Thirani Chemicals Ltd. vs Dy. Commissioner Of Income Tax
2006 Latest Caselaw 340 Del

JUDGMENT

Badar Durrez Ahmed, J.

Page 0801

1. In respect of the assessment year 1992-93, the following substantial questions of law arise for determination:-

1. Whether the appellant/assessed can rely upon the orders passed by the Tribunal previously after having made a concession before the Tribunal that the case in hand could be decided on merits independent of any such previous decisions?

2. Whether the Tribunal could have disagreed with the decision rendered earlier by a Co-ordinate Bench of the Tribunal in relation to another assessment year in the light of the concession made by the parties?

3. Whether ITAT was correct in law in holding that the expansion of the production capacity of the petitioners unit would not constitute setting up of an industrial undertaking eligible for the benefits of deduction under Section 80HH and 80I of the Income Tax Act ?

The aforesaid questions arise in the circumstances indicated hereinbelow.

2. The assessed has been engaged in the business of manufacturing Calcium Carbonate since 1978. Initially, the manufacturing unit had an installed capacity of 5,000 MT annually, however, through the passage of time, the capacity was increased to 7,000 MT, 9,600 MT, 11,000 MT and 17,000 MT in the year 1986-87, 1988-89, 1990-91 and 1991-92 respectively. For the Page 0802 assessment years 1991-92 and 1992-93, the assessed claimed deduction under Section 80-HH and 80-I of the Income Tax Act, 1961 (hereinafter referred to as 'the said Act'). In respect of the assessment year 1991-92, the deduction claimed under Section 80-HH and 80-I was not accepted by the Assessing Officer and even the CIT (A) had not accepted the claim of the assessed in appeal. For the Assessment year 1992-93, the Assessing Officer by virtue of the order dated 01.03.1995 held as follows:-

...the assessed's plea was not accepted in the last year and even the Learned CIT (A) did not accept the plea of the assessed going by the same logic I do not accept the claim of the assessed and as such the claim of the assessed for deduction under Section 80-HH and 80-I cannot be accepted

3. Thereafter, the assessed filed an appeal against this order of assessment before the CIT (Appeals). The assessed's appeal was accepted inasmuch as the CIT (A) allowed the claim of deduction of the assessed under Section 80-HH and 80-I vide order dated 02.11.1998 in the following terms:-

I therefore, do not find any hesitation in directing the AO to allow the deduction under Section 80-HH and 80-I resulting in the first expansion relevant to the A.Y. 1992-93 based on the production chart P-4 and after verifying the calculations of deduction of Rs. 4,51,709/- and Rs. 5,64,636/- respectively may be allowed. So also the claim for second expansion being first year, I am satisfied that the claim for the set off as per production chart P-4 should be considered where the production capacity has been increased to 17,000 MT i.e., an increase of 7400 MT and the claim for 80-HH and 80-I are factually and legally correct in this year of first and second expansion being viable unit in terms of Sub-section (6) of Section 80-I. The total loss of Rs. 32,29,843/- plus Rs. 19,59,050/- being brought forward depreciation has to be allowed for carrying forward for deduction in the next year i.e., second year of expansion in A.Y. 93-94. Hence, it is directed that the claim of ground No. 4 & 5 be allowed after verifying the calculations as detailed above.

4. Being aggrieved by this order passed by the CIT (A) on 02.11.1998, the revenue preferred an appeal before the Income-Tax Appellate Tribunal. In the meanwhile, the assessed had filed an appeal before the Tribunal against the order of the CIT (A) in respect of the assessment year 1991-92 and the Tribunal by its order dated 06.05.2003 upheld the claim of the assessed primarily on the basis of the order of the CIT (A) for assessment years 1992-93, in other words, with respect to the said order dated 02.11.1998. The Tribunal in the said order dated 06.05.2003 observed as under:-

7. We have examined the rival submissions. The assessed unit is of Paonta Sahib in Himachal Pradesh, which is eligible for deduction under Section 80-HH. The facts for this year in appeal before us i.e., asstt. year 1991-92 are similar to those for asstt. Year 1992-93, which has already been adjudicated upon by CIT (A) for asstt. year 1992-93. CIT (A) has given a detailed and well reasoned order allowing the assessed's claim under Section 80-HH and 80-I. We find no infirmity in the order of CIT (A) for asstt. year 1992-93. For the same reasons as given in that order we direct the AO to allow deduction under Section 80-HH and 80-I to the assessed Page 0803 company. The AO is directed to allow deduction under Section 80-HH and 80-I in accordance with law after verifying the assessed's claim.

5. In this background, the Tribunal took up the hearing of the revenue's appeal in respect of the assessment year 1992-93 and when the aforesaid facts were placed before the Tribunal, it observed as under:-

In view of the above order, the Bench felt difficulty in hearing the present appeal since the said order of the Tribunal virtually tantamount to upholding the order of CIT (A) for asstt. year 1992-93 against which the revenue is in appeal before us. So we asked the parties as to why the fact that the appeal against the order of CIT (A) for asstt. year 1992-93 which was pending before the Tribunal was not brought to the notice of the Tribunal at the time when the appeal for asstt. year 1991-92 was heard. The Bench was told that they were unaware of such fact at that time. Faced with the situation, both the parties fairly agreed that this appeal may be decided on merits independently without being influenced by the earlier order of the Tribunal.

It is in this factual background that the aforesaid three questions arise for our consideration.

6. Taking up question Nos. 1 and 2 together, I find that a peculiar situation has arisen in this case. Relying upon the CIT(A) order for the assessment year 1992-93, the Tribunal allowed the assessed's appeal in respect of the assessment year 1991-92. The learned counsel for the assessed submitted that once that had been done, the Tribunal had given its stamp of approval to the decision of the CIT (Appeals) order for assessment year 1992-93 and had also reversed the contrary view of the CIT (Appeals) in respect of the assessment year 1991-92. Effectively, therefore, the Coordinate Bench could not have differed with the view taken by the Tribunal in respect of the assessment year 1991-92 by its order dated 06.05.2003. But it is here that the matter gets further complicated inasmuch as the assessed's representative agreed to have the appeal in respect of assessment year 1992-93 decided on merits independently without being influenced by the earlier order of the Tribunal dated 06.05.2003.

7. According to the learned counsel for the petitioner, such a concession given by the assessed's representative did not, in any manner, give the Tribunal any authority to differ with the earlier view of a Coordinate Bench. In this context, it was submitted by the learned counsel for the assesee that it was well-settled that a wrong concession made by a counsel on a question of law was not binding on the assessed. For this proposition, he placed reliance on the decisions of the Supreme Court in Central Council for Research in Ayurveda & Siddha v. K. Santhakumari (Dr.) and Union of India v. G.K. Vaidyanathan (1995) Supp 4 SCC 271. He further submitted that even assuming that the concession was binding on the assessed, the Page 0804 fact still remained that the Tribunal could not differ with the view of an earlier Coordinate Bench. In this context, it was submitted that it was incumbent upon a Coordinate Bench of the Tribunal to follow the decision of an earlier Coordinate Bench and if there was any scope for disagreement, the matter ought to have been referred to a larger Bench. The learned counsel for the appellant / assessed, firstly relied upon the decision of the Supreme Court in the case of Sub-Inspector Rooplal and Anr v. Lt. Governor and Ors. , wherein the Supreme Court in para 12 and 13 held as under:-

12. At the outset, we must express our serious dissatisfaction in regard to the manner in which a Coordinate Bench of the Tribunal has overruled, in effect, an earlier judgment of another Coordinate Bench of the same Tribunal. This is opposed to all principles of judicial discipline. If at all, the subsequent Bench of the Tribunal was of the opinion that the earlier view taken by the Coordinate Bench of the same Tribunal was incorrect, it ought to have referred the matter to a larger Bench so that the difference of opinion between the two Coordinate Benches on the same point could have been avoided. It is not as if the latter Bench was unaware of the judgment of the earlier Bench but knowingly it proceeded to disagree with the said judgment against all known rules of precedents....

13. We are indeed sorry to note the attitude of the Tribunal in this case which, after noticing the earlier judgment of a Coordinate Bench and after noticing the judgment of this Court, has still thought it fit to proceed to take a view totally contrary to the view taken in the earlier judgment thereby creating a judicial uncertainty in regard to the declaration of law involved in this case....

8. The learned counsel also referred to the following decisions for the proposition that if there was any disagreement with the earlier Bench, the only course open to the later Coordinate Bench was to have referred the matter to a larger Bench:-

i) State of Tripura v. Tripura Bar Association and Ors. ;

ii) Government of A.P. v. B. Satyanarayana Rao ;

iii) Government of Andhra Pradesh v. A.P. Jaiswal 2001 (1) SCC 748 (Paragraphs 24 and 25);

iv) State of Maharashtra and Ors. v. Abdul Javed Abdul Majid and Ors. 2002 (Supp-1) JT 151.

9. The learned counsel for the revenue, however, contended that the concession made by the appellant before the Tribunal was binding on the appellant and the appellant could not wriggle out of such a concession. In that view of the matter, there was nothing wrong in the Tribunal arriving at the decision in the impugned order, at variance with the decision taken by it Page 0805 earlier in respect of the assessment year 1991-92 by virtue of its order dated 06.05.2003.

10. Upon a consideration of the arguments advanced by the parties, I feel that the core issue is whether a Coordinate Bench can disagree with the view taken by an earlier Coordinate Bench of the Tribunal merely on the basis of a concession made by the parties that the appeal be decided on merits independently without being influenced by the earlier order of the Tribunal. To my mind, a concession made by the parties cannot give authority to a Coordinate Bench to differ with the views taken by an earlier Coordinate Bench as that would play havoc with the principles of judicial discipline and certainty. Parties by consent cannot confer authority or jurisdiction on a Coordinate Bench to differ with a view taken by an earlier Coordinate Bench. If this were to be permitted, then different views of Benches of equal strength would be permitted to be taken giving a complete go-by to the principles of judicial discipline and judicial certainty.

11. This being the position, it is clear that answer to question No. 2 would be that the Tribunal could not have disagreed with the decision rendered earlier by a Coordinate Bench of the Tribunal in relation to another assessment year and, more so, merely in the light of the concession made by the parties.

12. In view of this answer to question No. 2, it would make little difference to question No. 1 as to whether the concession would bind the appellant / assessed or not and would prevent him from relying upon the order passed by the Tribunal previously. It is clear that the parties by agreement cannot avoid an order judicially made or render it nugatory. In any event, as pointed by the Supreme Court in Central Council (supra), a wrong concession on a question of law made by counsel is not binding on his client. Therefore, the answer to question No. 1 would also have to be decided in favor of the appellant / assessed.

13. This leaves us with question No. 3 which is on merits. I feel that it would not be necessary for us to answer this question at this stage in view of the answers given to questions 1 and 2 above because once it is decided that it was not open for the Coordinate Bench to take a contrary view to an earlier Coordinate Bench, the entire order would have to be set aside. However, de hors the question of concession being made by the parties, it is open to a Coordinate Bench of the Tribunal, in case it finds itself in disagreement with an earlier Coordinate Bench decision, to refer the matter to a larger Bench for adjudication on the point of disagreement. Therefore, inasmuch as the Tribunal by virtue of the impugned order was inclined to take a contrary view to its earlier decision, I think that it would be appropriate if the impugned order is set aside in view of the answers given to questions 1 and 2 above and the matter of deduction allowable to the appellant / assessed under Section 80-HH and 80-I for the assessment year 1992-93 is referred to a larger Bench of the Tribunal for disposal on merits.

14. I, accordingly, answer questions 1 and 2 as indicated above, do not express any view on question No. 3, set aside the impugned order and dispose of this appeal by directing that a larger Bench of the Tribunal shall decide the Page 0806 question of the appellant's eligibility to claim deduction under Section 80-HH and 80-I of the Income-Tax Act, 1961 on merits.

T.S. Thakur, J.

1. I have had the advantage of going through the judgment proposed by my esteemed brother Badar Durrez Ahmed, J, but regret my inability to subscribe to the view taken by his lordship. After considerable thought to the inevitability of what would constitute a dissent and hoping that I am wrong and my brother is right in his opinion, I summarise the reasons for the discordant note.

2. The facts giving rise to the present appeal have been lucidly enumerated in the draft order proposed by brother Ahmed which makes it unnecessary for me to recount the same over again. Suffice it to say that for the assessment year 1991-92, the assessing officer had declined the assessed's claim for deduction under Section 80-HH and 80-I of the Income Tax Act. Aggrieved by the said denial, the assessed appealed to the CIT(Appeals) who concurred with the view taken by the Assessing Officer and dismissed the appeal. The assessed then took the matter in a further appeal to the Tribunal to challenge the denial of deduction claimed by it.

3. While the appeal aforementioned was pending disposal, assessment for the assessment year 1992-93 was also completed by the assessing officer, who following the view taken for the previous assessment year declined the deduction for the subsequent year also. Against this order also, the assessed preferred an appeal to the Commissioner of Income Tax who allowed the same and granted the assessed's claim for deduction. This order was challenged by the Revenue before the Tribunal in appeal.

4. It so happened that the assessed's appeal for the assessment year 1991-92 came up for hearing before the Tribunal first. The attention of the Tribunal appears to have been drawn to the order passed by the Commissioner of Income Tax for the assessment year 1992-93 in which the benefit claimed by the asessee had been granted to it. The Tribunal examined the order passed by the Commissioner but unmindful of the fact that the correctness of the said order had been challenged by the revenue in a separate appeal filed before it, held that the view taken by the Commissioner deserved to be approved. The Tribunal accordingly allowed the assessed's appeal for the year 1991-92 and directed grant of the benefit to the assessed for the said assessment year. That order is not under challenge before us. What is under attack is an order which the Tribunal has passed in the revenue's appeal for the assessment year 1992-93. When the said appeal came up for hearing before the Tribunal, it appears to have found itself in a quandary in as much as the order under appeal before it had already met the approval of the Tribunal in the course of the hearing and disposal of the appeal for the assessment year 1991-92. The Tribunal saw an anamolous situation arising out of the order passed by it for the assessment year 1991-92, in which it had in ignorance of the pendency of the revenue's challenge to the order of CIT(Appeals) approved the reasoning advanced in the same and extended the benefit of that reasoning to the assessment year 1991-92 also. It was here that the parties provided an agreed solution to resolve the anamoly. Page 0807 They made a solemn statement before the Tribunal that the question regarding the admissibility of the deduction claimed by the assessed could be examined by the Tribunal independent of the previous order passed by it for the assessment year 1991-92. Implicit in that statement was an admission of the parties, that they had failed to draw the attention of the Tribunal that the order passed by the CIT (Appeals) for the assessment year 1992-93 had been separately assailed by the revenue in appeal before the Tribunal.

5. The Tribunal acted upon the statement made before it and proceeded to examine the matter independent of the view taken for the previous year and held that the assessed was not entitled to the benefit of the deduction claimed by it under Section 80-HH and 80-I of the Act. The assessed assails that order in the present appeal.

6. Three questions extracted in the order proposed by brother Ahmed have been formulated for determination, but of these, question No. 1 alone assumes significance for the present. That is because if the assessed cannot go back on the statement made by it before the Tribunal, the question whether expansion of the production capacity of the unit would constitute setting up of an industrial undertaking shall have to be examined on its merits, regardless of the fact that it was so held by the Tribunal for the previous year.

7. The assessed's argument in regard to question No. 1 proceeds entirely on the premise that a co-ordinate Bench cannot disregard without committing a judicial impropriety the decision rendered by another Bench. The contention in substance is that if law does not permit a Bench of co-ordinate jurisdiction to differ from another Bench, it makes little difference whether or not a litigant has made a statement permitting the Bench to do what it cannot otherwise lawfully do. Any such statement or concession would according to the assessed have no legal effect whatsoever for notwithstanding the concession made before it, the Tribunal would continue to remain bound by the principles of judicial discipline comity and judicial propriety. The net effect of a literal application of that principle would mean that a litigant can make a statement, take a chance to earn a favorable order from the court, but go back on the statement and argue that the Court could not have acted upon the submission made before it. Is that the true legal position is what needs to be examined, but before we do so, we need to refer to the decisions upon which the assessed has placed reliance in support of the submission urged on its behalf.

8. In Sub-Inspector Rooplal v. Lt. Governor , State of Tripura v. Tripura Bar Association and Ors. , Govt. of A.P. v. A.P. Jaiswal 2001(1) SCC 748 and State of Maharashtra and Ors. v. Abdul Majid and Ors. 2002 (Suppl-1) JT 151, the Apex Court has reiterated the principle that a co-ordinate Bench cannot disagree with another Bench and that the only course open to the dissenting Bench is to make a reference to a larger Bench. There is no quarrel with that proposition which is recognised by the Page 0808 courts as an essential feature of judicial discipline that must be maintained by the Courts and the Tribunals alike. There is no gainsaying that in an hierarchical system of administration of justice considerations of judicial discipline must always take primacy for otherwise anamolous situations will arise resulting in uncertainty regarding the law apart from causing avoidable confusion. Two aspects all the same need be kept in view while applying the above principle. The first is that the principle has no application where the fact situations with which two courts of coordinate jurisdiction are dealing, are different. It is only the statement of law contained in a pronouncement that would bind a court of coordinate jurisdiction. If the facts requisite for application of any such principle are absent or materially different, the result in two seemingly identical situations may as well be different. The second and perhaps more important aspect is that in cases arising under the Income Tax Act, each assessment year is a separate unit by itself. The principles of res judicata have no application to assessments made under the Act. The law is to that extent well settled by a catena of decisions rendered by the Courts, reference to some out of which alone should suffice.

9. In Raja Bahadur Visheshwara Singh and Ors. v. Commissioner of Income-tax 41 ITR 685, the Supreme Court held that there was no such thing as res judicata in income-tax matters. That position was reiterated by their Lordship in M.M. Ipoh and Ors. v. Commissioner of Income-tax 67 ITR 106, where the Court said:

The doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of assessment; the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another year, but they are not binding and conclusive.

10. The above proposition was re-stated by the Supreme Court in Radhasoami Satsang v. Commissioner of Income-Tax 193 ITR 321, where their lordships held that strict principles of res judicata do not apply to income-tax proceedings. We may also refer to the decision of the judicial committee in Broken Hill Proprietary Co. Ltd. v. Broken Hill Municipal Council [1926] AC 94, where their Lordships held that a decision on liability to assessment to tax for one year is not conclusive of liability to assessment in a later year. The judicial committee observed:

The decision of the High Court related to a valuation and a liability to a tax in a previous year, and no doubt as regards that year the decision could not be disputed. The present case relates to a new question-namely, the valuation for a different year and the liability for that year. It is not eadem questio, and therefore the principle of res judicata cannot apply.

11. The above decision was approved by the House of Lords in Society of Medical Officers of Health v. Hope. [1960] AC 551. The following observations made by Lord Radcliffe sums up the legal position succinctly:

Page 0809 The system of rating involves certain consideration that are special to itself. Its nearest analogy is with the system of annual personal taxation. With regard to both one has to begin by recognising that there is high and frequent authority for the proposition that it is not in the nature of a decision given on one rate of tax that it should settle anything more than the bare issue of that one liability and that, consequently, it cannot constitute an estoppel when a new issue of liability to a succeeding year's rate or tax comes up for adjudication. The question of this liability is a 'new question'. It is not eadem quaestio. The 'cause of action is different'. 'The subject-matter is a different year's tax and a different year's assessment and is not the same as the subject-matter of the previous ruling.

12. To the same effect is the pronouncement of the Supreme Court in Installment Supply (Pvt.) Ltd. and Anr. v. Union of India and Ors. , where a Constitution Bench of the Supreme Court observed:

There is another answer to the point of res judicata raised on behalf of the petitioners, relying upon the decision of the Punjab High Court in (supra). It is well settled that in matters of taxation there is no question of res judicata because each year's assessment is final only for that year and does not govern later years, because it determines only the tax for a particular period.

13. We may at this stage also refer to the decisions rendered by the Supreme Court and those rendered by this Court authoritatively declaring that although the doctrine of res judicata does not apply to income tax proceedings a view taken by the authorities for the earlier assessment years should ordinarily hold good for the subsequent year also unless there is a material change in the facts.

14. In Radhasoami Satsang case (supra), the Supreme Court held that even when each assessment year is a separate unit and what may be decided in one year cannot apply to the following year yet where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties had allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. A similar proposition was stated by a division Bench of this Court in Director of Income-Tax (Exemption) and Anr. v. Apparel Export Promotion Council 244 ITR 734. The Court in that case held that while the doctrine of res judicata did not apply to income-tax proceedings, it was necessary to maintain consistency by preventing the Revenue from raking up stale issues. To the same effect is the decision of this Court in Commissioner of Income-Tax v. Neo Poly Pack (P.) Ltd. 245 ITR 492, where the Court observed:

Page 0810 It is true that each assessment year being independent of the other, the doctrine of res judicata does not strictly apply to income-tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in subsequent years unless there is some material change in the facts.

15. The law on the subject therefore is that orders passed by the authorities under the Income-tax Act including that Income-Tax Appellate Tribunal which is a creature of that enactment does not operate as res judicata implying thereby that the authorities can validly take a view different from the one taken for an earlier assessment year. That statement is however subject to the rule of consistency evolved by the Courts in the interest of finality of decisions, i.e., "If the facts are unchanged, the result for the subsequent assessment year must also remain unchanged.

16. Let us then view the present case in the light of the above. For the assessment year 1991-92, the Tribunal had granted the deduction claimed by the assessed, no matter the reasoning contained in the CIT (Appeals) order for the assessment year 1992-93 which was noticed and approved by the Tribunal was under challenge before it in a separate appeal, filed by the revenue. All that it would mean is that on the principle of consistency, the assessed could argue that the deduction for the assessment year 1992-93 should also be allowed in its favor. The seminal question before us is whether it was legally impermissible for the assessed to give up the plea of consistency and invite an order on an independent consideration of the merits of its claim. My answer is in the affirmative. The assessed could legitimately give up the plea of consistency in assessments and invite a fresh consideration of its claim as it actually did. There was nothing illegal or unconscionable about the concession made by the assessed in this regard. As a matter of fact, the statement asking for an independent consideration appears to have been made to find an escape route from an embarrassing situation in which the parties had landed the Tribunal, by withholding from it vital information in relation to the pendency of an appeal against an order which the Tribunal believed had attained formality. Having Zmade a solemn statement that the claim for deduction can be examined independently of the previous assessment year, the assessed cannot find fault with the Tribunal's order on the ground that a Bench of co-ordinate jurisdiction could not take a view different from the one taken by another Bench. The assessed had obviously taken a chance for a favorable decision from the Tribunal, but turned around to question the said decision on a ground which was specifically given up by it. This, the assessed, cannot be allowed to do. A litigant cannot take the legal process for granted to be used or misused by it to suit its ends. The litigant's representation by conduct and solemn statement made before the Tribunal would estopp it from taking a contradictory stand or going back on its statement. The advantage of a plea based on consistency, could be abandoned by the party who enjoyed that advantage and in doing so, the assessed in the present case did not offend any principle of law for this Court to ignore the statement made on its behalf. The argument that the statement made by the assessed was contrary to the law regarding the competence of a Page 0811 bench of coordinate jurisdiction to ignore an order passed by a similar other bench is in that view misplaced. The question is not whether the Tribunal could have disagreed with its earlier order. The question is whether the assessed could have given up the plea of consistency with the previous assessment, which the assessed could have jolly well done without any legal impediment whatsoever. My answer to question No. 1 is, therefore, in the negative.

17. Since brother Badar Durrez Ahmed, J. has answered question No. 1 in the affirmative, this appeal can be disposed of only after the dissent is resolved by reference to a third Judge. It is in that view unnecessary for me at this stage to examine or answer the remaining two questions on merits.