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Hierarchical system for appellate authority
December, 23rd 2006
There is a judicial injunction that an appellate authority is bound by its earlier decision and cannot change its stand when the same issue comes up before it in another proceeding.

There is not only finality about an assessment to the extent provided under the Income-Tax Act, 1961, but there is also judicial injunction that an appellate authority is bound by its earlier decision and cannot change its stand when the same issue comes up before it in another proceeding. This point arises where a matter is first decided in appeal; thereafter, the I-T authority gives effect to the appellate order and the assessee files an appeal against such order. At the time of the second appeal, the authority would be bound by its earlier appellate order and cannot take a different view.

This point was considered by the Madhya Pradesh High Court in C.I.T. vs D & H Secheron Electrodes Ltd (2006; 156 Taxman 445). The facts in this case were that the company claimed deduction amounting to about Rs 6.88 lakh towards the penalty paid under the Sales Tax Law by contending that since in the year in question the assessee had voluntarily surrendered a total sum of Rs 55 lakh and the impugned sum of Rs 6.8 lakh being part of the surrendered sum and not over and above Rs 55 lakh, the same could be brought to tax and the assessee be allowed to deduct the sum from computation of gross total income.

Granting benefit

The Assessing Officer accepted the explanation of the assessee and, accordingly, granted it the benefit of Rs 6.8 lakh by deleting it from the computation of gross total income. Thereafter, the Commissioner invoked his powers under Section 263 and held that the amount of Rs 6.8 lakh was not part of Rs 55 lakh as contended by the assessee and, hence, it was to be brought within the tax net during the period in question. Accordingly, he directed the Assessing Officer to make a fresh assessment. On appeal, the Tribunal upheld the order of the Commissioner.

Thereafter, the Assessing Officer passed a fresh consequential assessment order and, accordingly, added the sum of Rs 6.8 lakh in the gross income of the assessee for the year in question. On appeal, the Commissioner (Appeals) upheld the assessment order. On further appeal, the Tribunal, however, deleted the addition of Rs 6.8 lakhmade by the Assessing Officer pursuant to the order of the Commissioner, which was earlier upheld by it.

The High Court held that since the issue regarding addition of Rs 6.8 lakhhaving attained finality in the earlier proceedings, which travelled from the suo motu revisionary order of the Commissioner, to that of an order passed by the Tribunal against the assessee, the same had to be decided against the assessee in consequential proceedings.

Jurisdiction issue

Neither the Assessing Officer nor the Commissioner (Appeals) nor the Tribunal had the jurisdiction to decide the issue again on its merits contrary to the earlier finding of the Tribunal. Once an issue is decided in a hierarchical system for the same year against any party, it cannot be allowed to be re-agitated in collateral proceedings.

In the instant case, the Tribunal was bound by the finding recorded by the Tribunal in its earlier order. It was not in dispute that the Commissioner had jurisdiction to invoke the powers conferred under Section 263 for recalling the order passed by the Assessing Officer on the ground of it being erroneous and prejudicial to the interests of the revenue. It was also not in dispute that the Commissioner did find that those two grounds existed in the order of the Assessing Officer and, accordingly, recalled the same.

It was also not in dispute that the Tribunal concurred with the finding of the Commissioner when it proceeded to dismiss that appeal filed by the assessee. It was not in dispute that the assessee, though had the opportunity to challenge the appellate order of the Tribunal in further appeal under section 260-A, yet for reasons best known to it did not prefer to challenge and accepted the appellate order of the Tribunal.

Facts of the case

In a situation emerging from the undisputed facts, it was held that the Tribunal had no jurisdiction to deal with the same issue in an appeal arising out of consequential order of assessment. What was unfortunate was that the Tribunal did not even refer to its earlier order and, hence, failed to consider its legal effect in the proceedings arising out of consequential assessment orders, thereby committing an error of law.

It was a case where an issue regarding the addition of Rs 6.8lakhwas debated inter se parties on merits and eventually merged with the appellate order of the Tribunal, which attained finality against the assessee. It could only be examined on its merits by the High Court in an appeal filed by the assessee under Section 260-A against the said order.

If for any reasons the assessee gave up the challenge, the issue attained finality. The only thing that survived in such a circumstance was implementation of the finding, which attained finality by passing consequential order by the Assessing Officer, if necessary, so as to make the order in conformity with the final order passed in the case.

The Madhya Pradesh High Court, therefore, over-ruled the Tribunal and held that the deletion of the amount added by the Assessing Officer was erroneous in law. Thus, the second assessment order disallowing the penalty of Rs 6.8 lakh was upheld by the Court, as the Tribunal had in its first order sustained such disallowance.

Correctness in law

The Madhya Pradesh High Court's decision is correct in law as it lays down the proposition that once an appellate authority has decided an issue in the case of an assessee, it cannot be permitted to take a contrary issue when the same issue comes up again in an appeal against the assessment order, which gave effect to the first appellate order.

It needs to be pointed out that while the Tribunal has the power to correct mistakes apparent from the records under Section 254(2), such power cannot be exercised to recall its order and re-hear the appeal for fresh disposal and arriving at a different conclusion.

In C.I.T. vs Income-tax Appellate Tribunal (2006; 155 Taxman 378), the Delhi High Court held that the Tribunal has no power to hold a fresh hearing on a matter decided by it. Just because another pronouncement made on the subject either by a Bench of the Tribunal or by any Court was not noticed by the Tribunal while taking a particular view on the merits of the controversy, it would not be a mistake apparent from the record within the meaning of Section 254(2).

Such an error can only be corrected in appeal to the High Court on a substantial question of law. More importantly, just because a point is debatable, it cannot provide a justification for recalling the order and fixing the appeal for a de novo hearing. This issue is now well settled by a string of judicial authorities.

H. P. Ranina
(The author, a Mumbai-based advocate specialising in tax laws)

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