Gujarat H.C : The notices of reopening of assessments in both the assessment years is sustainable in law

High Court Of Gujarat

Pr.CIT vs. Sun Pharmaceutical Industries Ltd.

Section 115JB, 253, 154, 250

Asst. Year 2001-02 & 2002-03

Akil Kureshi & Biren Vaishnav, JJ.

TAX APPEAL NO. 654 of 2017 & 655 of 2017

20th September, 2017

Counsel appeared:

KM Parikh, Advocate for the Appellant(s).: B S Soparkar, Advocate for the Respondent

AKIL KURESHI, J.

1. Leave to amend.

2. Revenue has filed these appeals against the judgement of the Income Tax Appellate Tribunal dated 06.05.2016. Revenue has raised two issues. First is with respect to the correctness of the Tribunal’s decision to allow the assessee to argue before the Tribunal, the question of validity of reopening of the assessment in the appeal filed by the department without the assessee filing cross appeal or objection. The second issue, the Revenue has raised is with respect to the decision of the Tribunal by which the Tribunal held that the notices of reopening of assessments of the assessee for the two assessment years 2001-02 and 2002-03 were bad.

3. Revenue’s appeal arises in following background: The respondent-assessee is a company registered under the Companies Act and is engaged in various businesses including manufacturing pharmaceuticals. For the assessment years 2001-02 and 2002 03 the assessee had filed the returns of income computing income in terms of section 115JB of the Act. Af er carrying out scrutiny assessments in both cases, the Assessing Officer had issued notices for reopening of the assessments and ultimately, framed reassessment by making various additions. These assessment orders were challenged by the assessee before the Commissioner (Appeals). Before the Commissioner (Appeals), the assessee raised two fold contentions. One was that in both cases, the notices for reopening of the assessments were bad in law. The second limb of the assessee’s contention was regarding the merits of the additions made by the Assessing Officer during such reassessment process. The Commissioner (Appeals) allowed the appeals of the assessee by accepting the assessee’s grounds against the additions made by the Assessing Officer. However, on the question of validity of reopening of the assessments, the Commissioner (Appeals) held against the assessee. Though the Commissioner termed his appellate order as one partially allowing the appeals, in effect and in law, he granted the full relief to the assessee by deleting all the additions made by the Assessing Officer.

4. The department was aggrieved by such appellate orders passed by the Commissioner and therefore, preferred two separate appeals before the Tribunal. Obviously, since the assessee was not aggrieved by the order passed by the Commissioner, it had not preferred any appeal. Even after the department preferred the appeals before the Tribunal, the assessee did not either file cross appeals or cross-objections raising the question of validity of the reopening of the assessments. Later on, however, relying on Rule 27 of the Income Tax Appellate Tribunal’s Rules [‘the Rules’ for short], the assessee raised the legal issue of the validity of the assessments before the Tribunal. Despite objections from the department, the Tribunal permitted the assessee to raise such contentions and ultimately held that the notices for reopening of assessments in both the years were bad in law and declared them as invalid. This common judgement of the Tribunal dated 06.05.2016 is challenged by the department in these two tax appeals.

5. Having heard learned counsel for the parties and having perused the materials on record, we take-up following two substantial questions of law for our consideration:

Whether the Income Tax Appellate Tribunal was right in law in allowing the respondent-assessee to raise the question of validity of the notices for reopening of the assessments taking recourse to Rule 27 of the Rules without the assessee having filed cross appeal or cross objection before the Tribunal against the orders of the Commissioner (Appeals)?

Whether the finding of the Tribunal that the notices of reopening of assessments in both the assessment years is sustainable in law?

6. Regarding the first question we may notice that Section 253 of the Act pertains to appeals to Appellate Tribunal. Under sub-section (1) of section 253 any assessee aggrieved by any of the orders mentioned therein could appeal to the Appellate Tribunal which includes an order passed by a Deputy Commissioner (Appeals) or, as the case may be, a Commissioner (Appeals) under various provisions contained in the Act. Under sub-section (2) of section 253, the Principal Commissioner or Commissioner may if he objects to any order passed by a Deputy Commissioner (Appeals), or a Commissioner (Appeals) as the case may be, passed under section 154 or 250 of the Act, could direct the Assessing Officer to appeal to th Appellate Tribunal against such order. Sub-section (3) of section 253 lays down the period of limitation for filing such appeals. Sub-section (4) of section 253 pertains to cross-objections by the person against whom such appeal has been preferred before the Tribunal and reads as under:

“[(4) The Assessing Officer or the assessee, as the case may be, on receipt of notice that an appeal against the order of the Commissioner (Appeals) has been preferred under sub-section (1) or sub-section (2) by the other party may, notwithstanding that he may not have appealed against such order or any part thereof; within thirty days of the receipt of the notice, file a memorandum of cross-objections, verified in the prescribed manner, against any part of the order of the Assessing Officer (Appeals) and such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal presented within the time specified in sub-section (3).]”

Under sub-section (4) of section 253 thus, either an Assessing Officer or the assessee, on receipt of a notice that an appeal against the order of the Commissioner (Appeals) has been preferred before the Tribunal may notwithstanding the fact that he may not have appealed against such order within thirty days of the receipt of the notice, file a memorandum of cross-objections against any part of the order of the Commissioner (Appeals) and such memorandum would be disposed of by the Appellate Tribunal as if it were an appeal presented within the time specified in sub-section (3). In plain terms, sub-section (4) of section 253 gives the right to the Assessing Officer as well as to the assessee to challenge the order of the Commissioner (Appeals) or part thereof upon receipt of the notice issued by the Tribunal in an appeal filed by the other side, even though previously he may not have preferred any such appeal and if such cross-objection is filed within the time mentioned in sub-section (4), the same would be treated as an appeal filed within the time prescribed under sub-section (3).

Rule 27 of the Rules reads as under:

“Respondent may support order on grounds decided against him.

27. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.”

9. This Rule thus provides that the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. This rule embodies the fundamental principle that the person, who may not have been aggrieved by an order of the lower authority or the Court and has therefore not filed any appeal against such order, is free to defend the order before the Appellate Forum on all grounds including the ground, which may have been held against him by the lower authority or the Court, whose order is otherwise in his favour.

10. The contention of the counsel for the Revenue was that the assessee had to file independent appeals or cross-objections in terms of section 253 (4) of the Act to enable the assessee to raise the ground of validity of the notices for reopening of the assessments since the said ground was held by the Commissioner (Appeals) against the assessee. For multiple reasons, we cannot accept this contention. As noted, under sub-section (1) of section 253, an appeal can be filed before the Appellate Tribunal by an assessee being aggrieved by the order of the Appellate Commissioner. Under sub-section (2) of section 253, only if the Principal Commissioner or the Commissioner objects to any order passed by the Appellate Commissioner, he would direct the Assessing Officer to file appeal before the Appellate Tribunal. Essentially therefore, an appeal before the Tribunal against the order of Appellate Commissioner would lie against an order which is adverse to the appellant. May be, on one out of two grounds if the appeal of the assessee is allowed by the Appellate Commissioner in its entirety, he cannot be stated to be a person aggrieved by such order. His appeal under sub-section (1) of section 253 would not be maintainable. The assessee cannot file a standalone appeal chal enging a finding of the Appellate Commissioner which may be against the assessee as long as the appellate rder of the Commissioner is entirely in favour of the assessee and no part of the appeal of the assessee’s claim is rejected. Under sub-section (4) of section 253, it is open for a person either an Assessing Officer or the assessee, upon receipt of a notice of the appeal filed before the Tribunal to file cross-objection against any part of the order of the Commissioner (Appeals) and such cross-objection would be dealt with by the Tribunal as if it were an appeal presented within the time specified. Two things thus become clear. A cross objection under section (4) of Section 253 could be directed against any part of the order of the Appellate Commissioner and if so presented, it would be disposed of by the Tribunal in the manner an appeal would be decided. In other words, such cross-objection would have independent existence even if for som reason, the appeal of the opponent does not survive. The cross-objection could be filed only agains any part of the order of the Appellate Commissioner and necessarily therefore, that part of the order of h Commissioner (Appeals) has to be adverse to the person raising the cross-objection. Rejection of a ground an argument or a contention would not come within the expression “any part of the order of the Commissioner” in context of which, the said phrase has been used in sub-section (4) of section 253.

11. To put the controversy beyond doubt, Rule 27 of the Rules makes it clear that the respondent in appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the grounds decided against him. It can be easily appreciated that all prayers in the appeal may be allowed by the Commissioner (Appeals), however, some of the contentions of the appellant may not have appealed to the Commissioner. When such an order of the Commissioner is at large before the Tribunal, the respondent before the Tribunal would be entitled to defend the order of the Commissioner on all grounds including on grounds held against him by the Commissioner without filing an independent appeal or cross-objection.

12. Rule 27 of the Rules is akin to Rule 22 Order XLI of the Civil Procedure Code. Sub-rule (1) provides that any respondent, though he may not have appealed from any part of the decree, may not only support the decree but may also state that the finding against him in the Court below in respect of any issue ought to have been decided in his favour; and may also take any cross-objection to the decree which he could have taken by way of an appeal. In case of Virdhachalam Pillai vs. Chaldean Syrian Bank Ltd. Trichur and anr reported in AIR 1964 SC 1425 in context of the said Rule the Supreme Court observed as under: “32. Learned Counsel for the appellant raised a short preliminary objection that the learned Judges of the High Court having categorically found that there was an antecedent debt which was discharged by the suit-mortgage loan only to the extent of Rs. 59,000/-and odd and there being no appeal by the Bank against the finding that the balance of the Rs. 80,000/-had not gone in discharge of an antecedent debt, the respondent was precluded from putting forward a contention that the entire sum of Rs. 80,000/-covered by Exs. A and B went for the discharge of antecedent debts. We do not see any substance in this objection, because the respondent is entitled to canvass the correctness of findings against it in order to support the decree that has been passed against the appellant.”

13. Likewise, in case of S.Nazeer Ahmed vs. State Bank of Mysore and ors reported in 2007 AIR SCW 766 it was held and observed as under:

“7. The High Court, in our view, was clearly in error in holding that the appellant not having filed a memorandum of cross-objections in terms of Order XLI Rule 22 of the Code, could not challenge the finding of the trial court that the suit was not barred by Order II Rule 2 of the Code. The respondent in an appeal is entitled to support the decree of the trial court even by challenging any of the findings that might have been rendered by the trial court against himself. For supporting the decree passed by the trial court, it is not necessary for a respondent in the appeal, to file a memorandum of cross-objections challenging a particular finding that is rendered by the trial court against him when the ultimate decree itself is in his favour. A memorandum of cross-objections is needed only if the respondent claims any relief which had been negatived to him by the trial court and in addition to what he has already been given by the decree under challenge We have therefore no hesitation in accepting the submission of the learned counsel for the appellant that the High Court was in error in proceeding on the basis that the appellant not having filed a memorandum of cross-objections, was not entitled to canvass the correctness of the finding on the bar of Order II Rule 2 rendered by the trial court.”

14. Similar issue came-up before Division Bench of this Cour in case of Dahod Sahakari Kharid Vechan Sangh Ltd. vs. Commissioner of Income Tax reported in 282 ITR 321 n which the Court observed as under:

“17. Taking up the second issue first, the Tribunal has ommitted an error in law in holding that the assessee having not filed cross-objection against findings adverse to the assessee in the order of Commissioner (Appeals), the said findings had become final and remained unchallenged. The Tribunal apparently lost sight of the fact that the assessee had succeeded before the Commissioner (Appeals). The appeal had been allowed and the penalty levied by the assessing officer deleted in entirety. In fact, there was no occasion for the assessee to feel aggrieved and hence, it was not necessary for the assessee to prefer an appeal. The position in law is well settled that a cross objection, for all intents and purposes, would amount to an appeal and the cross objector would have the same rights which an appellant has before before the Tribunal.

Section 253 of the Act provides for appeal to the Tribunal. Under sub-section (1), an assessee is granted right to file an appeal; under sub-section (2), the Commissioner is granted a right to file appeal by issuing necessary direction to the assessing officer; subsection (3) prescribes the period of limitation within which an appeal could be preferred. Section 253(4) of the Act lays down that either the assessing officer or the assessee, on receipt of notice that an appeal against the order of Commissioner (Appeals) has been preferred under sub-section (1) or subsection (2) by the other party, may, notwithstanding that no appeal had been filed against such an order or any part thereof, within 30 days of the notice, file a memorandum of cross objections verified in the prescribed manner and such memorandum shall be disposed of by the Tribunal as if it were an appeal presented within the period of limitation prescribed under sub-section (3). Therefore, on a plain reading of the provision, it transpires that a party has been granted an option or a discretion to file cross objection.

In case a party having succeeded before Commissioner (Appeals) opts not to file cross objection even when an appeal has been preferred by the other party, from that it is not possible to infer that the said party has accepted the order or the part thereof which was against the respondent. The Tribunal has, in the present case, unfortunately drawn such an inference which is not supported by the plain language employed by the provision.

If the inference drawn by the Tribunal is accepted as a correct proposition, it would render Rule 27 of the Tribunal Rules redundant and nugatory. It is not possible to interpret the provision in such manner. Any interpretation placed on a provision has to be in harmony with the other provisions under the Act or the connected Rules and an interpretation which makes other connected provisions otiose has to be to avoided. Rule 27 of the Tribunal Rules is clear and unambiguous. The right granted to the respondent by the said Rule cannot be taken away by the Tribunal by referring to provisions of Section 253(4) of the Act. The Tribunal was, therefore, in error in holding that the finding recorded by the Commissioner (Appeals) remained unchallenged since the assessee had not filed cross objections.”

15. The first question is, therefore, answered against the Revenue and in favour of the assessee.

17. Coming to the second question, we notice that the Tribunal has invalidated the reopening of assessments in both the assesment years by briefly referring to earlier notices of reopening and held that on identical grounds, the reopening was quashed. From the order of the Tribunal, we do not find a full comparison of the set of reasonings in the earlier and present reopening of assessments. For the assessment year 2002-03, in fact the conclusion of the Tribunal is merely by a reference.

18. Under the circumstances, we would request the Tribunal to reassess this issue for both the assessment years and record its fuller reasons for coming to a particular conclusion. For such purpose, the appeals are placed back before the Tribunal for decision on merits to decide the question of validity of reopening of the assessments and any other question which may arise in the appeals. Both the tax appeals are disposed of.

[Citation : 408 ITR 517]

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