IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 09.04.2008 CORAM THE HONOURABLE MR. JUSTICE K.RAVIRAJA PANDIAN AND THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA W.P. Nos.7060 of 2000, 2281, 2282 &3135 of 2008 and W.M.P.No.10483 of 2000 & M.P.Nos.2, 2 & 2 of 2008 M/s Dynavision Limited, Madras, rep. by its Managing Director P.Vijayakumar Reddy, Near Dr. V.S.I. Estate, Kottivakkam, Chennai-600 041. ... Petitioner in WP No.7060/2000 M/s. Dynavision Ltd., Madras rep. by its Director, K.Venkateswaran, Chennai-41. ..Petitioner in WP 2281/08 2282/08 & 3135/2008. Vs. 1.The Income Tax Appellate Tribunal, Madras Bench A, Rajaji Bhavan, Besant Nagar, Chennai-600 090. 2.The President, Income Tax Appellate Tribunal, Madras Bench A, Rajaji Bhavan, Besant Nagar, Chennai-600 090. 3.The Commissioner of Income Tax, Central Circle II (1) Madras. (R3 is impleaded as per order of Court dt.1.12.2000 in WP.No. 7060 of 2000) .. Respondents in WP.7060/2000 1.The Income Tax Officer (OSD), Company Circle-I, Nungambakkam High Road, Chennai-600 034. https://hcservices.ecourts.gov.in/hcservices/ 2.The Assistant Commissioner of Income Tax Company Circle-I (4), Nungambakkam High Road, Chennai-600 034. 3.The Commissioner of Income Tax, Central Circle-II(I), Nungambakkam High Road, Chennai-600 034. .. Respondents 1 to3 in WP.Nos.2281, 2282 & 3135/2008 4.The Manager, Indian Overseas Bank, L.B.Road, Thiruvanmuyur Branch, Chennai-41. .. 4th Respondent in WP.Nos.2281 & 2282 of 2008 5.The Manager, State Bank of India, Securities and Services Division, Chennai Main Branch, No.84, Rajaji Salai, Chennai-600 001. .. 4th respondent in WP.No.3135/2008 Prayer: These Writ Petitions are filed under Article 226 of the Constitution of India seeking for the relief of issuance of writ of certiorarified mandamus and certiorari respectively as stated therein. For Petitioner :: Mr.Satish Parasaran in all WPs. For Respondents :: Mrs.Pushpa Sitaraman, 1 to 3 in all WPs. Sr.Counsel for Income-tax Dept. For 4th respondent :: Mr.F.B.Benjamin George in WP.Nos.2281,2282 & 3135/2008 https://hcservices.ecourts.gov.in/hcservices/ COMMON ORDER (Order of the Court was made by P.P.S.JANARTHANA RAJA, J.) W.P.No.7060 of 2000 is filed by the petitioner seeking the relief of issuance of writ of certiorarified mandamus to call for the records relating to the order passed by the Third Member, namely, the second respondent in ITA No.2943/MDS/1993 for the Assessment year 1990-91 on 3.12.99 and quash the same as being ultra vires the provisions of Sec.255(4) of the Income Tax Act (hereinafter referred to as the I.T. Act) and also opposed to the principles of natural justice and consequently issue a Mandamus directing the present incumbent President of ITAT within a reasonable time as this Court may deem fit to refer the matter to a 3rd Member including himself or any other member nominated by him and request such 3rd Member or other members of the ITAT to decide on which of the point or points they agree which have already been referred to by the two differing Members as per the questions formulated by them under Section 255(4) on 22.10.97 and dispose of the matter within such time. 2. W.P.No.2281 of 2008 is filed by the petitioner seeking the relief of issuance of writ of certiorari to call for the records comprised in the proceedings of respondents 1 and 2 bearing P.A.N.No.AAACD8639F dated 21.1.2008 and quash the same as illegal and unconstitutional. 3. W.P.No.2282 of 2008 is filed by the petitioner seeking the relief of issuance of writ of certiorari to call for the records comprised in the proceedings of respondents 1 and 2 bearing P.A.N./G.I-R No.AAACD8639F dated 21.1.2008 and quash the same as illegal and unconstitutional. 4. W.P.No.3135 of 2008 is filed by the petitioner seeking the relief of issuance of writ of certiorari to call for the records comprised in the proceedings of respondents 1 and 2 instituted under Section 226(3) of the Income Tax Act, 1961 dated 21.01.2008 with respect to Account No.30293727527 held by the petitioner company before the fourth respondent relating to P.A. No.AAACD8639F and quash the same as illegal and unconstitutional. 5. The brief facts are as follows: The petitioner is a public limited company incorporated under the Companies Act, 1956 engaged in manufacturing and selling of Television sets and audio equipments. For the assessment year 1990- 1991, for which the year ended by 31.3.1990, the petitioner had filed a return on 31.12.1990 disclosing a loss of Rs.35,39,813/-. https://hcservices.ecourts.gov.in/hcservices/ However, the assessee admitted the income of Rs.6,53,087/- under Section 115J of the Income -Tax Act. The said return was processed under Section 143 (1)(a) on 20.02.1992. While scrutinising the accounts, the Assessing Officer found that the petitioner company had changed the system of accounting in respect of customs duty and bond interest. All along the assessee company had been accounting customs duty and bond interest in respect of materials lying at customs bonded ware-house at the time of removal of materials from the bonded ware-house. In the accounting year in question, the petitioner had made provision on accrual basis in the accounts for Rs.493.31 lakhs towards customs duty and bond interest in respect of materials lying at the customs bonded ware-house and the same has been included in the value of closing stock. The petitioner has stated that the assessee made a provision in its accounts towards customs duty and bond interest, which is as follows: 1.Customs duty Rs.4,59,10,000/- 2.Bond interest Rs. 34,21,000/- ------------------ Rs.4,93,31,000/- ------------------ The assessing officer found that the customs duty so debited in the accounts has not been paid to the customs authorities in its entirity and the same has been shown as liability in the balance-sheet. A sum of Rs.3,34,13,072/- was paid to the Customs department at the time of filing the return on 31.12.1990. On that fact the Assessing Officer allowed deduction of the said amount under Section 43-B of the Act and disallowed the balance amount of Rs.1,24,94,666/- and included the same to the income of the assessee. Thus, the Assessing Officer has determined the total income at Rs.1,03,46,480/- by his order dated 31.3.1993. Aggrieved by that order, the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The C.I.T(A) dismissed the appeal, confirming the order of the Assessing Officer. Aggrieved by that order, the assessee filed an appeal before the Income Tax Appellate Tribunal, where difference of opinion arose between the Judicial Member and the Accountant Member. The Judicial Member was of the view that the assessing officer was wrong in taking the aid of Section 43B of the Act and adding the balance customs duty of Rs.1,24,97,664/- to the total income. The Accountant member has taken a view that the assessee admitted the amount of Rs.4,59,10,736/- as customs duty, which formed part of value of the closing stock of Rs.15,82,96,112/-. The Judicial Member stated the difference of opinion by formulating the following question: "Whether, on the facts and in the circumstances of the case, the A.O was justified in making an addition under Section 43B of the I.T. Act, of Rs.1,24,97,664/- being balance customs duty on uncleared imported goods though the said amount was neither claimed as https://hcservices.ecourts.gov.in/hcservices/ deduction or allowance in arriving at the taxable income? The Accountant Member stated the difference of opinion by formulating the following two questions: "1.Whether having regard to the fact that the assessee has debited customs duty of Rs.4,59,10,736/- to purchase account on accrual basis and was allowed deduction of Rs.3,34,13,072/- out of customs duty of Rs.4,59,10,736/- on the basis that customs duty of Rs.4,59,10,736/- was otherwise allowable, it could be said that the assessee had claimed deduction of Rs.1,24,97,664/- (Rs.4,59,10,736/- -Rs.3,34,13,072/-) out of the profits and gains of business in accordance with the method of accounting followed by it? And 2. If so, whether, the assessee is entitled to deduction of customs duty of Rs.1,24,97,664/- under Section 43B out of total customs duty of Rs.4,59,10,736/- which was payable by it on accrual basis, but was not paid even before the due date for furnishing the return of income under Section 139(1) of the Act?" 3. When the matter is taken up for orders, learned counsel appearing for the petitioner submits that as against the very same assessment order made for the above said block period, an appeal has already been filed by the petitioner before the Tribunal. As, there is a difference of opinion between the Members of the Division Bench, they requested the President under Section 255(4) of the Act to constitute a third Member for resolving the opinion expressed by each one of them. According to the President, there is a difference of opinion while identifying the differences between the Members of the Division Bench. As there is no uniformity even in identifying the points, the President has formulated the points of difference between the Division Bench Members and decided the case on merits. Aggrieved by the same, the petitioner has filed W.P.No.7060 of 2000 challenging the order of the Third Member. 6. The learned counsel appearing for the petitioner submitted that the Third member has no right to go beyond the scope of reference in a matter of difference of opinion between the Judicial Member and the Accountant Member. He has to consider only the difference of opinion stated by the Members. So, the Third member is wrong in formulating the questions on his own and deciding the case as against the assessee. It is therefore, submitted that the order https://hcservices.ecourts.gov.in/hcservices/ passed by the Third Member is illegal and without justification and the same should be quashed. Learned counsel also submitted that since the Third Member exceeded his jurisdiction, the order passed by him has to be set aside with a direction to the Third Member to reconsider the matter afresh and also further direction to the Third Member to consider only the difference of opinion stated by the respective Members. 7. Learned counsel appearing for the Revenue submitted that even though the Third Member re-framed the difference of opinion , the sum and substance of the issue involved is the same, therefore, the order of the Third member is in conformity with law and the same should be affirmed. She further stated that in view of the framing the new issues by the Third Member, she has no objection to remand the matter with a direction to the Third member to consider only the difference of opinion referred to by the Judicial Member and the Accountant Member. 8. Heard the learned counsel on either side. Section 255(4) of the Income Tax Act deals with the procedure of Appellate Tribunal, which reads as follows:- "If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it." 9. From a reading of the above Section makes it clear that whenever the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority. If the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case including the person, who first heard it. The order of reference to the Third Member shall contain the difference of opinion between the Members of the Bench. The President or the Third Member has no right to go beyond the scope of reference and they have to consider only the difference of https://hcservices.ecourts.gov.in/hcservices/ opinion stated by the Members of the Bench. Section 255(4) does not vest such power with the President or the Third Member. They have also no right to formulate the question on their own. Framing the question on their own goes beyond the jurisdiction. The Third Member must confine himself to the order of reference. Therefore, he has no right to enlarge, restrict and modify and/or formulate any question of law on his own on the difference of opinion referred to by the Members of the Tribunal. In this case, the Judicial and the Accountant Member had the difference of opinion and formulated the questions. The Third Member in para 2 of the order has held as follows: "2.When there is difference of opinion even while identifying the differences between the Members of the Division Bench, what is to be done was earlier decided by me as a Third member in a case now found reported in (1999) 238 ITR 103 (ITAT -Section). At page 125 of the reported decision, after extracting the provision of Section 255(4) of the Income Tax Act, I held that in such a case the solution should be found out as follows: "It would show that the point or points of difference shall be referred by the President to a third Member. Suppose, if there is no unanimity even in identifying the point or points of difference among the differing Members, just like in this case, then I feel it is the duty of the President to identify the real points of difference and refer them to a Third Member whom he may appoint under the powers given to him under Section 255(4)." Then, I identified the real differing points between the differing Members and formulated them for decision of the Third Member, similarly following the said precedent, which was not either dis-approved or set aside by the Hon'ble High Court or Supreme Court, I feel that I should follow the same procedure even in this case and therefore, I went through the whole record, orders of the differing Members and I found out that following are the points of difference between the differing Division Bench Members and these differences are to be resolved by the Third Member: "1. Whether the assessee debited Rs.4,59,10,736/- to the purchase account towards Customs duty, added the said sum to the closing stock value and debited the said sum to the profit and loss account? 2. When did the liability to pay customs duty arise to the assessee? 3. Whether there was change of method of accounting adopted by the assessee while https://hcservices.ecourts.gov.in/hcservices/ accounting customs duty liability in this assessment year? 4. Whether out of Rs.4,59,10,736/-, the asessee paid Rs.3,34,13,672/- between the date of close of the accounting year and the date of filing return by the assessee under Section 139(1) of the Income-Tax Act for the assessment year 1990- 91, and it is, the assessee was correctly allowed deduction of Rs.3,34,13,672/- as customs duty paid under Section 43B of the Income-tax Act? And 5. Whether the impugned sum of Rs.1,24,97,664/- remained to be paid as customs duty and whether its disallowance under Section 43 B on the ground of non-payment within the time allowed under the provisions of Sec.43B is correct under law?" 10. The High Court of Madras, in the case of INCOME TAX OFFICER VS. VICE PRESIDENT, ITAT(1985) 155 ITR 0310, considered the scope of Section 255(4) of the Income Tax Act, 1961, wherein it has been held that the power of the Third member is confined to giving of a decision on the points on which the Members of the Tribunal had differed and which had been formulated by them as the question for the decision of the Third member and held as follows. "Admittedly, in this case, the President of the Appellate Tribunal has referred the matter to the third Member (Thiru D.Rangaswamy) to hear on the point or points on which the two members of the Tribunal had differed and on the third member giving his decision on the point or points referred to it, the appeal should be taken to have been decided by the opinion of the majority of the members of the Appellate Tribunal who have heard the case including those who first heard it. Thus, the power of the third member to whom the case is referred is confined to giving of a decision on the point on which the members had differed and which has been formulated them as a question for the decision of a third member. In this case, the third member has proceeded on the basis that the question referred by the two members of the Tribunal is wide enough to enable the assessee to raise additional points and, therefore, the additional points pressed by the assessee should be considered. Even so, we are of the view that the third member should have pronounced his opinion on the point of difference as also on the additional points raised by the assessee. But without doing so, the third member has remitted the matter to the original two members of the Tribunal for a fresh decision. We https://hcservices.ecourts.gov.in/hcservices/ are of the view that the third member, who is functioning under Section 255(4) of the Act does not have such a power as to direct the two members of the Tribunal who had differed on the point referred to the third member, to decide a particular point or act in a particular manner. Such a power vests only with an appellate or revisional authorities, if there are any. The power of the third member to whom the points of difference have been referred cannot act as if it were an appellate authority over the two members of the Tribunal and direct them to rehear and dispose of the matter afresh. No doubt, the third member, in this case, happened to be the Vice-President. But that will not clothe him with the power to give directions or remit the matters while functioning under Section 255 (4) of the Act. The learned Advocate General appearing for the assesse would say that S.255(4) of the Act should be read in conjunction with S.254(1) of the Act which deals with the powers of the Appellate Tribunal. According to him, the third member to whom the points of difference have been referred, should be taken to have all the powers of the Tribunal under S.254(1) and as such the Tribunal can pass such orders as it thinks fit. Therefore, the third member has got the power to pass any order as he thinks fit. The submission of the learned Advocate-General is in direct conflict with the language and the object behind S.255(4) of the Act. When S.255(4) says that the third member shall decide the points of the majority opinion, the third member is expected to give his decision, whatever it is, so that the majority opinion could be determined for the purpose of disposal of the appeal before the Tribunal. If, based on the language of S.254(1) of the Act, we were to hold that the third member can pass any order he likes, then such an order will not serve the purpose for which S.255(4) of the Act was introduced in the statute book. It is well established that the provisions of the Act have to be construed harmoniously so as to give effect to all the provisions of the Act and to carry out the objects sought to be achieved by the various statutory provisions. In this case, the third member has not chosen to give his opinion one way or the other either on the point of dispute, i.e., on the mode of computation or the other either on the point of dispute, i.e. on the mode of computation of the Capital gains or on the new points urged by the assessee before him. If the third member has entertained the new points and has given his opinion one way or the other, as also on the point of dispute https://hcservices.ecourts.gov.in/hcservices/ referred to it, it can be said that he has acted within his jurisdiction, though it may be open to the Revenue to contend before the appropriate forum that the third member should not have entertained the new points which were not urged before the two members of the original Tribunal. In this case, as already stated, without giving his decision on any of the points the third member has merely remitted the matter to the two members of the Tribunal for a fresh consideration on all the points. We do not see how the third member to which the point of dispute is referred under S.255(4) can claim to have any larger power than the two members who originally constituted the Tribunal. The third member has no higher power or jurisdiction than the members who originally constituted the Tribunal, and therefore, the remit order directing them to rehear the matter will be clearly outside the jurisdiction of the third member. Hence, we cannot sustain legally the order of the third member, in this case, remitting the matter to the two members of the original Tribunal without expressing any opinion on the question which he had to consider." Similar view was also taken by the Allahabad High Court, in the case of JAN MOHAMMED VS. COMMISSIONER OF INCOME TAX (1953) 023 ITR 0015, and considered the scope of provision of 5A(7) of the Act, corresponding to Section 255(4) of the new Act, wherein it was held that the third member can decide only the point that had been referred to him and he cannot formulate the new points himself and reads as follows: "The third Member could, therefore, decide only the point that had been referred to him and he could not formulate a new point for himself on which he could base his decision. It appears to us to be further clear from a reading of the sub-section quoted above that, after the decision of the point or points referred to him by the third Member, the case should go back to the original Tribunal because so far as we can see, the third Member has not been given any right to decide the appeal. According to Section 5A(6) of the Income-Tax Act, the appeal must be decided by the Tribunal which must consist of a Bench of not less than two Members. As we have already said, the point referred to the third Member was whether there could be a presumption legally drawn from the materials on the record that the bus belonged to the "appellant", and on that point the third Member having agreed with Shri Kalbe Abbas that no such presumption could be legally drawn, the majority view was in favour of https://hcservices.ecourts.gov.in/hcservices/ the assessee. The last part of Section 5A(7) of the Act provides that the point or points have to be decided according to the opinion of the majority of the Members of the Tribunal who had heard the case including those who had first heard it. After the opinion of the third Member had been obtained the case should have gone back to the Tribunal for its final orders." We are in agreement with the view taken by the Allahabad High Court judgment. Following the Division Bench judgment of Madras High Court and also considering the view of the Allahabad High Court, we are of the view that the President has no right to go beyond the scope of reference. For the foregoing reasons and in the interest of justice, we set aside the order of the Third Member case in ITA No.2943/MDS/1993 dated 03.12.1999, 'A' Bench relating to the assessment year 1990-91 with a direction to rehear only on the difference of opinion referred to by the Members of the Division Bench and consider and pass orders in accordance with law. We are not expressing any opinion on merits of the case. In the present case,