COMMISSIONER OF INCOME-TAX VS POPULAR JEWELLERS, 2000 PTD-DELHI-HIGH-COURT-INDIA 3587 (1998)

(a) Income tax---

-----Reference Powers of High Court Powers to directs reference ---Indian income tax Act 1961. S.256.

(b) Income-tax---

----Reference---Penalty---Concealment of income---Penalty based on additions to income---Additions to income set aside in quantum proceedings- No prayer for stay of penalty proceedings---Fact that reference was pending from quantum proceedings not brought to notice of Tribunal---Tribunal was justified in cancelling penalty---No question of law arose from its order-- Application for reference under S.256(2) could not be kept pending merely because it was in the interest of Revenue---Indian Income Tax Act, 1961, Ss.256 & 271.

Under section 256(1) of the Income Tax Act, 1961, jurisdiction to make a reference to the High Court arises to the Tribunal on arriving at these findings: (i) that there is a question of law arising, and (b) that the question of law arises out of the appellate order of the Tribunal. On the application being rejected under subsection (1) of section 256 of the Act, under subsection (2), the High Court may issue a mandamus to the Appellate Tribunal requiring it to state the case and to refer the question to the High Court on its being not satisfied with the correctness of the decision of the Tribunal on the abovesaid two aspects:

Held, dismissing the application for reference, that on the date on which the Tribunal0passed its appellate order deleting the penalty, there was available before the Tribunal its own order passed in the quantum proceedings deleting the addition in the income of the assessee. The Tribunal had no other option but to delete the penalty. The factum of pendency of reference in the quantum proceedings was not brought to the notice of the Tribunal. The appropriate course for the Revenue was to have requested the Tribunal to adjourn the hearing in the appeal in the penalty -proceedings sine die awaiting the decision of the High Court in the quantum proceedings. This was not done. The present application could not be entertained and kept pending in this Court merely because it was in the interest of the Revenue to do so.

CIT v. Moti Lal Sharma (1995) 215 ITR 458 (Delhi) ref.

R. D. Jolly with Ms. Premlata Barisal for the Commissioner. Salil Aggarwal for the Assessee.

JUDGMENT

R.C. LAHOTI, J.---By this reference under section 256(2) of the Income Tax Act, 1961, the Revenue seeks mandamus to the Income-tax Appellate Tribunal for drawing up a statement of case and referring the following question of law (relevant to the assessment year 1979-80); for the opinion of the High Court:--

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty imposed under section 271(1)(c) of the Income-tax Act amounting to Rs.63,135?"

The relevant facts may briefly be noticed. During the course of assessment, proceedings, the assessee had made a claim for deduction of Rs.911,500 as business loss in view of the confiscation of gold and other jewellery by the customs authorities. The claim was disallowed and the sum of Rs.91,500 was added as income from undisclosed sources as the assessee could not explain the source of acquisition of gold and gold ornaments of that value. The assessee took up the matter up to the Income-tax Appellate Tribunal w_ hieh also by its order, dated November 22, 1990, dismissed the appeal.

The assessee then moved an application under section 254(2) of the Act seeking rectification in the order of the Tribunal. The Tribunal allowed the application and corrected its appellate order so as to read that the appeal by the assessee was allowed and the addition in the income of the assessee was deleted.

The Revenue moved an application under section 256(1) of the Act seeking a reference to the High Court calling for answer on two questions of law suggested by the Revenue. By order, dated March 5, 1992, the Tribunal has referred the following question for the opinion of the High Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the assessee s claim of loss amounting to Rs.91,500?"

Proceedings under section 271(1)(c) were also initiated by the Assessing Officer against the assessee which resulted in a penalty of Rs.63,135 being imposed on the assessee. The assessee preferred an appeal which was dismissed by the Commissioner of Income-tax (Appeals) by order, dated February 23, 1990. The assessee preferred further appeal to the Income-tax Appellate Tribunal which came up for hearing on February 21, 1995 . A copy of the order, dated July 16, 1991, passed by the Tribunal was produced and acting thereupon the Tribunal formed an opinion that as the very basis on which the penalty was levied had stood deleted, the appeal deserves to be allowed. This was done and the penalty levied on the assessee was set aside. The Revenue then moved an application under section 256(1) of the Act soliciting a reference to the High Court on the following question of law:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty imposed under section 271(1)(c, of the Income-tax Act amounting to Rs.63,135?"

By order, dated July 31, 1995, the Tribunal has rejected the application forming an opinion that the addition to the income having been deleted, the Tribunal had no other option but to delete the penalty as well and, therefore, no referable question of law arose from the Tribunal's order, dated February 21, 1995. The aggrieved Revenue has approached this Court by filing this application under section 256(2) of the Act.

It is submitted by Shri R.D. Jolly, learned senior standing counsel for the Revenue that this application may be kept pending until the reference arising out of the quantum order was answered by the High Court, for the decision in the present case would be a consequential one. It was submitted by him that the whole idea behind filing the present application was to keep the issue alive in the interest of the Revenue.

We have noticed hundreds of similar matters filed by the Revenue where having lost in the penalty proceedings consequent upon the quantum proceedings having been decided adversely to the Revenue. The Revenue persists in filing such applications under section 256(2) of the Act before the. High Court. Such applications accumulate in the High Court awaiting decision in the quantum proceedings filed in the High Court under sub section (1) or (2) of section 256 of the Act. Learned counsel for the non petitioner/assessee has seriously disputed and vehemently opposed the maintainability of such applications before this Court and submitted that the Revenue is ill-advised. It was submitted by Shri Salil Aggarwal, learned counsel for the assessee that the present application does not at all fall within the purview of section 256(2) of the Act and hence. It is liable to be rejected.

Under section 256(1) of the Act jurisdiction to make a reference to the High Court arises to the Tribunal on arriving at these findings: (i) that there is a question of law arising, and (b) that the question of law arises out of the appellate order of the Tribunal. On the application being rejected under subsection .(1) of section 256 of the Act, under subsection (2), the High Court may issue a mandamus to the Appellate Tribunal requiring it to state the case and to refer the question to the High Court on its being not satisfied with the correctness of the decisions of the. Tribunal on the abovesaid two aspects. In this background let us test the order of the Tribunal rejecting the application under section 256(1) filed by the Revenue in the penalty proceedings.

It is not disputed that so long as the addition is not sustained or the allowance of the deduction is upheld, till then the question of imposing penalty on the assessee by reference to section 271(1)(c) would not arise. The date on which the Tribunal passed its appellate. order deleting the penalty, there was available before the Tribunal its own order passed in quantum proceedings deleting the addition in the income of the assessee. The Tribunal had no other option but to delete the penalty. If the Revenue had sought for a reference under section 256 of the Act to the High Court in quantum proceedings and thereby kept the issue alive, as. in the submission of Shri R. D. Jolly the reference proceedings are a continuation of the proceedings before the Tribunal, then the appropriate course for the Revenue was to have requested the Tribunal to adjourn the hearing in appeal in the penalty proceedings sine die awaiting the decision of the High Court in the quantum proceedings. The Tribunal would have then stayed its hands from hearing the appeal in the penalty proceedings and awaited the decision of the High. Court in the reference arising out of the quantum proceedings because the decision of the Tribunal in- the penalty proceedings would be consequential merely. If the Department's prayer for such adjournment sine die had been refused then the question whether the Tribunal hearing the appeal in the penalty proceedings was justified in not adjourning the hearing sine die to await the. decision of the High Court in the quantum proceedings would itself have been a question of law arising out of the order of the Tribunal in the penalty proceedings and deserving a statement of case to the High Court. But such a prayer was not made. Neither the factum of pendency of reference in the High Court .in quantum proceedings was brought to the notice of the Tribunal nor did the Revenue make a prayer to the Tribunal to await the decision of the High Court. Inasmcuh as such a plea was not raised before the Tribunal, the same does not form part of the order of the Tribunal made in penalty proceedings. The question which is sought to be referred does not, therefore, arise as a question of law from the order of the Tribunal.

Shri R. D. Jolly, learned senior standing counsel for the Department relied on CIT v. Moti Lal Sharma (1995) 215 ITR 458 (Delhi), wherein a similar question was sought to be raised and was treated as a question of law arising from the order of the Tribunal and mandamus was issued on the Department's application under section 256(2) of the Act. This decision, in our opinion does not advance the case of the Revenue, inasmuch as the several aspects touching the issue which we have taken into consideration and discussed hereinabove were neither raised before the Court nor decided in CIT v. Moti Lal Sharma (1995) 215 ITR 458( Delhi). It is a well-settled principle of precedents that a case is an authority only for the proposition which it actually decides.

For the-foregoing reasons, we are of the opinion that the application' filed by the Revenue is entirely misconceived and is liable to be rejected. In future the Department would be better advised to keep in view the observations made hereinabove and seek the hearing in the penalty appeal being adjourned sine die before the Tribunal itself awaiting the outcome of the quantum proceedings rather than suffer an adverse order therein and then knock at the doors of this Court by resorting to section 256(2) of the Act, the jurisdiction whereunder is limited and circumscribed by the phraseology of section 256(2) of the Act. The present application cannot be entertained and kept pending in this Court merely because it is in the interest of the Revenue to do so. In the name of protecting the interest of the Revenue, we cannot enlarge the scope of jurisdiction and transgress the limits laid down by section 256(2) of the Act.

For the foregoing reasons, the petition is dismissed.

M.B.A./139/FC Petition dismissed.