* IN HIGH COURT OF DELHI AT NEW DELHI Reserved on : 14.02.2019 % Pronounced on : 25.02.2019 + W.P.(C) 10846/2016 PR COMMISSIONER OF INCOME TAX-6 NEW DELHI ..... Petitioner Through : Mr. Asheesh Jain, Sr. Standing Counsel with Mr. Sanjay Kumar, Jr. Standing Counsel along with Mr. Dushyant Sarna, Adv. for ITD. versus N.R. PORTFOLIO PVT. LTD. ..... Respondent Through : Mr. Rakesh Gupta, Mr. Rohit Kumar Gupta and Ms. Monika Ghai, Advs. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE PRATEEK JALAN S. RAVINDRA BHAT, J. 1. Commissioner of Income tax (hereafter Revenue ) challenges order dated 20.5.2016 (in M.A No.340/Del/2015 in ITA No. 2177/Del/2010 passed by Income Tax Appellate Tribunal, Delhi Bench New Delhi. By that order, ITAT rejected Revenue s request to rectify its earlier order dated 26th March 2015 passed in M.A No. 205/Del/2014 in ITA No. 2177/Del/2010, whereby it had rectified its earlier Order dated 22.07.2011 (passed in ITA No.2177/Del/2010, (hereafter first ITAT order ). first ITAT order had been set aside by this Court (in ITA No. 134/2012, decided by judgment dated 21.12.2012). first ITAT order had rejected revenue s appeal. first ITAT order had also rejected W.P.(C)No.10846/2016 Page 1 of 16 assessee/petitioner s cross objections, on issue of legality of reassessment proceedings. 2. brief facts are that assessee/respondent s returns became subject matter of re-assessment, in course of which Assessing officer (AO) disallowed certain amounts, under Section 68. AO rejected assessee s contentions with respect to validity of reassessment notice, under Section 147/148 of Income Tax Act (hereafter Act ). assessee appealed; Commissioner of Appeals [CIT(A)] allowed assessee s contentions and deleted amounts added back (by AO); however, appellate commissioner rejected assessee s arguments regarding validity of reassessment notice (under Section 148). first ITAT order upheld this order on both aspects. assessee did not appeal to this court under Section 260A of Act; revenue did so. revenue s appeal was allowed by judgment and order dated 21.12.2012 [reported as (2013) 60 taxmann.com]. This court allowed revenue s appeal, and added back amounts brought to tax under Section 68. However, at that stage, assessee did not challenge rejection of its cross objection. It however, challenged this court s judgment, through special leave petition before Supreme Court. 3. After this court s judgment, reversing ITAT s first order, assessee approached it (ITAT)- this time by filing application for rectification (M.A No.205/Del/2014) in appeal (preferred by revenue, earlier before ITAT, which was disposed of on 20-7-2011, rejecting it) contending that since rejection of its cross objection about validity of reassessment notice was not on merits, it ought to consider that ground and revive cross objections. ITAT, on 26.03.2015, allowed this application (MA 205/2104) and inter alia, held that: W.P.(C)No.10846/2016 Page 2 of 16 said issue was not adjudicated by IT AT for reason that issue on merit was decided in assessee's favour and Cross Objection filed by assessee was dismissed, treating same as infructuous. Since decision of ITAT on merit has been reversed by Hon'ble Jurisdictional High Court, therefore, Cross Objection filed by assessee is no longer infructuous and is required to be adjudicated. We, therefore, direct Registry to fix Cross Objection filed by assessee in due course. 4. revenue attempted to get rectification of this order (dated 26- 03-2015) by filing MA 340/15; however, it was rejected on 20th May, 2016. ITAT reasoned, inter alia, that : As main appeal of the. department has been restored to IT AT and Cross Objection filed by assessee is connected with said appeal of department. Therefore, vide order dated 26.03.2015 'in MA No. 205/Del/2014 filed by assessee, Cross-Objection No. 207 /Del/20 11 was also restored for adjudication which was earlier dismissed as infructuous for reason that appeal of department was dismissed. In our opinion, there is no mistake in order dated 26.03.2015 passed in MA No. 205/Del/2014. In that view of matter, we do not see merit in this Miscellaneous Application of department. 5. It is argued by revenue in its appeal that since it preferred appeal against first ITAT order (being ITA No.134/2012) which was allowed by this court by judgment dated 21.12.2012, first ITAT order was set aside. It is pointed out that assessee chose not to file any Appeal or get any question framed in ITA No. 134/2012 against rejection of its Cross Objections by Ld. ITAT vide order dated 22.07.2011;therefore, rejection of Cross Objections had attained finality. revenue urges that it was after this court set aside first ITAT order that ITAT had allowed assessee s Miscellaneous Application under Section 254(2) of Act by order dated 26.03.2015 passed in M.A No. 205/Del/2014. W.P.(C)No.10846/2016 Page 3 of 16 6. It is urged that order dated 26.03.2015 passed in M.A No. 205/DeI/2014 in ITA No. 2177/Del/2010 is ex-facie beyond jurisdiction of ITAT, patently illegal and liable to be set aside. revenue argues that principle of merger, enunciated by Supreme Court in several judgments applied clearly to facts of this case, since substratum of assessee s grievance was with respect to additions made in re- assessment proceedings; that issue was plainly subject matter of decision of this court, under Section 260A; consequently ITAT s order merged with judgment of this court. order of ITAT further attained finality. In circumstances, assessee could not have again approached ITAT complaining that its order was erroneous in some respect. 7. Counsel cited and relied upon Commissioner of Income-tax, Bombay V/s. M/s. Amritlal Bhogilal & Co., AIR 1958 SC 868; M/s. Gojer Brothers Pvt. Ltd. v. Shri Ratanlal, AIR 1974 SC 1380 and Kunhayammed and Others Vs. State of Kerala & Another [(2000) 6 SCC 359]. He also urged that assessee allowed dismissal of its cross objection to attain finality and was not aggrieved; it never urged that such dismissal was erroneous, or sought any remedy before this court. In circumstances, it could not be allowed to go back to same forum with imaginary grievance. Further, counsel submitted that ITAT cannot exercise plenary powers under Section 254 since it is power to rectify not to negate judgements of appellate courts; he relied on Honda Siel Power Products Ltd Vs. Commissioner of Income Tax Delhi, 295 ITR 466 8. It is argued by Dr. Rakesh Gupta on behalf of assessee that ITAT, in first order had rejected revenue s appeal. No doubt, it also rejected cross objection. However, points out counsel, that dismissal was not on merits, but because ITAT felt that issue was academic, W.P.(C)No.10846/2016 Page 4 of 16 since main dispute, i.e. merits of addition, was decided by it. asssessee was content with this and chose not to appeal. That however, did not mean that question with regard to correctness of reassessment notice or its validity was tested by ITAT. That ITAT s order was reversed by this court, at behest of revenue, did not deflect from fact that order with respect to merits of addition merely operated in respect of what it decided and nothing more. Since reversal of ITAT s decision by this court, meant that assessee s grievance with regard to reassessment notice remained unadjudicated, it could well approach and seek rectification of order (dismissing appeal as infructuous) within period provided by law. 9. Learned counsel relied on State of Madras v Madurai Mills Co. Ltd., AIR 1967 SC 681 to say that doctrine of merger, relied on by revenue has limited application; it can operate only as regards decisions on matters covered by judgment, and not with regard to matters not decided on merits. It was held, in that decision that principle of merger had limited application and could not operate regardless of subject matter of decision. It was held that application of doctrine depends on nature of appellate or revisional order in each case and scope of statutory provisions conferring appellate or revisional jurisdiction. Counsel submitted that even in Kunhayammed, doctrine of merger was held to be limited in its application and not that appellate decisions were not determinative of subject matter or causes not decided by higher courts (in appeals or revisions). 10. Learned counsel relied on decision of this court in Mitsubishi Corporation v Commissioner of Income Tax 337, ITR 498 (Del) where it was stated that: W.P.(C)No.10846/2016 Page 5 of 16 13. Coming to scope and ambit of Section 154 of Act, this provision has been interpreted by Apex Court in number of judgments. Principle of law which has been authoritatively embedded in various judgments including judgments cited by counsel for both parties is that glaring or obvious mistake of law can be rectified under Section 154 of Act. Insofar as factual mistake is concerned, it should be apparent on record and exercise requiring investigation to find mistake of fact, impermissible as when investigation is required to find mistake apparent on record. Likewise, issue of law which can be rectified invoking provisions of Section 154 of Act should be established principle of Law. If such issue requires interpretation, it cannot be subject-matter of Section 154 proceedings. 14. We are therefore, of opinion that doctrine of merger would not apply. As held by this Court in Eurasia Publishing House (P.) Ltd.'s case (supra) that doctrine of merger is not doctrine of rigid and universal application. Whether there is fusion or merger of order of inferior Tribunal into order by superior Tribunal shall have to be determined by finding out subject- matter of appellate or revisional order and scope of appeal or revision contemplated by particular statute. 11. Dr. Gupta also relied on R.W. Promotions P. Ltd v Income Tax Appellate Tribunal 2015 (376) ITR 0126 (Bom); Sandvik Asia Ltd v Commissioner of Income Tax 2004 (267) ITR 78; Nirma Industries Ltd v Dy. Commissioner of Income Tax 2006 (283) ITR 402; Citizen Watch Co. Ltd v Inspecting Assistant Commissioner 1984 (148) ITR 774 and Shanmugavel Nadar v State of Tamil Nadu 2003 (263) ITR 658. Analysis and Conclusions 12. Before considering rival contentions, it would be useful to consider relevant provisions of Income Tax Act, dealing with powers of rectification. power of rectification conferred upon W.P.(C)No.10846/2016 Page 6 of 16 Assessing Officer and any income tax authority is by Section 154, which is as follows: 154. Rectification of mistake. [(1) With view to rectifying any mistake apparent from record income-tax authority referred to in section 116 may, (a) amend any order passed by it under provisions of this Act; (b) amend any intimation or deemed intimation under sub- section (1) of section 143; (c) amend any intimation under sub-section (1) of section 200A;] (d) amend any intimation under sub-section (1) of section 206CB.] (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to order referred to in sub-section (1), authority passing such order may, notwithstanding anything contained in any law for time being in force, amend order under that sub-section in relation to any matter other than matter which has been so considered and decided. (2) Subject to other provisions of this section, authority concerned- (a) may make amendment under sub-section (1) of its own motion, and (b) shall make such amendment for rectifying any such mistake which has been brought to its notice by assessee or by deductor, or by collector], and where authority concerned is Commissioner (Appeals) by Assessing Officer also. 13. power of Income Tax Appellate Tribunal, to entertain its appeal and subject matter thereof is as follows: Section 253- Appeals to Appellate Tribunal W.P.(C)No.10846/2016 Page 7 of 16 (1) Any assessee aggrieved by any of following orders may appeal to Appellate Tribunal against such order (3) Every appeal under sub-section (1) or sub-section (2) shall be filed within sixty days of date on which order sought to be appealed against is communicated to assessee or to 18 [Principal Commissioner or Commissioner], as case may be: Provided that in respect of any appeal under clause (b) of sub- section (1), this sub-section shall have effect as if for words sixty days , words thirty days , had been substituted. *** *** *** (4) Assessing Officer or assessee, as case may be, on receipt of notice that appeal against order of Commissioner (Appeals), has been preferred under sub-section (1) or sub-section (2) by other party, may, notwithstanding that he may not have appealed against such order or any part thereof, within thirty days of receipt of notice, file memorandum of cross-objections, verified in prescribed manner, against any part of order of Commissioner (Appeals), and such memorandum shall be disposed of by Appellate Tribunal as if it were appeal presented within time specified in sub-section (3). 14. power of ITAT to make and rectify its own order is contained in Section 254, which reads as follows: 254. Orders of Appellate Tribunal (1) Appellate Tribunal may, after giving both parties to appeal opportunity of being heard, pass such orders thereon as it thinks fit. (2) Appellate Tribunal may, at any time within four years from date of order, with view to rectifying any mistake apparent from record, amend any order passed by it under sub- section (1), and shall make such amendment if mistake is brought to its notice by assessee or 2 Assessing] Officer: Provided that amendment which W.P.(C)No.10846/2016 Page 8 of 16 has effect of enhancing assessment or reducing refund or otherwise increasing liability of assessee, shall not be made under this. sub-section unless Appellate Tribunal has given notice to assessee of its intention to do so and has allowed assessee reasonable opportunity of being heard. (3) Appellate Tribunal shall send copy of any orders passed under this section to assessee and to Commissioner. 15. revenue urges that ITAT could not have, in circumstances of case, since this court s judgment against its first order was allowed, gone back and sought recall, since findings of ITAT (which had confirmed CIT s order regarding additions on merits, in favour of assessee) were set aside and issue attained finality. In that sense, doctrine of merger applied to facts of this case. assessee however, naturally urges to contrary, stating that issue with respect to dismissal of its cross objection by ITAT on ground of its being rendered infructuous (since on merits it had held in its favour- i.e. in favour of assessee) was never tested by this court and that order of ITAT restoring its cross objections, in light of this court s decision against assessee (on merits of addition) were proper and in due exercise of its power of rectification. 16. Kunhayammed (supra), three judge decision of Supreme Court, considered several previous rulings including Amritlala Bhogilal (supra); Gojer Brothers (supra) and also S.S. Rathore v. State of Madhya Pradesh, AIR 1990 SC 10. S.S. Rathore was seven judge decision, which had, in turn considered several rulings previously rendered [State of Uttar Pradesh v. Mohammad Nooh, (1958) SCR 595; Batuk Nath v. Munni Devi, AIR 1914 PC 65; Jowad Hussain v. Gendan Singh, 1926 (53 IA 197); Madan Gopal Rungta v. Secretary to Govt. of Orissa, AIR 1962 1513; Collector of W.P.(C)No.10846/2016 Page 9 of 16 Customs, Calcutta v. East India Commercial Co, Ltd., AIR 1962 SC 1124; Raghubir Jha v. State of Bihar, AIR 1986 SC 508; Sita Ram Goel v. Municipal Board, Kanpur, AIR 1958 SC 1036; Pierce Leslie & Co. Ltd. v. Violet Ouchterlong Wapshare and Ors., AIR 1969 SC 843; Somnath Sahu v. State of Orissa & Ors., 1969 (3) SCC 384 and Amrit Lal Bhogilal (supra)]. 17. In one of earliest decisions, i.e. U.J.S. Chopra v. State of Bombay, AIR 1955 SC 633, it was held that: "A Judgement pronounced by High Court in exercise of its appellate or revisional jurisdiction after issue of notice and full hearing in presence of both parties would replace Judgement of lower Court, thus constituting Judgement of High Court only final Judgement to be executed in accordance with law by Courts below." 18. In East India Commercial Co. (supra) Supreme Court held as follows: question, therefore, turns on whether order of original authority becomes merged in order of appellate authority even where appellate authority merely dismisses appeal without any modification of order of original authority. It is obvious that when appeal is made, appellate authority can do one of three things, namely, (i) it may reverse order under appeal, (ii) it may modify that order, and (iii) it may merely dismiss appeal and thus confirm order without any modification. It is not disputed that in first two cases where order of original authority is either reversed or modified it is order of appellate authority which is operative order and if High Court has no jurisdiction to issue writ to appellate authority it cannot issue writ to original authority. question therefore is whether there is any difference between these two cases and third case where appellate authority dismisses appeal and thus confirms order of original authority. It seems to us that on principle it is difficult to draw distinction between first two kinds of orders passed by appellate authority and third kind of W.P.(C)No.10846/2016 Page 10 of 16 order passed by it. In all these three case after appellate authority has disposed of appeal, operative order is order of appellate authority whether it has reversed original order or modified it or confirmed it. In law, appellate order of confirmation is quite as efficacious as operative order as appellate order of reversal or modification. 19. Kunhayammed (supra) as stated earlier, considered various previous rulings and stated principle as follows, before considering effect of doctrine on appeals to Supreme Court and orders made thereon: whether after granting leave to appeal, or in course of order dismissing petition, or merely disposing of petition, in limine, as it were. It observed inter alia, as follows: "12. Once superior court has disposed of lis before it either way - whether decree or order under appeal is set aside or modified or simply confirmed, it is decree or order of superior court, tribunal or authority which is final, binding and operative decree or order wherein merges decree or order passed by court, tribunal or authority below. However, doctrine is not of universal or unlimited application. nature of jurisdiction exercised by superior forum and content or subject-matter of challenge laid or which could have been laid shall have to be kept in view." 20. said decision has been followed by this Court in large number of decisions including Union of India and Others v. West Coast Paper Mills Ltd. & Anr., [(2004) 2 SCC 747] etc. 21. What is discernible from above discussion is that if appeal is provided against order passed by tribunal, decision of appellate authority is operative decision in law. If appellate authority modifies or reverses decision of tribunal, it is obvious that it is appellate decision that is effective and can be enforced. Undoubtedly, there are cases and causes where issues that were not subject matter of appeals were W.P.(C)No.10846/2016 Page 11 of 16 sought to be made content of later litigation before lower court or tribunal. As emphasized in Amritlal Bhogilal and Gojer Bros. (supra) as to what was that issue or matter may at times be decisive to consider whether previous binding order of appellate or revisional authority prevailed over lower court or authority s order. 22. assessee sought to distinguish decisions cited by revenue, and relied upon several decisions. This court does not find any decision that has facts parallel to present case. Mitsubishi, on which some arguments were addressed, was case involving rectification by AO, after decision of ITAT. facts in that case were that while considering issue of tax deduction, AO computed said shortfall on account of tax and interest on part of assessee; however AO did not include tax payment by employer to exchequer on behalf of employee as part of salary for computing value of rent free accommodation perquisite under applicable Rule 3 of Income Tax Rules, 1962. said order was contested by assessee in appeal, which went up to Tribunal. Tribunal quashed order of AO for Financial Years 1995-96 to 1997- 98 after grossing up income under Section 195A of Act and directed AO to re-compute tax liability for said financial years. order giving effect to Tribunal s direction was passed on 22.03.2004 in respect of Financial Years 1995-96 to 1997-98 (as well as in original order), value of perquisite for each employee in respect of rent free accommodation was computed without including element of tax perquisite in gross salary. show cause notice was issued to assessee requiring it to explain as to why value of perquisite in respect of rent free accommodation should not be recomputed after including tax element in gross salary and therefore, order be rectified under Section 154 of Act. assessee was asked to file its submission by 29.03.2004. W.P.(C)No.10846/2016 Page 12 of 16 assessee s objections to re-opening were brushed aside by relying on decision (T.P.S. Scott and Ors. Vs. Commissioner of Income Tax [232 ITR 475], which held that tax perquisite is part of gross salary). original order was thus rectified by re-computing perquisites for rent free accommodation by including tax element in gross salary. assessee appealed without success, to CIT(A) and ITAT stating that original order of AO had merged with order of Tribunal to which effect was given on 22.03.2004. This court held that principle of merger did not apply, on ground that question of including tax paid on perquisite, while grossing up, was not considered. 23. It would be apparent on careful reading of discussion in that decision, that this court held that doctrine of merger did not apply because argument with respect to inclusion of tax paid element was made only before ITAT in first round. court held that power of ITAT was not concurrent and therefore, derivative power of CIT to make additions could be of no avail to revenue, which had authority under Section 154 of Act rectify previous order, even while giving effect to ITAT s remand. 24. This court is of opinion that in present case, issue sought to be urged by assessee in first ITAT order was in its cross objection, concerning legality of reassessment. Undoubtedly, validity of reassessment notice can be matter of substance. merits of additions made after considering assessee s contentions were deleted by CIT (A). He however upheld reassessment proceeding. assessee had two courses: either appeal or cross object against that part of order, to ITAT. It chose latter, when revenue appealed to tribunal. ITAT rejected revenue s appeal and also dismissed assessee s cross objections as infructuous. At that stage, assessee could W.P.(C)No.10846/2016 Page 13 of 16 have cross objected before this court, or filed independent appropriate proceedings to protect its interest. It however was sanguine about its case on merits; unfortunately, it did not choose to appeal or question dismissal of its cross objections. It sought to challenge judgment of this court reversing ITAT (on merits of addition) by appeal through special leave to Supreme Court. Although judgment of this court was rendered on 21-12-2012, it chose to approach ITAT in 2014; that rectification application was allowed on 26-03-2015. 25. To this court it appears that assessee s claim for rectification is precluded by doctrine of finality and not merely merger. Once additions were upheld on merits, second innings as it were before tax authorities which have effect of unsettling binding decisions of higher courts, cannot be countenanced. In that sense issue of merger applies. In facts of this case, this court is of opinion that doctrine of finality applies as well. assessee by conduct in not seeking remedy for dismissal of its cross objection and speculatively waiting for outcome of revenue s appeal, cannot be heard to complain that its grievance with respect to reassessment remained unaddressed. court is conscious that it is not dealing with uninformed litigant; instead it is advised by counsel. Furthermore, court notices that first ITAT order was by two members (M/s C.L. Sethi and Shamim Yahya). application made under Section 254 for rectification was heard and disposed by two others (M/s C.M. Garg and N.K. Saini). 26. This court further notices that there is difference in structure of power of rectification conferred upon tax authorities, such as AO and CIT on one hand, and ITAT, on other. AO- as well as lower revenue authorities have overriding power to rectify, in Section 154 (1A) which reads as follows: W.P.(C)No.10846/2016 Page 14 of 16 (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to order referred to in sub-section (1), authority passing such order may, notwithstanding anything contained in any law for time being in force, amend order under that sub-section in relation to any matter other than matter which has been so considered and decided. 27. However, such overriding power is absent, in case of ITAT, whose authority to amend or rectify its order is confined by language (of Section 254 (2)), i.e. to with view to rectifying any mistake apparent from record, amend any order passed by it under sub-section (1), and shall make such amendment if mistake is brought to its notice by assessee or Assessing Officer 28. Furthermore, this court is of opinion that conduct of assessee was speculative, to put it mildly. As observed earlier, it is not uninformed litigant; it calculatedly chose not to question rejection of its cross objection (on grounds of its having been rendered infructuous). Having waited more than year after decision of this court (which was rendered on 21-12-2012), it approached ITAT in 2014. It offered no explanation why it did not seek rectification earlier, during pendency of revenue s appeal- in that event, if ITAT had rejected its application this court would have given suitable directions. Instead, waiting for time till two members who decided first ITAT orders were not available and choosing to prefer rectification application at convenient time, assessee no doubt technically was compliant, but stood exposed to odium of forum shopping. 29. In circumstances of this case, court holds that rectification application filed by assessee (MA 250/2014) was barred by principle of finality, and to extent doctrine of merger. ITAT, in W.P.(C)No.10846/2016 Page 15 of 16 opinion of this court, entirely mis-appreciated its jurisdiction which, as held in Honda Siel, is to correct apparent mistake. That its previous decision to dismiss cross appeal as infructuous was mistake in light of subsequent reversal of its order on merits of addition, is not in considered view of this court, mistake or error warranting rectification. This court deprecates in strongest terms, invocation of power of rectification. 30. For above reasons, writ petition has to succeed; order of ITAT dated 26th March, 2015 is hereby quashed; ITAT clearly erred in rejecting revenue s request to rectify that order as well. writ petition consequently is allowed; in peculiar circumstances, assessee shall bear costs of proceedings, quantified at `1.5 lakhs. S. RAVINDRA BHAT (JUDGE) PRATEEK JALAN (JUDGE) FEBRUARY 25, 2019 W.P.(C)No.10846/2016 Page 16 of 16 Pr. Commissioner of Income-tax-6, New Delhi v. N.R. Portfolio Pvt. Ltd