Allahabad H.C : Whether we can refuse to exercise our extraordinary jurisdiction under Art. 226 of the Constitution on that ground.

Counsel Appeared

R.S. Agarwal, for the Petitioner

OM PRAKASH, J. :

The question arising for consideration at the inception in this case is whether there is an alternative remedy available to the petitioner and, if so, whether we can refuse to exercise our extraordinary jurisdiction under Art. 226 of the Constitution on that ground.

The petitioner, a registered firm, filed a return showing loss for the asst. yr. 1974-75, but the assessment was made at Rs. 1,00,710 giving set off of Rs. 48,666 shown as loss in the revised return. In the books of the petitioner, cash credits aggregating to Rs. 1,49,360 were noticed and the genuineness of all of them was not accepted by the ITO. He, therefore, treated the amount of cash credits as the income of the petitioner from undisclosed sources. On appeal, the AAC remanded the case to the ITO with a direction that he should examine the creditors. On further appeal, the Tribunal affirmed the remand order of the AAC modifying the direction that the petitioner might examine any creditor it liked and if it was in need of the assistance of the assessing authority to force the appearance of the reluctant creditors, then the same could be sought from the assessing authority. After remand, the ITO reiterated his view that the cash credits were not genuine. On appeal, the CIT accepted cash credits aggregating to Rs. 1,38,660 and refused to accept the remaining cash credits aggregating to Rs. 9,700. The matter was taken to the Tribunal on second round and the Tribunal reversed the order of the CIT (A) regarding the cash credits aggregating to Rs. 1,38,660. The result was that the order of the ITO was restored. Against such order of the Tribunal dated March 13, 1987, the assessee made an application seeking rectification under s. 254 (2) of the IT Act, 1961 (“the Act”), which was rejected by the Tribunal by order dated November 16, 1987 (annexure 15 to the writ petition).

Aggrieved by the aforesaid order, the petitioner has filed the instant writ petition praying that the Tribunal’s order dated November 16, 1987, rejecting the application for rectification be quashed, that the Tribunal be directed to decide the rectification application afresh and that respondents Nos. 2 and 3 be restrained from effecting the recovery of tax, penalty and other amounts and from taking other penal action against the petitioner.

In para. 45, it is averred that the Tribunal held in CIT vs. M. P. Sugar Mills Co. (P) Ltd. (1987) 23 ITR 6 (All), that an order rejecting a rectification application is not an order under s. 254 and hence no reference under s. 256(1) of the Act lies. This is why it is averred in para. 44 that the Tribunal’s order rejecting the rectification application under s. 254(2) is final and no reference is maintainable against that.

On the other hand, the contention of learned senior standing counsel is that reference under s. 256(1) lies against the order passed under s. 254(2) rejecting the rectification application and there being an alternative remedy, the petitioner cannot invoke the writ jurisdiction of this Court under Art. 226 of the Constitution. Under s. 256(1), reference can be made against any order passed by the Tribunal under s. 254. Sub-s. (2), where under the Tribunal has passed the impugned order dated November 16, 1987, is part of s. 254 and, therefore, taking a semantic view of s. 254, it has to be held that reference under s. 256(1) will lie from the impugned order dated November 16, 1987.

The learned Advocate-General to support his viewpoint, that no reference lies against the order passed under s. 254(2) rejecting the rectification application of the petitioner, relied on Niranjan and Co. Ltd. vs. Tribunal (1980) 122 ITR 519 (Cal), Popular Engg. Co. vs. CIT (1983) 140 ITR 398 (MP) and CIT vs. N. J. Dadabai (1978) 15 ITR 317 (AP). None of the aforesaid authorities, in our opinion, lays down a rule that no reference will lie against the Tribunal’s order passed under s. 254(2) rejecting a rectification application or that an order passed under s. 254(2) is not an order under s. 254, against which reference will lie under s. 256(1). All these authorities were rendered in different contexts and on entirely different facts and circumstances and, therefore, they are clearly distinguishable. In Niranjan and Co. Ltd.’s case (supra), the Calcutta High Court took the view that the Tribunal’s jurisdiction under s. 254(2) was limited and there was no power to review the earlier order, that where the Tribunal acted without jurisdiction in that it reviewed its earlier order under s. 254(2) and there being a question of jurisdiction, an alternative remedy by way of reference to the High Court was no bar and the Court could, in its discretion, exercise its jurisdiction in entertaining the writ petition. Thus, a question of jurisdiction arose and, therefore, the Calcutta High Court took the view that that question could well be considered in the writ jurisdiction and the alternative remedy of reference to the High Court was no bar. In Popular Engg. Co.’s case (supra), the Madhya Pradesh High Court, however, took the view that where no reference is sought in respect of the appellate order passed under s. 254(1), the same becomes final under s. 254(4) and no reference from the order rejecting an application for rectification of any mistake is tenable under s. 256(1). The approach was that when the order passed under s. 254(1) by the Tribunal was not interfered with under s. 254(2) in anyway, then what remains is the order passed under s. 254(1) and a reference would lie against that order. In the instant case, it is stated at the bar that a reference application was made against the order passed under s. 254(1) and, therefore, this authority is clearly distinguishable. In the case in hand, the order under s. 254(1) has not become final inasmuch as an application under s. 256(1) was made against that to the Tribunal.Then comes the case of N. J. Dadabai (supra), in which the Andhra Pradesh High Court, on the peculiar facts of that case, took the view that no reference would lie against a rectification order. The facts of that case are that the Tribunal by an order dated October 9, 1973, upheld the view of the ITO treating the sum of Rs. 56,604 as capital expenditure. While holding so, the Tribunal directed that obsolescence allowance in respect of an old kiln should be granted under s. 31(1)(iii) of the Act. Pursuant to the said order of the Tribunal, the ITO examined the books of account and found that the assessee had not written off any amount towards the value in question which is a condition precedent for granting obsolescence allowance under s. 32(1)(iii). In view of this, the Department filed a miscellaneous petition under s. 254 on March 3, 1974, bringing these facts to the notice of the Tribunal and contending that the assessee is not entitled to the obsolescence allowance. The Tribunal by order dated February 26, 1975, rejected the plea and held that the assessee should be clearly treated as having written off the entire outstanding as scrap and that this fact was inherent in its order dated October 9, 1973. The Department filed a reference application before the Tribunal challenging the entitlement of the assessee to have the obsolescence allowance written off under s. 32(1)(iii). The said reference application was rejected by the Tribunal onthe ground that the question of law sought to be raised by the Department did not arise from out of the Tribunal’s order passed on the rectification application, inasmuch as obsolescence allowance was granted by the Tribunal in the order passed under s. 254(1). The Department then filed an application under s. 256(2) and then the Andhra Pradesh High Court held that the order passed under s. 254(1) remained untouched in the order passed under s. 254(2), in that the miscellaneous application was rejected. Therefore, the Andhra Pradesh High Court held that the question of law sought to be raised by the Department about the entitlement of the assessee to claim obsolescence allowance, did not arise from out of the order of the Tribunal passed on the miscellaneous application and a reference, if any, can only be in respect of the main order passed under s. 254(1). On these facts, it was held that no reference lay from the Tribunal’s order passed on the miscellaneous application.

The Andhra Pradesh High Court did not directly consider the question whether or not a reference lies from an order passed under s. 254(2), but what was held was that the question sought to be raised from the order passed on a miscellaneous application, in fact, arose from the main order passed under s. 254(1) and not from the order passed under s. 254(2).

11. In the case in hand, the rectification application was rejected by the Tribunal by the impugned order dated November 16, 1987, holding that the same was misconceived and there was no mistake apparent from the record. To understand as to what mistake apparent from the record was pointed out by the petitioner to the Tribunal in the miscellaneous application, it is necessary to amplify the factual position. The case of the petitioner is that people living in the neighbourhood were interested in buying the prospective products of the petitioner and they had deposited amounts in advance with the sales representatives of the petitioner and when the petitioner started production, the goods had been delivered to them. The Tribunal, in the appellate order dated March 13, 1987, observed that the goods had been delivered to such persons almost at the same time at different rates and, for sample sake, the Tribunal pointed out the supplies made to two parties, namely, Kastoori Lal Khandel Nath and Bau Lal and Company. Both parties belong to Gorakhpur. The petitioner made an application under s. 254(2) that there was a mistake apparent from the record in the Tribunal’s order dated March 13, 1987, inasmuch as goods had been supplied to both the aforesaid parties at the same rate. The Tribunal, however, did not accept this contention of the petitioner and rejected the rectification application. The question, therefore, is whether, on these facts and circumstances of the case, a mistake apparent from the record arises and whether the Tribunal was right in holding that there was no mistake apparent from the record. This question can arise only from the order passed on the rectification application. There is no overlapping between s. 254(1) and s. 254(2) and the areas covered by these sections are clearly demarcated. This question could not arise from the order passed under s. 254(1) and it could arise only from the order passed under s. 254(2). Therefore, it is not correct to say that the rectification application is rejected, a reference will lie only against the order passed under s. 254(1). Sec. 254 (2) covers an entirely different field and the question arising from an order passed thereunder would be different in nature from the one that might arise from the order passed under s. 254(1).

12. For the above reasons, we are not impressed by the submission of the learned advocate that no reference lies against the order rejecting the rectification application. Whether or not a question of law arises from an order passed under s. 254(2), will depend on the facts and circumstances of each case. In the instant case, the petitioner can state in the reference application before the Tribunal that there was a mistake apparent from the record in that the rate of supplies made to various parties at almost the same time did not vary, but that all supplies had been made at a uniform rate and the inference drawn by the Tribunal was erroneous. We, however, make it clear that whether such a question, if raised, would be a question of law on the facts and in the circumstances of this case the decision of this question will be entirely within the domain of the Tribunal. So, the petitioner has remedy against against the orders passed both under s. 254(1) as well as under s. 254(2) and the petitioner, in fact, has availed of the remedy of reference against the former. The petitioner having alternative remedy by way of reference under s. 256(1) to the Tribunal, we decline to exercise our extraordinary jurisdiction under Art. 226. The writ petition is accordingly dismissed.

[Citation : 175 ITR 344]