IN THE HIGH COURT OF JUDICATURE AT PATNA -------------- Appeals against the judgment and orders dated 30.12.2005 passed by Income Tax Appellate Tribunal, Patna Bench, Patna in I.T.A. Nos. 349 (Pat)/2001,373(Pat)/2001, 375(Pat)/2001, 376(Pat)/2001, 348(Pat)/2001,372(Pat)/2001,347(Pat)/2001,374(Pat)/2001,350(Pa t)/2001 and 346(Pat)/2001. ------------ Miscellaneous Appeal No.120 of 2006 =========================================================== Mallik Enterprises, 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 through its partner Vijay Kumar Mallik .... .... Appellant/s Versus Dy. Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001.... .... Respondent/s with Miscellaneous Appeal No. 134 of 2006 =========================================================== Mallik Enterprises, 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 through its partner Vijay Kumar Mallik .... .... Appellant/s Versus Dy. Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001 .... .... Respondent/s with Miscellaneous Appeal No. 138 of 2006 =========================================================== Vijay Kumar Mallik, son of late Indu Lal Mallik. R/O 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 .... .... Appellant/s Versus Dy.Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001 .... .... Respondent/s with Miscellaneous Appeal No. 139 of 2006 =========================================================== Vijay Kumar Mallik, 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 .... .... Appellant/s Versus Dy.Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna High Court MA No.120 of 2006 2 /30 2 Patna-800 001 .... .... Respondent/s with Miscellaneous Appeal No. 140 of 2006 =========================================================== Vijay Kumar Mallik, 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 .... .... Appellant/s Versus Dy.Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001 .... .... Respondent/s with Miscellaneous Appeal No. 141 of 2006 =========================================================== Mallik Enterprises, 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006, through its partner Vijay Kumar Mallik .... .... Appellant/s Versus Dy.Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001 .... .... Respondent/s with Miscellaneous Appeal No. 142 of 2006 =========================================================== Vijay Kumar Mallik, son of late Indu Lal Mallik. R/O 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 .... .... Appellant/s Versus Dy.Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001 .... .... Respondent/s with Miscellaneous Appeal No. 143 of 2006 =========================================================== Vijay Kumar Mallik, son of late Indu Lal Mallik. R/O 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 .... .... Appellant/s Versus Dy.Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001 .... .... Respondent/s with Miscellaneous Appeal No. 144 of 2006 =========================================================== Mallik Enterprises, 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 Patna High Court MA No.120 of 2006 3 /30 3 .... .... Appellant/s Versus Dy.Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001 .... .... Respondent/s with Miscellaneous Appeal No. 137 of 2006 =========================================================== Vijay Kumar Mallik, son of late Indu Lal Mallik. R/O 158, Gali Bagichi Wali, Punja Sharif, Kashmiri Gate, Delhi- 110 006 .... .... Appellant/s Versus Dy.Commissioner Of Income Tax, Spl. Inv. Circle-1, Central Revenue Building, Patna-800 001 .... .... Respondent/s =========================================================== Appearance : (In MA No. 120 of 2006) For the Appellant/s : Mr. DR.KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. (In MA No. 134 of 2006) For the Appellant/s : Mr. DR. KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. (In MA No. 138 of 2006) For the Appellant/s : Mr. DR. KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. (In MA No. 139 of 2006) For the Appellant/s : Mr. DR.KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. (In MA No. 140 of 2006) For the Appellant/s : Mr. DR.KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. (In MA No. 141 of 2006) For the Appellant/s : Mr. DR.KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. Patna High Court MA No.120 of 2006 4 /30 4 (In MA No. 142 of 2006) For the Appellant/s : Mr. DR.KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. (In MA No. 143 of 2006) For the Appellant/s : Mr. DR.KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. (In MA No. 144 of 2006) For the Appellant/s : Mr. DR.KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. (In MA No. 137 of 2006) For the Appellant/s : Mr. DR. KRISHNA NANDAN SINGH Mr. Dr.Kamal Deo Sharma For the Respondent/s : Mr. Harshwardhan Prasad, SCC. Mr. Rishi Raj Singh, JSC. =========================================================== CORAM: HONOURABLE MR. JUSTICE SHIVA KIRTI SINGH and HONOURABLE MR. JUSTICE SHIVAJI PANDEY CAV JUDGMENT (Per: HONOURABLE MR. JUSTICE SHIVAJI PANDEY) Date: 9.5.2012 All the cases were heard together and are being disposed of by this common judgment as the points involved in all appeals are common. 2. The appeals have been filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) against the common judgment and order dated 3012.2005 passed by the Income Tax Appellate Tribunal, Patna Bench, Patna in Patna High Court MA No.120 of 2006 5 /30 5 I.T.A. No.349 (Pat)/2001 and analogous appeals. 3. The primary question that has been raised in the present case is whether re-assessment proceedings can be sustained under law when the order of transfer of cases under Section 127 of the Act from New Delhi to Patna vide order dated 31.10.1986 was passed without notice to the appellants and whether it is a substantial question of law in view of the fact that after receipt of the file at Patna, the appellants have appeared and participated in the proceeding without demur. The second question of law that has been raised in the present appeal is that notices issued under Section 148 of the Act have wrongly been treated as served upon the appellants and whether it can be a substantial question of law in view of the fact that appellants actually participated in the proceedings and never raised any such grievance till filing of rectification application under Section 154 of the Act. 4. In Misc. Appeal No. 120 of 2006, 141, 2006, 144 of 2006, 124 of 2006, 138 of 2006, 142 of 2006, 137 of 2006 and 143 of 2006 the common question of law has been raised in connection with non-service of notice under Section 127 of the act as well as under Section 148 of the Act, whereas Misc. Appeal Nos. 139 and 140 of 2006 are confined only to non-service of notice under Section 127 of the Act. Filtering unnecessary facts, Patna High Court MA No.120 of 2006 6 /30 6 for the purpose of disposal of these appeals, primarily the facts of Misc. Appeal No. 120 of 2006 are taken into consideration for the purpose of deciding questions of law involved in this appeal which cover, by and large, the questions raised in the rest of the appeals. 5. The appellant is a registered partnership firm and was regular assessee dealing in cattle feed and till 12.5.1990 had only two partners having equal share, namely, Smt. Leelawanti and Smt. Sheela Girothra. However, Smt. Leelawanti retired from partnership on 12.5.1990 and Sri Vijay Kumar Mallik joined as equal partner on 13.5.1990 and from 13.5.1990 Smt. Sheela Girothra and Vijay Kumar Mallik were partners till 1.10.1991 when Smt. Sheela Girothra retired from the partnership and ultimately Sri Vijay Kumar Mallik became proprietor of the firm. 6. It appears from the record that the appellant filed return for assessment year 1991-92 showing the taxable income of Rs. 96, 850/- under Section 143 (1)(a) of the Act. On 1/2.2.1993 search and seizure operations took place under Section 132 of the Act. Thereafter a notice under Section 143(2) of the Act was issued to this appellant for furnishing relevant details and papers asked for which were duly complied with. The book of accounts Patna High Court MA No.120 of 2006 7 /30 7 with supporting vouchers, receipts and other relevant papers were produced before the Assistant Commissioner, Income Tax- ACIT(Inv.), Circle 10(1), New Delhi, the then Assessing Officer. The learned ACIT after going through the accounts, making test checks and verifications of transaction and such other enquiry as he deemed fit and proper , assessed the total income of appellant to the tune of Rs. 1,15,030/- under Section 143(3) of the Act vide order dated 28.3.1994. 7. During the period 1995-96 it came to light that in the Department of Animal Husbandry, Government of Bihar, there was a scam involving allegation of graft and huge money had been swindled by large number of persons who obtained payments without making supply. This came to be commonly known as A.H.D. scam. Later on First Information Report was also lodged by the State of Bihar and on investigation being handed over to the Central Bureau of Investigation, several cases were registered against large number of persons including the proprietor of this firm. As the name of the appellant figured in the A.H.D. scam, he was taken into custody and remained there till 18.8.1997 and thereafter he was released on bail. According to the appellant, Vijay Kumar Mallik was in jail and he had no information of what was going on outside with regard to his Patna High Court MA No.120 of 2006 8 /30 8 business or other affairs including the legal matters as well as the tax matter connected with the present firm and only later, after release from the jail custody he could know about the pendency of the present proceeding and thereafter representative of the appellant could know about the records relating to the present case. According to the appellant the cases were transferred from New Delhi to Patna Assistant Commissioner of Income Tax, Special Inv. Circle-III, Patna, under Section 127 of the Act without any notice to the appellant vide order dated 31.10.1996. 8. This present case relates to re-assessment proceeding under Section 143(3) read with Section 147 of the Act. The earlier assessment was re-opened due to information about criminal cases by C.B.I. that there was bogus purchase by and non-existent supply to Animal Husbandry Department. It is not in dispute that after the transfer of cases under Section 127 of the Act, a notice dated 21.3.1997 under section 148 of the Act was issued to the appellant. It appears from the record that a further notice dated 8.10.1997 under Section 142 (1) was issued along with questionnaire and date of hearing was fixed for 22.10.1997. There was no compliance on 22.10.1997. A letter was again issued fixing the date of hearing on 16.1.1998. Sri Vijay Kumar Mallik attended the proceeding personally on 15.1.1998. He was asked to Patna High Court MA No.120 of 2006 9 /30 9 furnish the details as per questionnaire vide letter no.2032 dated 8.10.1997. However, the assessee did not make any compliance. On 29.1.1999 a letter was again issued fixing the date of hearing on 5.2.1999. In the meantime since there had been absolutely no compliance made by the assessee Sri S.C. Sannigrahi representative of assessee appellant was asked to show-cause in view of non-compliance on the part of the assessee in terms of notice dated 8.10.1997 under Section 142(1) of the Act, as to why it should not be held that actually no supply had been made to AHD, Bihar, Patna against the payment received from it and why whole amount of receipt should not be treated as income and also why assessment should not be completed on best judgment under Section 144 of the Act. On 12.2.1999 a written submission was filed in which it has been stated that the show-cause notice was based on a charge-sheet of the Central Bureau of Investigation which is yet to be proved. It had been further stated that nothing was proved against the assessee and as such the opinion regarding the purchase could not be a basis for assessment or re-assessment. 9. In this proceeding before the Assessing Officer the appellant did not raise an issue about non-receipt of notice as provided either under section 127 or section 148 of the Act which provides that the Assessing Officer shall serve notice on the Patna High Court MA No.120 of 2006 10 /30 10 assessee requiring him to furnish the details within a specified period as per the notice. It is relevant to notice that the appellant assessee on the first day appeared himself. Later on his representative Shri S.C. Sannigrahi represented his case before the Assessing Officer. After consideration of the materials on record and relevant facts, the Assessing Officer made an assessment for total income of Rs.96,71,302 /-. 10. Against the assessment order passed by the Deputy Commissioner of Income Tax as Assessing Officer, an appeal was filed before the Commissioner of Income Tax. The Commissioner of Income Tax held that the entire receipts from AHD have been treated as an income of the appellant by Assessing Officer relying upon various statements and documents without confronting the same to the appellant. This was against the principles of natural justice. The appellate authority partly allowed the appeal but in the matter of issue of notice, the appellate court has held that the reasons have been properly recorded before issuance of notice under Section 148 of the Act and accordingly that point was rejected but the order of assessment was set aside. 11. Being aggrieved by the order of the Commissioner of Income Tax in appeal, the Assessing Officer filed an appeal before the Income Tax Appellate Tribunal, Patna raising the point Patna High Court MA No.120 of 2006 11 /30 11 that first appellate court had fallen in error in setting aside the order of assessment including charging of interest. It was further challenged that the appellate authority has wrongly held that the charging interest under sections 134A and 134B of the Act as provided under Section 147 of the Act was not regular and the appellate court was not justified in setting aside the assessment on the ground that the assessee failed to comply with notice under Section 142(1) of the Act. 12. While the matter was pending before Appellate Tribunal the Assessing Officer on remand proceeded in the matter and issued notices under Section 142(1) of the Act again on 8.10.2001 on the direction of the Appellate Authority and made assessment vide order dated 31.3.2003, made total assessment of income as Rs.98,98,296/- and raised a total demand of Rs.1,03,68,829. 13. The appellant being aggrieved by the order dated 31.3.2003 moved before the Commissioner of Income Tax Patna. The records disclose the following:- The appellant on 29.12.2004 filed an application under Section 154 of the Act for rectification of the appellate order dated 31.5.2001 alleging that it was silent on some of the points raised. The Commissioner of Income Tax (Appeals)1 called for comments from the Assessing Officer vide letter dated 28.12.2004 and 10.1.2005. The letter dated Patna High Court MA No.120 of 2006 12 /30 12 28/31.12.2004 was replied by letter dated 5.1.2005. Through a letter dated 10.1.2005 it was directed to produce the proof of service of notice under section 148 of the Act dated 31.3.1997 (it should be 21.3.1997) and also to produce the order passed under Section 127 of the Act. The commissioner of Income Tax at Patna dismissed the petition holding that there was no mistake apparent from the records. In the proceeding under section 154 of the Act, for the first time the assessee raised a question about the jurisdiction of Assessing Officer, on the plea of violation of the provisions of Sections 127 and 148 of the Act claiming that the aforesaid provisions are mandatory in nature. Altogether 11 appeals were filed before the Tribunal either from the side of the appellant or revenue and by a common order the appeals filed by the assessee-appellant were dismissed whereas the appeals filed by the revenue were allowed. Before the Tribunal the appellant raised the point of notice under sections 127 and 148 of the Act. Standing Counsel of Revenue drew the attention of the Tribunal that notice under sections 127 and 148 of the Act were issued and served upon the appellant. In that context he quoted the paragraph of the letter dated 12.2.1999 written by appellant assessee to Assessing Officer which shows that appellant had full knowledge of notices issued under section 148 of the Act. The appellate Patna High Court MA No.120 of 2006 13 /30 13 tribunal after analysis of evidence brought on record, gave a finding of fact that notice issued under section 148 of the Act was served upon the appellant assessee. In the background of aforesaid finding of fact this Court has to examine as to whether there is any substantial question of law involved in the present case. 14. In view of the aforesaid facts and circumstances the appellant has raised the point that the whole re-assessment proceeding initiated by the revenue is completely illegal as no notice was served as provided under section 127 of the Act for transfer the cases from Delhi to Patna. Further submission is that it was mandatory for the department not only to issue the notice under Section 148 of the Act but to prove that notices were served upon the assessee and as per submissions, these two flaws go to the root of the matter and on that account the whole proceeding stands vitiated from the stage of re-assessment proceeding under Section 147 of the Act upto the order passed by the Appellate Tribunal. 15. The appeal has been field under Section 260A of the Act before this Hon‟ble Court which runs as follows: “ 260A. Appeal to High Court.- (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal [before the date of establishment of the National Tax Tribunal], if the High Court is satisfied that Patna High Court MA No.120 of 2006 14 /30 14 the case involves a substantial question of law. (2) The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be-] (a) filed within one hundred and twenty days from the date on which the order appealed against is [received by the assessee or the Chief Commissioner or Commissioner] (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question: Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involved such question. 5. The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. (6) The High Court may determine any issue which- (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub- section (1)] (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of Patna High Court MA No.120 of 2006 15 /30 15 appeals under this section]” 16. It appears from sub-section (3) and sub section (4) of Section 260A of the Act that this Court will admit the memo of appeal subject to the condition that a substantial question of law has arisen. Every question of law can not be treated as a substantial question of law. It can take the shape of substantial question of law when it relates to a material issue and will affect the outcomes. Section 260A of the Act is pari materia with Section 100 of the Code of Civil Procedure. In terms of section 260A of the Act or 100 of the Civil Procedure Code this Court will accept an appeal only when substantial question of law has arisen. Substantial question of law has not been defined under the Act or the Civil Procedure Code but there are large number of judgments of Hon‟ble Supreme Court which have defined and categorized as to when a question of law can be treated as a substantial question of law. 17. The Hon‟ble Supreme Court has in several cases considered the parameters as to when a question of law will take the shape of substantial question of law. In the case of Santosh Hazari V. Purushottam Tiwari, reported in (2001) 251 I.T.R. 84, the Hon‟ble Supreme Court has held that where a question of law is involved and such question of law is substantial one, it will Patna High Court MA No.120 of 2006 16 /30 16 qualify to be a substantial question of law in given circumstances. “Substantial” means having a substance, essential, real, of sound worth, important or considerable. It has been further held that it is to be understood as something in contradiction with technical, of no substance or consequence or merely academic. The Hon‟ble Supreme Court has further held that it does not mean substantial question of law of general importance, but a substantial question of law which was involved in the case between the parties. Their Lordships have relied on different judgments and have approved the judgment of Madrass High Court in the case of Rimmalapudi Subba Rao Vs. Noony Veeraju [1951] AIR 1951 Mad 969; ILR 1952 Mad 264 (FB) and quoted some parts in extenso which are as follows: “…… When a question of law is fairly arguable, where there is room for difference of opinion on it or where the court thought it necessary to deal with that question at some length and discuss alternative views, then the question would be a substantial question of law. On the other hand, if the question was practically covered by the decision of the highest court or if the general principles to be applied in determining the question are well settled and the only question was of applying those principles to the particular facts of the case it would not be a substantial question of law.” And laid down the following test as proper test, for determining whether a question of law raised in the case is substantial (page 1318): “ The proper test for determining whether a question of law raised in the case is substantial Patna High Court MA No.120 of 2006 17 /30 17 would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the right of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative