TMI Blog2012 (4) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... oversy cannot be said to be a valid or lawful order passed in accordance with the provisions of section 255(4) and, hence, the said order proposed by the AM is not sustainable in law. - IT Appeal NOS. 6490 & 6491 (MUM.) of 2008 - - - Dated:- 30-3-2012 - G.E. VEERABHADRAPPA, D.K. AGARWAL, P.M. JAGTAP, JJ. ORDER Per Bench The Hon'ble President of the Income Tax Appellate Tribunal, on a reference made by a Division Bench, has constituted this Special Bench vide order dated 14.5.2010 and the following question has been referred for our consideration and decision:- "Whether on a proper interpretation of sub-section (4) of section 255 of the Income Tax Act, the order proposed by the learned AM while giving effect to the opinion of the majority consequent to the opinion expressed by the learned Third Member, can be said to be a valid or lawful order passed in accordance with the said provision" 2. The factual matrix of the case leading to the recommendation for the constitution of this Special Bench by the Division Bench is as follows: 3. The assessee company is engaged in the business of operation and management of hotels owned by third parties. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te (NWRE), whose President is Shri Somendra Khosla; the Heath Card and other Cards issued by the Government of UAE. The ld. CIT(A) while observing that these documents were not produced before the Special Auditor during the special audit conducted u/s 142(2A) of the Act or the AO at the time of assessment , held that the same cannot be admitted being fresh evidence at the appellate stage as the appellant has failed to explain the reasons for not producing these documents before the AO or Special Auditor. He further held that since no evidence of creditworthiness of Shri Somendra Khosla was produced during the assessment proceedings, the AO was justified in making addition u/s 68 of the Act Rs.4,78,12,403/- for the assessment year 2004-05 and Rs.1,02,91,176/- for the assessment year 2005-06. 4. With regard to the second issue of disallowance of payments, the brief facts are that the assessee has entered into an agreement with M/s Tulip Hospitality Services Ltd.(THSL) for operating their Hotel Tulip Star, Mumbai for which the assessee is entitled to operating fee @ 3% and reimbursement of actual expenditure incurred by it on operating the hotel. The assessee entered into another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO disallowed the said claims in assessment year 2005-06 also. In appeal CIT(A) confirmed the above disallowances made by the AO. 5. On appeal before the Tribunal, on the issue of sustenance of addition u/s 68 of the Act, both learned Members have considered the evidence produced before the AO as well as the additional evidence. The learned Judicial Member, after considering all the evidence, i.e. the evidence produced before the Assessing Officer as well as the additional evidence, came to the conclusion that the assessee has discharged the onus of proving the cash credit lay upon it and accordingly he ordered for deletion of addition; while the learned Accountant Member was of the opinion that even after considering the additional evidence the assessee has not been able to discharge the onus of proving the cash credit and hence upheld the order of ld. CIT(A) sustaining the addition made by the AO. 6. On the second issue of disallowance of payments, the ld. Judicial Member while observing that there is only incoming and outgoing entries in the books and for this reason neither the assessee has shown in its profit and loss account any incoming entry/ income nor outgoing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the addition of Rs. 4,78,12,403/- and Rs. 1,02,91,176/- made and confirmed by the lower authorities under section 68 of the Income Tax Act are liable to be deleted." On the second point of difference, the ld. Third Member vide paragraphs 27, 28 and 29 of his order has held as under : "27.. .The assessee has furnished the profit and loss account in its paper book and from the perusal of which it is evident that the total expenditure debited in the profit and loss account was only Rs.86,97,337/-. When the total expenditure incurred by the assessee during the year under consideration was Rs. 86,97,337/-, by no stretch of imagination, it can include the expenditure incurred by CKIL for which debit note amounting to Rs. 7,56,16,910/- was raised by the assessee. When the assessee has not claimed the deduction in respect of the expenditure of Rs. 7,56,16,910/-, the question of disallowing the same in the case of the assessee cannot arise. 28. With regard to the operating fee of Rs. 61,93,015/- is concerned, I find that the assessee received the identical amount from THSL and paid the same to TSHL. Here again, in real terms, the assessee has neither received any income nor in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,697,337 14,008,251 29. From the above details of the expenditure, it is evident that the assessee has not claimed any deduction in respect of operating fees paid by it to TSHL. When no deduction is claimed, the question of disallowing the same does not arise. Before I part with the matter, I may clarify that the expenditure was actually incurred by TSHL and whether such expenditure is allowable or not is to be examined in the case of THSL. So far as the assessee's case is concerned, in my opinion, when no deduction was claimed, the question of any disallowance does not arise. Similar is the fact in assessment year 2005-06 except variation in the amount. Therefore, my finding for the assessment year 2004-05 would be squarely applicable to assessment year 2005-06. Accordingly, I answer the question no.2 also in favour of the assessee and hold that the addition made and confirmed by the CIT(A) on account of reimbursement of expenses to M/s. Cox King (India) Pvt. Ltd. and to M/s. Tulip Star Hotels Pvt. Ltd. for the assessment years 2004-05 and 2005-06 are liable to be deleted." Accordingly the ld. Third Member while agreeing with the opinion of ld. Judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case." 10. The ld. Judicial Member has expressed his disagreement with the course adopted by the ld. Accountant Member and in a note dated 23.2.2010 has proposed the following question to be referred to the Special Bench or Larger Bench to resolve the controversy: "Whether on the facts and circumstances of the case, the Members of the Bench, could comment on the order of the Third Member, instead of passing a confirmatory order in terms of section 255(4) of the Act?" 11. However, the Hon'ble President on careful perusal and consideration of the issue observed that a Special Bench consisting of three or more Members may have to be constituted to resolve the issue. It involves interpretation of sub-section (4) of section 255 which provides that the point on which difference arose shall be decided in accordance with the opinion of the majority. The question to be considered is whether at that stage ( i.e., the stage of giving effect to the opinion of the ld. Third Member) it is legally permissible, having regard to the statutory provision, for a Member who is in the minority to decline to give effect to the opinion of the majority whatever be his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held by the majority of opinion that the assessee has duly established the identity of the creditor, creditworthiness of the creditor and also genuineness of the transaction, the onus of proving the cash credit which lay upon the assessee is fully discharged, therefore, the order passed by the ld. Judicial Member attained the majority and hence the questions which have been framed by the ld. Account Member in his order dated 18.2.2010 are against the provisions of section 255(4) of the Act. He further submits that while giving the effect to the opinion of the ld. Third Member under the provisions of section 255(4), we have to ascertain the majority view and not to consider the correctness of the view, therefore, the ld. Accountant Member is not justified in doubting the correctness of the opinion of the majority. 13. The ld. Counsel for the assessee while referring to the decision in A.N. Seth v. CIT [1969] 74 ITR 852 (Del) submits that the duty of the ld. Third Member is to decide the point of difference which the Members of the Bench originally heard the case differed. He cannot himself formulate a new point on which he could base his decision. In the case before us, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in H.P. Agro Industries Corporation Ltd. v. DCIT [1999] 240 ITR (AT) 62 (Chd) to submit that the ld. Third Member is fully empowered in law to arrive at the same end result as done by any of the Members constituting the Division Bench although he may do it by a different route and all that is necessary is that he must agree with one of the members constitution the Division Bench and who have disagreed on the point at issue. 19. The ld. Counsel for the assessee while referring to the decision of the Hon'ble Delhi High Court in CIT v. Sudhir Choudhrie [2005] 278 ITR 490 (Delhi) submits that the duty of the Tribunal is to pronounce its judgments and orders in open hearing upon enlisting them for a given date. Since in this case, there is no final order and only opinions were expressed by the Members constituting the Bench and the ld. Third Member, therefore, the order passed by the respective Members/Third Member is merely an opinion which cannot be said that the Tribunal has passed any order so far. Therefore, the contention of the Revenue that there is a mistake in the order passed by the ld. Third Member is devoid of any merit. 20. He, therefore, submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal could be got invoked at the instance of one of the parties before it. Relying on the said decision he submits that it was the duty of the Tribunal to exercise his power to provide a reasonable opportunity of being heard to the department for examining the evidence submitted by the assessee which has not been done in this case, therefore, in the interests of justice the matter may be set aside to the file of the AO. 23. The ld. DR further submits that in ITO v. Baker Technical Services (P) Ltd. [2009] 126 TTJ (Mumbai) (TM) 455 it has been held that when a majority opinion has not been formed it was suggested by the ld. Third Member that a reference may be made to the Hon'ble President for making a further reference to a Member or Members for resolving the difference of opinion in accordance with law. Relying on the same view the ld. DR submits that both the Members while giving effect to the opinion of the ld. Third Member have passed two separate orders, therefore, the opinion of the majority has not been formed in this case and therefore, the issue may be decided fresh. 24. The ld. DR further submits that in M/s Deepak Agro Foods v. State of Rajasthan Ors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B) it has been held that the parties are entitled to file additional evidence before the ld. Third Member. Relying on the same he submits that in the case of the assessee, the additional evidence was already on record, therefore, it was the duty of the Third Member to pass a specific order for admission of the same which has not been done, therefore, the order passed by the Third Member is void ab initio. 28. The ld.DR while relying on the decision in CIT v. Shri Ramdas Motor Transport [1999] 238 ITR 177 (AP) submits that the order passed by the Third Member should be well considered order, answered the reference by giving sound and valid reasons. In the case of the assessee the order passed by the Third Member is not a well considered order, therefore, the same may be set aside. 29. In the light of the above, the ld. DR submits that the order passed by the ld.Third Member is not a valid order, and in the absence of any opinion of the majority, the order passed by the ld.Third Member may be set aside and the issue may be decided afresh. 30. We have carefully considered the submissions of the rival parties and perused the material available on record. To appreciate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), it has been observed and held that the power of the third member to whom the case is referred under section 255(4) is confined to the giving of a decision on the point(s) on which the two members had differed and which has been formulated by them as a question or questions for the decision of the third member. The third member acting under section 255(4) does not have any power to direct the two members of the Tribunal who had differed on the point(s) referred to him to decide on a particular point or points or act in a particular manner. The third member cannot act as if he was an appellate authority over the two members of the Tribunal and direct them to rehear and dispose of the matter afresh. 35. In H.P. Agro Industries Corporation Ltd. ( supra ) it has been observed and held (page 77): "A question may be raised at this stage as to how the Third Member has expressed an opinion different from the one given by the two Members constituting the Division Bench. In my opinion, the Third Member is fully empowered in law to arrive at the same end result as done by any of the Members constituting the Division Bench although he may do it by a different route and all that is ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er giving the opportunity to the parties observed that "the Judicial Member after considering all the evidences i.e. evidence produced before the AO as well as the additional evidence, came to the conclusion that the assessee has discharged the onus of proving the cash credit lay upon it; while the ld. Accountant Member was of the opinion that even after considering the additional evidence the assessee has not been able to discharge the onus of proving the cash credit" and held that the assessee has duly established the identity of the creditor, creditworthiness of the creditor and also the genuineness of the transaction. Thus, the onus of proving the cash credit which lays upon the assessee is duly discharged and accordingly the ld. Third Member while agreeing with the views of the ld. Judicial Member answered the first question in favour of the assessee. Similarly, on the other issue of addition on account of reimbursement of expenses he observed that when no deduction was claimed, the question of any disallowance does not arise and accordingly while agreeing with the views of the ld. Judicial Member answered the other question also in favour of the assessee, and deleted the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been observed and held (page 180) : "We desire to add and as was said in Cassell and Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never he necessary for us to say so again that " in the hierarchical system of courts " which exists in our country, " it is necessary for each lower tier ", including the High Court, " to accept loyally the decisions of the higher tiers ". " It is inevitable in a hierarchical system of courts that there are decisions of the supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted" (See observations of Lord Hailsham and Lord Diplock in Broome v. Cassell ). The better wisdom of the court below must yield to the higher wisdom of the court above. That is the strength of the hierarchical judicial system " 41. In this view of the matter, the questions framed by the ld. Accountant Member while giving effect to the opinion of majority are outside the purview of section 255(4) of the Act and hence have no relevance. 42. Now we shall discuss the decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the appellant assessee is entitled for claiming of deduction under the provisions of section 80-IA(4) in respect of the projects undertaken? (2) Whether the Tribunal has to decide an issue on the basis of the law as it stands on the day of the passing of the order?" On the question No.1 it has been held " . that the conditions set out in sub-section (4) clause (i) are not satisfied and, hence, the assessee cannot claim deduction under this section. The insertion and substitution of the Explanation is only to clarify that the deduction cannot be allowed in relation to a business in the nature of works contract under any circumstances. In other words, the view emerging from the careful circumspection of sub-section (4) has been endorsed by the Explanation and that too with retrospective effect from 1.4.2000 thereby covering both the years under consideration. We, therefore, answer question No.1 in negative by holding that the assessee is not entitled to deduction under the provisions of section 80-IA(4) in respect of the projects undertaken. (para 59) On the question No.2, it has been held " that the Tribunal is not empowered but duty bound to apply such retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as considered by the ld. Third Member, therefore, the decision relied on by the ld. DR rather supports the assessee's case. 53. In Shri Ramdas Motor Transport ( supra ) it has been held (page 4) : "4. Question No. 11. -Except raising bare ground in the I.T.C. that the Third Member has not answered the reference as contemplated under section 255(4) of the Act, no argument is advanced before us as to how the order of the Third Member is unsustainable in law. We have, however, perused the order passed by the Third Member. He was called upon to answer three questions on which there was a difference of opinion among the two Members. The Third Member in a well considered order, answered the reference by giving sound and valid reasons agreeing with the Accountant Member. Thus, the majority view was in favour of the assessee and a consolidated order was accordingly passed by the Tribunal in accordance with the provisions of section 255(4) of the Act. Therefore, we are not ready to accept the contention that the order of the Appellate Tribunal does not represent the majority view. There is absolutely no question of law involved in this point. We, therefore, decline to refer this qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hu Purohit. 60. It has been restored back by the members who originally heard the appeal to the file of the AO to examine the issue afresh. The ground taken by the assessee is, therefore, partly allowed for statistical purposes. 61. Ground No.4 is against the sustenance of addition of Rs. 4,78,12,403/- received from Mr. Somendra Khosla. 62. As per majority view, the issue is decided in favour of the assessee and against the Revenue by deleting the same. The ground taken by the assessee is, therefore, allowed. 63. Ground Nos.5 to 8 are not pressed, hence, they are dismissed being not pressed. 64. Ground No. 9 is against the sustenance of addition of the value of 150 Room nights vouchers Rs. 21,00,000/- on adhoc basis or in alternative, as an additional ground for assessment year 2005-06, the same may be allowed in assessment year 2005-06 as loss/bad debts. 65. It has been restored back by the members who originally heard the appeal to the file of the AO to decide the same as per directions given by the Tribunal. The ground including the additional ground taken by the assessee are therefore, partly allowed for statistical purposes. 66. Ground No. 10 is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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