The Commissioner of Income-tax v. M/s.Ramachandra Hatcheries

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 06.07.2007CORAM :THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Appeal) Nos.705 and 706 of 2007The Commissioner of Income-tax,..Appellant in both theSalem. T.C.(A)s. Vs.M/s.Ramachandra Hatcheries,548, Tiruchy Main Road, Gugai, ..Respondent in both theSalem. T.C.(A)s.Appeals under Section 260A of the Income-tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Chennai Bench 'D', Chennai inI.T.A. Nos.147 & 148/Mds/2001 dated 24.02.2006 for the assessment years1992-93 and 1993-94 against the order of the Commissioner of Income Tax[Appeals] Chennai 34, G.I.No./PA.No.R.1312/DC/1[2]/SLM dated 28.9.200Assessment year 1992-93, 1993-94, 1994-95, 1995-96, 1996-97 and 1997-98.Against the order of the Deputy Commissioner of Income Tax Circle 1[2]PAN/GIR No.R.1312/DC.1[2]/SLM dated of Order 20.1.2000 respectively.For Appellant :Mr.J.Narayanaswamy, Standing Counsel forIncome-tax Department JUDGMENT(Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.)These appeals are filed under Section 260A of the Income Tax Act, 1961by the Revenue, against the order of the Income Tax Appellate Tribunal,Chennai Bench 'D', Chennai in I.T.A. Nos.147 & 148/Mds/2001 dated24.02.2006, raising the following common substantial question of law:- "Whether on the facts and in the circumstances of thecase, the Income-tax Appellate Tribunal was right inlaw in holding that, the reopening of the assessmentwas bad in law under section 147/148 of the Income-taxAct, even though the assessing officer giving effect tothe first Appellate Authority order in conformity with https://hcservices.ecourts.gov.in/hcservices/ Supreme Court Judgment reported in 237 ITR 174 is asper law?"2.The facts leading to the above substantial question of law are asunder:-The assessee is a partnership firm, running Hatcheries and Poultry.The relevant assessment years are 1992-93 and 1993-94 and thecorresponding accounting years ended on 31.03.1992 and 31.03.1993,respectively. For the assessment year 1992-93, assessment was completedon 02.11.1998 under Section 143(3) read with Section 147 of the Income-taxAct ("Act" in short) determining a total income of Rs.3,10,280/-. For theassessment year 1993-94, assessment was completed on 27.10.1998 underSection 143(3) read with Section 147 of the Act determining a total incomeof Rs.4,74,970/-. Aggrieved by the assessment orders for both the years,the assessee filed appeals to the Commissioner of Income-tax (Appeals).The C.I.T.(A) partly allowed the appeals and granted relief in respect ofthe claim made by the assessee under Sections 80HH and 80-I of the Act byorder dated 01.03.1999. By giving effect to the said Appellate Order, theassessments have been revised on 31.05.1999 allowing assessee's claim ofdeduction under Sections 80HH, 80HHA and 80-I of the Act. In the meantime, the Supreme Court in the case of Commissioner of Income-tax Vs.Venkateswara Hatcheries (P.) Ltd. and Others [1999] 237 ITR 174 (SC),considered the scope of provision under Sections 80HH, 80HHA, 80-I and 80Jof the Act and held that the assessee does not produce chicks and alsothat the chicks are not "articles or things" and hence the assessee isneither an industrial undertaking nor it is engaged in the business ofproducing "articles or things", and hence the assessee is not entitled toallowance under Section 32A of the Act and deductions under sections 80HH,80HHA, 80-I and 80J of the Act. In view of the above judgment of theSupreme Court, the assessee is not entitled for deductions under Sections80HH, 80HHA and 80-I of the Act and hence the Assessing Officer in thepresent cases, issued reopening notices on the basis of the above SupremeCourt judgment to the assessee. The assessee did not reply to thereopening notices and hence the Assessing Officer completed thereassessments and held that the assessee is not entitled to relief underSections 80HH, 80HHA and 80-I of the Act. Aggrieved, the assessee filedappeals to the Commissioner of Income-tax (Appeals). The C.I.T.(A)rejected the claim of the assessee and dismissed the appeals. Aggrieved,the assessee filed appeals to the Income-tax Appellate Tribunal("Tribunal" in short). The Tribunal allowed the appeals and held thatreopening of the assessment is bad in law. Hence the present appeals bythe Revenue. 3.Learned Standing Counsel appearing for the Revenue submitted thatthe Assessing Officer is justified in reopening the assessments on thebasis of the Supreme Court judgment in the case of Commissioner of Income-tax Vs. Venkateswara Hatcheries (P.) Ltd. and Others, cited supra. Hencethe reopening of the assessments is in accordance with law. https://hcservices.ecourts.gov.in/hcservices/

4.Heard the counsel. It is seen that the C.I.T.(A) earlier allowedthe deductions claimed by the assessee under Sections 80HH and 80-I of theAct vide his order dated 01.03.1999 and the same has reached finality.The Assessing Officer also given effect to the said order of the C.I.T.(A)and granted relief to the assessee and later, the Assessing Officer issuedreopening notices under Section 148 of the Act on the basis of the SupremeCourt judgment cited supra. There is no dispute that the earlier C.I.T.(A)'s order has become final and also the Assessing Officer passedconsequential orders in giving effect to the said C.I.T.(A)'s order.There was no further appeals by the Revenue. Though the said C.I.T.(A)'sorder is erroneous in view of the Supreme Court judgment in the case ofCommissioner of Income-tax Vs. Venkateswara Hatcheries (P.) Ltd. andOthers, cited supra, the same has not been set aside by the process knownto law. The Tribunal considered this aspect and held in Paragraph 3 ofits order, as follows:-"The original assessment in these cases was completedon 2.11.98 under sec.143(3) read with sec.147 of theI.T. Act. These were subjected to appeal. The CIT(Appeals) allowed the deduction claimed by the Assesseeunder sec.80HH and 80-I vide his order dated01.03.1999. After passing the order by the CIT(Appeals), the assessment was reopened following theratio of the judgment of the Hon'ble Supreme Court inthe case of CIT v. Venkateswara Hatcheries (P) Ltd. &Others (237 ITR 174), vide Notice dated 11.10.1999. Inour opinion, this is not correct. Even the bad orderof the Appellate Authority has reached finality. TheAssessing Officer cannot sit over judgment of theAppellate Order. The only option open to him is toprefer an appeal before the higher forum. TheAssessing Officer, in this case, has failed to do so.In view of this, we hold that the re-opening of theassessment was bad in law. Accordingly, we annul theassessment and the ground taken by the Assessee isallowed." From the above, it is clear that the Tribunal is correct in holding thatthe Assessing Officer has no jurisdiction to reopen the assessments underSection 147 of the Act. Unless and until the said order is set aside bythe process known to law, the said order is valid in law as well as itbinds on the lower authorities. Hence the Assessing Officer is notentitled to circumvent the earlier order passed by the C.I.T.(A) which hadbecome final. Under such circumstances, the Assessing Officer should notreopen the assessment and seek to adjudicate on the issue which wasalready adjudicated by the Appellate Authority. The principles enunciatedin this Court judgment in the case of Seshasayee Paper and Boards Ltd. Vs.Inspecting Assistant Commissioner of Income-tax [1986] 157 ITR 342 (Mad)as well as the Supreme Court judgment in the case of Commissioner ofIncome-tax, Delhi and Rajasthan Vs. Rao Thakur Narayan Singh, [1965] 56ITR 234 (SC), would govern the facts of the present case. It has been https://hcservices.ecourts.gov.in/hcservices/ held in this Court judgment cited supra, at Page Nos.344 and 345 asfollows:-"When the Income-tax Officer gave effect to thedirection of the Tribunal by making the computation byorder dated December 7, 1977, undoubtedly he hadcorrectly interpreted the order that, according to theTribunal, the assessee was entitled to the benefit ofsection 80J. The attempt on the part of the InspectingAssistant Commissioner now to take away the reliefunder section 80J virtually has the effect of amendingthe order of the Tribunal by reversing the view whichis taken by the Tribunal, viz., the assessee isentitled to relief under section 80J of the Act. Itwas vehemently argued before us that section 80J(1A)of the Act has now been held to be valid by theSupreme Court. While this fact cannot be disputed, itis equally true that the decision of the Supreme Courtdoes not automatically have the effect of vacating theorder of the Tribunal which has been statutorily madefinal under section 254(4) of the Act and which hasalready been given effect to. Assuming for a moment ascontended by the learned counsel for the Revenue thatan infirmity is now created in the order by virtue ofthe decision of the Supreme Court, that order cannotbe read as automatically been corrected nor is theeffect given to that order automatically undone. Itslegal validity is not in any way affected by thedecision of the Supreme Court. Even a wrong order hasa finality and unless that finality is disturbed by aprocess known to law or by a process authorised bylaw, the rights of the assessee and the Revenue willcontinue to be governed by the order of the Tribunal.There is no justification for the action of theInspecting Assistant Commissioner in interfering withthe order of the Income-tax Officer giving effect tothe order of the Tribunal in his order under section154. The proposition that the order of the Income-taxOfficer merely gives effect to the relief as directedby the Income-tax Tribunal cannot be doubted. Buteven then, what is important is that the source ofthat order is the order of the Tribunal which stillremains final between the Revenue and the assessee.So far as the order of the Appellate AssistantCommissioner is concerned, even there, by parity ofreasoning, the only authority which will be entitledto interfere with the order of the Appellate AssistantCommissioner by way of rectification is the AppellateAssistant Commissioner himself. The order of theIncome-tax Officer granting relief under section 80Jfor the assessment year 1974-75 is only an order whichis consequential on giving effect to the order of the https://hcservices.ecourts.gov.in/hcservices/ Appellate Assistant Commissioner. Under the guise ofexercise of power under section 154 of the Act, thedirections given by the Appellate AssistantCommissioner cannot be rendered ineffective. TheRevenue had a right to agitate the correctness of theorder of the Appellate Assistant Commissioner bytaking the matter to the Tribunal. If the Revenue hasnot chosen to do that and allowed the directions ofthe Appellate Assistant Commissioner to stand, thatorder cannot now be undone by adopting the circuitousprocedure of purporting to exercise the powers undersection 154 of the Act. In our view, both thesepetitions must, therefore, be allowed. The noticesissued under section 154 of the Act are quashed."The Apex Court in the case of Commissioner of Income-tax, Delhi andRajasthan Vs. Rao Thakur Narayan Singh, cited supra, considered the scopeof reopening of the assessment and held as follows:-"The Income-tax Act is a self-contained one. Itcreates a hierarchy of tribunals with original,appellate and revisional jurisdictions. Section 31gives, inter alia, right of appeal against some ordersof the Income-tax Officer to the Appellate AssistantCommissioner; section 33 provides for a further appealto the Income-tax Appellate Tribunal; and sub-section(6) of section 33 says that save as provided in section66 orders passed by the Appellate Tribunal on appealshall be final. Section 66 provides for reference tothe High Court on a question of law; and section 66Aprovides for appeals in certain cases to the SupremeCourt. It is clear from the said provisions that theorder of the Tribunal made within its jurisdiction,subject to the provisions of section 66 of the Act, isfinal. Therefore, the decision of the Tribunal inrespect of the subject-matter under appeal before it isfinal and cannot be reopened by the assessee or thedepartment.""....It is said that the words "has reason to believethat by reason of the omission or failure on the partof an assessee to disclose fully and truly all materialfacts necessary for his assessment for that year,income, profits or gains chargeable to income-tax haveescaped assessment" are more comprehensive than thewords "the Income-tax Officer discovers that income,etc., have escaped assessment in any year", and,therefore, though there was a finding by the Tribunalthat the Income-tax Officer did not "discover" thatthere was escape of assessment, the Income-tax Officerunder the amended section 34 can initiate proceedingsin spite of that finding. We cannot accept thisargument. It could not have been the intention of thelegislature by amending the section to enable the https://hcservices.ecourts.gov.in/hcservices/ Income-tax Officer to reopen final decisions madeagainst the revenue in respect of questions thatdirectly arose for decision in earlier proceedings.The Tribunal held in the earlier proceedings that theIncome-tax Officer knew all the facts at the time hemade the original assessment in regard to the income helater on sought to tax. The said finding necessarilyimplies that the Income-tax Officer had no reason tobelieve that because of the assessee's failure todisclose the facts income has escaped assessment. Theearlier finding is comprehensive enough to negative"any such reason" on the part of the Income-taxOfficer. That finding is binding on him. He could noton the same facts reopen the proceedings on the groundthat he had new information. If he did so, it would bea clear attempt to circumvent the said order, which hadbecome final. We are not concerned in this appeal witha case where the Income-tax Officer got new informationwhich he did not have at the time when the Tribunalmade the order. The finding of the Tribunal is,therefore, binding on the Income-tax Officer and hecannot, in the circumstances of the case, reopen theassessment and initiate proceedings over again. Ifthat was not the legal position, we would be placing anunrestricted power of review in the hands of an Income-tax Officer to go behind the findings given by ahierarchy of Tribunals and even those of the High Courtand the Supreme Court with his changing moods."The Tribunal had correctly applied the above principles and held thatreopening of the assessment is bad in law, by rightly annulling thereassessments. We are also conscious of the fact that the Supreme Courtin the case of Commissioner of Income-tax Vs. Venkateswara Hatcheries (P.)Ltd. and Others, cited supra has decided the matter against the assessee.Perhaps, the view taken by the C.I.T.(A) earlier which had arisen from theassessment proceedings, is erroneous. We need not examine the aspect onmerits. In the present cases, the earlier C.I.T.(A)'s order has reachedfinality which arises from the earlier assessment proceedings. Hence theAssessing Officer has no jurisdiction to commence reassessment proceedingson the issue which has already been adjudicated upon by the C.I.T.(A).The Tribunal correctly decided the matter and the reasons given by theTribunal are based on valid materials and evidence and we find no error orlegal infirmity in the order of the Tribunal so as to warrantinterference. https://hcservices.ecourts.gov.in/hcservices/

5.Under the circumstances, no substantial question of law arisesfor consideration of this Court and accordingly, the tax cases aredismissed. Consequently, M.P.No.1 of 2007 in T.C.(A) No.706 of 2007 isclosed. No costs. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.kmTo1. The Assistant Registrar, Income-tax Appellate Tribunal, Chennai Bench 'D', Chennai.2. The Secretary, Central Board of Direct Taxes, New Delhi.3. The Commissioner of Income-tax (Appeals) XII, Chennai-600 034.4. The Deputy Commissioner of Income-tax, Circle-1(2), Salem-7.5. The Asst. Registrar,Income Tax Appellate Tribunal,IIIrd Floor, Rajaji Bhavan, Besant Nagar, Madras 90.+ 1 CC To Mr. N.Muralikumaran, Advocate SR NO.41276 T.C.(A) Nos.705 and 706 of 2007akr[co]gp/21.7.