Roadmaster Industries of India Vs. Deputy Commissioner of Income Tax - Court Judgment

Excerpt:
1. the assessee has filed these two appeals against separate orders of cit(a), patiala on the following common ground : "the learned cit(a) has erred in having held that the ao could raise demand on the basis of the additions which were restored by the tribunal to the file of the first appellate authority for fresh adjudication even before such adjudication by that authority, inasmuch as the tribunal had not confirmed such additions made by the ao".2. the brief facts relating to these appeals are that the tribunal had set aside certain findings of the cit(a) where relief had been allowed to the assessee. the said issues were restored back by the tribunal to the file of the learned cit(a) for fresh adjudication. the ao passed orders dt. 10th october, 1991 in relation to asst. yrs. 1981-82 and 1982- 83 for giving effect to the order of the tribunal dt. 22nd august, 1991. while giving appeal effect to the order, the ao also revived income-tax demand of rs. 4,37,098 in relation to asst. yr.1981-82 and of rs. 1,36,899 in relation to asst. yr. 1982-83 with reference to the issues which are restored by the tribunal to the learned cit(a). the assessee felt aggrieved and filed appeal.3. on first appeal the learned counsel for the assessee submitted that while giving effect to the order of the tribunal, the ao has revived the demand against the assessee in respect of these issues which were restored to the learned cit(a), as if the findings of the ao were revived after setting aside the findings of the learned cit(a). the learned counsel contended that the demand could not be revived by the ao on the impugned issues till the same were disposed of afresh by the learned cit(a). the submissions made by the learned counsel were considered by the learned cit(a) and he found no force in them. he observed that once the findings of the learned cit(a) were set aside by the tribunal and restored back to his file, the only surviving order of the impugned issues would be that of the ao, who was clearly justified in reviving the demand against the assessee on these issues.4. the learned counsel for the assessee invited our attention to the order of the tribunal dt. 22nd august, 1991 in ita nos. 570 and 571/chd/1986 for asst. yrs. 1981-82 and 1982-83. in para 7 of the said order, the tribunal considered the issue relating to claim made by the assessee at rs. 4,37,098. the tribunal observed that the said issue was discussed by the first appellate authority in order for asst. yr.1982-83. the tribunal had set aside the impugned order and restored the issue to the file of the learned cit(a) for fresh hearing after hearing the assessee and the ao. the tribunal noted that the first appellate authority had only said that "i have carefully considered the submissions made before me and find that the claim of the assessee is in order and thus, entitled to further relief of rs. 4,73,635 which is allowed". the tribunal directed the first appellate authority to pass a speaking order on the issue. similarly directions were given in relation to asst. yr. 1982-83 with reference to deduction of expenditure of rs. 4,73,635. the next issue considered by the tribunal related to bad debt which had been allowed by the learned cit(a). the tribunal observed that while the accounting period of the assessee in relation to assessment year ended on 30th june, 1981, most of the bills had been made in 1974, 1976, 1979 and also on 14th june, 1980. the tribunal set aside the said issue and restored it to the file of the learned cit(a) for bringing on record the material with which the assessee supported its case. the tribunal observed that the assessee and the ao should be heard and a speaking order be passed. the learned counsel stressed that the ao could not have received the demand in relation to the impugned issues unless the learned cit(a) passed order in the second round. he emphasised that there was a vacuum in the absence of fresh orders passed by the learned cit(a) and that the ao could not have revived the demand in relation to the said issues, while giving appeal effect to the order of the tribunal. on a query from the bench as to what is the distinction between the appeal pending before the learned cit(a) and the issues pending before him after being restored by the tribunal, the learned counsel referred to the facts in the case of the assessee. shri subhash aggarwal, advocate, intervened and submitted that if demand could be revived by the ao in such situation, it would amount to a situation as if the tribunal had rejected the appeal of the assessee.5. the learned departmental representative relied on the orders of the learned cit(a). she also submitted that there was no case for grievance on the part of the assessee and the ao had rightly revived the demand.6. we have carefully considered the submissions made before us by both the parties as also the intervener, shri subhash aggarwal. we feel that the action of the learned cit(a) is justified in law as there is no provision in the act which stops the ao from recovering the demand in relation to additions which may not have been upheld by the tribunal but deletion whereof have been restored to the file of the learned cit(a). we may mention that the only course open under law to stop the raising of demand and recovery thereof is where stay is granted by the appropriate authority on the recovery of such demand, which is not the case in the present appeals. we may also refer to the decision of the hon'ble supreme court in the case of ito vs. seghu buchiah setty (1964) 52 itr 538 (sc). in the said case the ito assessed the respondent on estimate to the best of his judgment and issued notices of demand under s. 29 of the indian it act for recovery of tax. the assessee preferred appeals against the assessment orders, but did not pay the tax. the ao forwarded a certificate to the collector under s. 46(2) for recovery of the tax arrears of land revenue and the collector attached various properties of the respondent. thereafter, the tax payable by the respondent was substantially reduced by the aac and the ito informed the respondent of reduced tax liability and called upon him to pay the reduced tax. no fresh notice of demand was issued. the respondent requested that the recovery proceedings might be stayed and on his request being rejected, moved the high court. the high court held that the department was not entitled to treat the respondent as a defaulter in the absence of a fresh notice of demand and quashed the recovery proceedings. on appeal to the supreme court, by a majority judgment it was held that the high court was right in quashing the recovery proceedings. it was also held by a majority decision that fresh demand notice had to be served on the respondent before he can be treated as a defaulter. however, hon'ble justice j. c. shah, while dissenting, observed that "in the absence of any provision imposing an obligation upon the ito to issue successive notices of demand from time to time for recovery of the amount due during the process of assessment, the notices of demand issued by the ito under s. 29 may be enforced in the manner provided by s. 46 and within the period of limitation provided in s. 46(7), even after the appeal against the order of assessment by the ito, is disposed of, subject to adjustment of the amount to be recovered in the light of the order of the aac. he further observed that a person who has failed to comply with a notice of demand would continue to be defaulter notwithstanding the reduction of his liability by an order of the appellate authority. he also observed that there is only one exception to this rule and that is when the order of assessment is wholly set aside." we feel that the ratio of the said decision, including the dissenting views, of justice j. c. shah lead to the conclusion that the ao is entitled to pursue the demand of tax in a situation where the tax is reduced in view of the decision of the first appellate authority or the same is increased by such authority. the only question in that case was whether fresh notice of demand was required to be issued or not. keeping in view the aforesaid judgment, we feel that the ao was free in these cases to revive the demand in relation to issues which were restored to the file of the learned cit(a), as the relief allowed to the assessee stood withdrawn till the issues were decided by the learned cit(a) afresh.

Judgment:
1. The assessee has filed these two appeals against separate orders of CIT(A), Patiala on the following common ground : "The learned CIT(A) has erred in having held that the AO could raise demand on the basis of the additions which were restored by the Tribunal to the file of the first appellate authority for fresh adjudication even before such adjudication by that authority, inasmuch as the Tribunal had not confirmed such additions made by the AO".

2. The brief facts relating to these appeals are that the Tribunal had set aside certain findings of the CIT(A) where relief had been allowed to the assessee. The said issues were restored back by the Tribunal to the file of the learned CIT(A) for fresh adjudication. The AO passed orders dt. 10th October, 1991 in relation to asst. yrs. 1981-82 and 1982- 83 for giving effect to the order of the Tribunal dt. 22nd August, 1991. While giving appeal effect to the order, the AO also revived income-tax demand of Rs. 4,37,098 in relation to asst. yr.

1981-82 and of Rs. 1,36,899 in relation to asst. yr. 1982-83 with reference to the issues which are restored by the Tribunal to the learned CIT(A). The assessee felt aggrieved and filed appeal.

3. On first appeal the learned counsel for the assessee submitted that while giving effect to the order of the Tribunal, the AO has revived the demand against the assessee in respect of these issues which were restored to the learned CIT(A), as if the findings of the AO were revived after setting aside the findings of the learned CIT(A). The learned counsel contended that the demand could not be revived by the AO on the impugned issues till the same were disposed of afresh by the learned CIT(A). The submissions made by the learned counsel were considered by the learned CIT(A) and he found no force in them. He observed that once the findings of the learned CIT(A) were set aside by the Tribunal and restored back to his file, the only surviving order of the impugned issues would be that of the AO, who was clearly justified in reviving the demand against the assessee on these issues.

4. The learned counsel for the assessee invited our attention to the order of the Tribunal dt. 22nd August, 1991 in ITA Nos. 570 and 571/Chd/1986 for asst. yrs. 1981-82 and 1982-83. In para 7 of the said order, the Tribunal considered the issue relating to claim made by the assessee at Rs. 4,37,098. The Tribunal observed that the said issue was discussed by the first appellate authority in order for asst. yr.

1982-83. The Tribunal had set aside the impugned order and restored the issue to the file of the learned CIT(A) for fresh hearing after hearing the assessee and the AO. The Tribunal noted that the first appellate authority had only said that "I have carefully considered the submissions made before me and find that the claim of the assessee is in order and thus, entitled to further relief of Rs. 4,73,635 which is allowed". The Tribunal directed the first appellate authority to pass a speaking order on the issue. Similarly directions were given in relation to asst. yr. 1982-83 with reference to deduction of expenditure of Rs. 4,73,635. The next issue considered by the Tribunal related to bad debt which had been allowed by the learned CIT(A). The Tribunal observed that while the accounting period of the assessee in relation to assessment year ended on 30th June, 1981, most of the bills had been made in 1974, 1976, 1979 and also on 14th June, 1980. The Tribunal set aside the said issue and restored it to the file of the learned CIT(A) for bringing on record the material with which the assessee supported its case. The Tribunal observed that the assessee and the AO should be heard and a speaking order be passed. The learned counsel stressed that the AO could not have received the demand in relation to the impugned issues unless the learned CIT(A) passed order in the second round. He emphasised that there was a vacuum in the absence of fresh orders passed by the learned CIT(A) and that the AO could not have revived the demand in relation to the said issues, while giving appeal effect to the order of the Tribunal. On a query from the Bench as to what is the distinction between the appeal pending before the learned CIT(A) and the issues pending before him after being restored by the Tribunal, the learned counsel referred to the facts in the case of the assessee. Shri Subhash Aggarwal, Advocate, intervened and submitted that if demand could be revived by the AO in such situation, it would amount to a situation as if the Tribunal had rejected the appeal of the assessee.

5. The learned Departmental Representative relied on the orders of the learned CIT(A). She also submitted that there was no case for grievance on the part of the assessee and the AO had rightly revived the demand.

6. We have carefully considered the submissions made before us by both the parties as also the intervener, Shri Subhash Aggarwal. We feel that the action of the learned CIT(A) is justified in law as there is no provision in the Act which stops the AO from recovering the demand in relation to additions which may not have been upheld by the Tribunal but deletion whereof have been restored to the file of the learned CIT(A). We may mention that the only course open under law to stop the raising of demand and recovery thereof is where stay is granted by the appropriate authority on the recovery of such demand, which is not the case in the present appeals. We may also refer to the decision of the Hon'ble Supreme Court in the case of ITO vs. Seghu Buchiah Setty (1964) 52 ITR 538 (SC). In the said case the ITO assessed the respondent on estimate to the best of his judgment and issued notices of demand under s. 29 of the Indian IT Act for recovery of tax. The assessee preferred appeals against the assessment orders, but did not pay the tax. The AO forwarded a certificate to the Collector under s. 46(2) for recovery of the tax arrears of land revenue and the Collector attached various properties of the respondent. Thereafter, the tax payable by the respondent was substantially reduced by the AAC and the ITO informed the respondent of reduced tax liability and called upon him to pay the reduced tax. No fresh notice of demand was issued. The respondent requested that the recovery proceedings might be stayed and on his request being rejected, moved the High Court. The High Court held that the Department was not entitled to treat the respondent as a defaulter in the absence of a fresh notice of demand and quashed the recovery proceedings. On appeal to the Supreme Court, by a majority judgment it was held that the High Court was right in quashing the recovery proceedings. It was also held by a majority decision that fresh demand notice had to be served on the respondent before he can be treated as a defaulter. However, Hon'ble Justice J. C. Shah, while dissenting, observed that "in the absence of any provision imposing an obligation upon the ITO to issue successive notices of demand from time to time for recovery of the amount due during the process of assessment, the notices of demand issued by the ITO under s. 29 may be enforced in the manner provided by s. 46 and within the period of limitation provided in s. 46(7), even after the appeal against the order of assessment by the ITO, is disposed of, subject to adjustment of the amount to be recovered in the light of the order of the AAC. He further observed that a person who has failed to comply with a notice of demand would continue to be defaulter notwithstanding the reduction of his liability by an order of the appellate authority. He also observed that there is only one exception to this rule and that is when the order of assessment is wholly set aside." We feel that the ratio of the said decision, including the dissenting views, of Justice J. C. Shah lead to the conclusion that the AO is entitled to pursue the demand of tax in a situation where the tax is reduced in view of the decision of the first appellate authority or the same is increased by such authority. The only question in that case was whether fresh notice of demand was required to be issued or not. Keeping in view the aforesaid judgment, we feel that the AO was free in these cases to revive the demand in relation to issues which were restored to the file of the learned CIT(A), as the relief allowed to the assessee stood withdrawn till the issues were decided by the learned CIT(A) afresh.