High Court's Failure to Admit Appeal and Frame Questions Under Section 260A (of Income Tax Act, 1961) Deemed Non-Conformity with Prescribed Procedure.

Appeal Remanded to High Court for Deciding Questions of Law on Merits

The Supreme Court has granted leave to hear an appeal against the High Court's dismissal of the Revenue's appeal in ITA No.1239 of 2014. The case pertains to an assessment year and involves a short point.

The appellant, the Commissioner of Income Tax, Mumbai, initiated a re-assessment by issuing a notice under Section 148 (of Income Tax Act, 1961). The notice proposed an addition to the respondent-assessee's total income based on a document seized during a search operation.

The respondent-assessee objected to the notice, arguing that there was no factual foundation for it and that it did not involve any "escaped assessment" or "reason to believe". However, the objections were overruled by the Assessing Officer, who added the proposed amount to the respondent-assessee's total income.

The respondent-assessee appealed to the CIT (appeal), which upheld the addition made by the Assessing Officer. The respondent then filed a second appeal before the ITAT, which allowed the appeal and set aside the order of the CIT (appeal).

The Commissioner of Income Tax filed an appeal before the High Court under Section 260-A (of Income Tax Act, 1961), but the High Court dismissed the appeal. The Commissioner then filed a special leave to appeal in the Supreme Court.

The Supreme Court noted several issues with the High Court's handling of the case. Firstly, the High Court failed to formulate any substantial question of law as required under Section 260-A (of Income Tax Act, 1961). Secondly, the questions proposed by the appellant were treated as the questions framed by the Court, which is not in line with the prescribed procedure. Thirdly, the High Court did not dismiss the appeal if it believed there was no substantial question of law, nor did it admit the appeal and frame appropriate questions.

The Supreme Court concluded that the High Court did not conform to the mandatory procedure and did not decide the appeal on its merits. It remanded the case back to the High Court for a fresh decision on the appeal, considering the three substantial questions of law framed by the Supreme Court.

The High Court is instructed to decide the appeal without being influenced by any previous observations and without any expressed opinion on the merits of the case. The Supreme Court allowed the appeal and set aside the impugned order.

1. Leave granted.

2. This appeal is filed against the final judgment and order dated 09.01.2017 passed by the High Court of judicature at Bombay in ITA No.1239 of 2014 whereby the High Court dismissed the appeal of the Revenue ­Commissioner of Income Tax- Mumbai(appellant herein).

3. A few facts need mention here in below for the disposal of this appeal, which involves a short point.

4. The appellant is the Revenue ­Commissioner of Income Tax, Mumbai, whereas the respondent is an assessee.

5. The respondent ­assessee is a Company engaged in the business of development and building of properties. The dispute relates to the assessment year 2008­-09.

6. On 24.12.2009, the Assessing Officer (for short, “the AO”) completed the assessment under Section 143(3) (of Income Tax Act, 1961) read with Section 153A (of Income Tax Act, 1961) (hereinafter referred to as “the Act”) and determined the total income at Rs.7,77,49,790/­.

7. On 22.09.2010, the AO issued a notice under Section 148 (of Income Tax Act, 1961) seeking therein to re­open the assessment of the respondent­ assessee which

was made on 24.12.2009. This notice was issued by the AO on the basis of information received from ADIT (investigation) Unit II (2).

8. By this notice, the AO proposed to make an addition of Rs.1,70,94,000/­ towards unaccounted sale proceeds alleged to have been made by the

respondent­ assessee in the assessment year in question (2008­-2009) because, in his opinion, it was in the nature of escaped assessment.

9. The AO proposed this addition on the basis of

one document (Annexure–AB­1), which was seized

by the Revenue Department in their search

operation carried on 30.11.2007 in the business

premises of another assessee by name­ M/s Ashok

Buildcom Ltd.

10. In other words, the foundation for issuance of

notice under Section 148 (of Income Tax Act, 1961) to the

respondent ­assessee for adding the aforementioned

sum was the document­ Annexure ­AB­1.

11. The respondent ­assessee objected to issuance

of notice contending inter alia that first, there is no

factual foundation for issue of notice; Second, there

is no case for any “escaped assessment”, and Third,

there is no case to “reason to believe”.

12. By order dated 30.12.2011, the AO overruled

the objections raised by the respondent ­assessee

and passed a re­assessment order by adding a sum

of Rs.1,70,94,000/­ in the total income of the

respondent ­assessee. He held that, in his opinion,

it was a case of escaped assessment and secondly,

there was enough material to add the said sum in

the total income of the respondent ­assessee for the

assessment year under consideration.

13. The respondent ­assessee felt aggrieved and

filed appeal before the CIT (appeal). By order dated

21.02.2013, the CIT (appeal) dismissed the appeal

and upheld the addition made by the AO. The

respondent ­assessee felt aggrieved and filed second

appeal before the ITAT. By order dated 05.02.2014,

the Tribunal allowed the appeal and set aside the

order of the CIT (appeals).

14. The Commissioner of Income Tax felt aggrieved

and filed appeal before the High Court under

Section 260 (of Income Tax Act, 1961)­A of the Act. By impugned order, the

High Court dismissed the appeal and affirmed the

order of the Tribunal giving rise to filing of the

special leave to appeal by the Commissioner of

Income Tax in this Court.

15. So, the short question, which arises for

consideration in this appeal, is whether High Court

was justified in dismissing the appeal filed by the

Commissioner of Income Tax (appellant herein).

16. Heard Mr. H.R. Rao, learned counsel for the

appellant and Mr. Salil Kapoor, learned counsel for

the respondent.

17. Having heard the learned counsel for the

parties and on perusal of the record of the case and

the written submissions filed by the learned

counsel, we are inclined to allow this appeal and

while setting aside the impugned order, remand the

case to the High Court for deciding the appeal afresh.

18. In our view, the need to remand the case to the

High Court has occasioned for more than one

reason as stated here in below.

19. First, the High Court did not formulate any

substantial question of law as was required to be

framed under Section 260 (of Income Tax Act, 1961)­A of the Act.

20. Second, in Para 2 of the impugned order, the

High Court observed that “Revenue urges following

questions of law for our consideration”.

21. As is clear from reading of Para 2, the two

questions set out in Para 2 were not the questions

framed by the High Court as was required to be

framed under Section 260 (of Income Tax Act, 1961)­A(3) of the Act for hearing

the appeal but were the questions urged by the

appellant.

22. In our view, there lies a distinction between

the questions proposed by the appellant for

admission of the appeal and the questions framed

by the Court.

23. The questions, which are proposed by the

appellant, fall under Section 260 (of Income Tax Act, 1961)­A (2) (c) of the Act

whereas the questions framed by the High Court fall

under Section 260 (of Income Tax Act, 1961)­A (3) of the Act. The appeal is

heard on merits only on the questions framed by

the High Court under sub­-section (3) of Section

260­A of the Act as provided under Section 260 (of Income Tax Act, 1961)­A

(4) of the Act. In other words, the appeal is heard

only on the questions framed by the Court.

24. Third, if the High Court was of the view that

the appeal did not involve any substantial question

of law, it should have recorded a categorical finding

to that effect saying that the questions proposed by

the appellant either do not arise in the case or/and

are not substantial questions of law so as to attract

the rigor of Section 260 (of Income Tax Act, 1961)­A of the Act for its

admission and accordingly should have dismissed

the appeal in limine.

25. It was, however, not done and instead the High

Court without admitting the appeal and framing any

question of law issued notice of appeal to the

respondent­ assessee, heard both the parties on the

questions urged by the appellant and dismissed it.

In our view, the respondent had a right to argue “at

the time of hearing” of the appeal that the questions

framed were not involved in the appeal and this the

respondent could urge by taking recourse to sub-

section (5) of Section 260 (of Income Tax Act, 1961)­A of the Act. But this

stage in this case did not arise because as

mentioned above, the High Court neither admitted

the appeal nor framed any question as required

under sub­-section (3) of Section 260 (of Income Tax Act, 1961)­A of the Act.

The expression “such question” referred to in sub-

section (5) of Section 260 (of Income Tax Act, 1961)­A of the Act means the

questions which are framed by the High Court

under sub­section (3) of Section 260 (of Income Tax Act, 1961)­A at the time

of admission of the appeal and not the one proposed

in Section 260 (of Income Tax Act, 1961)­A (2) (c) of the Act by the appellant.

26. We are, therefore, of the view that the High

Court did not decide the appeal in conformity with

the mandatory procedure prescribed in Section 260 (of Income Tax Act, 1961)­

A of the Act.

27. Fourth, the High Court should have seen that

following substantial questions of law do arise in

the appeal for being answered on their respective

merits:

(i) Whether the reasons contained in Notice

under Section 148 (of Income Tax Act, 1961) are relevant and sufficient

for issuance of the said Notice dated

22.09.2010 ?

(ii) Whether any case of escaped assessment

within the meaning of Section 147 (of Income Tax Act, 1961) read with

Section 148 (of Income Tax Act, 1961) for the assessment

year in question is made out by the

Commissioner of Income Tax on the basis of

the reasons set out in the notice ?

(iii) Whether a case of presumption as

contemplated under Section 132(4A) (of Income Tax Act, 1961) of the

Act could be drawn against the respondent-

assessee on the basis of a document

(Annexure AB­1) which was seized in search

operation carried in the business premises of

another assessee ­ M/s Ashok buildcom by

adding a sum of Rs.1,70,94,000/­ for

determining the total tax liability of the

respondent for the year in question as an

escaped assessment so as to enable the

Department to issue notice dated 22.09.2010

under Section 148 (of Income Tax Act, 1961) to the

respondent?

28. In the light of the foregoing discussion, we

consider it just and proper to remand the case to

the High Court for deciding the appeal afresh to

answer the questions framed above on merits in

accordance with law.

29. The appeal thus succeeds and is accordingly

allowed. The impugned order is set aside. The case

is remanded to the High Court for deciding the

appeal filed by the Commissioner of Income Tax-

Mumbai afresh on merits as provided under Section

260­A(4) of the Act to answer the three questions

framed by this Court under Section 260 (of Income Tax Act, 1961)­A(3) of the

Act.

30. The High Court will decide the appeal

uninfluenced by any observations made in the

impugned order and in this order because having

formed an opinion to remand the case, we have not

expressed any opinion on the merits of the case.

[ABHAY MANOHAR SAPRE]

[DINESH MAHESHWARI]

New Delhi;

April 16, 2019