The CIT(A) erred in admitting the appeal of the assessee, particularly in view of the change in law regarding the admissibility of appeals with effect from 1-4-1989 as per which the power of the CIT(A) and Dy. CIT(A) to condone the lapse of admitted tax has been withdrawn.
3. The facts in brief are as follows : The assessee filed its return of income on 9-2-1989 admitting a total income of Rs. 83,54,950. Tax to be paid thereon under Section 140A of the Income-tax Act, 1961, was Rs. 13,68,096. This was not paid. The assessment was completed on 30-3-1989 determining the total income at Rs. 1,45,06,670. Against this order, the assessee filed an appeal which was received in the office of the Commissioner of Income-tax (Appeals) on 26-4-1989. At the time of filing of the appeal, the balance of tax of Rs. 13,68,006 on the admitted income remained unpaid. However, on 20-6-1989, the assessee paid the impugned amount and filed another set of appeals on 22-6-1989 along with a petition for condonation of delay in the filing of the appeal. Another petition explaining the circumstances in which it was not able to pay the tax on the admitted income on earlier occasions was also filed along with the condonation petition. In the first petition it was stated as follows : In fact the petitioner had filed appeal against assessment order on 26-4-1989, i.e., within the time limit before you. However, it is now come to the knowledge of the petitioner that there has been a change in the law from 1-4-1989 by which the power to condone the lapse of not paying the tax before filing the appeal under Section 140A given to Commissioner of Appeals is withdrawn. Since at the time of filing the appeal on 26-4-1989 the petitioner was not aware of this position and they were under the impression that since the tax under 140A was not paid by them on account of acute liquidity problems, this will be condoned and the appeal entertained. The petitioner has been given to understand now that the appeal filed is likely to be rejected on technical grounds as stated above. The petitioner is now filing another appeal after payment of tax due under Section 140A along with the condonation petition for delay in filing the appeal.
(4) The petitioner prays that the Commissioner of appeals may be pleased to condone the delay which was happened due to circumstances explained above and entertain the appeal now filed.
However, at the time of hearing of the appeal by the CIT (Appeals) it was contended that the original appeal filed on 26-4-1989 can be taken as valid appeal as the law applicable in respect of an appeal filed was the law as it stood prior to 1-4-1989. At this juncture it would be necessary to recall the provisions of Sub-section (4) of Section 249 as it stood prior to 1 -4-1989 and with effect from 1-4-1989 : 249(4) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal,- (a) where a return has been filed-by the assessee, the assessee has Paid the tax due on the income returned by him; or (b) where no return has been filed by the assessee, the assessee has Paid an amount equal to the-amount of advance tax which was payable by him.-Provided that on an Provided that, in a caseapplication made by the falling under Clause (b)appellant in this behalf, and on an applicationthe Deputy Commissioner made by the appellant in(Appeals) or, as the this behalf, the Deputycase may be, the Commis- Commissioner (Appeals) or,sioner (Appeals) may, as the case may be, thefor any good and suffi- Commissioner (Appeals)cient reason to be may, for any good and sufficientrecorded in writing, reason to be recorded in writing,exempt, him from the exempt him from the operation ofoperation of the the provisions of that clause.provisions of this Based on the provisions of Section 249(4) it was contended by the assessee's Chartered Accountant before the CIT (Appeals) that the law applicable in the case of the assessee was the law as it stood prior to 1 -4-1989 and as such the first appellate authority could admit the appeal if he was satisfied about the reason for the non-payment of the tax on the admitted income. It was further explained that the dispute arose when a notice under Section 143(2) was issued and that was prior to 1 -4-1989 and hence the conditions attached to the right of appeal as they stood prior to 1-4-1989 would fall for consideration. Reliance was placed on the observations of Chaturvedi and Pithisaria's Income-tax Law, 3rd Edition, Volume 5, pages 4194 to 4196. The learned CIT (Appeals) quoted the comments of the learned authors in extenso in his appellate order and agreed with the assessee that as the lis in the tax proceedings arose prior to 1-4-1989, the unamended provisions of Section 249(4) would fall for consideration in the case of the appeal filed by the assessee. Then he looked into the circumstances which prevented the assessee from the payment of the tax on the admitted income at any time on or before the filing of the appeal and on a careful consideration of the circumstances explained by the assessee in its petition for condonation of the technical lapse in the payment of the tax on the admitted income, he came to the conclusion that the assessee was, in fact, suffering from acute financial difficulties, but, however, it managed to pay the tax on the admitted income subsequently with great difficulties and, therefore, he exercised his discretion in condoning the default in the payment of the tax and entertained the appeal of the assessee. It is against this order of the CIT (Appeals) that the revenue is on appeal.
4. Sri C.K. Nair, the learned counsel for the assessee submitted that the moment the income-tax authorities issued a notice under Section 143(2) of the Income-tax Act, the proceedings stand initiated and for the purposes of the accrual of the right of appeal the critical and relevant date is the date of initiation of the proceedings and not the decision itself, i.e., the date of issue of Section 143(2) notice and in this connection he relied on the decision of the Patna High Court in the case of Raja Bahadur Kamakhya Narayan Singh v. State of Bihar  46 ITR 516. In this case, there is no dispute that the assessment proceedings were commenced and completed even before the amended provisions came into force. Therefore, the assessee would be governed by the law as it stood prior to 1 -4-1989. In this connection, he relied on the following decisions:State of Bombay v. Supreme General Films Exchange Ltd. AIR 1960 SC 980;Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh  4 STC 114 (SC); (5) CIT v. Bengal Card Board Industries and Printers (P.) Ltd.  176 ITR 193 (Cal.).
Alternatively, Sri Nair contended that if the provisions of Section 249(4) as amended with effect from 1-4-1989 were to apply, another set of appeals containing the same grounds of appeal filed by the assessee along with a petition for condonation of delay and along with the payment of tax on the admitted income (pages 42 to 45 of the paper book) were there before the CIT (Appeals) for his consideration.
Inasmuch as, the second set of appeals contained the same subject-matter and same grounds of appeal for the same assessment year in respect of the same assessee, in the interest of substantial justice, the order of the CIT (Appeals) adjudicating upon the first set of appeals should not be set aside and he should be deemed to have entertained the second set of appeals. Sri Nair further submitted that this is only his alternative plea.
5. Sri C. Abraham, the learned senior departmental representative submitted that the appeal was filed after the coming into force of the amended provisions of Section 249(4), taking away the right of the CIT (Appeals) to condone the non-payment of tax and as the assessee did not pay the tax on the admitted income when it filed the first set of appeals, the CIT (Appeals) should not have entertained the same.
Turning to the alternative plea of Sir C.K. Nair that the second set of appeals filed by the assessee after payment of tax on the admitted income with a petition for condonation of delay in the filing of the second set of appeals, Sri Abraham submitted that it should not be entertained at this stage since the CIT (Appeals) had not considered the second set of appeals filed before him.
6. Having regard to rival submissions and the materials on record, we uphold the order of the CIT (Appeals). In Bengal Card Board Industries & Printers (P.) Ltd. 's case (supra), it was held at page 194 by the Calcutta High Court as follows : The right of appeal is a statutory right. It is a creature of the statute. The right of appeal is not merely a matter of procedure. It is a substantive right. This right is vested in an assessee when proceedings are first initiated and before a decision is given by the first court or authority. For the purpose of the accrual of the right of appeal, the crucial and relevant date is the date of initiation of the assessment proceedings, i.e., the date of issue of notice under Section 143(2) of the Income-tax Act, 1961. It is the Law existing on the day the proceeding was first initiated which governs the exercise and enforcement of the right of appeal. A subsequent amendment cannot curtail this right. Where, on the date of the initiation of the assessment proceeding, law permitted an appeal to be preferred without payment of the admitted tax liability, but subsequently, if the law is amended requiring deposit of the entire amount of admitted liability before the appeal is entertained, the right of appeal in such a case should be governed by the unamended law.
The Apex Court in Hoosein Kasam Dada (India) Ltd.'s case (supra) held that- A right of appeal is not merely a matter of procedure. It is a matter of substantive right. This right of appeal from the decision of an inferior Tribunal to a superior Tribunal becomes vested in a party when proceedings are first initiated in and before a decision is given by the inferior Court.
A pre-existing right of appeal is not destroyed by an amendment if the amendment is not made retrospective by express words or necessary intendment. The fact that the pre-existing right of appeal continues to exist must, in its turn, necessarily imply that the old law which created that right of appeal must also exist to support the continuation of that right. As the old law continues to exist for the purpose of supporting the pre-existing right of appeal that.old law must govern the exercise and enforcement of that right of appeal and there can then be no question of the amended provision preventing the exercise of that right.
A provision which is calculated to deprive an assessee of the unfettered right of appeal cannot be regarded as a mere alteration in procedure.
For the purposes of the accrual of the right of appeal the critical and relevant date is the date of initiation of the proceedings and not the decision itself.
Finally, Sri Ganapathy Aiyar faintly urges that until actual assessment there can be no 'lis' and, therefore, no right of appeal can accrue before that event. There are two answers to this plea.
Whenever there is a proposition by one party and an opposition to that proposition by another a 'lis' arises. It may be conceded, though not deciding it, that when the assessee files his return a 'lis' may not immediately arise, for under Section 11(1) the authority may accept the return as correct and complete. But if the authority is not satisfied as to the correctness of the return and calls for evidence, surely a controversy arises involving a proposition by the assessee and an opposition by the State. The circumstance that the authority who raises the dispute is himself the Judge can make no difference, for the authority raises the dispute in the interest of the State and in so acting only represents the State. It will appear from the dates given above that in this case the 'Its' in the sense explained above arose before the date of amendment of the section. Further, even if the 'lis' is to be taken as arising only on the date of assessment, there was a possibility of such a 'lis' arising as soon as proceedings started with the filing of the return or, at any rate, when the authority called for evidence and started the hearing and the right of appeal must be taken to have been in existence even at those dates. For the purposes of the accrual of the right of appeal the critical and relevant date is the date of initiation of the proceedings and not the decision itself.
The other cases also do support the order of the CIT (Appeals) which is a very well reasoned order with which we concur without any hesitation.
In this view of the matter, it is not necessary to consider the alternative plea of the learned counsel for the assessee. We may add in this context that the learned Commissioner (Appeals) was satisfied with the circumstances for the non-payment of tax on the admitted income. No material is placed before us by the revenue in support of its contention requiring us to take a different view. For all these reasons, we reject the first ground of appeal preferred by the revenue.
3. The CIT(A) erred in deleting the addition made of Rs. 9,84,720 representing the credits appearing in the partners' accounts.
4. The CIT(A) ought to have considered that when the credits exist, the onus is on the assessee to explain them satisfactorily and there is no indication in the appellate order that even such evidence was produced before the CIT(A). The CIT(A) has, however, considered only the entries in the books for the assessment year 1986-87 and not those of 1983-84 or 1984-85 which are very relevant to the issue.
On scrutiny of the books of accounts, the Assessing Officer found that there were credits of Rs. 3,28,340 as on 31-3-1986 in the names of each of the three partners. Thus, the total credit came to Rs. 9,84,720. The assessee's explanation was that this amount represented the income accounted for in the books of the sister concern by name M/s. Nidhish Transport Corporation, for the assessment year 1983-84, but treated by the Assessing Officer as the income of the assessee and, therefore, entries were passed to give effect to such position. It was further explained that the amount of Rs. 9,84,720 was one of the items to explain the various credits totalling Rs. 2,05,61,962 in the assessment year 1984-85. Therefore, there can be no further addition in respect of the sum of Rs. 9,84,720 for the impugned assessment year. The learned Assessing Officer was of the view that since the amount of Rs. 9,84,720 was already considered as a source for the explanation of the total credits found in the accounts of the partners in the assessment year 1984-85, it could not take credit for the same amount in the assessment year 1986-87. Thus, he made an addition of Rs. 9,84,720. The assessee appealed. The learned CIT (Appeals) accepted the contention of the assessee that the credits appearing in the partners' current accounts during the previous year relevant to the assessment year 1986-87 are only rectification entries passed for reconciling the balances in the assessee's accounts with the accounts of the sister concerns. In this connection, he went into the entries passed in the journal and extracted the same as follows :Date Particulars L.F. Dr.
Cr.31-3-1986 P.V. Hemalatha Dr C7/1 196944 P.K. Kum. Kamalam " C8/1 196944 To KTC " K10 984720 (Being freight collections Sri P.V. Sami 328240 To current a/c.
C2/3 Sri P.V. Chandran C3/3 328240 To current a/c.
328240 Shri P.V. Gangadharan The CIT (Appeals) held that these entries are mere rectification entries and they cannot constitute income for the impugned assessment year. Thus, he deleted the addition. The revenue is aggrieved.
8. We have heard rival submissions. We have verified the sources of the entries. They are from the journal and they represent contra-entries meaning thereby that for a similar sum of credit in one account, a similar sum of debit is given in another account. From the journal, it is evident that the sister concern has received the debit entry with corresponding credit to the partners' accounts. Thus no cash came into the business or went out of the business by means of such entries. It is only when the money is, in fact, introduced into the books by means of credits to some account or other, the case would fall for addition under other sources. Such is not the effect of the entries passed in the partners' accounts. Such entries do not figure in the cash book also. Hence there cannot be any addition on this count under the head other sources.
9. From the narration giving rise to the entries as found in the journal and as extracted by the CIT (Appeals) it is very clear that in the assessment for the assessment year 1983-84, the learned Assessing Officer took the freight collections of Rs. 9,84,720 as the income of the assessee though the same was accounted for in the books of M/s.
Nidhish Transport Corporation. This is very evident from the assessment order for the assessment year 1983-84 passed by the Income-tax Officer, Central Circle, Calicut in File No. 46-013-FV-5756/CC, dated 23-9-1985, therein at para 4, after referring to the sum of Rs. 9,84,720.75, he concluded as follows: Therefore, the sum of Rs. 9,84,720.75 shown as freight receipt is deducted from the income admitted by the assessee (NTC). The net effect is that the assessee's income gets reduced by this amount and the income of M/s. Kerala Transport Co. is increased by a corresponding amount.
It is also seen from the assessment order of the assessee for the assessment year 1983-84 that it had included in its income a sum of Rs. 9,84,721, the collections of M/s. Nidhish Transport Corporation on cash basis. However, the assessment had proceeded in a much larger amount as the Assessing Officer was computing the freight collections on mercantile basis instead of on cash basis. Thus, finally this sum of Rs. 9,84,721 stood assessed in the hands of M/s. Kerala Transport Co.
in the assessment year 1983-84. In the assessment year 1984-85, the assessee had passed entries to adjust the accounts of the partners in respect of the omissions and commissions in respect of its income and expenditure as admitted in the preceding years and offered for assessment. This sum of Rs. 9,84,720 was admittedly one of the items taken into account at the time of adjustment of the partners' accounts in the previous year relevant to the assessment year 1984-85 with corresponding debit to the sundry debtors account. Having passed adjustment entries in the books of the firm in relation to the assessment year 1984-85, the passing of entries in relation to one of the same items again in the assessment year 1986-87 by adjusting the accounts of the partners is obviously erroneous resulting in duplication. If the intention was to take the impugned amount from out of sundry debtors account and to show it precisely in a particular account to which it related, the proper course would be to debit M/s.
Nidhish Transport Corporation, as has been done now, but credit should have been given not to the partners' accounts but only to the sundry debtors accounts. Then only it can be classified as a rectification entry and the CIT (Appeals) erred in holding that the entry passed by the assessee as extracted by him is only a rectification entry. In our considered opinion the entries passed by the assessee as they stand in the books of accounts are mere duplication entries so far as the accounts of partners are concerned and not rectification entries. Even so, we hold that there has been no inflow of cash into the firm from the very nature of the entries passed in the journal and, therefore, no addition can be sustained. In this view of the matter, the department's grounds in relation to this item are rejected.
10. The third ground of appeal is against the deletion of the addition of Rs. 10,00,000 under inadmissible expenses. The assessee's turnover though exceeded Rs. 40 lakhs but it did not furnish an audit report under Section 44AB of the Income-tax Act, along with the return of income. The Assessing Officer was of the view that in the preceding assessment year when the accounts were subjected to audit, the auditor had reported various mistakes in the accounts totalling Rs. 12,12,138 and, therefore, if the accounts of the assessee were subjected to audit for the impugned assessment year, the audit was likely to reveal inadmissible items for this year also and in this view of the matter he estimated the inadmissible expenses at Rs. 10,00,000 and added the same to the assessee's total income. The CIT (Appeals) held that the Assessing Officer was not justified in making such a disallowance on the ground of likelihood of the audit revealing various items of inadmissible expenses. In his opinion the disallowance was without any basis and was unsustainable. Hence, he deleted the addition.
11. Sri Abraham (with considerable embarrassment) supported the ground of appeal of the revenue before us, submitting that in the absence of audit report and in view of the past performance of the assessee, an estimate of the inadmissible expenses was called for. Sri Nair vehemently supported the findings of the CIT (Appeals) that the addition was without any basis and was purely conjectural in nature.
12. We are surprised at the manner in which the addition has been made in such a huge sum of Rs. 10,00,000 without any basis. In the absence of audit under Section 44AB of the Act, if the Assessing Officer had reason to believe that the assessee's accounts were defective and were pregnant with defects, deficiencies and inadmissible deductions, etc., he should have at least pinpointed a few items or could have evoked the provisions of Section 142(2A) of the Act before making the estimated addition. On the other hand, the additions were based on suspicions, surmises and conjectures. Suspicion, however great, cannot take the place of proof. The learned CIT (Appeals) justly intervened in the facts and circumstances of the case to delete the addition. There is no substance in the revenue's grievance.