TaxTMI 
TaxTMI 
2004 (9) TMI 293
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....ujarat High Court in the case of N.R. Paper and Board Ltd. 2. In this case, the facts were that during the course of action under section 132 of the IT Act in the case of M/s. Electrotherm India Ltd., it was found that the assessee's purchases from certain concerns were not genuine. Accordingly, action under section 158BD of the Act r.w.s. 158BC have been initiated in those cases. Against the additions made during the course of proceedings under section 158BD of the Act, the issue came for consideration before the Hon'ble ITAT. Considering the direction of the ITAT mentioned above, the regular assessment were reopened. But during the course of re-opened assessment proceedings, the assessee brought to the notice of the department that in view of the amendment made to section 158B(b) of the Act effective from 1-7-1995, the proceedings initiated are not proper and just. 3. As per the amendment made by the Finance Act, 2002, to section 158B, the definition of "undisclosed income" is reproduced as under: 158B(b): "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other docume....
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....on 254(2). The ld. DR further submitted that the Tribunal have power to rectify a mistake apparent from record even though it is found in an order finally disposing of these appeals. He further submitted that 'any order' in section 254(2) of the IT Act includes a final order disposing of an appeal. If there is a mistake apparent from record even though it is found in an order finally disposing of an appeal, the Tribunal would have the power to rectify it under section 254(2). The ld. DR in support of his contention relied upon the decision of Calcutta High Court in the case of CIT v. Kelvin Jute Co. Ltd. [1980] 126 ITR 679. 5. The ld. DR submitted that the amendment which came into operation later must in view of the retrospective operation be deemed to be then extent, and the Tribunal did not take note of the law deemed to be in force must be regarded as defective and such order is subject to rectification under section 254(2). The Tribunal is competent to rectify the mistake under section 254(2). The ld. DR in support of his contention relied upon the decision of Apex Court in the case of S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149. 6. The ld. AR submitted ....
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....e 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 subsection (1), and shall make such amendment if the mistake is brought to its notice by the assessee or Assessing Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard. (Provided further that any application filed by the assessee in this sub-section on or after the first day of October, 1998 shall be accompanies by a fee of fifty rupees.)" On reading of above section, we find that there are two important aspects in the section which are to be examined with the facts of the case under consideration, firstly there is mistake apparent from record and secondly there should be the order of ITAT whether retrospective amendment amount to apparent mistake from the record. The Apex Court in the case of M.K. Venkatacha....
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....g the said mistakes. Incidentally we may mention that in Meka Venkatappaiah v. Addl. ITO, Bapatla, the High Court of Andhra has taken the same view." On the basis of the above ruling, we examine of cases under consideration. For this purpose we would like to refer the relevant original provisions and amended provisions, which read as under: "158B(b): "Undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act (or any expense, deduction or allowance claimed under this Act which is found to be, false.)" The underlined portion of the section has been inserted by the Finance Act, 2002 w.e.f. 1-7-1995. The ITAT keeping in view the relevant provisions and passed the order. The relevant portion of the order reads as under: "We have considered the rival submissions and have also gone through the order p....
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....inayak Engineers Rs. 3,426 9. H. Mohanlal & Sons Rs. 12,805 10. Parikh Sales Corpn. Rs. 8,95,926 11. Shah Sales Corpn. Rs. 3,92,500 12. Jasmine Enterprises Rs. 57,342 13. Maruti Enterprises Rs. 3,08,647 14. Tirupati Sales Rs. 2,44,952....
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....ished. Therefore, there was no reason for making an addition for alleged bogus purchases. The ld. departmental representative submitted that the assessee had been given opportunity after obtaining the various enquiries by the department. Therefore, it cannot be said that the assessee was not given any opportunity in these matters of enquiries. The ld. DR submitted that this issue has been discussed at great length by the Assessing officer in the assessment order on pages 52 to 79 and it has been conclusively established from the results of enquiries that various parties as referred to in the assessment order, from whom such bogus purchases were claimed to be made, were bogus and non-existing and in fact no goods were actually purchased from them and bills were obtained to inflate the claim of purchases. The documents found in records land statements of Shri Pukhraj B. Shah conclusively established that the payments claimed to be made to such bogus parties in fact were received back by the persons controlling the managements and affairs of assessee company. The various contentions taken by the assessee had been elaborately examined and rebutted by the Assessing Officer in para 8.6 "....
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....count was justified - Motilal Padampat Udyog Ltd v. CIT 187 ITR 515. (iv) When a bogus entry is found in accounts, there cannot be a better solution than to remove that entry. The legitimate way of removing the entry would be to do what has been omitted to be done or undo what has been wrongly done - ITAT, Jaipur Bench - Khandelwal Trading Co. v. ACIT 55 TTJ 261. 15. We have considered the rival submissions, facts and materials on record. It is not disputed that purchases had been recorded in the books of account claiming deduction. Otherwise, the same could not have been disallowed as expenditure for bogus purchases. When the search was conducted in fact excess stock was found than recorded in the books of account. Had there been no purchase there should have been shortage in the stock than the books of account. Anonymity of the actual seller would not make the purchases as no purchases at all. In fact, bogus purchases as well as excess stock is contradictory to each other. The order of the Assessing Officer on the point of bogus purchases is, therefore, fallacious. The facts of the case cited by the ld. DR are not applicable to the facts of the case before us. We are of the....
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....s preferred an appeal before the High Court and the High Court has dismissed the appeal of the revenue, so the order of the ITAT has been merged with the order of the High Court. If any rectification application is to be made by the revenue it should be made before the High Court and not before the Tribunal. It is also submission of the ld. AR that the MA filed by the revenue in case of Electropack MA No. 26/2003, Megnatherm MA No. 28/2003 and M/s. Connection MA No. 27/2003 wherein the ITAT has followed order of the ITAT in the case of M/s. Electrotherm (India) Ltd. The revenue preferred appeal before the High Court in all four cases, which have been dismissed by the High Court and the SLP of revenue which has been filed against the order of the High Court in the case of Electrotherm (India) Ltd., has been dismissed by the Apex Court. The relevant orders are reproduced as below: "Order of High Court: Date of order: 5/7/2000 ORAL ORDER Heard the learned counsel at length. No substantial question of law arises in the matter. The appeal is therefore dismissed. Notice is discharged." "Order of Supreme Court Upon hearing counsel the Court made the following order. ....
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.... in accordance with law by the court below". "The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject matter at a given point of time. When a decree or order passed by an inferior court. Tribunal or authority was subjected to a remedy available under the law before a superior forum then, though the decree or order under challenge continues to be effective and binding, nevertheless its finality is put in jeopardy. Once the superior court has disposed of the Us before it either way-whether the decree or order under appeal is set aside or modified or simply confirmed, it is the decree or order of the superior court, Tribunal or authority which is the final, binding and operative decree or order wherein merges the decree or order passed by the court, Tribunal or the authority below." The Hon'ble Gujarat High Court in the case of Rajesh Babubhai Damania v. CIT [2001] 251 ITR 541 held that the order of Assessing Officer has been merged with the order of CIT(A), on appeal to the CIT(A) against the order of Assessing Officer. In this regard decision of Kerala High Court in the case of Mather & Co. (P.) Ltd....
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....sessment. No steps were taken to rectify the mistake committed by the Tribunal under section 35 of the Act nor any attempt was made to get the question of illegality referred to the High Court. Thus the order of the Tribunal became final. Thereafter, the ITO started fresh proceedings for reassessment. In these circumstances, it was held by their Lordships of the Supreme Court that the order of the Appellate Tribunal having become final and the finding of the Tribunal, even though passed by mistake, the ITO could not initiate fresh assessment proceedings, as the order of the Tribunal was binding on the ITO. In Indra Co.'s case [1971] 80 ITR 400 (Cal.), the Calcutta High Court held that when an appeal preferred from an order of assessment is decided by the AAC, the ITO's order under appeal merges in the appellate order and, thereafter, the operative order is the order of the appellate authority and the ITO has no jurisdiction to rectify such an order under section 35 of the Act, as it would have the effect to rectifying the order passed by the AAC. In S. Sewa Singh Gill v. ITO [1968] 70 ITR 534, the Delhi High Court also took the same view that where the assessment order was affirmed....
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.... JUSTICE A.R. DAVE AND Mr. JUSTICE D.A. MEHTA DATE of Order: 9-7-2001 ORAL ORDER (Per: Mr. JUSTICE A.R. DAVE) 1. Heard the learned advocates. 2. In our opinion no substantial question of law arises in this matter. Moreover, Tax Appeal No. 217/99 was filed by the revenue, involving similar issue and the said appeal has been dismissed by this Court on 5th July, 2000. That is one more reason for which this appeal deserves to be dismissed." On the basis of above backgrounds of facts and law that revenue preferred against the order of ITAT under section 260A which has been dismissed. According to section 254(4), in this case order of IT AT has challenged in the High Court on the same ground which was before the ITAT, the order of ITAT will not final order, that will merge with the order of High Court. Under the circumstances, we are of the considered view that the decision of Hon'ble High Court is the operative decision in law and the order/decision of ITAT merges in the decision of High Court. The decision of High Court alone which subsists and is operative and capable of enforcement. This conclusion is supported by the judgment of Hon'ble Supreme Court in Amritlal Bhogilal & ....
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....--------------------------------------------------------------------------- 2. M/s. Megnatherm Rs. 43,28,600 6-2-2001 ---------------------------------------------------------------------------- 3. M/s. Connection Rs. 54,56,601 6-2-2001 ---------------------------------------------------------------------------- 3. These three misc. applications were filed by the revenue, contending therein that there is a mistake in the three orders of Appellate Tribunal because of retrospective amendment made by Finance Act, 2002 to section 158B in the definition of "undisclosed income". As per this amendment, section 158B(b) is inserted by Finance Act, 2002 w.r.e.f. 1-7-1995 which contains the definition of "undisclosed income" and reads as under: "158B(b): "Undisclosed income" includes any money, or other valuable article or thing or any income based on any e....
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....Gujarat High Court. 6. In the proposed order the learned Accountant Member held that order of ITAT has been merged with the order of High Court. Therefore, ITAT has no power to consider the misc. application of revenue and only the Hon'ble High Court is empowered to entertain such misc. applications and Tribunal can entertain the misc. application only on the direction of Hon'ble Gujarat High Court. 7. It is pertinent to note that a retrospective amendment can be declared to be law existing from the date that it was given retrospectivity and is mistake apparent from the record within the meaning of section 254(2) of the I.T. Act, 1961. In my view, there is no merger of Tribunal order because Hon'ble High Court has refused to assume jurisdiction to exercise its powers under section 260A of the I.T. Act. The section 260A of the Act reads as under:- "260A(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (....
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..... and contended that Tribunal has followed its decision in the case of M/s. Electrotherm (India) Ltd. which has been merged with the judgment of Hon'ble Supreme Court. The learned departmental representative objected to the same on the ground that unless leave to appeal has been granted the appellate jurisdiction of the Supreme Court cannot be invoked. The learned departmental representative further pointed out that in the case of M/s. Electrotherm (India) Ltd. also the Hon'ble High Court dismissed the appeal of the Revenue on the ground that no substantial question of law arises in the matter and even there is no merger of order of Tribunal with the appellate authority. Under article 136 of the Constitution, the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of a petition for special leave to appeal. The doctrine of merger can, therefore, be applied to the former and not to the latter as held by the Apex Court in the case of Kunhayammed. In this judgment their Lordships have also held that on an appeal having been preferred or a p....
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....orded in the books of account claiming deduction. Otherwise, the same could not have been disallowed as expenditure for bogus purchases. When the search was conducted in fact excess stock was found than recorded in the books of account. Had there been no purchase there should have been shortage in the stock than the books of account. Anonymity of the actual seller would not make the purchases as no purchases at all. In fact, bogus purchases as well as excess stock is contradictory to each other. The order of the Assessing Officer on the point of bogus purchases is, therefore, fallacious. The facts of the cases cited by the ld. DR are not applicable to the facts of the case before us. We are of the opinion that in these circumstances, addition for bogus purchases could not arise. We delete the addition made by, the Assessing Officer for alleged bogus purchases." 2. Following the aforesaid reasoning given in the said order, the Tribunal deleted the additions in the present by observing in paragraph-8.1 as under: "Respectfully following the reasoning given by the Tribunal in the aforesaid order, we delete the addition of Rs. 85,08,522." 3. In paragraph-9, the Tribunal also ob....
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.... the Revenue involving similar issue and the said appeal has been dismissed by the High Court on 5th July, 2000. That is one more reason for which this appeal deserves to be dismissed." The order in IT Tax appeal No. 217/1999 dated 5-7-2000 reads as under: "No substantial question of law arises in the matter. The appeal is therefore dismissed. Notice is discharged." 7. The above M.A. came up for hearing before the Division Bench and there struck a difference of opinion between two members-Accountant Member holding that- "Under the circumstances, where the order of the ITAT have been merged with the orders of the High Court, the ITAT has no power to consider the Miscellaneous Application of Revenue, the Hon'ble High Court only empower to entertain such Miscellaneous Applications and the Tribunal can entertain such Miscellaneous Application only on the direction of the High Court..." Judicial Member, on the other hand hold that- "... retrospective amendment can be declared to be law existing from the date that it was given retrospectively and is mistake apparent from the record within the meaning of section 254(2) of the Income-tax Act, 1961. In my view, there is no me....
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.... direct decision of the Supreme Court regarding merger in appellate jurisdiction, is in the case of Gojer Bros. (P.) Ltd. v. Ratan Lal Singh, 174 (SC2)-GJX-0175-SC wherein according to him, it is held that once the decree passed was taken in appeal to the Court of the Subordinate Judge which confirmed the decree and then to the High Court, which after a contested hearing, dismissed the defendants' appeal and confirmed the decree passed by the Subordinate Judge, the order/decree passed by the Trial Court can be deemed to have merged in the decree passed by the High Court. The judgment of an inferior court losses its identify by its merger with the judgment of the superior Court. 11. I have heard the parties and considered the rival submission. Income-tax Act provides for an appeal to High Court under section 260A of the Act. Under sub-section (1) an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, only if the High Court is satisfied that the case involves a substantial question of law. Sub-section 2 of the said section authorizes the Chief Commissioner or the Commissioner of the Income-tax or the assessee aggrieved by any order passe....
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....itution and the petition was dismissed by an order dated 18-8-1983, which read as under: "SLP is dismissed on merits" 14. There was an amendment in section 8C, amongst other, enacting with retrospective effect from 19-11-1983,a power of the Government to file an appeal or application for review in certain cases and under that section the State of Kerala filed application for review before the High Court seeking review of order dated 17-12-1982. A preliminary objection was raised to the maintainability of the review petition which has been heard and disposed of by order dated 14-12-1995, overrunning the objections as to the maintainability of objections and directed the review petition to be posted for hearing on merits. Feeling aggrieved, the Petitioner sought leave to appeal to the Supreme Court which was granted on 16-9-1996 and when the matter came up for hearing, the question of merger was raised and dealt with elaborately by the Supreme Court. Discussing various judicial opinion on this issue, in the case of Amritlal Bhogilal & Co. and in the case of Rathore (S.S.) v. State of Madhya Pradesh AIR 1990 SC 10, the Court held that the logic underlying the doctrine of merger ....
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....t for, continues to be final effective and binding as between the parties. Once leave to appeal has been granted, the finality of the judgment, decree or order appealed against is put to jeopardy though it continues to be binding and effective between the parties, unless it is a nullity or unless the court may pass a specific order staying or suspending the operation or execution of the judgment, decree or order under challenge. 16. Thereafter, the Supreme Court discussed the fate of dismissal at the stage special leave, without reasons and held that an order refusing special leave to appeal may be by a non-speaking order or by a speaking order. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in the place of the order under challenge. All that it means is that the Supreme Court was not inclined to exercise its discretion so as to allow the appeal being filed. Whatever be the phraseology employed in the order of dismissal, if it is a non-speaking order, i.e., it does not assign reasons for dismissing the special leave petition, it would neither attract the doctrine of merger so as to stand substituted....
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....or having appeared, does not raise a point, or even if he raised a point the court does not decide it before grant of special leave, the same point can be raised at the time of final hearing. There would be no technical bar of res judicata. 20. Even though, it has dismissed the SLP on merits, the Supreme Court held that the order of the High Court did not merge with the order of dismissal of the petition for special leave to appeal passed by the Supreme Court and the High Court could review its own order under section 8C(2) of the Kerala Private Forests (Vesting and Assignment) Act, 1971, statutory conferring the right to review by a retrospective amendment, the order of the Supreme Court dismissing the petition under article 136 was a non-speaking and unreasoned order and all that would spelt out of that order was that the Supreme Court was not convinced of the need for exercising its appellate jurisdiction. 21. In the case of S. Shanmugavel Nadar, the matter was again examined by the Supreme Court and it was held that apart altogether from the merits of the grounds for rejection, the mere rejection by a superior forum resulting in refusal to exercise its jurisdiction which ....
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....e existence in the eye of law and in treated as being superseded by the judgment of the superior court. In other words, the judgment of the inferior court loses its identity by its merger with the judgment of the superior court. 12. Stated in this form the principle may appear to be unexceptionable but the problem has many facets. What, if the higher court dismisses the proceeding before it summarily without a speaking order? Does the judgment of the lower court still merge in the unspeaking order of the higher court? What, if the powers of the higher court are invoked in the exercise of its revisional and not appellate jurisdiction? Does a judgment or an order passed in the exercise of severally restricted jurisdiction like that under section 115 of the Code of Civil Procedure wipe out of the existence a decree or order passed in the exercise of a wider jurisdiction as may be exercised by a court possessed of a suit? Does it may any difference to the application of the doctrine of merger that the higher court has not modified or reversed the judgment of the lower court but has merely affirmed it? These nuisance had once raised issues on which conflicting views were expressed by....
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....e of the trial court is merged in the decree of the appellate Court. In course of time, this concept which was originally restricted to appellate decrees on the ground that an appeal is a continuation of the suit, came to be gradually extended to other proceedings like revisions and even to proceedings before quasi-judicial and executive authorities. 25. An interesting question arose in Shanker Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat (1970) I SCR 322: (1969: 2 SCC 74) whereafter a single Judge had dismissed a Civil Revision Application filed by the tenant under section 115 of the Code of civil Procedure, against a decree passed by the District Court a Division Bench of the Bombay High Court entertained the tenant's writ petition under articles 226 and 227 of the Constitution against the same decree and allowed it. The Bombay High Court had followed its earlier judgment in Sipahimalani's case (K.B. Sipahimalani v. Fidahussein Vallibhoy, ILR 1956 Bom. 422, 422: 58 Bom. LR 344) which had taken the view that an order passed by the lower court does not merge in the order passed by the revisional court because whereas a right of appeal is a vested right and appeal is a cont....
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....respondent on condition that the said defendant appellant deposits in the trial court, to the credit of the decree-holder respondent, within two months from this date, the outstanding arrears, if any, on account of rents or means profits, as the case may be, and also goes on depositing, in the same court to the same credit, month by month, regularly, according to the English calendar, within the 15th of the next succeeding month according to the same calendar, a sum of Rs. 175 (Rupees one hundred and seventy-five) per month, account of current rents or mesne profits. And it is further ordered that in the events of the said defendant's failure to make any of the above deposits, this decree shall become executable at once. 23. The aforesaid case, in our opinion, is of no help to the assessee, as this was a case decided on merits in appeal after the appeal is admitted and the parties were heard at length. Further, the distinction made by the learned counsel for the assessee between SLP rejection and appeal dismissal is not of any significance in the present case. By virtue of sub-section (1) of section 260(A), an appeal lies to the High Court only when there is a substantial que....
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....iction. It is an expression of the fact that the High Court was not inclined to exercise its power so as to allow appeal being entertained. To summarise the existence of the substantial question of law is a condition precedent for invoking of the appellate jurisdiction of the High Court. If an appeal is dismissed on the ground that no substantial question of law arise, it is not dismissal of appeal on merits but dismissal at threshold that no appeal is maintainable. It would be an order of High Court on the maintainability of the appeal and not an order on appeal. We see no difference in an order dismissing SLP by the Supreme Court under article 136 and an order dismissing an appeal by the High Court under section 260A on the ground that, no substantial question of law arise. Both are for admission and maintainability of appeal. The former is conditioned by the discretion of the Supreme Court to exercise extraordinary jurisdiction and the latter is conditioned by the existence of substantial question of law. The fact remains that both are for invoking appellate jurisdiction of the Courts. Until the appeal is admitted, it is a petition for appeal and the effect is that same i.e., th....