M/s Dynavision Limited v. The Income Tax Appellate Tribunal

2.The Assistant Commissioner of Income Tax Company Circle-I (4), Nungambakkam High Road, Chennai-600 034.3.The Commissioner of Income Tax, Central Circle-II(I), Nungambakkam High Road, Chennai-600 034. .. Respondents 1 to3 in WP.Nos.2281, 2282 & 3135/20084.The Manager, Indian Overseas Bank, L.B.Road, Thiruvanmuyur Branch, Chennai-41. .. 4th Respondent in WP.Nos.2281 & 2282 of 20085.The Manager, State Bank of India, Securities and Services Division, Chennai Main Branch, No.84, Rajaji Salai, Chennai-600 001... 4th respondent in WP.No.3135/2008Prayer: These Writ Petitions are filed under Article 226 of theConstitution of India seeking for the relief of issuance of writ ofcertiorarified mandamus and certiorari respectively as statedtherein.For Petitioner ::Mr.Satish Parasaranin all WPs.For Respondents ::Mrs.Pushpa Sitaraman,1 to 3 in all WPs. Sr.Counsel for Income-tax Dept.For 4th respondent :: Mr.F.B.Benjamin Georgein WP.Nos.2281,2282& 3135/2008 https://hcservices.ecourts.gov.in/hcservices/ COMMON ORDER (Order of the Court was made by P.P.S.JANARTHANA RAJA, J.)W.P.No.7060 of 2000 is filed by the petitioner seeking therelief of issuance of writ of certiorarified mandamus to call forthe records relating to the order passed by the Third Member,namely, the second respondent in ITA No.2943/MDS/1993 for theAssessment year 1990-91 on 3.12.99 and quash the same as being ultravires the provisions of Sec.255(4) of the Income Tax Act (hereinafterreferred to as the I.T. Act) and also opposed to the principles ofnatural justice and consequently issue a Mandamus directing thepresent incumbent President of ITAT within a reasonable time as thisCourt may deem fit to refer the matter to a 3rd Member includinghimself or any other member nominated by him and request such 3rdMember or other members of the ITAT to decide on which of the pointor points they agree which have already been referred to by the twodiffering Members as per the questions formulated by them underSection 255(4) on 22.10.97 and dispose of the matter within suchtime.2. W.P.No.2281 of 2008 is filed by the petitioner seeking therelief of issuance of writ of certiorari to call for the recordscomprised in the proceedings of respondents 1 and 2 bearingP.A.N.No.AAACD8639F dated 21.1.2008 and quash the same as illegaland unconstitutional. 3. W.P.No.2282 of 2008 is filed by the petitioner seeking therelief of issuance of writ of certiorari to call for the recordscomprised in the proceedings of respondents 1 and 2 bearingP.A.N./G.I-R No.AAACD8639F dated 21.1.2008 and quash the same asillegal and unconstitutional. 4. W.P.No.3135 of 2008 is filed by the petitioner seeking therelief of issuance of writ of certiorari to call for the recordscomprised in the proceedings of respondents 1 and 2 institutedunder Section 226(3) of the Income Tax Act, 1961 dated 21.01.2008with respect to Account No.30293727527 held by the petitioner companybefore the fourth respondent relating to P.A. No.AAACD8639F andquash the same as illegal and unconstitutional. 5. The brief facts are as follows:The petitioner is a public limited company incorporated underthe Companies Act, 1956 engaged in manufacturing and selling ofTelevision sets and audio equipments. For the assessment year 1990-1991, for which the year ended by 31.3.1990, the petitioner hadfiled a return on 31.12.1990 disclosing a loss of Rs.35,39,813/-. https://hcservices.ecourts.gov.in/hcservices/ However, the assessee admitted the income of Rs.6,53,087/- underSection 115J of the Income -Tax Act. The said return was processedunder Section 143 (1)(a) on 20.02.1992. While scrutinising theaccounts, the Assessing Officer found that the petitioner company hadchanged the system of accounting in respect of customs duty and bondinterest. All along the assessee company had been accounting customsduty and bond interest in respect of materials lying at customsbonded ware-house at the time of removal of materials from the bondedware-house. In the accounting year in question, the petitioner hadmade provision on accrual basis in the accounts for Rs.493.31 lakhstowards customs duty and bond interest in respect of materialslying at the customs bonded ware-house and the same has been includedin the value of closing stock. The petitioner has stated thatthe assessee made a provision in its accounts towards customs dutyand bond interest, which is as follows: 1.Customs dutyRs.4,59,10,000/-2.Bond interestRs. 34,21,000/- ------------------Rs.4,93,31,000/-------------------The assessing officer found that the customs duty so debited in theaccounts has not been paid to the customs authorities in its entirityand the same has been shown as liability in the balance-sheet. Asum of Rs.3,34,13,072/- was paid to the Customs department at thetime of filing the return on 31.12.1990. On that fact the AssessingOfficer allowed deduction of the said amount under Section 43-B ofthe Act and disallowed the balance amount of Rs.1,24,94,666/- andincluded the same to the income of the assessee. Thus, the AssessingOfficer has determined the total income at Rs.1,03,46,480/- by hisorder dated 31.3.1993. Aggrieved by that order, the assessee filedan appeal to the Commissioner of Income Tax (Appeals). The C.I.T(A)dismissed the appeal, confirming the order of the Assessing Officer.Aggrieved by that order, the assessee filed an appeal before theIncome Tax Appellate Tribunal, where difference of opinion arosebetween the Judicial Member and the Accountant Member. The JudicialMember was of the view that the assessing officer was wrong in takingthe aid of Section 43B of the Act and adding the balance customsduty of Rs.1,24,97,664/- to the total income. The Accountant memberhas taken a view that the assessee admitted the amount ofRs.4,59,10,736/- as customs duty, which formed part of value ofthe closing stock of Rs.15,82,96,112/-. The Judicial Member statedthe difference of opinion by formulating the following question:"Whether, on the facts and in the circumstances of thecase, the A.O was justified in making an additionunder Section 43B of the I.T. Act, of Rs.1,24,97,664/-being balance customs duty on uncleared importedgoods though the said amount was neither claimed as https://hcservices.ecourts.gov.in/hcservices/ deduction or allowance in arriving at the taxableincome?The Accountant Member stated the difference of opinion byformulating the following two questions: "1.Whether having regard to the fact that the assesseehas debited customs duty of Rs.4,59,10,736/- topurchase account on accrual basis and was alloweddeduction of Rs.3,34,13,072/- out of customs duty ofRs.4,59,10,736/- on the basis that customs duty ofRs.4,59,10,736/- was otherwise allowable, it could besaid that the assessee had claimed deduction ofRs.1,24,97,664/- (Rs.4,59,10,736/- -Rs.3,34,13,072/-)out of the profits and gains of business in accordancewith the method of accounting followed by it? And2. If so, whether, the assessee is entitled todeduction of customs duty of Rs.1,24,97,664/- underSection 43B out of total customs duty ofRs.4,59,10,736/- which was payable by it on accrualbasis, but was not paid even before the due date forfurnishing the return of income under Section 139(1)of the Act?" 3. When the matter is taken up for orders, learnedcounsel appearing for the petitioner submits that asagainst the very same assessment order made for theabove said block period, an appeal has already beenfiled by the petitioner before the Tribunal. As, there is a difference of opinion between the Members of theDivision Bench, they requested the President under Section 255(4)of the Act to constitute a third Member for resolving theopinion expressed by each one of them. According to the President,there is a difference of opinion while identifying the differencesbetween the Members of the Division Bench. As there is no uniformityeven in identifying the points, the President has formulated thepoints of difference between the Division Bench Members and decidedthe case on merits. Aggrieved by the same, the petitioner hasfiled W.P.No.7060 of 2000 challenging the order of the Third Member.6. The learned counsel appearing for the petitioner submittedthat the Third member has no right to go beyond the scope ofreference in a matter of difference of opinion between the JudicialMember and the Accountant Member. He has to consider only thedifference of opinion stated by the Members. So, the Third member iswrong in formulating the questions on his own and deciding the caseas against the assessee. It is therefore, submitted that the order https://hcservices.ecourts.gov.in/hcservices/ passed by the Third Member is illegal and without justification andthe same should be quashed. Learned counsel also submitted thatsince the Third Member exceeded his jurisdiction, the order passedby him has to be set aside with a direction to the Third Member toreconsider the matter afresh and also further direction to theThird Member to consider only the difference of opinion stated by therespective Members.7. Learned counsel appearing for the Revenue submitted thateven though the Third Member re-framed the difference of opinion ,the sum and substance of the issue involved is the same, therefore,the order of the Third member is in conformity with law and the sameshould be affirmed. She further stated that in view of theframing the new issues by the Third Member, she has no objection toremand the matter with a direction to the Third member to consideronly the difference of opinion referred to by the Judicial Memberand the Accountant Member.8. Heard the learned counsel on either side. Section 255(4)of the Income Tax Act deals with the procedure of Appellate Tribunal,which reads as follows:-"If the members of a Bench differ in opinion on anypoint, the point shall be decided according to theopinion of the majority, if there is a majority, butif the members are equally divided, they shall statethe point or points on which they differ, and thecase shall be referred by the President of theAppellate Tribunal for hearing on such point orpoints by one or more of the other members of theAppellate Tribunal, and such point or points shall bedecided according to the opinion of the majority ofthe members of the Appellate Tribunal who have heardthe case, including those who first heard it."9. From a reading of the above Section makes it clear thatwhenever the members of a Bench differ in opinion on any point, thepoint shall be decided according to the opinion of the majority, ifthere is a majority. If the members are equally divided, they shallstate the point or points on which they differ, and the case shall bereferred by the President of the Appellate Tribunal for hearing onsuch point or points by one or more of the other members of theAppellate Tribunal, and such point or points shall be decidedaccording to the opinion of the majority of the members of theAppellate Tribunal who have heard the case including the person, whofirst heard it. The order of reference to the Third Member shallcontain the difference of opinion between the Members of the Bench.The President or the Third Member has no right to go beyond thescope of reference and they have to consider only the difference of https://hcservices.ecourts.gov.in/hcservices/ opinion stated by the Members of the Bench. Section 255(4) does notvest such power with the President or the Third Member. They havealso no right to formulate the question on their own. Framing thequestion on their own goes beyond the jurisdiction. The Third Membermust confine himself to the order of reference. Therefore, he hasno right to enlarge, restrict and modify and/or formulate anyquestion of law on his own on the difference of opinion referred toby the Members of the Tribunal. In this case, the Judicial and theAccountant Member had the difference of opinion and formulated thequestions. The Third Member in para 2 of the order has held asfollows:"2.When there is difference of opinion even whileidentifying the differences between the Members of theDivision Bench, what is to be done was earlier decided byme as a Third member in a case now found reported in(1999) 238 ITR 103 (ITAT -Section). At page 125 of thereported decision, after extracting the provision ofSection 255(4) of the Income Tax Act, I held that in sucha case the solution should be found out as follows:"It would show that the point or points ofdifference shall be referred by the President toa third Member. Suppose, if there is nounanimity even in identifying the point or pointsof difference among the differing Members, justlike in this case, then I feel it is the duty ofthe President to identify the real points ofdifference and refer them to a Third Member whomhe may appoint under the powers given to himunder Section 255(4)."Then, I identified the real differing points between thediffering Members and formulated them for decision of theThird Member, similarly following the said precedent,which was not either dis-approved or set aside by theHon'ble High Court or Supreme Court, I feel that I shouldfollow the same procedure even in this case andtherefore, I went through the whole record, orders of thediffering Members and I found out that following are thepoints of difference between the differing Division BenchMembers and these differences are to be resolved by theThird Member:"1.Whether the assessee debitedRs.4,59,10,736/- to the purchase account towardsCustoms duty, added the said sum to the closingstock value and debited the said sum to theprofit and loss account?2.When did the liability to pay customs dutyarise to the assessee?3.Whether there was change of method ofaccounting adopted by the assessee while https://hcservices.ecourts.gov.in/hcservices/ accounting customs duty liability in thisassessment year?4.Whether out of Rs.4,59,10,736/-, the asesseepaid Rs.3,34,13,672/- between the date of closeof the accounting year and the date of filingreturn by the assessee under Section 139(1) ofthe Income-Tax Act for the assessment year 1990-91, and it is, the assessee was correctly alloweddeduction of Rs.3,34,13,672/- as customs dutypaid under Section 43B of the Income-tax Act? And5. Whether the impugned sum of Rs.1,24,97,664/-remained to be paid as customs duty and whetherits disallowance under Section 43 B on the groundof non-payment within the time allowed under theprovisions of Sec.43B is correct under law?" 10. The High Court of Madras, in the case of INCOME TAXOFFICER VS. VICE PRESIDENT, ITAT(1985) 155 ITR 0310, considered thescope of Section 255(4) of the Income Tax Act, 1961, wherein it hasbeen held that the power of the Third member is confined to givingof a decision on the points on which the Members of the Tribunal haddiffered and which had been formulated by them as the question forthe decision of the Third member and held as follows. "Admittedly, in this case, the President of theAppellate Tribunal has referred the matter to the thirdMember (Thiru D.Rangaswamy) to hear on the point orpoints on which the two members of the Tribunal haddiffered and on the third member giving his decisionon the point or points referred to it, the appealshould be taken to have been decided by the opinion ofthe majority of the members of the Appellate Tribunalwho have heard the case including those who first heardit. Thus, the power of the third member to whom thecase is referred is confined to giving of a decision onthe point on which the members had differed and whichhas been formulated them as a question for the decisionof a third member. In this case, the third member has proceeded onthe basis that the question referred by the two membersof the Tribunal is wide enough to enable the assesseeto raise additional points and, therefore, theadditional points pressed by the assessee should beconsidered. Even so, we are of the view that thethird member should have pronounced his opinion on thepoint of difference as also on the additional pointsraised by the assessee. But without doing so, thethird member has remitted the matter to the originaltwo members of the Tribunal for a fresh decision. We https://hcservices.ecourts.gov.in/hcservices/ are of the view that the third member, who isfunctioning under Section 255(4) of the Act does nothave such a power as to direct the two members of theTribunal who had differed on the point referred to thethird member, to decide a particular point or act in aparticular manner. Such a power vests only with anappellate or revisional authorities, if there areany. The power of the third member to whom the pointsof difference have been referred cannot act as if itwere an appellate authority over the two members of theTribunal and direct them to rehear and dispose of thematter afresh. No doubt, the third member, in thiscase, happened to be the Vice-President. But that willnot clothe him with the power to give directions orremit the matters while functioning under Section 255(4) of the Act. The learned Advocate General appearingfor the assesse would say that S.255(4) of the Actshould be read in conjunction with S.254(1) of the Actwhich deals with the powers of the Appellate Tribunal.According to him, the third member to whom the pointsof difference have been referred, should be taken tohave all the powers of the Tribunal under S.254(1) andas such the Tribunal can pass such orders as it thinksfit. Therefore, the third member has got the power topass any order as he thinks fit. The submission of thelearned Advocate-General is in direct conflict with thelanguage and the object behind S.255(4) of the Act.When S.255(4) says that the third member shall decidethe points of the majority opinion, the third member isexpected to give his decision, whatever it is, so thatthe majority opinion could be determined for thepurpose of disposal of the appeal before the Tribunal.If, based on the language of S.254(1) of the Act, wewere to hold that the third member can pass any orderhe likes, then such an order will not serve the purposefor which S.255(4) of the Act was introduced in thestatute book. It is well established that theprovisions of the Act have to be construed harmoniouslyso as to give effect to all the provisions of the Actand to carry out the objects sought to be achieved bythe various statutory provisions. In this case, thethird member has not chosen to give his opinion oneway or the other either on the point of dispute, i.e.,on the mode of computation or the other either on thepoint of dispute, i.e. on the mode of computation ofthe Capital gains or on the new points urged by theassessee before him. If the third member hasentertained the new points and has given his opinionone way or the other, as also on the point of dispute https://hcservices.ecourts.gov.in/hcservices/ referred to it, it can be said that he has actedwithin his jurisdiction, though it may be open to theRevenue to contend before the appropriate forum thatthe third member should not have entertained the newpoints which were not urged before the two members ofthe original Tribunal. In this case, as alreadystated, without giving his decision on any of thepoints the third member has merely remitted the matterto the two members of the Tribunal for a freshconsideration on all the points. We do not see how thethird member to which the point of dispute is referredunder S.255(4) can claim to have any larger power thanthe two members who originally constituted theTribunal. The third member has no higher power orjurisdiction than the members who originallyconstituted the Tribunal, and therefore, the remitorder directing them to rehear the matter will beclearly outside the jurisdiction of the third member.Hence, we cannot sustain legally the order of the thirdmember, in this case, remitting the matter to the twomembers of the original Tribunal without expressing anyopinion on the question which he had to consider." Similar view was also taken by the Allahabad High Court, in the caseof JAN MOHAMMED VS. COMMISSIONER OF INCOME TAX (1953) 023 ITR 0015,and considered the scope of provision of 5A(7) of the Act,corresponding to Section 255(4) of the new Act, wherein it was heldthat the third member can decide only the point that had beenreferred to him and he cannot formulate the new points himself andreads as follows:"The third Member could, therefore, decide only the pointthat had been referred to him and he could not formulate anew point for himself on which he could base hisdecision. It appears to us to be further clear from areading of the sub-section quoted above that, after thedecision of the point or points referred to him by thethird Member, the case should go back to the originalTribunal because so far as we can see, the third Memberhas not been given any right to decide the appeal.According to Section 5A(6) of the Income-Tax Act, theappeal must be decided by the Tribunal which must consistof a Bench of not less than two Members. As we havealready said, the point referred to the third Member waswhether there could be a presumption legally drawn fromthe materials on the record that the bus belonged to the"appellant", and on that point the third Member havingagreed with Shri Kalbe Abbas that no such presumptioncould be legally drawn, the majority view was in favour of https://hcservices.ecourts.gov.in/hcservices/ the assessee. The last part of Section 5A(7) of the Actprovides that the point or points have to be decidedaccording to the opinion of the majority of the Members ofthe Tribunal who had heard the case including those whohad first heard it. After the opinion of the third Memberhad been obtained the case should have gone back to theTribunal for its final orders."We are in agreement with the view taken by the Allahabad HighCourt judgment. Following the Division Bench judgment of MadrasHigh Court and also considering the view of the Allahabad HighCourt, we are of the view that the President has no right to gobeyond the scope of reference. For the foregoing reasons and in theinterest of justice, we set aside the order of the Third Member casein ITA No.2943/MDS/1993 dated 03.12.1999, 'A' Bench relating to theassessment year 1990-91 with a direction to rehear only on thedifference of opinion referred to by the Members of the DivisionBench and consider and pass orders in accordance with law. We arenot expressing any opinion on merits of the case. In the presentcase, we find that the Third Member has no longer in service.Therefore, he is not in a position to hear the matter. In view ofthe peculiar situation, the President shall nominate the Member ofthe Tribunal to hear the matter and give his opinion on the points. 11. With this observation, the W.P.No.7060 of 2000 is disposedof. No costs. Consequently, WMP No.10483 of 2000 is closed.W.P.Nos.2281, 2282 & 3135 of 2008:12. In W.P.No.2281 of 2008, the petitioner has challengedonly the summon issued by the first respondent under Section 131 ofthe Income Tax Act, 1961. In W.P.Nos.2282 and 3135 of2008, the petitioner has challenged notice issued under Section 226(3) of the Income Tax Act, 1961 dated 21.01.2008. In W.P.Nos.2282and 3135 of 2008, the respondent served notice under Section 226 (3)of the Act on the bankers of the petitioner viz., The Manager, IndianOverseas Bank, L.B.Road, Thiruvanmiyur Branch, Chennai-41 and theManager, State Bank of India, Securities and Services Division,Chennai Main Branch, No.84, Rajaji Salai, Chennai-600 001, directingthem to pay a sum of Rs.170.84 lakhs towards the tax arrears of thepetitioner relating to the assessment years 1981-82, 1984-85, 1991-92 and 1992-93.13. We have gone through the affidavit filed in support of theabove writ petitions. The petitioner has not pointed out any erroror legal infirmity in the impugned summon issued by the firstrespondent under Section 131 of the Income Tax Act, 1961 or thenotices issued under Section 226 (3) of the Act. The petitioner https://hcservices.ecourts.gov.in/hcservices/ merely narrated the facts relating to the assessment year 1990-91,which is relating to W.P.No.7060 of 2000 and stated that the out comeof the said writ petition will have bearing in the present writpetitions. Therefore, we find that the said order will have nobearing in these present writ petitions and since we have alreadyset aside the impugned order in W.P.No.7060 of 2000 with adirection to the Third Member to rehear the matter, nothing survivesin these writ petitions . Accordingly, these writ petitions aredismissed. No costs. Consequently, connected MPs are also dismissed.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarraaTo1.The Income Tax Appellate Tribunal, Madras Bench A, Rajaji Bhavan, Besant Nagar, Chennai-600 090.2.The President, Income Tax Appellate Tribunal, Madras Bench A, Rajaji Bhavan, Besant Nagar, Chennai-600 090.3.The Commissioner of Income Tax, Central Circle II (1) Madras.4.The Income Tax Officer (OSD), Company Circle-I, Nungambakkam High Road, Chennai-600 034.5.The Assistant Commissioner of Income Tax Company Circle-I (4), Nungambakkam High Road, Chennai-600 034. https://hcservices.ecourts.gov.in/hcservices/

6.The Commissioner of Income Tax, Central Circle-II(I), Nungambakkam High Road, Chennai-600 034. 7.The Manager, Indian Overseas Bank, L.B.Road, Thiruvanmuyur Branch, Chennai-41.8.The Manager, State Bank of India, Securities and Services Division, Chennai Main Branch, No.84, Rajaji Salai, Chennai-600 001.+3ccs to Mr.Sathish Parasaran, Advocate Sr 20055, 20054+1cc to MR.F.B.Benjamin George,Advocate Sr 19754CK (CO)km/16.4. W.P. Nos.7060 of 2000, 2281,2282 & 3135 of 2008