COMMISSIONER OF INCOME TAX, JABALPUR versus MIS. DURGA ENGINEERING AND FOUNDRY WORKS

Citation: [2000] SUPP. 2 S.C.R. 135 · Decided: 03-08-2000 · Supreme Court of India · Bench: S.P. BHARUCHA, U.C. BANERJEE, N. SANTOSH HEGDE · Disposal: Appeal(s) allowed

Judgment (excerpt)

COMMISSIONER OF INCOME TAX, JABALPUR 
A 
v. 
MIS. DURGA ENGINEERING AND FOUNDRY WORKS 
AUGUST 3, 2000 
[S.P. BHARUCHA, U.C. BANERJEE AND N. SANTOSH HEGDE, JJ.] 
B 
Income Tax Act, 1961 : 
Ss. 254(2) and 256-Income return filed by assessee firm-Assessing 
Officer making additions to the income treating certain amount as unexplained 
cash credits-Assessment upheld by Commissioner in appeal-Assessee 's 
appeal allowed by Income Tax Appellate Tribunal and Assessing Officer 
directed to pass fresh order-Neither party sought any re.ference-Assessee 
filed b~fore Tribunal an application seeking rectification of its order-
Application allowed-Tribunal directed to delete the additions made by 
Assessing Officer-Revenue filed an application seeking reference on two 
questions-Tribunal declining to make reference-Revenue then .filed an 
application u!s. 256(2) be.fore the High Court, which dismissed the application 
on .following its earlier judgment in which it had been held that a reference 
against an order of rectification under s.254(2) was not maintainable-Held, 
s.256 contemplates the reference of a question of law arising out of an order 
both under s.254( I) and s.254(2)-Having regard to the fact that the deletions 
of the additions that had been made by the assessing officer were made in 
rectification proceedings, the questions that were sought to be referred were 
questions of law and the High Court ought to have called upon the Tribunal 
to refer the same to it for its consideration-Tribunal shall refer to the High 
c 
D 
E 
Court for its consideration the questions set out. 
F 
Popular Engineering Co. v. Commissioner of Income Tax, M.P., 140 
I.T.R. 398, overruled. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4089of1998. 
From the Judgment and Order dated 11.11.97 of the Madhya Pradesh 
High Court in I.T.R. No. 13 of 1996. 
Harish N. Salve, Solicitor General, B.B. Ahuja, N.K. Aggarwal, B.K. 
Prasad, D.S. Mehra, Ms. Sushma Suri and Prakash Shrivastava for the 
appearing parties. 
135 
G 
H 
136 
SUPREME COURT REPORTS 
(2000] SUPP. 2 S.C.R. 
A 
The following order of the Court was delivered : 
B 
c 
D 
E 
F 
G 
H 
The assessment years in question are 1987-88 and 1988-89. For these 
assessment years, the Income Tax Officer made additions to the income of the 
assessee, which is a partnership firm of sums which, in his view, represented 
the unexplained cash credits in the name of partners of the firm. The 
assessments were upheld by the Commissioner in appeal. The Income Tax 
Appellate Tribunal, on 7th November, 1994, allowed the assessee's appeal and, 
setting aside the assessment orders, restored the matters to the file of the 
Assessing Officer, directing him to pass a fresh order after allowing the 
assessee the opportunity to support the documents that it had earlier filed 
before him. Neither party sought to file any reference application there against 
but the assessee filed an application before the Tribunal under Section 254(2) 
of the Income Tax Act, 1961 seeking to rectify it on the basis that a contention 
that it had raised, had not been decided. On 4th January, 1995, the Tribunal 
allowed the rectification application. It note.J that the assessee's objection was 
that the assessment on account of the credits should be made in the hands of 
the partners of the assessee as they had made payments by cheque. The 
Tribunal observed that this issue had not been decided by it and that there was 
sufficient force in it. Accordingly, it rectified "the error by disposing of the 
preliminary issues raised by the assessee. We accordingly amend our order and 
direct that the additions made by the Assessing Officer amounting to Rs. 
5 ,00,851 and Rs. 85, 700 be deleted from their income for assessment years 
1987-88 and 1988-89. As observed, the Department may investigate the matter 
in the hands of the partners". 
The Revenue filed an application before the Tribunal seeking reference 
of two questions that arose out of the order on the rectification application. 
The questions read thus : 
"I. Whether on the facts and in the circumstances of the case, 
the Tribunal was justified in holding that the provisions of 
section 68 of the Income Tax Act, 1961 are not applicable to 
the facts of the present case? 
2. Whether on the facts and in the circumstances of the case, the 
Tribunal was justified in law in deleting the additions of Rs. 
5,00,851 and Rs. 85,700 made by the A.O. u/s. 68 of the 
Income-tax Act, 1961, r

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