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Niranjan and Co. Ltd. Vs. Income-tax Appellate Tribunal and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberC.R. No. 12652(W) of 1975
Judge
Reported in[1980]122ITR519(Cal)
ActsIncome Tax Act, 1961 - Section 254, 254(1) and 254(2)
AppellantNiranjan and Co. Ltd.
Respondentincome-tax Appellate Tribunal and ors.
Appellant AdvocateA.K. Roy Chowdhury and ;J.C. Saha, Advs.
Respondent AdvocateA.K. Sengupta and ;Rupendra Nath Mitra, Advs.
Excerpt:
- .....30,008 which was written off as bad debt against the income from business in iron goods and the contract business. be that as it may, in the order of assessment under the heading ' loss on running job ' the ito found this loss related to the contract business which was closed down two years back and that actually no contract work was done during the year. according to the petitioner, this building construction work was not closed in the year. this contention was not accepted by the ito. accordingly, this sum of rs. 30,008 was added back. being aggrieved by the assessment order, the petitioner preferred an appeal before the aac, range-z, calcutta, who by his order dated 11th september, 1970, confirmed the said disallowance and the addition of rs. 30,008 made by the respondent no. 4......
Judgment:

B.C. Basak, J.

1. In this application under Article 226 of the Constitution of India the petitioner is challenging the orders of the Tribunal dated 5th October, 1972, and 29th March, 1975, respectively. The facts of this case so far as they are relevant for the purpose of the decision herein are as follows:

2. The petitioner is a public limited company. The petitioner carries on business in iron and structural steel materials. According to the petitioner, the petitioner has been regularly carrying on business in iron and structural steel materials and also business of contract. Regarding the accounting period ended on the last day of Chaitra, 1370 B.S., corresponding to 13th April, 1964, relevant for the assessment year 1964-65, according to the petitioner It suffered a loss of Rs. 30,008 which was written off as bad debt against the income from business in iron goods and the contract business. Be that as it may, in the order of assessment under the heading ' Loss on running job ' the ITO found this loss related to the contract business which was closed down two years back and that actually no contract work was done during the year. According to the petitioner, this building construction work was not closed in the year. This contention was not accepted by the ITO. Accordingly, this sum of Rs. 30,008 was added back. Being aggrieved by the assessment order, the petitioner preferred an appeal before the AAC, Range-Z, Calcutta, who by his order dated 11th September, 1970, confirmed the said disallowance and the addition of Rs. 30,008 made by the respondent No. 4. Similar contention was made by the assessee before the AAC. There was a further appeal before the Income-tax Appellate Tribunal. The Tribunal by its order dated 5th October, 1972, dismissed the appeal subject to certain observations made regarding interest with which I am not concerned. The relevant portion of the order of the Tribunal is as follows:

' The assessee-company deals in structural steel materials. In the preceding years, it was also doing business as a contractor. No business of contracts was done in the previous year relevant for 1963-64 or subsequent years up to date. In the year under appeal, a sum of Rs. 30,008 was debited to the profit and loss account as loss on running account. The Income-tax Officer noted that this amount was a loss relating to the contract business which was closed down two years earlier. He disallowed the amount as being loss pertaining to a defunct business. The disallowance has been upheld by the Appellate Assistant Commissioner who found that the contract business done by the assessee was a separate business having no connection with or dependence on the business in iron and steel goods. No material has been brought by the assessee on record to show that the contract business and the business in hardware and structural steel were one and the same business. It is also on record that the contract business was not done from 1963-64 assessment year onwards. In these circumstances, the revenue authorities were justified in rejecting the claim that the sum of Rs. 30,008 being loss incurred in the contract business be allowed. The assessee's objection on this score stands rejected.'

3. Thereafter, an application was made by the assessee before the Appellate Tribunal under section 254(2) praying for rectification of the mistake appearing in the order dated the 5th October, 1972. This application was made on the ground that the observation by the Tribunal in its order ' that no material has been brought by the assessee on record to show that the contract business and the business in hardware and structural steel were one and the same business and that it was also on record that the contract business was not done from 1963-64 assessment years onwards ' is not correct. It was stated that the learned member was wrong in recording the aforesaid. The allegation of the petitioner regarding the same as it would appear from the petition for rectification is as follows :

' 2. On the date of hearing on 24th July, 1972, the authorised representative, Shri A.K. Mukherjee (and not Sri B. N. Mukherjee) appeared on behalf of your petitioner and contended before the learned member, Shri Harnam Shankar, that the Appellate Assistant Commissioner of Income-tax was wrong in holding that' the contract loss incurred by it was a separate business and it did not have any connection with or dependence on iron and steel goods and, therefore, the loss claimed in respect of the contract business cannot be allowed as a deduction against the profit from the business in iron and steel goods'. It was further contended before the learned member that the Appellate Assistant Commissioner was wrong in coming to his conclusion that ' the appellant did not carry on the contract business either in the assessment year 1963-64, or in the year under appeal'. The authorised representative before the learned member contended that the finding arrived at by the Appellate Assistant Commissioner of Income-tax was not correct and also not based on any material. It was pointed out before the learned member that the appellant-company did never close down its contract business. As the company did not procure the order from the different parties and Government, the company could not execute any fresh contract but the company was continuing with the contract business. The learned authorised representative also stated that the business of the appellant in iron and steel goods and the contract business were, in fact, one and the same business under the control, power and management of the said company. It was also pointed out that the Income-tax Officer admitted in the earlier assessments that it was the same business and computed the income accordingly. In support of the statements made before the learned member, the authorised representative produced the profit and loss account and balance-sheet of the company, memorandum and articles of association, books of accounts and vouchers.

That the learned authorised representative contended that since the contract business was continuing and there was no notice given to the Income-tax Officer for discontinuance of business, the loss during the said year should be allowed in computing the profit of the business.

3. That it appears that the learned member recorded in the order that ' no material has been brought by the assessee on record to show that the contract business and the business in hardware and structural steel were one and the same business. It is also on record that the contract business was not done for the assessment year 1963-64 onwards '.

4. That your petitioner submits that the learned member was wrong in recording the aforesaid allegations.

5. That the facts are that the company carried on the business for contract and in hardware and structural steel which were one and the same business. The company maintained the books of account and computed the profit and loss account of the said business by taking the result of profit or loss of the business for contract and in hardware and structural steel under the different heads. In the books of account also the expenses incurred by the said business were regularly shown under different heads and the income also regularly shown. The learned member was entirely wrong in recording the aforesaid allegations which neither represent the facts nor represent the correct contentions made by your petitioner.

6. That your petitioner further submits that the learned member without considering the materials, evidence and submissions made on behalf of your petitioner passed the said order on the allegations which were never placed by your petitioner nor it appeared from the records of the case.'

4. The Tribunal dismissed this application for rectification and in this connection, after noticing the contentions of the respective parties, it held as follows:

' At the time of the hearing of the miscellaneous petition, specific attention was drawn to the copies of the profit and loss account and the balance-sheet along with the statement of accounts of various jobs. It is noticed that all that these accounts show is that the assessee debited to its consolidated profit and loss account the following items under the head ' Loss on running job ':

Rs.

Nilgunge Type II Special 5,479I. G. New Mint Type III, Alipore23,464I. G. New Mint Type IV 612Nilgunge Road and Paths 454

30,009

5. The consolidated profit and loss account is credited with Rs. 7,105 which is described as profit on 64 sets of sub-inspectors' quarter. The individual balance-sheet and profit and loss accounts for these various running jobs did not show that any work whatsoever was done during the previous year. In Nilgunge Type II, there was brought forward an outstanding bill of Rs. 6,689 against which Rs. 1,210 were debited for amount received. The balance of Rs. 5,479 was debited to the profit and loss account as bad debts written off. Similarly, for I.G. New Mint Type IV, there was an outstanding bill brought forward from the preceding year amounting to Rs. 1,705, Rs. 1,093 were received during the previous year and the balance of Rs. 612 was debited to the profit and loss account as bad debt. In respect of Nilgunge Road and Paths, there was an outstanding bill of Rs. 694; Rs. 240 was realised during the previous year and Rs. 454 were written off as bad debt. Similarly, for I.G. New Mint Type III, Alipore, there was an outstanding amount of Rs. 23,464 brought forward from the earlier year. There was no realisation and the entire amount of Rs. 23,464 was written off as a bad debt, in the previous year. The balance-sheets and profit and loss accounts for these various running jobs did not show any contract activity whatsoever during the previous year. Actually at the time of hearing, it was admitted that there was no actual execution of any contract during the previous year. The amounts claimed as losses are actually bad debts in respect of these contracts, which bad debts have been written off during the previous year. These statements of balance-sheets and profit and loss accounts do not and cannot possibly throw any light on the question as to whether or not the business in contract for construction of building and of the purchase and sale of structural steel constituted one and the same business. The memorandum and articles of association as also the books of accounts of the previous year do not show that the two businesses are part of one and the same business.

'(iii) In the above circumstances, the observation of the Tribunal objected to by the assessee does not need any modification as the observation records the correct state of affairs. '

6. Being aggrieved by the same, the assessee has preferred this application. Mr. Roy Chowdhury, appearing in support of this application, has, firstly, contended that the order made on the rectification application is incorrect and there is an error of law apparent on the face. The Tribunal has acted beyond its jurisdiction. The contention of Mr. Roy Chowdhury is that this was an application for the rectification of the mistake. The Tribunal should have considered this application under section 254(2), which provides as follows:

' The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under Sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer.'

7. The prayer was for rectification of some mistake. The Tribunal has wrongly gone into the merits of the appeal and in effect has sought to rehear the appeal. The scope of the rectification application was limited but the order went beyond the scope of the same. What was done was to pass a fresh order merely to justify its own earlier order on merits. Mr. Roy Chowdhury also submitted that the Tribunal's first order in appeal was also wrong because it was not correct that there was no material before the Tribunal. The Tribunal has acted in error of law by ignoring and not considering the relevant materials.

8. Mr. Sengupta, appearing on behalf of the respondents, has submitted that the order of the Tribunal on the rectification application was correct and there is no error of law apparent. It was for the Tribunal to come to the conclusion whether there was any mistake apparent from the record. The Tribunal found that there was no such mistake apparent from the record. The assessee itself invited decision on the merits and, as such, such decision has been arrived at. Mr. Sengupta has in any event submitted that from the order on the rectification application, a reference application under section 256 of the Act is maintainable and, as such, alternative remedy being there, this court should not entertain any writ petition directed against an order passed on such rectification application. In this connection, Mr. Sengupta has drawn my attention to certain observations made in the Treatise on Income-tax Law by Kanga and Palkhivala. On the question of the order of the Tribunal on appeal Mr. Sengupta has submitted that the petitioner has availed of the alternative remedy by filing the rectification application and accordingly this court should not set aside the order passed by the Tribunal on merits. Mr. Roy Chowdhury in his reply has contended that apart from the observations of the learned author there is no such authority showing that any such application for reference lies in respect of an order passed on a rectification application. Admittedly, there could not be any reference application under the old Act and the position remains the same under the new Act.

9. In my opinion, the order made by the Tribunal on the rectification application is totally misconceived. The Tribunal has acted in error of law. It has acted in excess of its jurisdiction. The jurisdiction of the Tribunal on an application under section 254(2) is to make an amendment of an order passed by it under Sub-section (1) in order to rectify any mistake apparent from the record if such mistake is brought to its notice. In this particular case, the contention of the petitioner was that there was a mistake in the order because it did not correctly record the facts as mentioned above. In view of the same an application had been made and reliance had been placed on a supporting affidavit. It was for the Tribunal to consider such application and decide whether there was any such mistake within the meaning of the said section or not. The Tribunal did not do so in the present case. As a matter of fact nowhere from the order of the Tribunal passed on such rectification application, it is found that the Tribunal has rejected this application on the ground that there was no mistake apparent from the record. On the other hand, the Tribunal has gone into the merits of the appeal again and found that this order is sound even on the basis of the materials sought to be relied upon. This, in my opinion, the Tribunal could not do. The Tribunal has got no power to review an earlier order or rehear a matter afresh. Its only duty on such rectification application is to ascertain whether there was any mistake apparent from the record or not. In my opinion, in the present case, the Tribunal has fallen into the error in not considering such application for rectification within the scope of Sub-section (2) of Section 254, but it has merely reheard the appeal which it was not entitled to do.

10. Regarding the contention raised by Mr. Sengupta that this court should not grant any relief against the same, in my opinion, it cannot be accepted. It is not necessary for me to decide whether an application for reference against an order passed on a rectification application is maintainable or not. Under the previous law, it is clear that no such application for reference was maintainable. If, under these circumstances, the petitioner has made this application in its writ jurisdiction, this court should not reject the same. In any view of the matter, the Tribunal acted without jurisdiction and had failed to exercise its jurisdiction. That being a question of jurisdiction, alternative remedy is no bar and this court may still in exercise of its discretion exercise its jurisdiction in entertaining a writ petition.

11. Regarding the challenge of the original order of the Tribunal on appeal, in my opinion, it is not necessary to go into this question at this stage. It was open to the petitioner to challenge such order on the ground that the Tribunal had failed in its duty in ignoring the material evidence before it by way of an application under Article 226 of the Constitution of India. However, the petitioner did not choose to do so but made an application under section 254(2) for rectification. This application is also directed against an order passed on that application. Accordingly, at this stage, it cannot be allowed to challenge the order on the appeal also. Accordingly, I make it clear that I am not going into the question of the merits of the order of the Tribunal made on the appeal.

12. In that view of the matter, I pass the following order:

13. This application is allowed and the rule is made absolute to the following extent: There will be a writ of certiorari quashing the order of the Tribunal passed on the rectification application on the 29th March, 1975, for the assessment year 1964-65. The said rectification application will be treated as pending before the Tribunal and there will be a writ of mandamus commanding the Tribunal to dispose of the same, after hearing the petitioner in accordance with law and in accordance with the observations made herein. So far as the order of 5th October, 1972 is concerned, for the reasons stated hereinabove, I do not intend to interfere with the same at this stage. The petitioner would be entitled to challenge the same at the appropriate stage in an appropriate proceeding.

14. Interim order, if any, is vacated.

15. There will be no order as to costs.


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