Vimal Gandhi, Judicial Member -
(1.) BY means of these reference applications, the Commissioner of Income Tax, Delhi-VIII, New Delhi seeks reference of the following common question, said to be of law, as arising out of consolidated order dated 2-9-1992 of the Appellate Tribunal in above captioned appeals for assessment years 1979-80, 1980-81 and 1981-82:-
Whether, on the facts and circumstances of the case, the Ld. ITAT was correct in holding that the very basis of re-assessment was no more in existence and CIT(A) was right in cancelling the assessment, thereby allowing investment allowance in respect of new plant & machinery used for construction activities without considering the nature of business of assessee-firm and also decision of Hon'ble Supreme Court of India in case of CIT v. N. C. Buddhiraja & Co. ?
Since common question is involved, these reference applications are being disposed of through this consolidated order.
(2.) Facts relating to this case are that the original assessments made in this case were revised under Section 263 of the Income-tax Act. The order under Section 263 was cancelled by the Tribunal vide decision dated 9th April, 1985. In spite of above order, the Assessing Officer made assessments in pursuance to order under Section 263 of the Act. The said assessments having no legal sanction were cancelled by the CIT(A) and on further appeal, his action was approved by the Tribunal. From the aforesaid order of the Tribunal, the common question set forth earlier has been claimed..
The question, no doubt, looks attractive but as pointed out above, is being claimed in proceedings which had no sanction or authority of law. In fact, the proceedings were and are being carried in flagrant defiance of law. The very source of fresh assessment, the order under Section 263, was removed by the Tribunal but still the directions given in the said order were carried. Thus lower authorities have refused to follow order of the Tribunal. At this stage, we deem it necessary to quote decision of Supreme Court on binding nature of orders of higher authorities and as to what is required from the subordinate officers as a matter of judicial discipline. In the case of Union of India v. Kamlakshi Finance Corporation Ltd. [SLP (Civil) No. 7717 of 1990], the respondent company which was engaged in manufacture of electrical insulation tapes, claimed that these items fell under Tariff Heading 85.47. However, the Assistant Collector held that these fell under Heading 39.19. The respondent contended that in respect of its factory at other place, its claim that the goods were classifiable under Heading 85.46 and that Heading 39.19 had no application had been accepted by the Collector (Appeals). The Asstt. Collector, however, did not accept the assessee's contention. On appeal, the Collector (Appeals) set aside the order of the Assistant Collector and held that reason given by the Assistant Collector for not following the order of the Collector (Appeals) on which the assessee had placed reliance, was totally untenable. He directed the Assistant Collector to pass a reasoned and speaking order. The second order passed by the successor Assistant Collector was practically a repetition of the earlier order. This time, an order of the Tribunal passed in some other case which supported the respondent's claim, was brought to the Assistant Collector's notice, but he refused to follow it on the ground that the department had gone in appeal against it. On writ, the High Court set aside the order of the Assistant Collector and remanded the matter for proper consideration and a proper order. The High Court also passed strictures against the two Assistant Collectors for flouting judicial discipline by not following appellate orders. On appeal, the appellant (Union of India) contended that the High Court Judges had erred in passing severe strictures against the two Assistant Collectors as the concerned officers had acted bona fide to protect the interests of the revenue.
(3.) THEIR Lordships of Supreme Court made the following observations:
In the instant case, the High Court had rightly criticised the conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher than them in the apppellate hierarchy. It could not be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within the jurisdiction and the order of the Tribunal is binding on the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the department -is an objectionable phrase - and is the subject-matter of an appeal, can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws. As regards the question of protection of the interests of the revenue, Section 35E confers adequate powers on the department in this regard. If any order passed by an Assistant Collector or Collector is adverse to the interests of the revenue, the immediately higher administrative authority has the power to have the matter satisfactorily resolved by taking the issue to the Appellate Collector or the Tribunal, as the case may be. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector of the Appellate Tribunal, as the case may be, even where he may have some reservations on its correctness. He tries to follow the order of the higher appellate authority. This may instantly cause some prejudice to the revenue, but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under Section 35E(1) or (2) to keep the interests of the department alive. If the officer's view is the correct one, it will, no doubt, be finally upheld and the revenue will get the duty, though after some delay which such procedure would entail.
It is clear that the observations of the High Court, seemingly vehement and apparently unpalatable to the revenue, were only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assessee-public without any benefit to the revenue. The department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which were binding on them.;