(a) Income-tax---

----Reference---Appeal to Appellate Tribunal ---Reassessment---Limitation-- Powers of Tribunal---Reassessment proceedings under S.147(a) to disallow deduction---Appeal against reassessment proceedings and disallowance ---CIT (Appeals) holding that disallowance was not valid and not considering objection to reassessment---No cross-appeal or cross-objection on further appeal by Revenue to Tribunal---Tribunal holding that reassessment was permissible only under S.147(b) and that it was time-barred---Order of Tribunal was valid---No question of law arose from it---Indian Income Tax Act, 1961, Ss. 147 & 256---Indian Income-tax Appellate Tribunal Rules, 1963, R.27

Even though limitation is not specifically set up as a defence, a barred proceeding has to be dismissed. Rule 27 of the Income-tax Appellate Tribunal Rules, 1963, enacts that the respondent may support the order, though he may not have appealed, on any of the grounds decided against him.

The assessee was a public limited company. As a result of the probe by its internal auditor in April, 1980, into its wage account it discovered defalcation of sizable amounts by one of its clerks, who was in charge of the preparation of the wage bill. It claimed trading loss in the assessment year 1981-82. On the basis the assessee claimed similar trading loss in the assessment years 1976-77 to 1979-80 and 1980-81 also, in view of the position that the assessment for the year 1980-81 was open at the relevant time. The Assessing Officer disallowed this claim for trading loss for the year 1981-82 and initiated reassessment proceedings in respect of the assessment years 1976-77 to 1979-80 pursuant to the assessee's admission that the clerk had committed defalcation of funds. The reassessment was initiated under section 147(a) of the Income Tax Act, 1961. Before the Appellate Authority, objection was taken with regard to the initiation of the reassessment under section 147(a) of the Act. Additionally on the merits also with regard to the disallowance, the order of the Assessing Authority was challenged. The contention with regard to the objection of the initiation of reassessment under section 147(a) was not dealt with. However, the Appellate Authority held that the amount misappropriated by an employee was allowable as a deduction. On further appeal before the Tribunal by the Revenue, there was no cross-appeal or cross-objection by the assessee. The Tribunal held that the reassessment was based on the information given by the internal auditor and the assessee came to know of it only then. Hence, proceedings could be taken only under section 147(b) and they would be barred by limitation. On an application to direct reference:

Held, dismissing the application, that even under the general principles of civil law, the respondent, not having appealed independently may not only support the decree, but in addition he may also state that the finding against him in the Court below in respect of any issue ought to have been in his favour. The Tribunal was justified in considering the objection regarding the reassessment. The facts showed that initiation of proceedings of reassessment could only be made under section 147(b) and it was barred by limitation. The order of the Tribunal was correct and no question of law arose from it.

Badridas Daga v. CIT (1958) 35 ITR 10 (SC); CIT v. Damodaran (V.) (1980) 121 ITR 572 (SC); Eapen Joseph v. CIT (1987) 168 ITR 26 (Ker.) and Gadgil (S.S.) v. Lai & Co. (1964) 53 ITR 231 (SC) ref.

(b) Interpretation of statutes---

---- Procedural law---Limitation.

The law of procedure has to be approached, understood and appreciated as a helpmate in the course of the process of administration of justice and never as a situation of obstruction or obstacle in regard thereto.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for Petitioner.

P. Balchandran for Respondent.

JUDGMENT

V.V. KAMAT, J. --- We are required to consider the following five questions with reference to our power under section 256(2) of the Income-tax Act, 1961, if there can be a reference directed in regard thereto:--

"(1)Whether, on the facts and in the circumstances of the case and in the absence of any consideration of the validity of reassessment by the Commissioner of Income-tax (Appeals) and also in the absence of an appeal or cross-appeal being filed by the assessee, the Tribunal is right in law and with jurisdiction in considering the validity of reassessment on merits and in deciding the issue against the Revenue?

(2)Whether, on the facts and in the circumstances of the case and in view of the non-consideration of the question of validity of reassessment on merits by the Commissioner of Income-tax (Appeals), cannot the assessee file an appeal or cross-appeal/object under law against non-consideration of the issue of reassessment by the Commissioner of Income-tax (Appeals) before the Income-tax Appellate Tribunal?

(3)Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that a point not decided by the Appellate Authority is deemed to have been decided against the appellant by that authority?

(4) Whether, on the facts and in the circumstance the case, and since the issue of reassessment was neither considered nor decided against the assessee by the Commissioner of Income-tax (Appeals), ---

(i)the Tribunal is right in law in considering and deciding the same (in the absence of an appeal or cross-appeal) on merits under rule 27 of the Appellate Tribunal Rules, 1963?

(ii)Does rule 27 apply to the facts of the case?

(5)Whether, on the facts and in the circumstances of the case, especially when the assessee made disclosure of the facts only in the assessment year 1981-82, the Tribunal is right in law and fact in holding--

"(a)the reassessments are bad in law?

(b)the case would fall for consideration under section 147(b) of the Income-tax Act, 1961?

(c)the assessment done was beyond the time-limit'?"

In short, the Income-tax Appellate Tribunal held that the appeals before it with regard to reassessment are barred by limitation, provided under section 153(2) of the Income Tax Act, 1961.

This was under the following circumstances. The assessee is a public limited company and claimed a trading loss in respect of the amount defalcated by one of its clerks in charge of the preparation of wage bill. This was in the assessment year 1981-82. On this basis the assessee claimed similar trading loss in the assessment years 1976-77 to 1979-80 and 1980-81 also, in view of the position that the assessment for the year 1980-81 was opened at the relevant time.

The Assessing Officer disallowed this claim for trading loss for the year 1981-82 and initiated reassessment proceedings in respect of the assessment years 1976-77 to 1979-80 pursuant to the assessee's admission that the clerk had committed defalcation of funds by manipulating wages accounts in those years resulting in the inflation of the amount of wages claimed and allowed in respect of those assessment years. The reassessment was initiated under section 147(a) of the Act.

Before the Appellate Authority, objection was taken with regard to the initiation of the reassessment under section 147(a) of the Act. Additionally on the merits also with regard to the disallowance, the order of the Assessing Authority was challenged. The contention with regard to the objection of initiation of reassessment under section 147(a) was not dealt with. However, the Appellate Authority held that the amount misappropriated by an employee will be allowable as a deduction. This view was taken on the basis of the decision of the Supreme Court (Badridas Daga v. CIT (1958) 34 ITR 10).

The Income-tax Appellate Tribunal, Cochin Bench, was moved by the Department to contend that unless there is satisfaction that the amount covered by the claim of trading loss is totally irrecoverable, consequent deduction would not be an allowable deduction justifiably. As stated above, since the objection with regard to the initiation of reassessment under section 147(x) was not specifically dealt with, it was urged before the Appellate Tribunal on behalf of the assessee.

It is obvious from the order of the Tribunal that initiation of the proceedings under section 147(a) of the Act could not be contemplated in law. In paragraph 6 of the order certain undisputed position is available. The internal auditor visited the factory on April 8, 1980, and commenced accounts checking. The concerned clerk Shri Gur Muhammad, went on leave on the next day (April, 9, 1980) and within two days thereafter, (April 11, 1980) despatched his letter of resignation. The trading loss was known even to the assessee as a result of the internal auditor's probe in the wage account to find defalcation of sizable amount during the previous years which fact came on the surface of knowledge in the assessment year 1981-82. This is also borne out from the record of the filing of the criminal complaint on April 17, 1980. When all these facts were brought to the notice of the Assessing Officer with reference to the claim of a trading loss in the assessment year 1981-82, the proposed action to reopen the assessment was initiated for the first time.

In the light of the above factual situation and in view of the clear conclusion as a result thereof that there is no question of escape of assessment during all the previous years because the knowledge of the trading loss could be considered to be at home only after the visit of the internal auditor as stated hereinbefore.

In view of the above position, the reassessment and its initiation could only be legitimately contemplated to be under section 147(b) of the Act.

The next inevitable logical consequence is that as the reassessment, as held by the Tribunal, triggered off only on the basis of information given to the Assessing Officer under the circumstances stated above, the said action which could only be considered to be under section 147(b) of the Act,, would be obviously barred by limitation provided under section 153(2) of the Income-tax Act, 1961. This would be crystal clear from the following tabulation to be found and being taken out from the impugned order of the Tribunal:--

This was obviously done in the absence of any cross-objection or cross-appeal and was urged and taken up for consideration by the Tribunal even in the absence of the question being dealt with by the lower Appellate Authority, although there is no dispute that the initiation of the reassessment proceedings under section 147(a) of the Act was objected to before it also.

In other words, the question is of the justifiability of the Tribunal to take up the question of reassessment proceedings and its initiation leading to the conclusion that the said initiation could only be contemplated under section 147(b) of the Act and thereby as an inevitable situation being clearly time-barred could have been considered on the basis of the mere raising of the contention to support the impugned order on behalf of the respondent thereto.

In other words, the question that falls for our consideration and consequent decision is as to whether the question is legally necessary to have been raised before the Appellate Authority, whether it is necessary that there should be an adjudication and decision in regard thereto, whether it is necessary that the respondent to be able to support the order is legally bound to file a cross-objection or cross-appeal to enable him to contend by way of a support to the order appealed against. Further, in addition, it is necessary to consider and consequently decide as to what is the scope for the respondent in the context of the proceedings before the appellate authority, with regard to a question, though raised, not decided by the lower appellate Authority in regard to a situation, where there is no cross-objection and also in regard to a situation where there is no independent appeal by the said respondent. With regard to the positions to these petitions a further situation is required to be determined as to what is the position with regard to the question of limitation whether the said question also requires compliance with all these requirements insisted upon.

As far as the present petitions are concerned Rule 27 of the Appellate Tribunal Rules, 1963, enacts that the respondent may support the order, though he may not have appealed, on any of the grounds decided against him. The general principles of civil law are crystal clear in -this respect if the provisions of Order 41, Rule 22 of the Civil Procedure Code, are glanced at. They are to the effect that any respondent, not having appealed independently, may not only support the decree, but in addition he may also state that the finding against him in the Court below in respect of any issue ought to have been in his favour. Apart therefrom he may also take any cross-objection to the decree which he could have taken by way of an appeal. In other words, under the ordinary civil law a respondent can not only support the impugned decree but also urge with reference to any issue that the finding in regard thereto ought to have been in his favour.

It is needless to emphasise the salutary principle in regard to the general law of limitation that even though limitation is not specifically set up as a defence, a barred proceeding has to be dismissed and such is the mandate of section 3 of the Limitation Act.

In an analogous situation relating to the situation, the Supreme Court in CIT v. Damodaran (1980) 121 ITR 572 recognised the right of the winning party to support the order of the Appellate Tribunal even with regard to the grounds raised before it and negatived by it. This Court in Eapen Joseph v. CIT (1987) 168 ITR 26 (Ker.) had an occasion to view section 153(1) of the Act in the spirit of the provisions of section 3 of the Limitation Act, 1963, to describe the language used in section 153(1) of the Act to be in the nature of an injunction to rule that no order of assessment can be made at any time after the expiry of the period prescribed therein. It is ruled that the said provision is a fetter upon the power of the Income-tax Officer to make the assessment and it is a jurisdictional situation. A similar view is taken even earlier by the Supreme Court in S.S. Gadgil v. Lai & Co. (1964) 53 ITR 231.

Thus, the resume of the legal situation re-emphasises the basic principle that the law of procedure has to be approached, understood and appreciated as a helpmate in the course of the process of administration of justice and never as a situation of obstruction or obstacle in regard thereto. Time and again the approach in regard to this is ringing in the decisions of the Supreme Court that the approach has to be justice-oriented and it is the end of the litigation that should be in sight and in regard thereto if it is found that it would not be inconsonance with justice to allow the proceedings to continue, the relevant provisions of the law of procedure require meaningful appreciation in the context.

The factual matrix shows that initiation of the proceedings of reassessment under section 147(a) is not comprehensive. The only alternative is to understand the initiation under section 147(b) of the Act and then there cannot be any dispute that the action is clearly and hopelessly time- barred.

In this situation, the Tribunal will have to meaningfully appreciate to proceed to consider the question which was not decided by the lower Appellate Authority although raised in the objection thereto, permitting it to be urged by the respondent in the absence of cross-objections or an independent cross-appeal, which was perfectly in accordance with the general provisions of civil law in the context. Additionally, it needs to be mentioned that even the principle of finality undertakes within itself a situation with regard to a question which ought to have been argued and decided consequently, not having been dealt with in that sense of the matter, as one perfectly capable of being allowed to be contended before the superior authorities.

For the above reasons, we do not find anything to differ from the order of the Income-tax Appellate Tribunal, Cochin Bench. In view of the above, it is not necessary to act under section 256(2) of the Income-tax Act, 1961, and the petitions stand dismissed thereby.

M.B.T./1278/FCPetitions dismissed.