59/CTK/2000. The assessee also filed Cross Objection bearing CO. No. 10./C TK/2000. Learned Tribunal vide its Order Dated 26.8.2002 allowed the appeal filed by the Revenue in part and dismissed the Cross Objection of the assessee holding inter alia 7.5% profit is reasonable in the case of the Appellant in transport contract business. It relied upon an earlier order passed by it in I.T. Appeal No. 293/CTK/91 as against the net profit shown by the assessee at 5%. However, Learned Tribunal upheld the order of the CIT(A) on the point of addition of Rs. 3.0 lakhs out of the capital introduced by the partners. Hence the present appeal.

3. Mr. J.M. Pattanaik, Learned Counsel for the Appellant submits that when the first Appellate authority relying on an earlier order of the Learned Tribunal has estimated the net profit at the rate of 2% of the Gross Contract Receipt, Learned Tribunal is not justified in estimating the same at the rate of 7.5 %. The estimation of profit at 7.5.% of the gross contract receipt is at the higher side.

Mr. Patnaik relying upon the Judgments of Madras High Court in Mysore Fertilizer Co., Madras v. Commissioner of Income Tax, Madras : [1966]59ITR268(Mad) and Hon'ble Apex Court in Commissioner of Income Tax v. Indo Nippon Chemical Co. Ltd. : [2003]261ITR275(SC) , argues that the question raised by the Appellant in the present case is a substantial question of law.

4. Mr. A. Mohapatra, Learned Counsel appearing for the Revenue strongly opposing the same contends that the Appeal under Section 260-A can only be entertained where substantial question of law is involved, and the instant case involves no substantial question of law. The Tribunal is the final fact finding authority. Following its earlier order Learned Tribunal has estimated the net profit at the rate of 7.5 % in the case of the Appellant. Besides, once the books of account are rejected, it is open to the assessing officer as well as the Appellate authorities to estimate the reasonable profit from the business considering the facts and circumstances of the case.

5. In view of the rival contentions raised by Learned Counsel for the parties, the limited question that needs determination is as to whether the question raised by the Appellant is a substantial question of law.

6. At this stage, the relevant provisions of law as contained in Section 260-A of the I.T. Act may be considered. For better appreciation, the relevant portion of Section 260-A is reproduced below.

260-A. Appeal to High Court: (1) An appeal shall lie to the High Curt from every order passed in appeal by the Appellate Tribunal [before the date of establishment of the National Tax Tribunal], if the High Court is satisfied that the case involves a substantial question of law.

Section 260-A provides for appeal to the High Court. According to Section 260-A(1), an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal. The appeal before the High Court is maintainable only if the High Court is satisfied that the case involves substantial question of law.

7. Hon'ble Apex Court in Santosh Hazari v. Purushottam Tiwari : [2001]251ITR84(SC) , held that the words 'substantial' as qualifying 'question of law' means having substance, essential, real, of sound worth, important or considerable. It is to be understood as some thing in contradistinction with technical, of no substance or consequence or academic merely.

In Panchugopal Barua v. Umesh Chandra Goswami : [1997]2SCR12 the Hon'ble Supreme Court held that the existence of a 'substantial question of law' is, thus, the sine qua non for the exercise of the jurisdiction under the amended provisions of Section 100 of C.P.C.

In Roop Singh (Dead) Through LRS v. Ram Singh (Dead) Through LRS : [2000]2SCR605 , the Hon'ble Supreme Court held that under Section 100 of C.P.C. jurisdiction of the High Court to entertain an appeal is confined only to such appeals which involve a substantial question of law and it does not confer any jurisdiction on the High Court to interfere with pure questions of fact while exercising its jurisdiction under Section 100 of C.P.C.

In Sir Chunilal V. Mehta & Sons Ltd. v. Century Spinning & Mfg. Co. Ltd. : AIR1962SC1314 , the Apex Court laid down the following tests to determine whether a substantial question of law is involved. The tests are: (1) whether directly or indirectly it affects substantial rights of the parties, or, (2) the question is of general public importance, or, (3) whether it is an open question in the sense that issue is not settled by pronouncement of the Supreme Court or Privy Councilor by the Federal Court, or, (4) the issue is not free from difficulty, and (5) it calls for a discussion for alternative view.

In Kondiba Dagadu Kadam v. Savitribai Sppan Gujar and Ors. : [1999]2SCR728 , the Hon'ble Supreme Court held that it has to be kept in mind that the right of appeal is neither a natural nor a inherent right attached to the litigation. Being a substantive statutory right, it has to be regulated in accordance with law in force at the relevant time. The condition mentioned in the enabling Section must be strictly fulfilled before an appeal can be maintained and no Court has the power to add to or enlarge those grounds. The appeal cannot be decided on merely equitable grounds. The concurrent findings of facts, howsoever erroneous, cannot be disturbed by the High Court in exercise of the powers under this Section. The substantial question of law has to be distinguished from a substantial question of fact.

Existence of substantial question of law is a condition precedent for entertaining the second appeal. (Vide Sarajas Rai v. Bakshi Inderjeet Singh : (2005)1SCC598 ; Manicka Poosali (Deceased by L.R.) and Ors. v. Anjalai Ammal and Anr. : AIR2005SC1777 )

In M. Pappu Pillai v. ITO : [2000]243ITR726(Ker) , the Kerala High Court held that there is no scope for interference by the High Court on a finding recorded when such finding could be treated to be a finding of fact. In facts of that case, it has been held that since the conclusion of the Tribunal was essentially factual, it could not be interfered with the appeal under Section 260-A.

The Punjab and Haryana High Court in C.B. Agarwal v. CIT held that the Tribunal did not commit any illegality by directing the assessment of the assessee's income on estimated basis by taking the gross profit at the rate at 27% and no question of law, much less a substantial question of law arose in this case.

The Punjab and Haryana High Court in Ved Prakash v. CIT , held that in the Appellate jurisdiction under Section 260-A of the Act, the Court normally does not interfere by substituting its own estimate in place of that of the Tribunal unless it is shown that the estimate of the Tribunal could not possibly be reached.

The Rajsthan High Court in CIT v. Bhawan Vapath Nirman (Bohra) & Co. (No. 2) held that objection of rate for calculation of profit on estimated basis by the Tribunal is a finding of fact, which does not give rise to substantial question of law.

8. Thus, appeal under Section 260-A of the I.T. Act could be entertained only on substantial question of law. It is the duty of the Court that before entertaining an appeal, it must consider the involvement of substantial questions of law in appeal. The High Court must make every effort to distinct between the question of law and the substantial question of law. Where a finding of fact has been recorded by the Tribunal or only a question of law is involved, the High Court should not interfere with the same while exercising power under Section 260-A.

9. The question raised in the present case is to be examined in the light of the provisions contained in Section 260-A of the IT Act and above legal propositions.

10. Admittedly, In the instant case, the assessee's grievance is that the estimation of net profit at the rate of 7.5 % is at a higher side and based on no reason. The Learned ITAT after considering the submission of the Learned Counsel for both the sides and going trough the orders of the assessing officer and first Appellate authority came to the conclusion that in Appellant's case, the reasonable profit would be 7.5% of the gross receipt. While doing so, it relied upon its earlier order passed in ITA No. 293/CTK/91 in the case of Shri Madhusudan Dixit, Bolangir. What would be reasonable rate of profit in this case has been decided by the Learned Tribunal on the basis of the case history of the assessee. The findings recorded by the Tribunal are the pure findings of fact and do not give rise to any substantial question of law for consideration by the High Court.

11. In Mysore Fertiliser Co. case (supra), the Madras High Court held that where an Income-tax Officer has adopted a wrong method under Section 13 of the Act, 1922, it is open to the Court on a reference to consider whether the method adopted by the Income-tax Officer was a wrong method, wrong in the sense that the method is not one which is likely to result in the true profit being ascertained.

This is not the issue in the present case. Moreover, reference could be preferred to High Court only when a question of law was involved, but an appeal under Section 260-A can be preferred to the High Court when a substantial question of law is involved. There is distinction between question of law and substantial question of law as discussed above.

In Indo-Nippon Chemicals Co. Ltd. case (supra), the Issue involved was whether it was permissible for the assessing officer under the LT. Act to adopt different methods of valuation of excise duty paid raw-material when purchased and the non-consumable raw materials on hand at the end of the year. In that case, the Hon'ble Apex Court held that merely because the MODVAT credit was irresistible credit available to manufacturers upon purchase of duty paid raw material that would not amount to income, which was liable to be taxed under the Act: income was not generated to the extent of MODVAT credit on un-consumed raw material. It was not permissible for the assessing officer to adopt 'gross method' for valuation of raw material at the time of purchase and the 'net method' for valuation of stock on hand. This is not the issue in the case at hand.

Thus, the above two Judgments relied on by Mr. Pattnaik, Learned Counsel are of no help to the Appellant.

12. In view of the above, we are of the considered opinion that the appeal involves no substantial question of law which is dismissed accordingly.

B.S. Chauhan, C.J.

I agree.