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K.V.S.N. Papa Rao Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1982)1ITD805(Hyd.)
AppellantK.V.S.N. Papa Rao
RespondentWealth-tax Officer
Excerpt:
.....levied delay in months rs.1969-70 380 411970-71 310 291971-72 256 171972-73 212 5 against these penalty orders, the asssesee preferred appeals before the aac. the aac upheld the orders of penalty for the assessment year 1969-70, but for the other three assessment years, i.e., 1970-71, 1971-72 and 1972-73, while upholding the orders of the wto levying the penalties, reduced the period of delay in filing the returns to 9 months, 9 months and 4 months, respectively. at the time of passing the consequential order in order to give effect to the above said orders, the wto noticed that there was a mistake, in calculation of the penalties levied in the orders passed under section 18(1)(a) on 30-3-1976. according to the wto, for the assessment year 1969-70 for the delay of 41 months the.....
Judgment:
Wealth Tax Officer was not entitled to recompute penalty as his original order became merged with that of Appellate Assistant Commissioner.

The Appellate Assistant Commissioner, while upholding the penalty order under section 18(1)(a), reduced the period of delay in filing of returns. The Wealth Tax Officer at the time of giving effect to the order of the Appellate Assistant Commissioner noticed that the penalty order as passed by the Wealth Tax Officer himself carried certain calculation mistakes of penalty and came to conclusion that it was mistake apparent from record and rectified it under section 35. The assessee objected to this rectification.

In the present case, the entire order of the Wealth Tax Officer levying penalty had merged in the order of the Appellate Assistant Commissioner. What the Wealth Tax Officer has virtually done by passing the impugned rectification order is to usurp the powers of the Appellate Assistant Commissioner to enhance the penalty. The order of rectification passed by the Wealth Tax Officer under section 35 is therefore, erroneous, and consequently, annulled.

1. These appeals are directed against the order of the AAC dated 29-11-1980. Since the questions involved in these appeals are common they are taken up together and disposed of by this common order for the sake of convenience. According to the facts of this case, originally on 30-3-1976, the WTO levied penalties under Section 18(1)(a) for the delay in filing the returns as mentioned hereunder :Assessment year Penalty levied Delay in months Rs.1969-70 380 411970-71 310 291971-72 256 171972-73 212 5 Against these penalty orders, the asssesee preferred Appeals before the AAC. The AAC upheld the orders of penalty for the assessment year 1969-70, but for the other three assessment years, i.e., 1970-71, 1971-72 and 1972-73, while upholding the orders of the WTO levying the penalties, reduced the period of delay in filing the returns to 9 months, 9 months and 4 months, respectively. At the time of passing the consequential order in order to give effect to the above said orders, the WTO noticed that there was a mistake, in calculation of the penalties levied in the orders passed under Section 18(1)(a) on 30-3-1976. According to the WTO, for the assessment year 1969-70 for the delay of 41 months the penalty worked out to Rs. 2,993 as against Rs. 380 levied by him. Similarly, according to the reduced periods of delay by the AAC, as stated above, the correct penalties leviable worked out to Rs. 1,103, Rs. 2,192 and Rs. 740 for the assessment years 1970-71, 1971-72 and 1972-73, respectively.

2. Since according to the WTO, there was a mistake apparent from the records in calculating the penalties, he initiated action under Section 35 of the Wealth-tax Act, 1957 ("the Act"), for all these four years.

The asses-see in the explanation filed on 8-11-1977 stated that there was no justification for the WTO to revise the penalties. It was further stated that even if a minimum penalty is warranted, the authorities competent to impose the penalty would be justified in refusing to impose a penalty when there was a technical or venial breach of the provisions of the Act, as stated in the decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26. The assessee also stated that the WTO who had levied the penalties might have taken a lenient view for levying a lesser penalty. But, however, the WTO refused to accept the explanation offered by the assessee. He came to the conclusion that there was a clear mistake apparent from records in this case. Hence, he passed an order under Section 35 by levying the penalties as under for the periods determined by the AAC : 3. Aggrieved by the orders of penalties, the assessee preferred appeals before the AAC, challenging the penalties levied by the WTO for all the assessment years under consideration. The assessee reiterated the same arguments as were advanced before the WTO. Since the AAC was of the view that there was a mistake in calculation of the penalties in the orders passed under Section 18(1)(a), he came to the conclusion that the orders passed by the WTO under Section 35 were quite correct and reasonable. Not satisfied with the orders passed by the AAC, the assessee filed the present appeals before the Tribunal contending that the AAC erred in upholding the orders passed by the WTO under Section 35. He should have observed that the WTO should have proportionately reduced the penalties in accordance with the periods of delay determined by the AAC. It was further contended that the AAC was not correct in holding that once the WTO decided to levy the penalty he was bound to levy the minimum prescribed by the Act. He should have observed that the discretion of the WTO was not only to levy penalty but also to the quantum of penalty. Yet another contention put forward by the assessee was that the AAC should have held that the WTO was only to carry out the order of the AAC once his order was held against and was given direction how to determine the penalty (sic.) 4. Before us the learned counsel appearing for the assessee contended that as the entire order of penalty levied by the WTO was the subject-matter of appeal before the AAC, the order of the WTO got merged in the order of the AAC and hence the WTO has no jurisdiction to rectify the order under Section 35. He also submitted that Section 35(8) is similar to Section 154(1 A) of the Income-tax Act. It was further contended that if at all an increase in penalties as originally levied was to be made, the power to enhancement was vested with the AAC under Section 23(5) and he could and should have done the same, if there was really a mistake calling for rectification,, when he heard the appeals against the orders imposing penalty and he having not done so, it was not open to the WTO when implementing the appellate order to enhance the penalties by having resort to the provisions of Section 35.

In support of his contention, the learned counsel relied upon a decision of the Madras High Court in the case of CIT v. Indian Auto Stores [1981] 129 ITR 554. It was further contended that once a ground was taken up in appeal before him, the silence of the AAC on that particular point meant that he had confirmed the order of the WTO on that point and, therefore, the operative order was that of the AAC and the WTO had no jurisdiction to pass the order of rectification. In support of this contention, the decision of the Delhi High Court in the case of Rohtak & Hissar Districts Electric Supply Co. (P.) Ltd. v. CIT [1981] 128 ITR 52 was brought to our notice. It was further contended that the plea of merger would have to be examined in the light of what was in controversy before the appellate authority or what could have been considered by the appellate authority. According to the learned counsel appearing for the assessee, the AAC has dealt with both the quantum and the validity of imposing penalty in his order for the assessment year under consideration and, therefore, the entire order of the WTO merged in the order of the AAC. According to him, this view was fortified by a decision of the Madras High Court in the case of CIT v.City Palayacot Co. [1980] 122 ITR 430.

5. On the other hand, the learned departmental representative contended that the AAC did not consider the quantum at all. What the AAC dealt with was only with regard to the aspect whether there was default which attracted penalty and once when the penalty was held to be leviable for delay in filing the return, he is bound to levy the minimum penalty prescribed under the Act and he cannot travel beyond that. Further, it was contended that an order, whether of assessment or of other nature, made by the WTO merged in the order of the AAC only in so far as it relates to items considered and decided by the AAC. That part of the order which relates to items not forming the subject-matter of appeal has to be considered as left untouched and does not merge in the order of the AAC. Even if an appeal from an order is decided by the AAC, a mistake in that part of the order which was not the subject-matter of review by the AAC and was left untouched by him, can be rectified by the WTO under Section 35 because the mistake would be his own mistake which he can always correct. For this line of arguments, the learned departmental representative relied upon a decision of the Gujarat High Court in Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255. Further the learned departmental representative relied upon a decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. CIT [1977] 106 ITR 33 wherein the Calcutta High Court held that: ... there could not be any merger of the order of the appellate authority with the order of the subordinate authority. What the Appellate Assistant Commissioner has done was to direct the Income-tax Officer to consider the claim of the petitioner and to grant him such rebate and allowance which the petitioner was entitled to under the law. To what extent, if at all, the petitioner was entitled to such relief and rebate the Appellate Assistant Commissioner had not directed. While passing the order in consequence of the Appellate Assistant Commissioner's direction, if the Income-tax Officer acts erroneously or contrary to the provisions of law, it could not be said that the same formed part of the order of the Appellate Assistant Commissioner as it was an independent order and was, therefore, subject to the revisional power of the Commissioner.(p. 33) Finally the learned departmental representative contended that apart from case law, Section 35(8) expressly provided for rectification by the WTO of matters which had not been the subject-matter of appeal to the AAC.6. We have heard the rival submissions made by the parties. For the assessment year 1969-70 the valuation date was 31-3-1969. The due date for filing the return was 31-7-1969 and actually it was filed on 7-12-1972. Hence, there was a delay of 41 months. The wealth returned by the asses-see for this assessment year was Rs. 93,135 while the wealth assessed was Rs. 1,49,155. Originally for a delay of 41 months the penalty levied under Section 18(1)(a) of the Act was Rs. 380.

On appeal, the AAC reduced the wealth to Rs. 1,14,650 and the period of delay was fixed at 41 months by the AAC.7. For the assessment year 1970-71, the valuation date was 31-3-1970.

The due date for filing the return for this year was 31-7-1970 The return was actually filed on 7-12-1972. Thus there was a delay of 29 months. On appeal, the delay was reduced to 9 months by the AAC.Originally the penalty under Section 18(1)0) was levied by the WTO at Rs. 310. The wealth returned by the assessee was Rs. 1,01,700 while the wealth assessed was Rs. 1,69,160. On appeal, the wealth was reduced by the AAC at Rs. 1,49,160.

8. For the assessment year 1971-72 the valuation date was 31-3-1971 and the due date for filing the return was 31-7-1971. Admittedly, the return was filed on 7-12-1972. Thus, there was a delay of 17 months. On appeal, the delay was reduced to 9 months by the AAC. Originally under Section 18(1)(a) the penalty levied was Rs. 256. The wealth returned by the asses-see was Rs. 1,18,700 and the wealth assessed was Rs. 1,99,160. It was reduced to Rs. 1,49,160, on appeal, by the AAC.9. For the assessment year 1972-73 the valuation date was 31-3-1972 and the due date for filing the return was 31-7-1972. The return was actually filed on 7-12-1972. Hence, there was a delay of 5 months in filing the return. The period of delay was reduced to 4 months, on appeal, by the AAC. The wealth returned for this year was Rs. 1,07,700 while the wealth assessed was Rs. 1,99,600 and on appeal, the wealth was reduced to Rs. 1,37,000 by the AAC.10. The fact remains that there was delay in filing the returns. The WTO was of the opinion that there was no proper explanation for not filing the return in time and hence he levied the penalties. The levy of penalties as such was contested before the AAC. On appeal, the assessee's submission was that he should not be visited with any penalty at all. While holding that penal provisions were attracted due to default and levy of penalty was in order, the AAC had reduced the periods of delay in filing the returns for certain years. At the time of giving effect to the AAC's orders the WTO noticed that there were mistakes in calculating the penalties levied in the orders passed under Section J8(1)(a) on 30-8-1976. Since, according to the WTO, there were mistakes apparent from the records in calculation of the penalties, he passed orders under Section 35 by levying enhanced penalties for the periods determined by the AAC.11. The point to be considered at this stage is whether the quantum of penalty is one which had been considered and decided by the AAC. The order of the AAC clearly showed that he has considered the explanation offered by the assessee and ultimately came to conclusion confirming the penalty levied for the assessment year 1969-70, while reducing the periods of default for the rest of the assessment years. Though he had power of enhancement he did not exercise such power in this case. The learned departmental representative contended that there is no merger in this case because there is nothing to show that the AAC had considered and decided the question of quantum of penalty. We have shown in the present case that the quantum of penalty was involved in the appeals for the assessee's contention was that no penalty should be imposed. The AAC should, therefore, have also examined the arithmetical computation of quantum of penalty himself in deciding the appeal.

Therefore, in the present case, the entire order of the WTO levying penalty had merged in the order of the AAC.12. The doctrine of merger is well explained by the following passage from the judgement of the Supreme Court in CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130 wherein the Supreme Court held that: If an appeal is provided against an order by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority, the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement.(p. 131) The principal laid down by the Gujarat High Court in Karsandas Bhagawandas Paid (supra) is that the doctrine of merger will have to be taken into account in the light of what was in controversy before the appellate authority and what would have been considered by the appellate authority.

13. According to the decision of the Madras High Court in the case of City Palayacot Co. (supra), there cannot be any merger with the AAC's order if the assessment order was silent on a particular point. In the decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. (supra), it was stated that there could not be any merger of the order of the subordinate authority with that of the appellate authority because the AAC had only directed the ITO to look into certain matters and decide according to law, and therefore, while passing the order in consequence of the AACs direction if the ITO acts erroneously or contrary to the provisions of law, it could not be said that the same formed part of the order of the AAC as it was an independent order and was, therefore, subject to the revisional power of the Commissioner.

The facts appearing in the present appeals are different and the above decisions of the Madras and Calcutta High Courts will not be of any help to the department.

14. What the WTO feas virtually done by purporting to act under Section 35 and passing orders under consideration, is to usurp the powers of the AAC to enhance the penalty. Therefore, the WTO's order in rectifying the earlier order which has already merged with the order of the AAC is clearly hit by the doctrine of merger as enunciated by the judgment of the Supreme Court in the case as reported in Amritlal Bhogilal & Co. (supra). This is not a case which falls under the explanations set out in Section 35(2). Thus by considering the facts of these appeals in the light of the decision of the Supreme Court as reported in Amritlal Bhogilal & Co. (supra) and also the judgment of the Madras High Court in the case of Indian Auto Stores (supra), we are of the view that the order of rectification passed by the WTO under Section 35 is erroneous and, consequently, we annul the same and direct the WTO to give effect to the direction which has been given by the AAC in this order dated 24-8-1977.

15. In the result, the orders passed by the authorities below are annulled and the appeals are allowed.


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